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Government Executive Editor in Chief Tom Shoop, along with other editors and staff correspondents, look at the federal bureaucracy from the outside in.

Excising the Excise Tax


To follow up a bit from Alyssa's story on the new health care bill, especially the uncertainty surrounding the excise tax and feds:

It's possible that the excise tax -- which is the benefits tax to be levied on insurance plans deemed too generous -- in the soon-to-be-voted on health care bill has been watered down to the point that it wouldn't have much affect on the majority of Americans, whether they're feds or non-feds.

But feds could particularly benefit from a new provision which grants relief for plans with a high percentage of elderly enrollees. The proposed changes to the excise tax would raise the thresholds -- how expensive premiums have to be before the 40 percent tax kicks in -- if the employer offering the insurance has more elderly people than the national workforce. The formula used for this is a bit baffling, but it does appear that might apply for the Federal Employees Health Benefits Program. FEHBP is one of the relatively few insurance programs which fully covers retirees -- even after they reach Medicare eligibility.

And it could be substantial. According to Walt Francis' book, Putting Medicare Consumers In Charge: Lessons from the FEHBP, about one third of FEHBP enrollees are age 65 or older -- and those retirees are responsible for about half of FEHBP's spending.

That's not the only way that the excise tax has been changed. According to the House Rules Committee's chapter-by-chapter explanation of the new bill, the reconciliation bill would reduce the amount of revenue in the excise tax by 80 percent. Much of that difference is caused by delaying the tax's start date to 2018. Even after it starts, it would take a few more years before the tax would have a direct or indirect effect on a large number of plans -- so it could be well into 2020 before you feel any affect.

It's worth noting that after 2020, the excise tax would be indexed to inflation, rather than "inflation plus one"--which means the thresholds will actually rise slower than they would have in the original bill. That's one way that the new changes actually toughen the excise tax. But it will be a while before that will have much of an effect.

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