Council Urges Repeal of ACA Excise Tax

The American Benefits Council says, until the ACA excise tax is repealed, the IRS should structure rulemaking to minimize the impact to employers.

The American Benefits Council submitted a very extensive written comment to the Department of Treasury and the Internal Revenue Service (IRS) in response to regulators’ solicitation of input about possible approaches for implementing the 40% excise tax on “high cost” employer-sponsored health  coverage mandated by the Patient Protection and Affordable Care Act (ACA).

“The health care law was expressly designed to build upon the employer-sponsored benefits system, which provides great value to American workers and families. But this tax would wreak havoc on the employer coverage that over 150 million Americans have and want to keep,” said American Benefits Council President James A. Klein.

“Research estimates that, in 2018, more than one-third of employer-sponsored plans will trigger the tax unless the value of those plans is significantly reduced.  But the greater long-term concern is that because of the way the cost thresholds that trigger the tax are indexed, eventually even plans that only meet the minimum value required by the law will cross the thresholds,” Klein added. 

According to the letter, even with changes, many employers remain concerned that they will incur the so-called “Cadillac tax” in 2018 or shortly thereafter. Of Council members surveyed, 49% agreed with the statement “[a]t least one of our plans will trigger the tax by 2018 or shortly thereafter, even though we are making changes to avoid the tax.”

Reasons they may trigger the tax included:

  • employees located in geographic areas with higher health care costs;
  • a workforce that is older than the average workforce and thus has relatively higher costs;
  • employees that are generally higher-cost individuals (for example, those with a high prevalence of chronic conditions or other factors resulting in relatively higher claims experience).

Only 45% of respondents who anticipate triggering the tax indicated that they will do so in part because their plans are “very generous in terms of covered services” and impose minimal employee cost-sharing.

The Council is recommending that certain coverage be excluded from the definition of “applicable employer-sponsored coverage” for purposes of determining whether an employer’s health plan is a “high-cost” plan.

The Council says it supports legislation that will repeal the tax, but in the meantime, employers will have to prepare for it. It asked regulators to issue safe harbor estimates for use by employers since employers will need timely information regarding the dollar limits that will trigger the tax that will apply in 2018.

The American Benefits Council’s letter is here.