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Employer Health Care Reform Guide

Excise Tax

As part of the Affordable Care Act (ACA), high-cost health plans are subject to an excise tax on benefits that exceed the predetermined cost threshold. This excise tax is often called the "Cadillac Tax."

This tax is scheduled to take effect starting in 2020. The amount of the tax is 40% of the amount considered in excess of the cost threshold.

This fact sheet is based on Health Net's current understanding of the excise tax. Final regulations have not been issued, and we expect further IRS guidance before the tax is assessed.

  Excise Tax
The ACA imposes a permanent annual tax beginning in 2020 on all employers who provide high-cost benefits through a group-sponsored group health plan.
Purpose To slow the growth of health care costs and to help finance the expansion of health coverage. The IRS expects the tax to generate $80 billion over the next 10 years.
  • The tax on employers is 40% of the cost of plans that exceed predetermined threshold amounts.
  • The plan costs include the total premiums paid by both employers and employees, but not cost-sharing amounts such as deductibles and copayments when care is received.
  • For planning purposes, the thresholds for high-cost plans are $10,200 per year for individual coverage and $27,500 per year for family coverage.
  • These thresholds will be updated for 2020 when final regulations are issued and indexed for inflation in future years.
  • The thresholds will also be adjusted for:
    • High-risk professions such as law enforcement and construction.
    • Group demographics, including age and gender.
  • For pre-65 retirees and individuals in high-risk professions, the threshold amounts are $11,850 per year for individual coverage and $30,950 per year for family coverage.
Who calculates and pays Insured: Employers calculate the tax due on a per-subscriber basis, and insurers submit the tax to the IRS on behalf of their customers.

Employers calculate and pay.
How a plan's cost is determined The tax is based on the total cost of each subscriber’s coverage above the threshold amount. The cost includes premiums paid by employers and employees plus:
  • Group and subscriber pre-tax contributions to Health Care Flexible Spending Accounts, Health Reimbursement Accounts and Health Savings Accounts.
  • The cost of onsite medical clinics and wellness programs.
How the tax will be paid Forms and instructions for paying the tax are not yet available.
Tax implications The excise tax is not tax deductible.
Who's impacted All employers providing fully-insured and self-insured coverage.
Coverage not subject to the excise tax
  • U.S.-issued expatriate plans for most categories of expatriates.
  • Standalone dental plans.
  • Standalone vision plans.
  • Accident coverage.
  • Disability benefits.
  • Long-term care insurance.
Next steps Health Net is preparing for implementation and is closely watching for additional IRS guidance. Health Net will provide additional information as updates occur.

How it works

(Examples based on current threshold amounts)

Self-only coverage
Self-only coverage that costs $12,000 per year would pay an annual excise tax of $720
per subscriber:

$12,000 - $10,200 = $1,800 above the $10,200 threshold
$1,800 x 40% = $720

Family Coverage
Family coverage that costs $32,000 each year would pay an annual excise tax of $1,800
per subscriber:

$32,000 - $27,500 = $4,500 above the $27,500 threshold
$4,500 x 40% = $1,800

These charts show how the excise tax increases as the plan's cost increases.
Self-only coverage
Plan cost $11,000 $12,000 $13,000 $14,000 $15,000
Tax $320 $720 $1,120 $1,520 $1,920
Family coverage
Plan cost $28,000 $30,000 $32,000 $34,000 $36,000
Tax $200 $1,000 $1,800 $2,600 $3,400

Health Net of California, Inc., and Health Net Life Insurance Company are subsidiaries of Health Net, Inc. Health Net is a registered service mark of Health Net, Inc. All rights reserved.

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Important Notice

General Purpose
Health Net's National Medical Policies (the "Policies") are developed to assist Health Net in administering plan benefits and determining whether a particular procedure, drug, service, or supply is medically necessary. The Policies are based upon a review of the available clinical information including clinical outcome studies in the peer-reviewed published medical literature, regulatory status of the drug or device, evidence-based guidelines of governmental bodies, and evidence-based guidelines and positions of select national health professional organizations. Coverage determinations are made on a case-by-case basis and are subject to all of the terms, conditions, limitations, and exclusions of the Member's contract, including medical necessity requirements. Health Net may use the Policies to determine whether, under the facts and circumstances of a particular case, the proposed procedure, drug, service, or supply is medically necessary. The conclusion that a procedure, drug, service, or supply is medically necessary does not constitute coverage. The Member's contract defines which procedure, drug, service, or supply is covered, excluded, limited, or subject to dollar caps. The policy provides for clearly written, reasonable and current criteria that have been approved by Health Net's National Medical Advisory Council (MAC). The clinical criteria and medical policies provide guidelines for determining the medical necessity criteria for specific procedures, equipment and services. In order to be eligible, all services must be medically necessary and otherwise defined in the Member's benefits contract as described in this "Important Notice" disclaimer. In all cases, final benefit determinations are based on the applicable contract language. To the extent there are any conflicts between medical policy guidelines and applicable contract language, the contract language prevails. Medical policy is not intended to override the policy that defines the Member's benefits, nor is it intended to dictate to providers how to practice medicine.

