2020 Excise Tax: Hard Choices Facing the Public Sector

Through collective bargaining, positive returns on pension funds, and new economic upswings, public-sector employers have largely been insulated from the belt-tightening that private companies have undergone in recent years with their health benefits. But budgetary constraints within many local governments are necessitating a fresh look at the expenditures for health benefits, in particular retiree health benefits.

In 2020, the Excise Tax on High Cost Employer-Sponsored Health Coverage, a provision of the Patient Protection and Affordable Care Act (ACA), will go into effect. Public-sector plan sponsors must prepare because they, as well as their employees and taxpayers, stand to be hit significantly by the tax.

Although originally scheduled for implementation for 2018, the Consolidated Appropriations Act of 2016 deferred the effective date of the Excise Tax to 2020, and made the tax deductible for the payer. Regardless, the Excise Tax remains a key theme for plan sponsors as they evaluate their long-term retiree health care strategies.

All public agencies need to address the fiscal, social, and political ramifications of the Excise Tax sooner rather than later. Many plan sponsors are considering the use of public and private health exchanges to help solve the Excise Tax dilemma.

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