Groups Ask for Flexibility With Cadillac Tax; Say It Will Paralyze Plan Design

cadillac tax

A chorus of employer groups asked that forthcoming regulations implementing the ACA's Cadillac tax provide employers with maximum flexibility, as many are concerned the tax has the potential to negatively affect plan design and benefits.

In addition to the flexibility that employers need to implement the tax, groups said that more plans than intended will eventually get swept up in the excise tax on high-cost health plans under tax code Section 4980I, resulting in negative consequences for employers and their employees, according to various comment letters, all dated May 15.        

Groups also pushed for a delayed implementation date of the tax, or at the very least a good faith compliance period.

The comments were in response to Internal Revenue Service Notice 2015-16, which kick-started the process of crafting regulations for the excise tax under Section 4980I that many employers have dreaded since the Affordable Care Act became law.

The IRS and Treasury Department said Notice 2015-16 was “intended to initiate and inform the process of developing regulatory guidance” regarding the Affordable Care Act's 40 percent excise tax under tax code Section 4980I, informally known as the Cadillac tax. The notice addresses several areas of interest under Section 4980I, including the definition of applicable coverage, how the cost of applicable coverage is determined and “the application of the annual statutory dollar limit to the cost of applicable coverage.”

Deep Concerns

There is deep concern among National Business Group on Health members that implementing Section 4980I will increase the cost of providing group health coverage and hinder the ability to “maintain innovative plan features,” the group said in its comment letter.

Based on its preliminary estimates, the NBGH said its members expect the cost of the health coverage they offer will trigger the tax's applicable dollar limits for self-only and other-than-self-only coverage sometime between 2018 and 2025.

Additionally, “as health care cost inflation continues to outpace increases in the consumer price index, it will be increasingly difficult to offer plan options” that satisfy the ACA's annual cost-sharing limits, meet the minimum value standard and don't exceed the tax's applicable dollar limits.

“This will be particularly true if only a cost-of-living adjustment—as opposed to an adjustment for health care cost inflation—applies to determine § 4980I applicable dollar limits for taxable years after 2018,” the NBGH said.

The NBGH said its members also are concerned that the IRS is planning to include in the definition of applicable coverage contributions to health flexible savings arrangements, health reimbursement arrangements and health savings accounts that are coupled with high-deductible health plans.

All of those arrangements play an important role in employer-provided coverage for many reasons, including helping to contain costs and encouraging participants to look for “higher-quality and lower-cost health care services and providers,” the NBGH said.

The group also asked that the IRS exclude from applicable coverage on-site health clinics, wellness programs and self-insured limited scope dental and vision coverage that meets the definition of an excepted benefit.

Excerpted from a story that ran in Pension & Benefits Daily (05/26/2015).

Gain access to the most reliable source for comprehensive pension and benefits and executive compensation research with a free trial to the Benefits Practice Resource Center.