Cadillac tax reform bill draws unexpected criticsReprints
Legislation introduced in the House of Representatives that would effectively give many employer health plans more time before they trigger the health care reform law’s excise tax could do more harm than good.
The measure, H.R. 4832, introduced last month by Rep. Charles Boustany, R-La., would exclude pretax contributions made to employees’ flexible spending accounts and health savings accounts when calculating whether group health plan premiums exceed the Affordable Care Act’s excise tax trigger.
Under the law, a 40% excise tax is to be imposed starting in 2020 on the portion of health care plan premiums that exceeds $10,200 for single coverage and $27,500 for family coverage.
With the average 2016 FSA contribution of $1,500 per participant and an average HSA contribution of $1,458 per participant, according to Aon Hewitt, excluding those contributions would reduce the likelihood of group health plans triggering what is known as the Cadillac tax for at least several years.
But some benefit experts worry that excluding FSA and HSA contributions when calculating the excise tax could defuse congressional interest in an objective far more important to employers: repealing the tax altogether.
“We are concerned that if Congress or the Obama administration only addresses this issue, they will think they have taken care of the excise tax problem,” said James Klein, president of the American Benefits Council in Washington.
“Fixing parts of the excise tax runs the risk of providing legitimacy to the remaining provisions,” said Andy Anderson, a partner at Morgan, Lewis & Bockius L.L.P. in Chicago.
“The exclusion does not solve the problem. It only puts it off for a few more years,” said Gretchen Young, senior vice president of health policy at the ERISA Industry Committee in Washington.
Others, though, say excluding FSA and HSA contributions in calculating health plan costs would not affect the drive to repeal the excise tax.
“A big constituency, including labor unions, would remain for full repeal,” said Bill Sweetnam, legislative and technical director at the Employers Council on Flexible Compensation in Washington.
The likelihood that lawmakers will act this year to exclude FSA and HSA contributions for excise tax calculation purposes is low, some say.
“The momentum is not on mending the excise tax, but repealing it,” said Geoff Manville, a principal at Mercer L.L.C. in Washington.
In fact, Mr. Manville said, the business community is taking the position that Congress should move to repeal the excise tax, not just one aspect of it.
In addition, the two-year delay in imposing the tax, originally set to begin in 2018, means “there is no pressure to do anything now,” said Ms. Young.
Still, “in 2017, the odds of repeal go up” since 300 House members have gone on record in favor of repealing it, Mr. Manville said.
The delay in the start of the excise tax also reduces the pressure on federal regulators to develop and publish excise tax rules.
“Now that the tax has been delayed for two years, the urgency for rules is reduced. I don’t anticipate rules anytime soon,” said Rich Stover, a principal at Xerox HR Services in Secaucus, New Jersey.
If the tax is not repealed, rules are needed on several issues issues, including who would pay the tax.
For example, the IRS said earlier that it is considering two approaches on who would pay the tax for self-insured employers.
Under one approach, the employer would calculate the tax and determine the liability of different plan administrators, such as third-party administrators and pharmacy benefit managers, with the administrators paying their share of the tax and being reimbursed by the employer.
Under the other proposed approach, the self-insured employer would pay the tax directly.