LIMITED SCOPE OF DENTAL AND VISION BENEFITS
In response to stakeholder disapproval, the Treasury and IRS are considering proposing an approach which self-insured limited scope dental and vision coverage that qualifies as an excepted benefit would be excluded from excise taxation. Limited scope dental and vision coverage are health benefits that are bundled separately from employees’ primary health insurance plans. Additionally, employees have an opt-out clause within limited scope coverage, which enables employees to discontinue paying premiums for employer dental and vision coverage and cancels benefits.
ACA codifies limited scope dental and vision benefits as exempt from excise taxation. Yet, despite the exemption of limited scope benefits, the ACA does not clearly state in statutory language whether self-funded and insured coverage will be treated equally under excise tax. Stakeholders are concerned whether benefits will be taxed differently depending on how they are administered. We recommend the IRS and Treasury exclude the previously listed arrangements from the excise tax due to a lack of evidence that the tax will reduce healthcare costs and over-utilization. The statutory language in the ACA “specifically excludes fully insured dental and vision plans” from excise taxation, however, the treatment of self-insured dental and vision plans was not clear. The discrepancy in statutory language may be a cause of confusion for employers. Furthermore, an excise taxation on self-funded limited scope dental vision coverage may result in higher administrative costs for employers, who may consequently shift costs to employees. This cost shift may occur in the form of higher premiums, deductibles, and narrower health care networks, all of which may stymie the ACA’s mission to improving equity in access to care. Thus, it is a wise policy decision to exclude all limited scope dental and vision plans from excise taxation, as a means to contain administrative costs for employers and maintain access to quality care for employees.
ACA codifies limited scope dental and vision benefits as exempt from excise taxation. Yet, despite the exemption of limited scope benefits, the ACA does not clearly state in statutory language whether self-funded and insured coverage will be treated equally under excise tax. Stakeholders are concerned whether benefits will be taxed differently depending on how they are administered. We recommend the IRS and Treasury exclude the previously listed arrangements from the excise tax due to a lack of evidence that the tax will reduce healthcare costs and over-utilization. The statutory language in the ACA “specifically excludes fully insured dental and vision plans” from excise taxation, however, the treatment of self-insured dental and vision plans was not clear. The discrepancy in statutory language may be a cause of confusion for employers. Furthermore, an excise taxation on self-funded limited scope dental vision coverage may result in higher administrative costs for employers, who may consequently shift costs to employees. This cost shift may occur in the form of higher premiums, deductibles, and narrower health care networks, all of which may stymie the ACA’s mission to improving equity in access to care. Thus, it is a wise policy decision to exclude all limited scope dental and vision plans from excise taxation, as a means to contain administrative costs for employers and maintain access to quality care for employees.