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Cadillac tax delay buys time for IRS to retrench on divisive issue

But nondiscrimination rules update, out-of-pocket maximums loom

Cadillac tax delay buys time for IRS to retrench on divisive issue

The last major congressional action of 2015 —passage of a massive tax and government spending measure — could delay government regulators issuing the last major rule under the health care reform law.

The spending measure includes a provision that delays the effective date of the Patient Protection and Affordable Care Act's so-called Cadillac tax from 2018 to 2020.

Under that provision, staunchly opposed by employers and unions, a 40% excise tax is to be imposed on the portion of group health plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage.

While it had been widely expected that federal regulators would propose Cadillac tax rules during the first half of 2016, the two-year delay has eased the pressure on regulators and led some to say the excise tax may ultimately be repealed.

“It certainly gives the IRS more time if they choose to take it or if they think the tax will be repealed,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington.

“It is possible that the IRS will take some extra time,” said Amy Bergner, a managing director at PricewaterhouseCoopers L.L.P. in Washington. But, “there may still be a desire to propose and/or finalize rules before the 2016 elections.”

Others say, however, the rules could be issued this year.

“If the Obama administration feels it can provide significant regulatory relief from the tax, it might issue the rules in order to slow down the repeal effort,” said James Klein, president of the American Benefits Council in Washington.

On the other hand, Mr. Klein said, if the administration feels it “cannot provide much relief, or are not inclined to, then they might leave it to the next administration to complete rules.”

Employers have raised numerous questions about what is to be included in calculating plan costs subject to the excise tax.

For example, it isn't clear whether the costs of on-site employer health clinics are to be included in the calculation. There also is uncertainty on whether contributions to health savings accounts should be included or whether the excise tax trigger can be adjusted to reflect geographical differences in health costs.

“These are questions that employers need clear guidance on,” said Barbara McGeoch, a principal at Mercer L.L.C. in Washington.

Guidance also is needed on an ACA nondiscrimination provision for insured health plans, a requirement that will not go into effect until rules are finalized.

“There are no hints from regulators when the rules will be issued,” Ms. Bergner said.

“There is no urgency” on regulators' part, said Gretchen Young, senior vice president of health policy at the ERISA Industry Committee in Washington.

When regulators do issue nondiscrimination rules for insured plans, they also may update decades-old nondiscrimination rules for self-insured plans, some say.

Regulators this year also could formalize guidance issued last year limiting how much in out-of-pocket expenses employers with high-deductible health plans can require employees to pick up.

Under the May 2015 guidance from the departments of Health and Human Services, Labor and Treasury, the maximum out-of-pocket expenses employers can require employees to pay will be $6,850 for single coverage and $13,700 for family coverage when the rules go into effect in 2016.

In addition, the guidance added a new, potentially costly requirement for employers, which will be limited to $6,850 the maximum out-of-pocket expense any one person with family coverage can be required to pay.

While business groups have maintained that the health care reform law does not impose a so-called “embedded” cost limit, regulators have disagreed.

That embedded limit “prevents consumers from being penalized for purchasing family coverage rather than self-only coverage,” Kevin Counihan, CEO of the health insurance marketplace at HHS, wrote to several business groups after the guidance was issued.

There are low expectations that the guidance will be altered and the requirement could be “formalized in the form of regulations,” said Sharon Cohen, a principal at Buck Consultants at Xerox in Washington.

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