How Health Care Reform Impacts ‘Cadillac’ Plans, Small Businesses and Group Plans
One of the central talking points for health care reform during the long and heated push for its enactment was that if you currently receive health insurance from your employer, and you like your plan, you get to keep it.
But health care reform does make a few important changes to benefit-rich “Cadillac” group plans, and it will incentivize small business owners to begin offering health insurance for workers by providing tax credits.
And as always, we welcome your comments and questions.
Q: When will near-term changes to my benefits based on national health care reform take effect?
A: Depending on your employer, changes will take effect either in your new plan year if it begins after Sept. 23, 2010 or at the end of the most recent collective bargaining period. If your employer provided coverage through Blue Cross Blue Shield of Michigan as of March 23, 2010, changes to your policy include:
- No lifetime limits on your policy: Your policy will no longer have a lifetime dollar limit for benefits.
- Restrictions on allowable annual limits on your policy: The Department of Health and Human Services will post regulations about what annual limits health insurers will be allowed to place on benefits
- Coverage of dependents until their 26th birthday:The Department of Health and Human Services will post regulations about the definition of “dependent.” Currently, the only requirements are that the person must be under the age of 26 and cannot have an offer of coverage from their employer (the dependent can be married).
Q: What is the “Cadillac Plan” tax and will my policy be affected?
A: The high-cost plan tax, or “Cadillac” tax, is a 40 percent excise tax on the value of employer-provided health benefits that exceed specified thresholds.
When the tax begins in 2018, the standard thresholds are $10,200 for individual plans and $27,500 for family plans. The thresholds increase to $11,850/$30,950 for retirees and employees in specified high-risk professions. The thresholds are also adjusted for age, gender and health status, and will increase in 2018 if health costs rise more than expected.
The tax only applies to tax-excludable employer-provided benefits, so individual market products are not affected. Since this tax goes into effect in 2018, it is unclear how many group benefit packages will hit the threshold. Beyond 2018, the thresholds are indexed for a cost-of-living adjustment (with an additional percentage point added only in 2019). Since the thresholds will grow more slowly than health expenses, more plans will face the thresholds over time.
Q: I work for a small business – will they be eligible for tax credits to help buy coverage for their workers?
A: Starting Jan. 1, 2010, if an employer has fewer than 25 workers with an average annual wage of less than $50,000, they are eligible for a tax credit to help purchase health insurance. The value of this credit will be based on the number of employees and the average wage and can reduce costs of purchasing insurance by up to 35 percent.
The full value of the tax credit is only for small businesses with 10 or fewer workers with an average annual wage of less than $25,000. These tax credits are available until 2014. There are also tax credits available after 2014 for two years through the insurance exchange.
Nonprofit organizations are also eligible for these tax credits, but at a 25 percent maximum credit.