a. Excise Tax on High Cost Employer-Sponsored Health Coverage – Effective January 1, 2018, an excise tax will be imposed on any employer-sponsored health coverage that has an aggregate value⁶ (using principals similar to calculating the applicable COBRA premium) that exceeds $10,200 for individual coverage and $27,500 for family coverage (or $11,850 for single and $30,950 for family in the case of retirees age 55 and older who are not eligible for Medicare or for employees engaged in high-risk professions).⁷ 
 
The excise tax is equal to 40% of the value of the plan that exceeds the threshold amounts and is imposed on the issuer of the health insurance policy, or, in the case of a self-insured plan, the plan administrator (which in some cases, will be the employer).

An employer must calculate the excess value of health insurance coverage and report it to the insurer and the IRS and is subject to a penalty for underreporting.

b. Increase in Medicare Part A (hospital insurance) Tax Rate – Effective January 1, 2013, the Medicare Part A tax rate is increased from 1.35% to 2.35% on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly. An additional 3.8% tax is imposed on certain net investment income or modified adjusted gross income over a threshold amount on unearned income for higher-income taxpayers.

c. Medicare Part D – If an employer offers a retiree health plan that includes prescription drug coverage that is actuarially equivalent to Medicare Part D, the employer may receive a Retiree Drug Subsidy (“RDS”) from the Centers for Medicare & Medicaid Services. Effective on January 1, 2013, the amount of deduction that the employer may claim for the health care expenses of employees/retirees must be offset by the amount of any RDS received by the employer


⁶  The aggregate value of the plan includes reimbursements under a FSA, a HRA, employer contributions to a HSA, and coverage for supplementary health insurance coverage, including vision and dental.

⁷  These threshold values will be indexed to the consumer price index for urban consumers (CPI-U) for years beginning in 2020.  The threshold amounts may be adjusted upwards if health care costs rise more than expected prior to implementation of the tax in 2018. The threshold amounts also will be increased for employers that may have higher health care costs because of the age or gender of their workers.