Latest Regulatory 'Cadillac Tax' Guidance Raises Concerns for TPAs & Employers
Posted on: 8/11/2015 11:50 AM
The U.S. Treasury Department issued its “second” Notice providing suggestions on how the Department intends to implement the so-called Cadillac Tax - officially referred to as the Excise Tax on High Cost Employer-Sponsored Health Coverage (the "Excise Tax").
The new Notice supplements Notice 2015-16 by addressing additional issues such as:
(1) identifying the entity liable to pay the Excise Tax liability,
(2) describing how the Tax liability may be allocated among these entities, and
(3) explaining how actual payment of the Tax may be made to the Internal Revenue Service (IRS). Comments on Notice 2015-52 are due October 1st.
After Treasury considers the public comments submitted on both Notices, the Department intends to issue proposed regulations implementing the Excise Tax.
We will continue to monitor and will be prepared to work with our clients and their brokers once final regulations and rules are published.
In summary, self-insured employers should be concerned about Treasury's suggestion that entities that provide various administrative services for self-insured plans should pay the Excise Tax. For self-insured employers, these companies would like to avoid the administrative complexities associated with ultimately paying the Tax as it is passed through by the TPA. The employer community has already petitioned Treasury to eliminate this "tax-within-a-tax" and simply impose the Tax on the employer.
More detailed information and key provisions of the Notice are as follows:
A. Treasury Suggests Two Different Approaches When It Comes to Determining What Entity Pays the Excise Tax In the Case of Self-Insured Benefits
According to the statute, the Excise Tax is imposed pro rata on insurance companies and administrators of self-insured arrangements, and also the employer in certain cases. Notice 2015-52 confirms that the Excise Tax is payable by an insurance company in the case of a fully-insured employer plan. The Notice also confirms that the employer is liable to pay a portion of the Excise Tax attributable to employer contributions to a health savings account ("HSA"), along with employee contributions made to an HSA through a Code section 125 cafeteria plan. Unfortunately, in the case of self-insured benefits, however, Treasury did not confirm that the Excise Tax is payable by a third-party administrator (TPA) or, alternatively, the employer sponsoring the self-insured plan. Instead, Treasury said that the Department is considering two approaches for determining "who the administrator" is for purposes of the Tax.
- Under the first approach, the entity liable for paying the Excise Tax would be the entity "responsible for performing the day-to-day plan administration functions, such as receiving and processing claims for benefits, responding to inquiries, or providing a technology platform for benefits information." Treasury went so far as to say that the Department anticipates that this entity would be the TPA for the self-insured benefits, except in "rare circumstances" where the employer administers its own plan (or owns a TPA performing these functions).
- Under the second approach, the entity liable for paying the Excise Tax would be the entity "that has the ultimate authority or responsibility under the arrangement with respect to the administration of the plan benefits (including final decisions on administrative matters), as well as authority or responsibility over eligibility determinations, claims administration, and arrangements with service providers (including the authority to terminate service provider contracts)." It would appear that the employer would be responsible for paying the Excise Tax if the second approach were adopted.
B. Other Noteworthy Matters Addressed By Treasury
1. The Period for Determining the Amount of the Tax Payable
Treasury confirmed that the Tax would be determined based on the calendar year. Treasury also confirmed that the Tax liability would be determined by the employer soon after the end of the calendar year (so the employer can then notify the entities responsible for paying the Tax as soon as possible to ensure that these entities can pay the Tax liability in a timely manner).
2. Exclusion of the Cost of the Tax from the Tax's Calculation
Treasury recognizes that in cases where the Excise Tax is payable by an insurance company or an administrator of self-insured benefits, the Tax liability will be passed through to the employer. In this case, Treasury does not want these passed-through liabilities in the form of, for example, administrative fees that may be included in determining the COBRA applicable premium or a premium load, to be counted when determining if the aggregate cost of health coverage exceeds the Tax's dollar thresholds for the year. But, Treasury is concerned that excluding these amounts may not be administrable, and therefore, the Department is requesting comments on this point.
3. Requirement To Notify the Entities Responsible for Paying the Excise Tax
According the statue, after the employer determines the amount of the Excise Tax liability that is payable by a particular entity, the employer is required to notify that entity (along with the IRS) of the amount of the Tax owed.
4. Actual Payment of the Excise Tax Liability
Treasury suggests that the Department may add the Excise Tax liability otherwise payable by an insurance company, an administrator, and/or the employer on the Form 720, which is currently used to pay excise taxes for violations of certain other group health plan requirements.
Source: Self-Insurance Institute of America, 7/31/2015, www.SIIA.org