News Feature | April 1, 2015

IRS Opens Comment Period For "Cadillac Tax" On Healthcare Coverage

Christine Kern

By Christine Kern, contributing writer

IRS requests comments on Cadillac Tax

The IRS has issued Notice 2015-16, in which it announced that it has opened a comment period from employers regarding the scope of regulations it plans to propose regarding the 40 percent excise tax on high-cost group health plans, dubbed the “Cadillac Tax.” The excise tax could have a potentially significant impact on healthcare providers and insurers as well.

The notice states that it “is intended to initiate and inform the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under Section 49801 of the internal Revenue Code.”

Under the Affordable Care Act (ACA), beginning in 2018, high-cost group health plans — group health plans exceeding $10,200 per employee in aggregate costs for self-only coverage and $27,500 per employee in aggregate costs for other than self-only coverage — will be subject to a 40 percent excise tax. These group health plans are often referred to as Cadillac plans; the excise tax is often called the Cadillac tax.

Notice 2015-16 includes information regarding the types of benefits that will count toward the tax and requests input on how to best value some of those benefits.  The notice also indicates that the IRS also plans to provide guidance on the calculation of Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums.

Under proposed Cadillac Tax regulations, the following types of coverage are likely to be included:

  • employer or employee contributions to FLEX spending accounts
  • employer or pre-tax employee contributions to Archer medical savings accounts
  • employer or pre-tax employee contributions to health savings accounts
  • planes maintained for civilian employees of federal, state, or local governments
  • on-site medical clinics (excluding those that provide only de minimis medical care)
  • retiree coverage
  • multiemployer plan coverage
  • executive physical programs
  • health reimbursement arrangements
  • specified disease or fixed-indemnity coverage when the cost of coverage is excluded/deducted from taxes.

The following types of coverage will likely be excluded from the tax:

  • other forms of excepted benefit coverage (accident, disability income insurance, worker’s comp, auto-medical payment coverage, liability coverage)
  • long-term care insurance
  • dental and vision insurance covered by a separate policy
  • specified disease or indemnity insurance when payment is taxable
  • employee after-tax contributions to Archer MSAs and/or HSAs
  • employee assistance programs that provided limited medical benefits
  • coverage under plans maintained primarily for members of the military and/or their families by the government.

The comment period will be open until May 15, 2015, and the IRS anticipates comment requests regarding other aspects of the tax as well.  All comments should include a reference to Notice 2015-16, and all submitted materials will be available for public inspection and copying.