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Oct. 6 — The IRS's second notice on the Affordable Care Act's 40 percent excise tax on high-cost health plans drew comments from the usual suspects and one very surprising one: the federal government.
The Internal Revenue Service's Notice 2015-52 was the agency's second piece of guidance released this year that gave the benefits community an inkling about what proposed and ultimately final regulations for the excise tax under tax code Section 4980I might look like ( 147 PBD, 7/31/15).
Comment letters dated Oct. 1 from the Office of Personnel Management, the Alliance to Fight the 40, the ERISA Industry Committee and others asked the IRS to clarify that the “person that administers the plan benefits” be the plan sponsor or employer; that plans be notified of the age and gender adjustments well in advance of the applicable period; that the employer shared-responsibility provisions under Section 4980H be coordinated with the Cadillac tax; and to consider excluding “limited” flexible spending accounts that cover dental and vision care from the calculation of the tax.
In its comment letter, the OPM said that as the tax currently stands, administering it would likely lead to a reduction or elimination of benefits for employees in the Federal Employees Health Benefits Program. The result would not only impact those employees in the program, but would also “affect the ability of the agencies to recruit and retain a world class workforce.”
The OPM also asked that the IRS give the federal government “flexibility” to determine who the employer is when administering the excise tax on health plans under the FEHBP.
As these comments poured in, there has been a flurry of movement on Capitol Hill to try to repeal the tax, with the House Ways and Means Committee advancing recommendations to repeal some of the ACA's excise taxes—including the Cadillac tax—and mandates through the fast-track budget process known as reconciliation on Sept. 29 ( 189 PBD, 9/30/15).
The question over who should be considered “the person that administers the plan benefits” was a prominent issue in the comment letters.
Under tax code Section 4980I, which was added by the ACA, the entity providing health coverage will be liable for the excise tax. The coverage provider's identity depends on the type of coverage provided, the notice said. That means the coverage provider for an insured group health plan is the health insurance issuer and the provider for health savings accounts and Archer medical savings accounts is the employer. However, the provider for all other applicable coverage is only defined in the statute as “the person that administers the plan benefits,” the notice said.
The National Business Group on Health asked that the IRS have the final regulations identify that person administering the benefits as the plan sponsor.
The Alliance to Fight the 40—a group made up of representatives from the employer community, unions and health insurance companies that are working to get the Cadillac tax repealed—asked that the IRS go with an approach proposed in Notice 2015-52, which said that the person administering the benefits would be the employer in most instances.
The ERISA Industry Committee took a slightly different approach, saying that the plan sponsor always ends up as the entity with the “ultimate authority or responsibility.” Because of this, the group asked that the IRS give the plan sponsor the option to always choose to be considered the person administering the benefits for purposes of the tax. The group also asked that the IRS give plan sponsors of fully insured plans the option to assume this role.
More generally, ERIC criticized the notice as creating “additional impediments,” rather than coming up with ways to simplify the process of calculating the Cadillac tax.
“For instance, the idea that all of the steps in the excise tax process will be accomplished quickly and easily within a short period of time after the end of each taxable period is simply not a viable proposition,” the letter said.
The idea of coordinating the Cadillac tax and the employer shared-responsibility provisions came up in several letters, with the Alliance to Fight the 40 and Mercer LLC asking for a rule that allows employers to be able to offer minimum value coverage that has an actuarial value of 90 percent or less, or “coverage as rich as a public exchange plan” without incurring an excise tax.
Mercer also addressed the Cadillac tax's age and gender adjustments, asking that they be implemented by using “simplified methodologies.”
The National Business Group on Health also made suggestions in this area, asking that final rules allow employers the option of using an independent actuary to calculate age and gender adjustments based on their unique employee populations.
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