Recently, the IRS issued Notice 2015-52 requesting additional input on the yet-to-be-proposed Cadillac Tax rules. For those unaware, the Cadillac Tax imposes a 40%, non-deductible excise tax on the cost of health coverage that is over a certain threshold. This deceptively simple description does not begin to uncover the myriad of potential issues, such as…
Who pays the tax?
Well, the “coverage provider” pays the tax. For insured plans, that’s easy: it’s the insurer. For HSAs or Archer MSAs, it’s the employer. But what about a self-funded plan? The statute says it’s the “person that administers the plan benefits.” That phrase is undefined in the statute or really anywhere else.
The IRS is looking at two possible approaches for defining this term. One is to look at a self-funded plan’s third party administrator/ASO provider. That sounds easy, until you remember that many plans have carved out pharmacy benefit management with a separate provider or have otherwise divided up the administration. Regardless, this tax is still getting passed back through to employers anyway.
The second approach is looking at the person with ultimate authority for the plan administration (the relatively pithy ERISA name for this person is the “plan administrator”). Of course, sometimes the plan administrator is a committee of people and not really an individual or entity. (I guess they could divide the tax among them?) The IRS also says that it