Login Register Subscribe
Current Issue

Obama proposes Cadillac tax, PBGC premium changes

Reprints

The Obama administration is backing changes to decrease the likelihood that employer plans will trigger the health care reform law's “Cadillac” tax, but employer groups say they will continue to press Congress to repeal the tax.

Under current law, a 40% excise tax will be imposed, starting in 2020, on the portion of group health care plan premiums that exceeds $10,200 for single coverage and $27,500 for family coverage.

Included, as expected, in the administration's proposed 2017 federal budget, released Tuesday, is a provision under which the tax trigger would be tied to health plan costs by region.

Under the proposal, in any state where the average premium for “gold” coverage on the state's individual health insurance marketplace exceeds the Cadillac-tax threshold, the tax trigger would be set at the level of that average gold premium.

“This reform would protect employers from paying the tax only because they are in high-cost areas and ensure that the tax remains targeted at the highest cost in the long term,” the administration said in its budget overview document.

In addition, the administration said it would mandate that the Government Accountability Office, in consultation with the Department of Treasury and other experts, conduct a study on the potential impact of the tax on employers with “unusually sick employees.”

The proposed changes, observers say, is driven by the administration fears that without modification, lawmakers will repeal the tax.

The administration “recognizes that a majority in Congress wants to repeal the tax. They are trying to ease the opposition,” said Bill Sweetnam, legislative and technical director with the Employers Council on Flexible Compensation in Washington.

But employer groups say the only change Congress should make is to repeal the tax.

“The proposal makes only minor adjustments and falls far short of the mark. We need to be discussing repeal and repeal only,” said Annette Guarisco Fildes, president and CEO of the ERISA Industry Committee in Washington.

“The only way to fix this tax is to repeal it entirely,” James Klein, president of the American Benefits Council in Washington, said in a statement.

Benefit group executives say the chief flaw in the tax is the assumption that it will generate tens of billions of dollars in new federal revenues as employers cutting benefits to avoid the tax will, to offset those cuts, increase employees' taxable wages.

“It is an incorrect assumption. I have not heard of a single employer that plans to do that,” Ms. Guarisco Fildes said.

PBGC woes

Aside from modifying the excise tax, the administration says it wants to hold the line on premiums employers pay the Pension Benefit Guaranty Corp., and shift to the agency's Board — comprised of the secretaries of Labor, Treasury and Commerce — the authority to set premium levels.

Congress last year sharply raised PBGC single-employer premiums, but the administration says more hikes are not necessary.

“Additional increases in single-employer premiums are unwise at this time and would unnecessarily create further disincentives to maintaining defined benefit pension plans,” the administration said.

However, the administration feels very differently about the agency's multiemployer insurance program, which is projected to run out of money by 2025, noting that the current $27 per participant premium for multiemployer plans is “well below what is needed to ensure PBGC's solvency.”

To improve funding of the agency's multiemployer insurance program, the administration wants lawmakers to pass legislation that would levy — as is the case for single employers, a second so-called variable rate premium that would be based on plan underfunding.

In addition, an exit premium would be assessed on employers leaving underfunded multiemployer plans.

Those changes are needed because “the multiemployer program is likely to run out of money by 2025. The proposal substantially reduces that risk in a way that encourages the preservation of plans and sound funding of pension promises,” PBGC Director Tom Reeder said.