Health Care Reform Developments Week of August 3, 2015

1. - 1 -
Willis Human Capital Practice, National Legal & Research Group
On July 30, 2014, the Department of Treasury and the Internal Revenue Service (IRS) issued
their second notice, Notice 2015-52, regarding the nondeductible 40 percent excise tax imposed
on high-cost employer-sponsored coverage under §4980I of the Internal Revenue Code (IRC).
Enacted under the Patient Protection and Affordable Care Act (PPACA), the excise tax,
commonly referred to as the “Cadillac tax,” is set to take effect in 2018.
Background
If the aggregate cost of applicable employer-sponsored coverage provided to an employee
exceeds a statutory dollar limit (in 2018, $10,200 for self-only, $27,500 for family), which is
adjusted annually, the excess benefit is subject to a 40 percent excise tax. An excess benefit is
the excess, if any, of the aggregate cost of applicable coverage of the employee for the month
over the applicable dollar limit for the employee for the month. Each coverage provider must
pay the excise tax on its applicable share of the excess benefit with respect to an employee for
any taxable period.
Excise Tax Guidance
To date, the agencies have issued two notices requesting comments on a variety of issues
regarding the excise tax. These notices are “intended to initiate and inform the process of
developing regulatory guidance regarding the excise tax on high cost employer-sponsored
coverage.”
Notice 2015-16, released on February 23, 2015, described potential approaches with regard to a
number of issues under §4980I which could be incorporated in future proposed regulations. The
notice addressed issues on the definition of applicable coverage, the determination of the cost of
applicable coverage, and the application of the annual statutory dollar limit to the cost of
applicable coverage.
Notice 2015-52 supplements Notice 2015-16 and addresses additional issues under §4980I,
including:
• Identification of the taxpayers who may be liable for the excise tax
• Employer aggregation
• The allocation of the tax among the applicable taxpayers
WEEK OF AUGUST 3, 2015:
Health Care Reform Update - IRS Releases Second Cadillac
Tax Notice

2. - 2 -
Health Care Reform Update | Willis Human Capital Practice, National Legal & Research Group
• The payment of the applicable tax
The following are some highlights of Notice 2015-52.
Who Is Liable for the Tax?
The statute provides that the “coverage provider” is liable for any applicable excise tax. In the
case of applicable coverage provided under an insured group health plan, the coverage provider
is the health insurance issuer. With respect to coverage under an health savings account (HSA) or
an Archer MSA, the coverage provider is the employer. For all other applicable coverage, the
coverage provider is “the person that administers the plan benefits.” However, the statute does
not define the term “person that administers the plan benefits.”
Treasury and IRS are considering two alternative approaches to determining the identity of the
person that administers the plan benefits. Under one approach, the person that administers the
plan benefits would be the person responsible for performing the day-to-day functions that
constitute the administration of plan benefits, such as receiving and processing claims for
benefits, responding to inquiries, or providing a technology platform for benefits information.
Under the second approach, the person that administers the plan benefits would be the person
that has the ultimate authority or responsibility under the plan or arrangement with respect to the
administration of the plan benefits (including final decisions on administrative matters),
regardless of whether that person routinely exercises that authority or responsibility.
Employer Aggregation
The statute provides that, for purposes of the excise tax, all employers treated as a single
employer under subsections (b), (c), (m), or (o) of § 414 are treated as a single employer.
Treasury and IRS invite comments on the practical challenges presented by the application of
those aggregation rules to § 4980I.
Cost of Applicable Coverage
To enable coverage providers to pay the excise tax in a timely manner, they will need to
determine the cost of applicable coverage for a taxable period (which the notice indicates will
likely be the calendar year) reasonably soon after the end of that taxable period. Treasury and
IRS have requested comments on any potential timing issues. The agencies are also requesting
comments on the processes expected to be involved in calculating and allocating any excess
benefit and the time period necessary to complete these processes.
The cost of applicable coverage includes employer and employee contributions to account-based
plans (i.e., HSAs). Treasury and IRS are considering an approach under which contributions to
account-based plans would be allocated on a pro-rata basis over the period to which the
contribution relates (generally, the plan year), regardless of the timing of the contributions during
the period. Treasury and IRS anticipate that this allocation rule would apply to HSAs, Archer

3. - 3 -
Health Care Reform Update | Willis Human Capital Practice, National Legal & Research Group
MSAs, flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs) that
are applicable coverage.
Age and Gender Dollar Limit Adjustments
The statute provides two baseline per-employee dollar limits for 2018 ($10,200 for self-only
coverage and $27,500 for other than self-only coverage). It also provides that various
adjustments will apply to increase these amounts. Treasury and IRS intend to include rules
regarding these adjustments in proposed regulations and have invited comments on the
application and adjustment of the dollar limits.
One of these adjustments provides for an increase in the dollar limits based on the age and
gender characteristics of all employees of an employer. Treasury and IRS anticipate that IRS
will formulate and publish adjustment tables to facilitate and simplify the calculation of the age
and gender adjustment.
Notice and Payment of the Tax
The statute requires employers to calculate for each taxable period the amount of the excess
benefit subject to the excise tax and the applicable share of that excess benefit for each coverage
provider. They must then notify IRS and each coverage provider of the amount so determined
for each coverage provider. Each coverage provider is liable for the excise tax on its applicable
share of the excess benefit with respect to an employee for any taxable period.
The statute, however, does not address the timing and manner in which the tax must be paid.
Treasury and IRS are considering designating the filing of Form 720, Quarterly Federal Excise
Tax Return, as the appropriate method for the payment of the tax. Although Form 720 generally
is filed quarterly, under this approach a particular quarter of the calendar year would be
designated for the use of Form 720 to pay the excise tax (Form 720 is the same form used to
report and pay the Patient-Centered Outcomes Research Institute (PCORI) fee).
Conclusion
The deadline for submitting comments (on both Notice 2015-52 and Notice 2015-16) is October
1, 2015. The agencies intend to issue proposed regulations after they consider public comments
on both notices.
This information is not intended to represent legal or tax advice and has been prepared solely for informational
purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.