Q. I’ve heard that, as part of health-care reform, I’ll eventually have to pay income taxes on the contributions my employer makes to my health insurance plans. True?
A. I get a lot of questions along those lines, possibly because of some alarmist e-mails making the rounds. Here’s the short answer: No, it’s not true. It’s not in the Affordable Health Care Act of 2010, period.
The rumor might have started because, beginning with the 2012 tax year, your W-2 form (which you’ll get in early 2013) will include the value of your group health plan. But it’s for your informational purposes only, so you can see the full value of your health benefits, not just your contribution. You will not be taxed on that amount. (Some people might see that information on their W-2s a year earlier, since employers can start reporting the information sooner if they like.)
Or the rumor might have started because of confusion regarding a tax on so-called “Cadillac” health plans
that is scheduled to start in 2018. But that tax will apply only to the portion of the plan above a value of $10,200 a year for an individual plan or $27,500 for a family plan. The threshold for a Cadillac plan will in some cases be higher, such as for high-risk occupations like firefighting or mining, or for groups with a lot of older workers. If health care costs rise faster than anticipated between now and 2018, the threshold will also be raised accordingly. And it will be an excise tax, not income tax, that will paid by the insurer, not the consumer.
What effect this new tax will have on employer group plans is anybody’s guess, say insurance experts we’ve consulted, because by 2018, health reform will have changed the whole system so profoundly. With such a long lead time, it is likely that employers and insurers will try to get the cost of their plans below the tax threshold. They may increase copays and deductibles (as happens today), but it’s also possible they’ll figure out other ways to save money, such as improving preventive care and management of expensive chronic diseases like diabetes.
By the way, if you purchase health insurance on your own and not through a job, the Cadillac tax will not apply.
—Nancy Metcalf, senior program editor