Tag Archives: taxes

Top Milliman blog posts in 2014

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

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Healthcare reform and the small employer tax credit

Houchens-PaulThe Internal Revenue Service (IRS) has recently published guidance as a proposed rule on the tax credit that is available for small employers (fewer than 25 full-time employees) that will offer or are offering health insurance coverage under the Patient Protection and Affordable Care Act (ACA). This tax credit, under new tax code section 45R, is a sliding scale for purchasing health insurance for employees.

Beginning in 2014, the tax credit will only be available on the Small Business Health Options Program (SHOP) exchange and is equal to 50% of the employer contributions (35% for small employers eligible to be tax-exempt). It should be noted that on September 26th, the Department of Health and Human Services (HHS) announced that the enrollment functions of the federal SHOP exchange will be delayed until November 1.

To qualify for this tax credit, small employers must meet the following criteria:

• Employees’ average annual wages must be less than $50,000. Employers with 10 or fewer employees and average annual wages of less than $25,000 (adjusted for inflation for taxable years beginning after December 31, 2013) will qualify for the full tax credit.
• Employers must contribute at least 50% of the total premium cost or 50% of a benchmark premium.

The final IRS rule is expected to be published after December 31, 2013, but the IRS provides a transition period, allowing employers to rely on the “proposed” rule for taxable years beginning after December 31, 2013, and before December 31, 2014.

The number of small businesses applying for the small group tax credit to date has been less than expected, causing some to speculate that determining qualification for the small group tax credit has been overly complicated. The Milliman HCR Dashboard, a new tool specifically for brokers, insurers, and advisors serving the small and mid-size group market, can determine if a small group may qualify for the tax credit based on census, premium, and employee contribution data. The HCR Dashboard also estimates the amount of the credit, making adjustments for group’s average salary, location, number of employees, premium amounts, and tax status. While small businesses still need to seek assistance from a qualified tax advisor when applying for the small group tax credit, results from the HCR Dashboard can provide an indication of whether such assistance should be sought as part of a complete healthcare reform analysis for a small employer.

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Final rule on affordability of family health coverage and health insurance premium tax credit

Employees’ family members who are eligible to enroll in the employees’ group health plan will be ineligible for federal subsidies under the exchanges if the employees are offered affordable self-only healthcare coverage, according to the final rule published on February 1 by the Internal Revenue Service (IRS). The final rule retains the provision in the IRS’s proposed rule basing the affordability test of the Patient Protection and Affordable Care Act (PPACA) on the cost of self-only coverage, rather than family coverage. Thus, an employee’s contribution toward the premium for family coverage is not taken into account when determining whether an employer is subject to penalties for not offering affordable coverage that satisfies PPACA’s minimum value standard. The IRS’s final rule may result in limiting federal healthcare premium subsidies for employees’ family members who purchase insurance from the exchanges beginning in 2014.

Under PPACA, employees eligible for an employer-sponsored health plan that is deemed “not affordable” can opt out of the coverage and receive a federal subsidy to help them purchase insurance in the exchanges. They are eligible for a federal health insurance premium tax credit, which is based on income as a percentage of the federal poverty level (FPL), if their employer-sponsored plan is deemed “not affordable,” i.e., if their share of the premium is more than 9.5% of household income. In addition, PPACA subjects employers to a $3,000 penalty for each full-time employee whose premium share exceeds the threshold of 9.5% of household income and who receives the subsidy to purchase exchange coverage.

In a related proposed rule also published February 1, the IRS said that family members of an employee who is offered affordable, self-only coverage will not be subject to the PPACA individual mandate penalty, which is applicable to individuals who do not obtain insurance if the employee’s premium share for family coverage exceeds 8% of household income and family members do not enroll in the coverage. This proposed rule cannot be relied upon at this time.

Employers should review their employee contribution and eligibility strategy for all employees to avoid unnecessarily limiting premium tax credit options under the exchanges for employees and their dependents.

For more information about the final rule or for assistance with implementing PPACA’s requirements, please contact your Milliman consultant.

Federal tax expenditures and the PPACA stealth income

Charles ClarkAccording to gpoaccess.gov, federal tax expenditures on employer-sponsored healthcare plans are expected to be approximately $185 billion in federal fiscal year (FFY) 2012. That value represents forgone federal taxes on the medical insurance premiums paid by employers and medical benefit claims incurred by their employees in these plans.  (There are corresponding multi-billion dollar federal tax expenditures for other types of employer-sponsored plans.)

Whether Congress will introduce legislation to explore reducing the favorable tax status of these employer plans as a new source of tax revenue for the federal government is speculation; but the idea should not be surprising in this age of our multi-trillion dollar federal deficit. (State governments could also follow suit.)

But let’s assume for the moment that Congress makes no attempt at eliminating the tax subsidy for employers (while we acknowledge that the impact of the 2014 exchanges is still quite uncertain) and employer-sponsored insurance (ESI) continues. There could still be an opportunity for newfound federal tax revenue that has yet to be considered, as follows.

Under the health reform law, employers will be required to report the annual “value” of employer healthcare benefits on Form W-2. Employees should see it on the tax year 2012 Form W-2 in January 2013. Congress could introduce legislation  that would require this value to be taxed as ordinary personal income as part of the tax year 2012 Form 1040, permanently ending a genuine “tax-free” benefit. (Contrast this to the benefits paid from employer pension plans, which are “tax-deferred.”)

Let’s call this new taxable income the PPACA stealth income. It could result in a severe financial hardship for an employee, who would need to come up with enough money to pay for the additional tax liability generated by this “income.” Perhaps Congress could also view this value as taxable for Social Security taxes. U.S. taxpayers could wind up under-withheld for personal taxes and possibly fined for it. There are a myriad of other issues that could be listed, but would violate the spirit of a brief blog entry.

What do you think?