Employer-sponsored health insurance (ESI) plans can no longer remain absolutely tax-exempt since the deduction is costing the U.S. $250 billion per year. The ESI tax-exemption has allowed the cost of health insurance plans to skyrocket, leading to inefficiencies and inequality in health care coverage.
The IRS released two notices (Notice 1, Notice 2) in 2015 to initiate and inform the process of developing regulatory guidelines regarding the Cadillac Tax. The notices elicited public comments on a number of issues, primarily, (1) how to define applicable coverage, 2) how to determine the cost of applicable coverage, and 3) how to apply the annual statutory dollar limit to the cost of applicable coverage. These questions posed by the IRS form the foundation for our policy recommendations, as laid out below. Our recommendations focus on defining applicable coverage through two categories: threshold adjustments and exemptions (Table 1). We believe allowing certain threshold adjustments and exemptions will achieve the goals of the Cadillac Tax while also addressing concerns about applying the tax fairly across the population.
THRESHOLD ADJUSTMENTS |
EXEMPTIONS |