Waterford Looking To Avoid $420k in Obamacare Taxes

Last week, Superintendent Jerome Belair and First Selectman Dan Steward briefed the Waterford Board of Finance on how they are looking to avoid $420,939 in estimated annual taxes associated with the Patient Protection and Affordable Care Act, aka Obamacare.

PPACA taxes employers with at least 50 employees to pay for healthcare for those who don’t have it, along with other programs. If Waterford continues to have a fully-indemnified health care plan, as it does, it would pay $420,939 in 2014 in extra taxes from PPACA, according to a report by Joe Spurgeon, Waterford’s health care agent from the Windsor firm Lindberg & Ripple.

However, Steward said the loophole is that if the town can go to a self-insured model of healthcare, Waterford would avoid that tax, he said. That would mean a $211,216.50 savings in the upcoming 2013-14 budget year, or $420,939 for all of 2014, according to Spurgeon’s report.

“It just doesn’t make sense (to continue with a fully-indemnified plan),” Belair said. “You’re talking about ($420,939).”

There is a catch though, the men explained. To go to a self-insured plan, the town needs at least $2.5 million in reserves for unexpected costs, Spurgeon said. However, Steward and Belair said – despite that the town only has $350,000 for those reserves – they believe they change to a self-insured plan for this upcoming budget year.

Specifics

Right now, the town has a fully-indemnified health insurance plan. Under that, an insurance company agrees to pay for the medical costs for the town for a certain price. If the actual costs are below what the town paid, the insurance company makes out, and if it is more, the town makes out (considering most health insurance companies are profitable, most of the time they make out).

Under a self-insured plan, the town pays its own medical costs as they come in. Each year, the town budgets an amount based off its last few years of trend data. Also, if the town is self-insured, it does not have to pay the $420,939 in annual estimated taxes from PPACA, according to Spurgeon.

The caveat is the town has to have a risk corridor – or essentially a rainy day fund – in case medical costs are higher than expected, Steward said. Waterford should have at least $2.5 million put aside for that, and right now there is only $350,000 for that account, according to Steward and Belair.

However, both men said they believe they can make up the rest of the money by June through savings by going to a self-insurance model. Steward said it is his and Belair’s decision, and their decision alone, to pick what type of insurance plan the town has, and he said they plan on making it in the middle of May – after the Representative Town Meeting finalizes the budget.

Waterford was previously self-insured, and while it worked well for about a decade, it ran into problems in the past few years when medical costs were exploding, Steward said. However, Spurgeon said that even without factoring in the cost of the PPACA-related taxes, it is almost always cheaper in the long run to be self-insured.

“That’s because health insurance is gambling and if you can be the house, you have a better chance to win,” Waterford Board of Finance member Alan Wilensky said.

To read more about the $420,939 in annual taxes the Town of Waterford is expected to pay in 2014 from Obamacare, if nothing changes, click here.