The Internal Revenue Service has issued a notice addressing the Patient Protection and Affordable Care Act's so-called "Cadillac Tax," and provided guidance on the types of coverage subject to the tax and what will trigger the tax.
The Cadillac Tax is a 40 percent excise tax on the high-cost health plans some employers provide their workers. Scheduled to take effect Jan. 1, 2018, the purpose of the tax is to reduce overall healthcare costs by encouraging employers to offer cost-effective health benefits. Under the PPACA, both fully insured and self-funding employer health plans will be subject to the tax.
In the notice, the IRS suggested pre-tax employee contributions to health savings accounts will be counted in determining the cost of coverage. The agency also suggested items that may be excluded from determining the cost of coverage, including dental and vision benefits.
The IRS is seeking comments on its proposals, such as whether it would be possible to develop safe harbors that adjust dollar limit thresholds for employee population "with age and gender characteristics that are different from those of the national workforce."
The IRS notice is helpful to employers who are already beginning to analyze whether their coverage options will be subject to the tax.
The IRS is seeking comments on the notice through May 15.
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