Policy Effective Date and Defined Terms.
The date of posting is not the effective date of the Policy. The Policy is effective as of the date determined by Health Net. All policies are subject to applicable legal and regulatory mandates and requirements for prior notification. If there is a discrepancy between the policy effective date and legal mandates and regulatory requirements, the requirements of law and regulation shall govern. In some states, prior notice or posting on the website is required before a policy is deemed effective. For information regarding the effective dates of Policies, contact your provider representative. The Policies do not include definitions. All terms are defined by Health Net. For information regarding the definitions of terms used in the Policies, contact your provider representative.

Policy Amendment without Notice.
Health Net reserves the right to amend the Policies without notice to providers or Members. In some states, prior notice or website posting is required before an amendment is deemed effective.

No Medical Advice.
The Policies do not constitute medical advice. Health Net does not provide or recommend treatment to Members. Members should consult with their treating physician in connection with diagnosis and treatment decisions.

No Authorization or Guarantee of Coverage.
The Policies do not constitute authorization or guarantee of coverage of any particular procedure, drug, service, or supply. Members and providers should refer to the Member contract to determine if exclusions, limitations and dollar caps apply to a particular procedure, drug, service, or supply.

Policy Limitation: Member's Contract Controls Coverage Determinations.
Statutory Notice to Members: The materials provided to you are guidelines used by this plan to authorize, modify or deny care for persons with similar illnesses or conditions. Specific care and treatment may vary depending on individual need and the benefits covered under your contract. The determination of coverage for a particular procedure, drug, service, or supply is not based upon the Policies, but rather is subject to the facts of the individual clinical case, terms and conditions of the Member's contract, and requirements of applicable laws and regulations. The contract language contains specific terms and conditions, including pre-existing conditions, limitations, exclusions, benefit maximums, eligibility, and other relevant terms and conditions of coverage. In the event the Member's contract (also known as the benefit contract, coverage document, or evidence of coverage) conflicts with the Policies, the Member's contract shall govern. The Policies do not replace or amend the Member contract.

Policy Limitation: Legal and Regulatory Mandates and Requirements
The determinations of coverage for a particular procedure, drug, service, or supply is subject to applicable legal and regulatory mandates and requirements. If there is a discrepancy between the Policies and legal mandates and regulatory requirements, the requirements of law and regulation shall govern.

Reconstructive Surgery
California Health and Safety Code 1367.63 requires health care service plans to cover reconstructive surgery. "Reconstructive surgery" means surgery performed to correct or repair abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors, or disease to do either of the following:

1. To improve function; or
2. To create a normal appearance, to the extent possible.

Reconstructive surgery does not mean "cosmetic surgery," which is surgery performed to alter or reshape normal structures of the body in order to improve appearance.

Requests for reconstructive surgery may be denied, if the proposed procedure offers only a minimal improvement in the appearance of the enrollee, in accordance with the standard of care as practiced by physicians specializing in reconstructive surgery.

Reconstructive Surgery after Mastectomy
California Health and Safety Code 1367.6 requires treatment for breast cancer to cover prosthetic devices or reconstructive surgery to restore and achieve symmetry for the patient incident to a mastectomy. Coverage for prosthetic devices and reconstructive surgery shall be subject to the copayment, or deductible and coinsurance conditions, that are applicable to the mastectomy and all other terms and conditions applicable to other benefits. "Mastectomy" means the removal of all or part of the breast for medically necessary reasons, as determined by a licensed physician and surgeon.

Policy Limitations: Medicare and Medicaid
Policies specifically developed to assist Health Net in administering Medicare or Medicaid plan benefits and determining coverage for a particular procedure, drug, service, or supply for Medicare or Medicaid Members shall not be construed to apply to any other Health Net plans and Members. The Policies shall not be interpreted to limit the benefits afforded Medicare and Medicaid Members by law and regulation.


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