Business Arm Holding Money Bag.fw.pngAn approach is being considered by the Treasury and IRS to clarify the applicable dollar limit and cadillac tax when an employee simultaneously has one type of coverage that is self-only coverage and another type of coverage that is other-than-self-only coverage. An example of this would be if the employee has self-only major medical coverage and supplemental coverage, such as an HRA, that covers both the employee and their family.

One of the questions that are being raised is how to calculate the value of health reimbursement arrangements (HRAs).

Within the category of applicable coverage are employer contributions to a:

HSA (Health Savings Account) – including employer credits as well as prêt-ax employee salary reduction amounts.
HRA (Health Reimbursement Account) – solely funded by employers.

One approach that is being considered is that the applicable dollar limit would depend on whether the employee’s primary (major medical) coverage is self-only coverage or other-than-self-only coverage. The employee’s primary coverage would be the type of coverage that accounts for the majority of the aggregate cost of applicable coverage.

Also being considered is an alternate approach that would apply a composite dollar limit determined by prorating the dollar limits for each employee according to the ratio of the cost of the self-only coverage and the cost of the other-than-self-only coverage provided to the employee.

Notice 2015-16 is the first step in the formal process that will ultimately lead to regulations. The Treasury and IRS are inviting comments on these potential approaches, including any possible administrative difficulties in applying them, as well as any other approaches that might address this issue. After comments on the notice are reviewed, proposed regulations will then be issued.

Although the 2018 effective date of the Cadillac tax seems far away it’s not too early to start evaluating plan design over the long term and to be aware of benefits that will, or won’t be captured by the Cadillac tax.

Experts like Paypro are navigating the difficult legal landscape every single day, and can provide trusted guidance and insights that keep organizations like yours compliant and focused on what they do best. To learn more on how we can help with Benefits Solutions and other requirements of the Affordable Care Act please contact us or request a consultation with one of our Benefits Specialists.

Reduce your annual workload by 5 months

See how payroll automation reduces manual processing time

  • This field is for validation purposes and should be left unchanged.