April 14, 2015
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Council provides comments on 40 percent tax on health benefits
If 40 percent excise tax cannot be repealed, Treasury must take steps to reduce impact
WASHINGTON, DC "The 40 percent tax enacted as part of the Patient Protection and Affordable Care Act (PPACA) is fundamentally flawed and must be repealed," said American Benefits Council President James A. Klein today. "Until it is repealed, however, we are urging the Treasury Department to proceed with rulemaking in a way that minimizes the inevitable disruption to employer-sponsored health coverage."
The Council submitted very extensive 42-page written comments to Treasury and the Internal Revenue Service (IRS) on May 15 in response to IRS Notice 2015-16, which solicits input on possible approaches for implementing the 40 percent excise tax on "high cost" employer sponsored health coverage. This tax, which goes into effect in 2018, applies to "applicable employer-sponsored coverage" in excess of statutory thresholds (in 2018, $10,200 for self-only, $27,500 for family). The tax was implemented as a "revenue raiser" to pay for other provisions of PPACA and to address perceived over-consumption of health care coverage.
"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," Klein said.
"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.
As the letter states, employers should not - and cannot - be put in the untenable position of having to choose between offering qualifying coverage under the employer mandate and avoiding the 40 percent tax. "It is crucial that the Department signal clearly and early that in no event would solely offering the minimum coverage necessary to avoid an excise tax for purposes of Code Section 4980H result in an excise tax for purposes of Code Section 4980I," the letter said.
"Even with Treasury's best efforts, certain essential fixes to the law can only be undertaken legislatively," Klein said. "The Council will continue to support bipartisan initiatives to repeal the law," such as the Middle Class Health Benefits Tax Repeal Act (H.R. 2050), sponsored by Representative Joe Courtney (D-CT), and the Ax the Tax on Middle Class Americans' Health Plans Act (H.R. 879), sponsored by Representative Frank Guinta (R-NH).
"In the absence of a full repeal of the tax, employers must plan today for a tax that will undoubtedly make health coverage more difficult to provide in 2018," Klein said. "If we cannot turn this car around, we urge the Treasury Department to take a less perilous route."
For more information on health policy issues, or to arrange an interview with Klein or Katy Spangler, senior vice president, health policy, please contact Jason Hammersla, Council senior director of communications, at firstname.lastname@example.org or by phone at 202-289-6700 (office) or (202) 422-4652 (mobile).
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.