Health Care Reform, Compliance

Compliance Update: The Cadillac Tax, PACE Act,and IRS Reporting

March 9, 2016

Compliance Update: The Cadillac Tax, PACe Act, and IRS Reporting

Benefits plan compliance is an ongoing process that should be paid attention to year round. Currently on our radar in 2016 is the Cadillac Tax, PACE Act, and IRS reporting. I sat down with fellow Managing Director Paul Ashley to discuss some of the recent changes and what we can expect down the road. Watch the video  of our discussion or read the transcript below.

Paul Ashley: Welcome to the FirstPerson video blog. I'm Paul Ashley joined by fellow Managing Director and, more importantly for this vlog, General Counsel Katy Stowers.

Katy Stowers: Hi, Paul.

PA: Thanks for joining us. So, today we're gonna unpack some compliance stuff related to the Affordable Care Act. It was a busy fourth quarter in D.C. So let's start with the beginning of the fall. What happened in Congress?

KS: Well, in Congress in the fall passed something called the PACE Act, which significantly impacts employers with 50-99 employees, those employers that were going to be under Affordable Care Act provisions subject to community rating beginning in 2016. Now, states are allowed to keep their own definitions of the small group market, which means that in Indiana that can stay at 2-50. And we're not having to worry about getting those 50-99 employers down into the small group market.

PA: And there's a handful of states that went ahead and went to 100 and they're either going to have to stay at 100 or have to come back to 2-50. We'll see what happens in those other states.

KS: That's correct. Indiana was already at 2-50, so really what we ended up being was kind of "hurry up and don't change."

PA: Exactly. And it's important because this gives more flexibility to 51-99 groups. It also means that those groups that invest in well-being, in workplace initiatives that make people healthy and productive might see an impact back to their experience rating.

KS: Absolutely. Because going to community rating meant they'd be thrown in the pool with everyone else rather than being able to impact their rates by having a healthier workforce.

Navigating Health Care Reform

PA: So it's added a little bit of confusion, but at the end of the day it's a good thing. Then, we had our friends at the IRS issue some new guidance, and this impacted reporting requirements that employers are first experiencing in 2016. Let's unpack that.

KS: That's right, Paul. The Affordable Care Act requires employers to start reporting in 2016 to show that they offered affordable and adequate coverage to employees in 2015. And then also to give documentation to employees so that those employees can prove that they have health coverage. Those reporting requirements were to begin at the end of January, but at the end of December, the IRS issued some guidance that gives people a little more time to get those forms prepared and distributed. So now we've got a March 31 deadline for getting employees those forms.

PA: And the main reason we believe that happened is because it was such a complex reporting requirement. There was a lot of the companies like the payroll companies and others pushing back on the IRS saying, "Hey, we need more time." They gave them more time, but we're still hearing this is a challenge today.

KS: Oh, without a doubt. So, the time was needed because companies that were helping employers get this done were really struggling. Those struggles continue. Employers that we work with are continuing to have a lot of time and money invested in getting this reporting done.

PA: And the main question that employees will begin to ask their employers, because they're starting to think about or file their taxes, is, "Hey, this form, I don't have it yet. I'm going to file my taxes. Do I have to have it?"

KS: Right. Tax preparers will be asking, but the answer is that it's not going to be required this year as documentation for taxes as long as individuals have other means of proving that health coverage, such as pay stubs, (insurance) cards, and things of that nature.

PA: Just like when they filed their 2014 taxes in 2015, they simply have to attest to it.

KS: Right, right. And this isn't a form that gets filed with your taxes. It's like a lot of the other things that we get to support our taxes. It's something to keep in the file in case of audit.

PA: And last topic on the tax standfront: The Cadillac Tax. It got delayed. This is a little bit of a political thing. It's the one thing where the Chambers of Commerce and the unions agreed on something together they both don't like, and that was the Cadillac Tax. What happened?

KS: Well, the Cadillac Tax was intended to go into effect in 2018. This is a provision that was in the original legislation that was passed back in 2010. It has been very controversial because the way the tax is calculated is based on the cost of coverage, which means that if a plan is more expensive, it would potentially trigger this Cadillac Tax, which is 40% of that excess over a certain threshold. So, what Congress did was they decided to push it back two more years to 2020.

PA: Maybe because it's an election year, maybe not.

KS: I suspect that had a little bit to do with it. And this will give employers longer lead up to plan and it also gives Congress more time to make the law more fair and potentially better for the country.

PA: Yeah, and one of the things we hope is that the folks in D.C. will act and create sort of a safe harbor plan that's just known for everybody, and it's really not based on the cost of care but really what the benefit design looks like.

KS: Exactly. That would certainly be easier to navigate.

PA: Certainly would. Well, a lot of complex issues. It's great that we have folks like Katy on our Compliance Team available to help employers out. Check us out at, and thanks for joining us on this video blog.