The Internal Revenue Service is preparing to codify the Affordable Care Act's controversial tax on generous employer health plans, and the agency is floating several exceptions to the rule.
The so-called Cadillac tax goes into effect on Jan. 1, 2018. Under the 2010 healthcare law, self-insured and fully insured employers that offer health plans with high overall costs and little cost-sharing will be hit with a 40% excise tax. The tax applies to every dollar above a specific annual limit—$10,200 for individual plans and $27,500 for family plans.
Lawmakers conceived the Cadillac tax to raise money to pay for the healthcare law and to drive down unnecessary health spending thought to occur when patients incur little or no direct costs for services. However, some groups, particularly unions, have slammed the Cadillac tax as a way for employers to shift more healthcare costs to employees and reduce the value of collectively bargained benefits. The provision is one of the few in the Affordable Care Act that congressional Republicans have endorsed to some degree.
In response, several employers have slimmed down their benefit packages and moved to high-deductible health plans, which have also been among the most common and popular plans sold in the Affordable Care Act's insurance marketplaces.
Several parameters still need to be ironed out before the excise tax goes into effect, according to a notice released Monday. The IRS mentioned that dental and vision benefits may be an “excepted benefit” and would not count toward the tax. Employee assistance programs, which offer counseling for substance abuse, family problems and other issues, are also being proposed as an excepted benefit.
The IRS also suggested developing safe harbors for health plans that have “employee populations with age and gender characteristics that are different from those of the national workforce,” which may warrant higher health benefits.
Adjustments to the dollar-limit thresholds also may apply to employers that have a majority of their workers in “high-risk professions,” the IRS said. The agency listed a slew of specific examples—including law enforcement officials, firefighters, paramedics, construction workers, miners and people who “repair or install electrical or telecommunication lines”—and asked if more guidance was necessary.
Comments are due May 15. Another notice is expected to be released soon about how the excise tax should be calculated and assessed.
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