HR Policy Urges IRS to Narrow Benefits Subject to ACA High-Cost Excise Tax

Federal Health Care Reform

This week, the Association filed comments urging the Internal Revenue Service to significantly narrow the kinds of health benefits subject to the so-called "Cadillac" tax, as well as give employers maximum flexibility in determining the cost of coverage, and in making demographic adjustments to excise tax thresholds.  HR Policy's comments noted that member companies offer employees a host of innovative health benefits that are lowering rather than driving unnecessary utilization and that the ACA's excise tax may undermine the ability of employers to continue such innovation.  To avoid the inevitability of "Chevrolet" benefit plans eventually being taxed as "Cadillacs," and to remove the potential negative impact that the tax will have on employer-sponsored health benefits, the Association strongly urged the IRS to exclude from the excise tax:

• Any costs associated with improving health, including wellness programs, on-site clinics, and employee assistance programs;
  
  
• Mandated preventive care services, since health care benefits should not be both required and considered excessive at the same time;
  
  
• Employee contributions to health savings accounts, flexible spending accounts, and health reimbursement accounts; and
  
  
• Any costs associated with efforts aimed at innovation in health care delivery that are designed to reduce excessive health care spending and improve health outcomes such as direct contracting with providers, utilizing accountable care organizations, patient-centered medical homes, Centers of Excellence, and bundled and capitation payment initiatives.

The comments also noted that companies should have the flexibility to use the lowest cost plan that is offered to employees for purposes of calculating the tax, and that because Congress never intended for the average employer-sponsored health plan to be subject to the excise tax, the IRS should implement a "safe harbor" for any employer health plan that is at or below an actuarial value of 80 percent.  The IRS Notice is the first of two that are expected to be issued this year, followed by a proposed rule in 2016.