presentation on oregon pebb 2018 excise tax
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8/13/2019 Presentation on Oregon PEBB 2018 excise tax
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OREGON PEBB2018 EXCISE TAXNovember 19, 2013
Emery Chen
James MatthisenWade Symons, JD
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MERCER 1November 14, 2013
What is the Excise Tax?
40% excise tax on high cost coverage, including medical, health FSA contributions,onsite medical clinics, and employer contributions to HSAs Does not include stand-alone fully-insured dental and vision coverage or certain
other coverage types VSP coverage is included for self-insured medical plans in the analysis
- Dental costs are currently excluded from analysis as employees have option toselect fully-insured dental plans
- Conservative analysis with ODS Traditional Dental costs applied to all plans is
included in the Appendix- Initial cap set at $10,200/single and $27,500 family Higher thresholds ($11,850/$30,950) for retirees and workers in high-risk
professions Indexed to CPI (for 2019 only, CPI+1%)
Aggregate cost determined using a methodology similar to that used for determiningapplicable COBRA premiums
Employers must determine aggregate cost and report to insurer/administrator onvalue of coverage Insurers responsible for tax for fully-insured coverage Benefit administrators (PEBB) responsible for tax for self-insured coverage Employers responsible for tax for HSA contributions
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MERCER 2November 14, 2013
Excise Tax Additional Details
Additional adjustments to the Excise Tax include
The thresholds of $10,200 and $27,500 are adjusted by- An age/gender adjustment equal to the excess (if any) of
- The premium cost of the Blue Cross/Blue Shield standard benefit optionunder the Federal Employees Health Benefits Plan (FEHBP) for the type ofcoverage provided such individual in such taxable period if priced for the ageand gender characteristics of all employees of the individuals employer, over
that premium cost for the provision of such coverage under such option insuch taxable period if priced for the age and gender characteristics of thenational workforce.
- The actual percentage increase that the FEHBP for plan year 2018 exceedssuch cost for plan year 2010, excluding 55 percent
- Example if the cost for the BC/BS standard option is 60% greater in 2018
than 2010, the excise tax thresholds would be increased by 5% Conservative analysis of Excise Tax impact excludes these two adjustments
Text of Excise Tax included in Appendix
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MERCER
Employers Taking Steps Now to Avoid the Excise Tax in 2018
39%
4%
6%
28%
48%
54%
Introduce a CDHP or take steps to increase enrollment in an existing CDHP
Drop a higher-cost health plan
Add or expand heal th management programs
Eliminate health care FSAs
Unbundle dental and medical plans
Other change(s)
Based on the 36% of respondents who say changes they are making for2014 are influenced by their concerns over the 2018 excise tax.
3Source: Mercers Survey on Health Care Reform: The Road to Implementation, 2013
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MERCER 4November 14, 2013
Oregon PEBB Excise Tax ModelingMethodology
Mercer modeled the impact of the Excise Tax on the Oregon PEBB under three
scenarios Scenario 1 uses status quo rates and tier ratios without adjusting fordemographics
Scenario 2 re-tiers plan rates to match the single and family tier ratios set by theactive employee excise tax thresholds- Plan rates set for Kaiser, Statewide, and Choice plans separately
Scenario 3 uses Scenario 2 plan rates but adjusts based on the average age of
the population compared to the national workforce median age- Adjustment is approximately 15% load based on average PEBB age of 47 and
median age of the national workforce of 42- Age adjustment is based on CMS guideline age adjustments- Actual adjustment may differ as estimate is not based on gender
2014 plan rates and March 2013 census was used in modeling Mercer projected using 6%
Tier Ratios Current Scenario 2 & 3
Employee Only 1.00 1.00
Employee & Partner 1.34 2.70
Employee & Child(ren) 1.15 2.70
Employee & Family 1.37 2.70
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MERCER 5November 14, 2013
Oregon PEBB Excise Tax ModelingResults Actives with 6% Trend Rate
Active Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030
Scenario 1 $24 $30 $36 $44 $53 $80 $116
% of EEs 24% 24% 24% 24% 24% 75% 75%
Scenario 2 $0 $0 $0 $1 $23 $53 $96
% of EEs 0% 0% 0% 16% 77% 98% 99%
Scenario 3 $0 $0 $0 $0 $0 $0 $13
% of EEs 0% 0% 0% 0% 0% 0% 77%
$0
$20
$40
$60
$80
$100
$120
$140
2018 2020 2022 2024 2026 2028 2030
Scenario 1 Scenario 2 Scenario 3
In MillionsIn Millions
