Beginning in 2018, an excise tax will be imposed on the value of health insurance benefits exceeding the applicable threshold. As noted in our earlier post, if a health plan exceeds the applicable threshold, the 40% excise tax will be applied to the amount in excess of the threshold.The initial threshold amounts of $10,200 for individual coverage and $27,500 for family coverage are not static. Instead, these threshold amounts set forth in statute are subject to three different adjustments.
First, there is a potential one-time adjustment for 2018, which will be made only if the actual increase in health care costs rises by more than 55% between 2010 (passage of health care reform law) and 2018. If this occurs, the IRS will calculate the new threshold amounts based on the increase in the cost of coverage under the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan during the period.
Second, beginning in 2019, the applicable dollar limit will be adjusted annually to reflect the cost-of-living. While the cost-of-living adjustment (COLA) is calculated on an annual basis, it will reflect changes in the cost-of-living over a rolling two year period. Once the calculations are made, the applied adjustment will be rounded to the nearest multiple of $50.
Finally, the applicable threshold dollar amount may be modified by an age and gender adjustment. This is an employer specific adjustment which is applied after the 2018 health cost adjustment percentage and any COLA adjustments. This adjustment is a dollar amount which takes into account the workforce of each individual employer and is calculated by the employer, not the IRS.
The IRS will presumably supply additional guidance, tables or formulas for making the required age and gender adjustments, as well as the other adjustment amounts. Consequently, it is unlikely that an employer will need to have a detailed understanding of the methods used in calculating the adjustments. However, employers will need to know which threshold limit applies to particular employees and then correctly apply certain adjustments.
