The Internal Revenue Service and the Department of Treasury are seeking comments on several unanswered questions about the impending Cadillac tax, including what constitutes employer-sponsored coverage and different approaches for determining the cost of applicable coverage.

Starting in 2018, the Affordable Care Act will impose a 40% excise tax on high-cost group health care plans. The so-called “Cadillac tax” remains a top concern for employers and their benefit advisers, but many say more guidance is needed.

See related: Top 5 unanswered questions about the Cadillac tax

The IRS and Treasury, in preparation for the release of further regulations and guidance related to the excise tax, have posted notice 2015-16 seeking industry and stakeholder input on the definition of applicable coverage,  the determination of the cost of applicable coverage and the application of the annual statutory dollar limit to the cost of applicable coverage.

Comments are due May 15.

For example, the agencies are seeking comments on whether on-site medical clinics should be considered applicable coverage in certain circumstances.

The agencies are asking for input on how to treat medical care in the case of on-site medical clinics, including whether the standard should be based on the nature and scope of the benefits or denominated as a specific dollar limit on the cost of services provided, or some combination of these two standards.

The agencies say they are also considering whether to exercise regulatory authority to propose an approach under which self-insured limited scope dental and vision coverage that qualifies as an excepted benefit would be excluded from applicable coverage for purposes of the excise tax. Comments are requested on any reasons why Treasury and IRS should not implement this approach, the notice says.

HRAs

The agencies anticipate future guidance will provide that a health reimbursement account is applicable coverage, but the health care reform law does not include special rules for determining the cost of coverage under an HRA, the notice says.

The agencies say they are considering various methods that future guidance might permit for use in determining the cost of applicable coverage under an HRA, including determining the cost of applicable coverage under an HRA based on the amounts made newly available to a participant each year or through the use of the actuarial basis method.

Some stakeholders, the agencies say, have suggested that the cost of applicable coverage should not include an HRA that can be used only to fund the employee contribution toward coverage. This suggestion is based on the position that the other coverage purchased with HRA proceeds would be applicable coverage and that including the value of both the HRA and the other coverage would constitute double counting.

The IRS and Treasury are specifically requesting industry input on the frequency with which HRAs allow reimbursement only for employee contributions toward coverage, on how the cost of an HRA should be determined if the HRA can be used by employees to fund employee contributions toward coverage and can be used for other medical expenses, and, specifically in that circumstance, on whether the standard should depend on how employees choose to use the HRA (that is, for employee contributions toward coverage or for other expenses), and on the administrability of such an approach.

Similarly, some stakeholders have suggested that the cost of applicable coverage should not include an HRA that can be used to cover a range of benefits, some of which would not be applicable coverage.

The agencies are also seeking comments on the frequency with which HRAs allow reimbursement only for types of coverage that are not applicable coverage, on how the cost of an HRA should be determined if employees can use it both for coverage that is and for coverage that is not applicable coverage, etc.

The IRS and Treasury say they anticipate issuing another notice in the future describing and inviting comments on potential approaches to a number of other issues, including procedural issues relating to the calculation and assessment of the excise tax. 

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