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MERCER 6November 14, 2013
Oregon PEBB Excise Tax ModelingResults Retirees with 6% Trend Rate
$0
$1
$1
$2
$2
$3
$3
$4
2018 2020 2022 2024 2026 2028 2030
Scenario 1 Scenario 2 Scenario 3
In MillionsIn Millions
Retiree Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030
Scenario 1 $1 $1 $1 $2 $2 $3 $3% of Retirees 39% 45% 45% 45% 45% 45% 48%
Scenario 2 $0 $0 $0 $0 $0 $0 $0
% of Retirees 0% 0% 0% 0% 0% 3% 42%
Scenario 3 $0 $0 $0 $0 $0 $0 $0
% of Retirees 0% 0% 0% 0% 0% 0% 0%
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MERCER 7November 14, 2013
Oregon PEBB Excise Tax ModelingResults
Scenario 1 reaches the Excise Tax threshold in 2018 for all plans and both trend
rates Employee only tier is the only tier that reaches threshold in 2018
Kaiser and Statewide Family tiers reach the threshold in 2027
Changing tier ratios in Scenario 2 delays first year of tax
The first year of the excise tax is 2024 for actives
Adding 15% load for demographics difference in Scenario 3 delays first year of tax
further The first year of the excise tax is 2029 for actives
Retirees reach excise tax threshold later due to identical cost estimates and higherthresholds
Exception is Scenario 1 which reaches threshold in 2018
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MERCER 11/14/2013
Mercer has prepared these projections exclusively for Oregon PEBB, to estimate the range of the impact of federal
Health Care Reform. These estimates may not be used or relied upon by any other party or for any o ther purpose than
for whi ch they were issued by Mercer. Mercer is not responsible for the consequences of any unauthor ized use.
Al l pro jections are based on the information and data available at a point in t ime and the project ions are not a
guarantee of result s which might be achieved. The projections are subject to unforeseen and random events and so
must be interpreted as having a potentially wide range of variability from the estimates.
Further, the estimates set forth in this report have been prepared before all regulations needed to implement the Patient
Protection and Af fordable Care Act (PPACA) and Health Care Education and Reconcil iation Act (HCERA) have been
issued, including c larifications and technical corrections, and withou t guidance on complex financial calculations that
may be required. (For example, some Health Care Reform provisions wil l likely involve calculations at the indiv idual
employee level.) Accordingly, these estimates are not Actuarial Opinions. Oregon PEBB is responsible for
all financial and design decisions regarding PPACA and HCERA. Such decisions shou ld be made only after Oregon
PEBBs careful consideration of alternative future financial conditions and legislative scenarios, and not solely on the
basis of the estimates illustrated here.
Oregon PEBB understands that Mercer is not engaged in the practice of law and this report, which may include
commenting on legal issues or regulations, does not constitu te and is not a substitute for legal advice. Accordingly,
Mercer recommends that Oregon PEBB secures the advice of competent legal counsel with respect to any legal matters
related to this report or o therwise.
The information contained in this document and in any attachments is not intended by Mercer to be used, and it cannot
be used, for the purpose of avoiding penalties under the Internal Revenue Code or imposed by any legislative body on
the taxpayer or plan sponsor.
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9November 14, 2013
APPENDIX
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MERCER 10November 14, 2013
Oregon PEBB Excise Tax ModelingActives with 6% Trend Rate Includes ODS Traditional Dental in Costs
Active Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030
Scenario 1 $30 $36 $44 $55 $84 $120 $168% of EEs 24% 24% 24% 56% 75% 83% 96%
Scenario 2 $0 $0 $5 $30 $63 $105 $156
% of EEs 0% 0% 77% 77% 98% 99% 100%
Scenario 3 $0 $0 $0 $0 $1 $24 $61
% of EEs 0% 0% 0% 0% 16% 77% 98%
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MERCER 11November 14, 2013
Oregon PEBB Excise Tax ModelingRetirees with 6% Trend Rate Includes ODS Traditional Dental in Costs
Retiree Excise Tax ($M) 2018 2020 2022 2024 2026 2028 2030
Scenario 1 $1 $1 $2 $2 $3 $3 $4% of Retirees 45% 45% 45% 45% 45% 49% 65%
Scenario 2 $0 $0 $0 $0 $0 $1 $1
% of Retirees 0% 0% 0% 0% 27% 43% 71%
Scenario 3 $0 $0 $0 $0 $0 $0 $0
% of Retirees 0% 0% 0% 0% 0% 0% 3%
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MERCER 12November 14, 2013
Legal Text of Excise Tax
(a) Imposition of tax
If
(1) an employee is covered under any applicable employer-sponsored coverage of an employer at anytime during a taxable period, and
(2) there is any excess benefit with respect to the coverage,
there is hereby imposed a tax equal to 40 percent of the excess benefit.
