1. Affordable Care Act (ACA) Cadillac Tax, Concerns for Employers, Employees and OTHER CONSIDERATIONS (§4980I)
Phil Larson
Attorney
December 2015

2. Background Information
NEW: Very likely delayed effective date until calendar year 2020.
Title IX Revenue Provision, 40% excise tax on employer provided health coverage above certain identified thresholds.
Dollar limits (with future adjustments) are $10,200 for self- only and $27,500 for other.
Guidance so far consists of ACA section 9001 and IRS notices and
CBO scores this as $93 million per day in revenue in 2025.

3. Concerns For Employers
Applies to a lot of coverage and all Employers
Applies to all current/former Employees
In most cases, applies to all forms of payment (Eer, Eee, taxable, non-taxable, insured…)
Not deductible (but may change with amendment if signed)
Misaligned trend curves means it is just a matter of time
Cannot be in rate setting/premium or charged to employee
Vendors may charge their fee PLUS their taxable portion of fee
Tax operates differently than all other ACA requirements (W2 close but not the same)
Multiemployer complexity and difficult union discussions
Monthly process, by individual, first of month
Privacy concerns
May unfairly hit employers with geography, health or other higher value impact (despite adjustments for high risk, retiree, age and gender)
Employee vs family limit (depends on plan or mid-month changes)
Shifting away from tax free coverage means more taxes for employer (avoiding excise tax results in tax)
Complicated administration, including control group rules, notices to IRS and all affected vendors/TPAs
High penalties for miscalculations (100% and interest unless reasonable cause) and higher concerns with 105(h) taxable payments
May impact future financial disclosure obligations

4. Tax Can Grow Quickly
Per employee single coverage: each $1,000 plan increase over limit means additional $400 tax.
Year one to year six plan growth = 45%.
Year one to year six tax growth = 625%.

5. Concerns For Employees
Underinsurance: Impact may lower value of health benefit coverage (higher deductible, copays, coinsurance, narrow networks…).
Shift away from tax free benefits into taxable benefits can mean more taxes for employees.
Added costs may lower companies ability to hire, promote, retain or provide other employment incentives.
Drive for lower costs may decrease “bells and whistles” of health program administration. For example, call centers staffed to answer within 5 minutes will be less expensive than 1.
Weakening employer involvement in health care may hurt innovation, collaboration and engagement for future design strategies. For example, wellness may have favorable ROI in long term but added costs with short term – this may need to be analyzed differently.

6. Eer Steps to Lessen Impact
Plan design with reduced value of the medical coverage offered to employees (e.g. increase deductibles, copays, coinsurance for participants).  
Carefully considering ROI, provide wellness programs or other cost saving mechanisms (e.g. Telemedicine, step therapy, prior authorization) to lower health trend. 
Remove certain fringe health coverage (and consider if wellness is GHP).
Remove/limit retiree health coverage.  
Reduce eligibility under plans (e.g. spouse or disabled dependent).  
Provide new forms of health coverage replacing major medical with HDHP, referenced based pricing or narrow network plans. 
If an HSA is offered, only allow after-tax contributions for employees or on their own.  
Stop or limit health flexible spending accounts (FSAs) or do limited purpose FSA.  
Remove executive physical programs or employee assistance plans. (EAP maybe OK?)
Unbundle insured dental and vision (issue with self-insured but maybe OK?)
Ensure on-site clinics only provide de-minimis care or work related injury unless in plan.  
Move to cash-like incentives (taxable) as opposed to health plan incentives
Lower costs/services which may be part of the premium, for example use RFPs to lower costs or private exchanges. 
Carefully consider contracts or union negotiations that span several years as the numbers can change quickly.

7. Legislative Changes?
Besides delay, several bills to repeal with bipartisan support. Both republican and democratic bills introduced. Examples include H.R. 879 the Ax the Tax on Middle class Americans Health Plans Act of 2015, H.R. 2050, the Middle Class Health Benefits Tax Repeal Act of 2015, S 2045 the Middle Class Health Benefits Tax Repeal Act of 2015, and S 2075 the American Worker Health Care Tax Relief Act of 2015.
House Ways and Means Committee advancing recommendations to repeal ACA requirements/taxes through budget reconciliation.
Several organizations forming to push repeal. Every major presidential candidate is for repeal (but differ on how much). Obama administration officials have NOT blessed full repeal. None of the bills proposed replacement of estimated revenue and repeal is a touchy subject with ACA.
Arguments to keep the tax includes: lowers health inflation, lowers job lock, current system may disproportionally aid higher income, prevents over insurance, positive ACA budgeting, caps the number one impact to tax code.
Regulators (i.e. Treasury and IRS) may not have a lot of flexibility as statute requires (1) threshold limits, (2) types of coverage, and (3) CPI indexing.

8. Questions

9. Disclaimer
This presentation is intended for general information purposes only. It does not create an attorney-client relationship and should not be construed as legal advice or legal opinions on any specific facts or circumstances. You should not act on this information without seeking professional counsel. To ensure compliance with requirements imposed by the IRS, we inform you that, except to the extent expressly provided to the contrary, any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.