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Guidance on 'Cadillac tax' and other health reform rules still needed


Employers still are waiting for regulatory guidance to help them comply with several key provisions of the health care reform law.

The most significant requirement of the Patient Protection and Affordable Care Act for which regulatory guidance is lacking involves the law's so-called “Cadillac tax” — a 40% federal excise tax health plan on premiums that exceed $10,200 for single coverage and $27,500 for family coverage in 2018.

The tax is to be paid by insurers and, in the case of self-insured employers, by third-party administrators, which then would almost certainly seek reimbursement from employers.

While the excise tax may appear straightforward, several issues still need regulatory guidance.

For example, the law is not clear on whether employees' pretax contributions to health savings accounts and self-insured dental and vision plans are to be included in calculating health plan costs.

In addition, it isn't clear if the excise tax trigger can be adjusted to reflect geographical cost differences, as health plan costs vary widely by region.

“Can you do regional calculations? That isn't clear yet,” said Amy Bergner, a managing director at PricewaterhouseCoopers L.L.P. in Washington.

Guidance is needed to determine how the tax would be allocated in situations where a self-funded employer uses several TPAs, experts say.

Also not yet clear is whether the excise tax for family coverage would apply, regardless of the number of dependents, or if it would vary based on the number of dependents.

“Many employers have different tiers of coverage: employee plus one, employee plus two, that sort of thing. How would the cost trigger be calculated? It is a pretty basic question” on which guidance is still needed, said Judy Bauserman, a partner at Mercer L.L.C. in Washington.

In addition, it's not yet known whether administrative costs, such as fees self-funded employers pay TPAs, are to be included or excluded in calculating plan costs, she said.

“In short, there are lots of questions involving the application of the excise tax,” Ms. Bauserman said.

Guidance also is needed on an ACA provision requiring employers with 200 or more employees to automatically enroll workers who don't respond to employers' offer of health coverage. The requirement will not go into effect until rules are in place.

Automatic enrollment situations “can get quite complicated” should an employer automatically enroll an employee only to find out the worker is covered by their spouse's employer, said Ann Marie Breheny, a senior legislative adviser at Towers Watson & Co. in Arlington, Virginia.

In addition, nondiscrimination rules for insured group health plans were to go into effect in 2011, but have been put on hold until the IRS develops those rules.

Experts say one reason for the delay is that the IRS also wants to issue updated rules to replace its 30-year-old nondiscrimination rules for self-insured health plans, so they are similar to fully insured plans.

As for timing, “I have heard this is being fast-tracked, but I also have heard we will have nothing soon,” said Rich Stover, a principal at Buck Consultants at Xerox in Secaucus, New Jersey.

Also yet to come are final rules on an ACA provision requiring employers to offer plans providing “minimum value” to avoid financial penalties. Late last year, regulators said plans would have to provide “substantial” coverage for in-patient hospital and physician services to pass the test and sought public comment on defining substantial. The comment period expired last month.

Experts say at least some regulatory guidance is expected this year — perhaps as soon as summer — while also saying that such predictions are just a guess in the absence of signals from regulators.

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