IRS sees PPACA Cadillac plan tax hot potato

IRS sees PPACA Cadillac plan tax hot potato

492-cadillac-103311568-dorling-kindersley-738x415t-crop-600x338Internal Revenue Code (IRC) Section 4980I — the new Cadillac plan excise tax — could push health benefit plan administrators into bitter fights over which administrators actually have to pay the tax.

The health insurance issuer will pay the tax for an insured plan, but the “person that administers the plan benefits” will pay the tax for a self-insured employer plan, according to Internal Revenue Service (IRS) Notice 2015-52.

In some cases, deciding who the administrator is could be complicated.

Drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) imposed a 40 excise tax on “high cost” plans in an effort to raise tax revenue and to give employers an incentive to hold down health care costs.”

An affected “coverage provider” is supposed to pay the tax on “excess benefits” in taxable years starting after Dec. 31, 2017. In the first year, the tax is supposed to apply to individual employee benefits with a value over $10,200 and family benefits with a value over $27,500.

For a self-insured plan, the “person that administers the plan benefits” could be the plan sponsor, but it also could be the individual or entity “responsible for performing the day-to-day functions that constitute the administration of plan benefits, such as receiving and processing claims for benefits, responding to inquiries, or providing a technology platform for benefits information,” Karen Levin and other IRS officials write in Notice 2015-52.

Under another approach, the “person that administers the plan benefits” could be the individual or entity that “has the ultimate authority or responsibility under the plan arrangement with respect to the administration of the plan benefits…regardless of whether that person routinely exercises that authority or responsibility,” officials say.

Under the second approach, the IRS would look at plan documents to see which legal person had ultimate authority over matters such as eligibility determinations, claims administrations and arrangements with service providers, officials say.

In addition to showing how the IRS is thinking about who will pay the excise tax, Notice 2015-52 shows how the IRS is thinking about matters such as how the cost of an affected individual’s health benefits should be calculated, how personal health accounts interact with the tax, and how taxpayers actually pay the tax.

Officials say the IRS put out Notice 2015-52 to get advice from the public on the issues discussed. The IRS is emphasizing that the notice is simply a notice, not a formal batch of guidance.

“This notice does not provide guidance under Section 4980I upon which taxpayers may rely,” officials warn.

Comments on Notice 2015-52 are due Oct. 1. Once the IRS releases Cadillac plan tax draft regulations, the public will get another chance to submit comments, officials say.

Officials note, for example, that, for tax calculation purposes, they may count only one-twelfth of an employer’s annual health savings account (HSA) contribution for an employee in a given month, even if the employer actually makes just one HSA contribution payment for the entire year.

When the IRS is calculating how much the income an employee puts in a flexible spending arrangement (FSA) affects total health benefit value, the IRS may count only the amount the employee actually uses for health care expenses, not the unused amount that the employee rolls over to the next year, officials say.

The IRS is also thinking about having taxpayers pay the tax using the quarterly Form 720 filing. Even though taxpayers file a 720 form every quarter and would pay the Cadillac plan tax once a year, the IRS could designate one quarterly 720 filing as the filing to be used for Cadillac plan excise tax payments, officials say.