(b) Excess benefit
For purposes of this section
(1) In general
The term excess benefit means, with respect to any applicable employer-sponsored coverage madeavailable by an employer to an employee during any taxable period, the sum of the excess amountsdetermined under paragraph (2) for months during the taxable period.
(2) Monthly excess amount
The excess amount determined under this paragraph for any month is the excess (if any) of
- (A) the aggregate cost of the applicable employer-sponsored coverage of the employee for the month,over
- (B) an amount equal to 1/12 of the annual limitation under paragraph (3) for the calendar year in
which the month occurs. (3) Annual limitation
For purposes of this subsection
(A) In general
The annual limitation under this paragraph for any calendar year is the dollar limit determined undersubparagraph (C) for the calendar year.
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MERCER 13November 14, 2013
Legal Text of Excise TaxContinued
(B) Applicable annual limitation
- (i) In general Except as provided in clause (ii), the annual limitation which applies for any month shallbe determined on the basis of the type of coverage (as determined under subsection (f)(1)) providedto the employee by the employer as of the beginning of the month.
- (ii) Multiemployer plan coverage Any coverage provided under a multiemployer plan (as defined insection 414 (f)) shall be treated as coverage other than self-only coverage.
(C) Applicable dollar limit
- (i) 2018 In the case of 2018, the dollar limit under this subparagraph is
- (I) in the case of an employee with self-only coverage, $10,200 multiplied by the health costadjustment percentage (determined by only taking into account self-only coverage), and
- (II) in the case of an employee with coverage other than self-only coverage, $27,500 multiplied bythe health cost adjustment percentage (determined by only taking into account coverage other thanself-only coverage).
- (ii) Health cost adjustment percentage For purposes of clause (i), the health cost adjustmentpercentage is equal to 100 percent plus the excess (if any) of
- (I) the percentage by which the per employee cost for providing coverage under the BlueCross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan forplan year 2018 (determined by using the benefit package for such coverage in 2010) exceeds suchcost for plan year 2010, over 55 percent.
- (iii) Age and gender adjustment
- (I) In general The amount determined under subclause (I) or (II) of clause (i), whichever isapplicable, for any taxable period shall be increased by the amount determined under subclause(II).
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MERCER 14November 14, 2013
Legal Text of Excise TaxContinued
- (II) Amount determined The amount determined under this subclause is an amount equal to theexcess (if any) of
- (aa) the premium cost of the Blue Cross/Blue Shield standard benefit option under the FederalEmployees Health Benefits Plan for the type of coverage provided such individual in such taxableperiod if priced for the age and gender characteristics of all employees of the individualsemployer, over
- (bb) that premium cost for the provision of such coverage under such option in such taxableperiod if priced for the age and gender characteristics of the national workforce.
- (iv) Exception for certain individuals In the case of an individual who is a qualified retiree or whoparticipates in a plan sponsored by an employer the majority of whose employees covered by the plan
are engaged in a high-risk profession or employed to repair or install electrical or telecommunicationslines
- (I) the dollar amount in clause (i)(I) shall be increased by $1,650, and
- (II) the dollar amount in clause (i)(II) shall be increased by $3,450, [1]
- (v) Subsequent years In the case of any calendar year after 2018, each of the dollar amounts underclauses (i) (after the application of clause (ii)) and (iv) shall be increased to the amount equal to suchamount as in effect for the calendar year preceding such year, increased by an amount equal to theproduct of
- (I) such amount as so in effect, multiplied by- (II) the cost-of-living adjustment determined under section 1 (f)(3) for such year (determined by
substituting the calendar year that is 2 years before such year for 1992 in subparagraph (B)thereof), increased by 1 percentage point in the case of determinations for calendar yearsbeginning before 2020. If any amount determined under this clause is not a multiple of $50, suchamount shall be rounded to the nearest multiple of $50.
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