Even minimum value plans might be “Cadillacs,” the IRS acknowledged in Notice 2015-52. See footnote 8, page 17. That’s our main take-away from the second IRS statement of its regulatory intentions.
Code § 4980I (a/k/a/ the “Cadillac Plan tax”) was added by the ACA so that taxpayers with average group health plans would not subsidize, by tax preference, rich plans benefitting chiefly the rich. Section 4980I imposes a 40%, non-deductible, excise tax on a group health plan’s “excess benefit” beginning in 2018. The IRS has not proposed enforcement rules but has released two statements of its intentions – Notice 2015-16 early this year and Notice 2015-52 last week. Here are highlights.
The taxable “excess benefit” must be calculated employee-by-employee, month by month.
The tax will be paid annually, by the “coverage provider,” when filing Form 720, as is done with PCORI fees. The insurer of a fully-insured group health plan is a coverage provider, as is the third party administrator of a self-insured group health plan. The employer is an HSA coverage provider. For other coverage types, the coverage provider is the “person that administers the plan benefits.” IRS expects this to be an entity, usually, not an individual. The entity that processes and pays claims might be the “person that administers the plan benefits.” Or, the IRS may impose that obligation on the entity that has final authority over the decision to pay claims.
The coverage provider will rely on employer calculations, to be reported to the coverage provider and to the IRS on Forms to be developed by the IRS. Employer calculation of the cost of applicable coverage will follow rules like those for determining COBRA premiums. Although employers currently may subtract from the Form W-2 cost of coverage the amount of benefits deemed taxable to highly-compensated individuals, such amounts will be included in the § 4980I cost of coverage. IRS realizes that employers will need time after the end of the calculation period to do this work and that different sorts of coverages might justify different amounts of time. Again, comments are requested.
The IRS realizes that employer aggregation rules in this context raise issues not addressed in its employer mandate rules. IRS is requesting related comments.
Employers should monitor their plans’ proximity to Cadillac taxation so that measures may be taken to hold short.
