ACA tax penalties pile up fast for city

Under current ACA rules and if no changes are made, a 40 percent excise tax on premium health-care plans – known colloquially as the “Cadillac Tax” – will cost the city an estimated $484,914 in 2018, $802,758 in 2019 and will reach as high as $41 million in 2024.

By Brian Beckley • March 25, 2015 6:19 pm

The City of Renton will face a huge tax penalty under the Affordable Care Act beginning in 2018 if changes are not made to the city’s health-care plans, according to a report given to the city council earlier this month.

Under current ACA rules and if no changes are made, a 40 percent excise tax on premium health-care plans – known colloquially as the “Cadillac Tax” – will cost the city an estimated $484,914 in 2018, $802,758 in 2019 and will reach as high as $41 million in 2024.

“We have to do something,” said Senior Benefits Analyst Maria Boggs.

Boggs said the estimates are based on a 10 percent per year inflation rate.

The tax affects all plans that cross a “premium threshold” that includes the amount both employer and employee pay in, as well as employee and employer contributions to flexible spending accounts.

In 2018, the individual threshold is set at $10,200 and the family threshold is $27,500.

According to Boggs, the City of Renton employee plans will cross the premium threshold in 2018 and the individual threshold soon after.

“It’s going to be a challenge to all employers that have these types of plans,” Boggs said, adding that a “creative solution” is going to be necessary to keep the city’s benefit package competitive.

Any changes to the health plan will have to be negotiated with the union through collective bargaining. The city will be in negotiations with the union this year, as the current contracts expire at the end of 2015.

Boggs said the city is presently working with insurance brokers to design options to be presented to the union, which could include small changes like a tiered plan.

“Ideally we find a way to make a plan design that eliminates the tax liability,” Boggs said.

The City of Renton currently spends about $12 million per year on healthcare for city employees. According to City Administrator Jay Covington, healthcare costs are increasing at a rate more than double the rate of inflation.

Covington also said the city’s unions have been “very good” in helping to find ways to keep healthcare costs down in previous negotiations.