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Affordable Care Act (ACA): Questions And Answers

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Pam: What is the ACA Excise Tax?

The Affordable Care Act (ACA) stipulates that in 2018, an ACA excise tax on high-value employer health plans will take effect. The excise tax is already motivating many employers to reassess and adjust the health care plans they offer employees. The tax is intended to reduce health care spending, but it also reduces the value of health care plans for certain employers.

A Quick Introduction
The Affordable Care Act (ACA) is revolutionizing how Americans access, qualify for and pay for health insurance. The ACA mandates that if the total cost of employer-sponsored health insurance coverage for an employee exceeds $10,200 for one person, or $27,500 for a family, this invokes a non-deductible 40 percent excise tax is applied to the amount that exceeds the allowed tax threshold. These threshold amounts will increase every year based on the Consumer Price Index (CPI). The excise tax doesn’t just apply to the premiums paid by employers, but also applies to employer-paid premiums, tax-free employee contributions and reimbursements through a health savings account (HSA), flexible spending account (FSA) and a health reimbursement arrangement (HRA).

What is the Purpose of the Excise Tax? …show more content…

The goal is to encourage employers to offer less costly insurance policies. Ideally, cost sharing will streamline benefit management, directly lower premiums and indirectly lead to less use of medical services. The excise tax is structured to incentivize employers to limit available benefit options that may encourage unnecessarily large employee contributions. As a result, more and more employers are monitoring their HAS, FSA and HRA plans to ensure that payroll deductions are an appropriate amount. As employers reduce the value of their health benefits, they will ideally increase wages and other types of taxable compensation for

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