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IRS needs comments on ‘Cadillac’ tax

Fairbanks Daily News-Miner community perspective: 

Alaskans may be reluctant to contact the Internal Revenue Service voluntarily. Now, however, it is important for the IRS to hear from you. The IRS is inviting comments regarding the proposed “Cadillac” health care tax regulations. 

Beginning in 2018, the Affordable Care Act (ACA) will assess a 40 percent excise tax (commonly mischaracterized as the “Cadillac” tax) on the excess cost of a health plan above a dollar threshold. The threshold was set at $10,200 per year for employee-only coverage and $27,500 for an employee and family.

A 2014 Mercer LLC survey reported about one-third of employers nationwide said they will be hit with the tax in 2018 if no changes are made in their current plans. Unfortunately, the excise tax will hit Alaskans harder than anyone else. 

Based on the average premiums cited in an October 2014 study by ISER for Alaska Health Care Commission, it appears most Alaska-based health plans will hit the excise tax thresholds in 2018 or soon thereafter. Moreover, the Association of Alaska School Boards reports multiple communities already exceed the thresholds, some by more than $10,000 per employee. This new federal tax would be devastating for these communities.

The Kaiser Family Foundation, State Health Facts, confirms the cost of health care for Alaskans is higher than for people in any other state. In Alaska, the total premium cost for single coverage in 2013 was 32 percent higher than the U.S. average; for employee-plus-one coverage, Alaska’s average cost was 35 percent higher than the U.S. average; and for family coverage, Alaska’s cost was 29 percent higher than the national average.

As currently enacted, the ACA applies adjustments for a cost of living adjustment over time, but the adjustment is designed to be significantly less than health care trend increases. This design will subject more health splans to the tax each year. While threshold adjustments are made for age, gender and high-risk professions, no adjustment is made for health plans located in high cost states, such as Alaska.

The bottom line? If no relief is obtained for Alaskans through the legislative or regulatory process, and no changes are made in current health benefit packages, most Alaska health benefit plans can expect to pay excise taxes to the federal government, beginning in 2018. 

Without adjustments, the tax and associated impact only will compound in subsequent years. This is money public sector employers would otherwise spend on public services and educating students, and private sector employers are unable to spend on wages or business expansion.

This is a topic that should unite Alaska Democrats and Republicans, labor and management, rural and urban. Several groups, including employer-sponsored and Taft-Hartley health benefit plans, as well as building trades and central labor councils, already have asked Alaska’s congressional delegation either to support legislation to carve out geographical differentials or eliminate the excise tax all together.

Nevertheless, Alaskans should not assume legislative changes are imminent. 

Indeed, the Treasury Department and IRS recently released Notice 2015-16, a request for information inviting comments on implementation of the 40 percent excise tax. The notice is a preliminary step, which allows the government to gather comments before preparing proposed regulations and then final regulations. 

Accordingly, Alaska groups, entities and individuals need to make their voices heard. Let Alaska’s congressional delegation know your thoughts. 

At a minimum, urge the IRS to establish and apply a geographical differential equation for high cost states such as Alaska when implementing the excise tax thresholds.

You can email your comments to the IRS at: notice.comments@irscounsel.treas.gov.  You must include “Notice 2015-16” in the subject line. The comments also may be sent via regular mail to: CC:PA:LPD:PR (Notice 2015-16), Room 2503, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044.

Comments are due by May 15, 2015. 

Fred Brown is Executive Director of Heath Care Cost Management Corp. of Alaska (HCCMCA), and an attorney. HCCMCA is a non-profit coalition, helping member health plans control health care costs by negotiating better pricing and services than these plans could achieve on their own. Founded in 1994, HCCMCA currently consists of more than 40 health plans providing coverage for approximately 180,000 people in Alaska and the Pacific Northwest. Mr. Brown can be reached at Fred.Brown@HCCMCA.org.

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