Earlier this week, the IRS issued guidance on the “Cadillac tax” under health care reform. Beginning in 2018, the Affordable Care Act will impose an excise tax equal to 40% of any excess benefit provided under a health plan. An “excess benefit” is when the cost of coverage exceeds a limit set under health care reform. The limit for 2018 is $10,200 for self-only coverage and $27,500 for other coverage. The potential tax could be imposed on an insurer for an insured plan or an employer/plan sponsor for a self-funded plan.
The new guidance, Notice 2015-16, found by clicking here, is very general and mainly identifies issues that might be addressed by the IRS in the future. It also explains a few suggested approaches to determining the calculation of the tax and asks for comments. It does not provide specific guidance that can be used now.
Notably, the notice provides that
- Pre-tax employee contributions to an HSA will be considered in the cost of coverage;
- Stand-alone insured medical and dental plans will not be included in the cost of coverage (not clear if self-funded plans will be included); and
- On-site medical clinic costs will be included, except if the clinic provides very limited services.
It also explains that determining the cost of coverage will follow the COBRA rules for setting continuation of coverage premiums. Self-funded plans may have additional options for determining cost of coverage.
This new notice does not provide guidance that may be relied on at this time. It does show that the IRS has not lost sight of the Cadillac tax, and employers should keep an eye on their high cost health plans.
