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Employer, benefits groups lobby IRS for changes to Cadillac tax

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Employer advocates and benefits consultants this week asked the Internal Revenue Service to delay implementation of the federal health care reform law's so-called “Cadillac tax” on high cost health care plans, due to take effect in 2018.

On Monday, New York-based benefits consultant Mercer L.L.C. asked the IRS to provide employers with the time and flexibility they need to implement changes to health benefit plans and administration systems in order to comply with the 40% excise tax on group health care premiums — considerations the company believes employers are unlikely to get if the tax becomes effective Jan. 1, 2018.

In February, the IRS published an advance notice outlining some of the rules under which it will likely implement the 40% excise tax on group health plans costing more than $10,200 for individual coverage and $27,500 for family coverage.

Third-party claims administrators will pay the excise tax for self-funded employers, while health insurers will pay the tax for fully insured employers, with both expected to seek reimbursement from employers.

In its letter to the IRS, Mercer urged the agency to exclude in its forthcoming proposed regulations noncore medical benefits — such as workplace wellness programs and on-site medical clinics — from the calculation of coverage costs, provide employers with enough flexibility to calculate coverage costs consistent with reasonable actuarial principles, and postpone its implementation of the excise tax or at least provide a “good faith” compliance period.

“While we would prefer more dramatic changes to the tax, we realize that Treasury's and IRS' regulatory authority is limited by the terms of (the reform law), and certain changes may only be achieved legislatively,” Mercer said in its letter.

Mercer's letter to the IRS closely mirrored public comments submitted to the agency on Friday by the ERISA Industry Committee, a Washington-based employer benefits lobbying group.

ERIC's comments to the IRS asked for a two-year transition period to allow employers time to restructure their health benefit plans, administration systems and employee communications to comply with the reform law, as well as an explicit exemption from the excise tax for programs designed to lower health care costs, such as health savings accounts, on-site medical clinics and wellness programs.

The group also asked the IRS for a “safe harbor” provision in the forthcoming rules for determining the actuarial cost of their health plans.

Requesting 'heavy lifts'

“The requests for the safe harbor and the two-year transition period are obviously heavier lifts for the agency, but given the complexity of the requirements that we're currently facing on reporting, I don't think it's out of the question that there be a delay of some kind,” Gretchen Young, ERIC's senior vice president for health policy, said Tuesday. “Implementing the Cadillac tax is a task of just mammoth proportions. The reporting requirements we currently face will pale in comparison, and they're onerous and complicated enough, and we're hopeful that they'll recognize that.”

Ms. Young said it was possible that ERIC's requests could be rendered moot by the outcome of the U.S. Supreme Court's review of premium subsidies provided by the government for health care coverage purchased through federally run public insurance exchanges.

“If that ruling goes against the government, I think it definitely opens up the whole of the (Affordable Care Act) to a lot of changes,” Ms. Young said.

Alternately, Ms. Young said legislation introduced last month in the U.S. House of Representatives that would effectively repeal the excise tax would likely be a boon for employers but might be less viable as a solution, given the tax's financial importance to the overall health care reform law.

“However and whenever Congress chooses to act on this issue — and we clearly hope that they do — there are a number of important considerations,” she said. “One of the biggest ones is the question of how you would pay for a repeal of the tax.”