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March 5, 2015

Comments Sought on Implementation of the Affordable Care Act's Excise Tax

The Treasury Department (Treasury) and the Internal Revenue Service (IRS) are seeking comments on a range of issues related to implementation of the Affordable Care Act’s1 40 percent excise tax on the cost of high-cost health plans above a certain threshold that will take effect beginning in 2018.2 (For a detailed discussion of the excise tax, see Sibson Consulting’s October 2014 Health Care Reform Insights.

This Capital Checkup provides an overview of the main issues discussed in the request for comments, Notice 2015-16,3 which focuses on the types of coverage that are included and excluded in determining the cost of coverage for purposes of the excise tax, as well as how to calculate the cost of coverage. Comments on Notice 2015-16 are due by May 15, 2015.

Types of Coverage Included/Excluded

Generally, all types of group health plan coverage are included in the cost of coverage unless they are excluded by statute or regulations. The Notice states that Treasury anticipates including Health Reimbursement Arrangements (HRAs), on-site medical clinics that provide more than de minimis medical care and executive physicals in this group. Dental and vision plans and employee assistance plans (EAPs) that meet the rules to be considered excepted benefits would be excluded.4 Treasury also plans to include Health Savings Account (HSA) employer contributions and employee salary reduction contributions in determining the cost of coverage, although employee after-tax contributions to HSAs would be excluded.

Determining the Cost of Coverage:
How to Group Employees

The statute generally provides that the cost of coverage is determined under rules similar to the rules that apply in determining premiums for continued coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Notice 2015-16 states that this is the cost of coverage in which each employee is actually enrolled, rather than the cost of coverage offered. This means that plan sponsors will not be able to offer a low-cost plan (that employees generally do not elect) as a way of avoiding the excise tax.

Notice 2015-16 also discusses the following potential approaches to determining the cost of coverage, and requests comments on each:

  • Mandatory Aggregation by Benefit Packages  The cost of coverage would be determined by aggregating all employees covered by a particular benefit package (e.g., standard v. high option, PPO v. HMO, each PPO).
  • Disaggregation  After aggregating all employees covered by a particular benefit package, the employer would then disaggregate these employees based on whether the employee is enrolled in self-only coverage or in other-than-self-only coverage. An employer would be permitted (but not required) to determine the cost separately for each tier that qualifies as “other-than-self-only.” Under such an approach, an employer could either calculate one cost for all employees who do not enroll in self-only coverage or calculate a separate cost for each coverage tier (e.g., employee plus one, employee plus child, and family).

An employer would be permitted (but not required) to further subdivide the groups of employees whose costs would be aggregated (within a benefit package). Treasury and the IRS are considering two options: (1) a broad standard that would permit subdividing based on bona fide employment-related criteria (e.g., nature of compensation, specified job categories, collective bargaining status); or (2) a more specific standard that would list permissible groups (e.g., current employees v. retirees, bona fide geographic differences such as place or residence or workplace, or the number of individuals in the family with coverage).

Determining the Cost of Coverage:
Calculation Methods for Self-Insured Plans

Notice 2015-16 discusses two potential approaches to calculating the cost of coverage for self-insured plans (both of which are currently options for setting COBRA premiums), and requests comments on each, as well as on when plan sponsors should be allowed to switch methods.

Other Issues Related to Determining the Cost of Coverage

Notice 2015-16 also addresses the following issues:

  • Age and Gender Adjustment  Treasury and the IRS note that the amounts of the dollar limits may be increased by an age and gender adjustment if the age and gender characteristics of an employer’s workforce are different from those of the national workforce. Comments are requested on whether safe harbors should be developed.
  • High-Risk Professions  Individuals covered by a plan sponsored by an employer the majority of whose employees covered by the plan are engaged in a high-risk profession5 or employed to repair or install electrical and telecommunications lines are entitled to an additional threshold amount. A retiree with at least 20 years of employment in a high-risk profession is also eligible for the increased threshold. Treasury and the IRS request comments on a number of issues related to high-risk professions (such as how an employer determines whether the majority of employees covered by a plan are engaged in a high-risk profession).
  • Determination Period  Treasury and the IRS anticipate that plans would elect the method for calculating cost before the determination period for which the cost is determined. For example, a plan using the calendar year as the 12-month determination period would elect the method before the beginning of the calendar year. This means that the amount of any excise tax liability would be known at the beginning of the taxable year generating the liability.6 Treasury and the IRS request comments on the feasibility of using actual costs incurred in a particular year for determining excise tax liability in the same year. That would mean that liability would not be known until after the end of the year.


Notice 2015-16 is a preliminary step in the rule-making process. Interested parties may want to submit comments.

The Notice does not address calculation of coverage for retirees or for individuals in a multiemployer plan. The aggregation rules identified by Treasury and the IRS appear to be a positive step toward allowing plan sponsors to aggregate individuals in a reasonable manner — both by coverage tiers and other reasonable business factors. This is an area where it is likely there will be a significant number of comments.

Treasury and the IRS will address additional issues in a second notice. Comments received in response to both notices will form the basis of a proposed rule.

• • •

As with all issues involving the interpretation or application of laws and regulations, trustees of multiemployer plans should rely on their fund counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the new guidance summarized in this Capital Checkup. Sibson Consulting can be retained to work with trustees on comments and on determining whether plan coverage is affordable and minimum value, as well as on expanding coverage to all classes of dependents required to be covered.


1 The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)

2 The base thresholds for 2018 are $10,200 for self-only coverage and $27,500 for other-than-self-only coverage. Under a special rule in the statute, multiemployer plans use the higher threshold ($27,500) for all plan participants. Higher thresholds will apply to certain participants (e.g., individuals in high-risk professions and pre-Medicare-eligible retirees). In general, all group health plans, including retiree-only plans, are subject to the excise tax. However, there are some types of coverage that will not count when determining the cost of coverage (e.g., most benefits that qualify as “excepted benefits” under the Health Insurance Portability and Accountability Act). (Return to the Capital Checkup.)

3 Notice 2015-16, which was released on February 23, 2015, is available on the IRS website. (Return to the Capital Checkup.)

4 For more information, see Sibson’s October 23, 2014 Capital Checkup, “Final Rule Clarifies When Dental and Vision Benefits and Employee Assistance Programs Are Not Subject to the Affordable Care Act.” (Return to the Capital Checkup.)

5 The law lists these professions: law enforcement officers, employees who engage in fire protection activities, individuals who provide out-of-hospital emergency medical care (including emergency medical technicians, paramedics, and first-responders), individuals whose primary work is longshore work, individuals engaged in the construction, mining, agriculture (not including food processing), forestry, and fishing industries. (Return to the Capital Checkup.)

6 Notice 2015-16 does not address the determination period for a non-calendar-year plan. (Return to the Capital Checkup.)


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