As discussed previously on this blog, employers are increasingly turning to telemedicine as a way to cut employee health care costs and improve bottom lines. The trend will be accelerated by the impending Cadillac Tax, a 40 percent excise tax on the excess of the cost of an employee’s applicable coverage over the employee’s applicable dollar limit. In February, the Treasury and IRS released Notice 2015-16 (the “Notice”), kicking off the process of developing regulatory guidance regarding the Cadillac Tax. Specifically, the Notice addresses the following issues:
- Defining “applicable coverage,”
- Determining the cost of applicable coverage, and
- Applying the annual statutory dollar limit to the cost of applicable coverage.
To limit liability, employers will favor rules that result in a lower cost of applicable coverage or a higher applicable dollar limit. The former can be accomplished through rules that exclude more types of coverage from the definition of applicable coverage. This is one area on which telemedicine providers may want to submit comments. Although the Cadillac Tax will encourage employers to lower health care costs and potentially turn to telemedicine to do so, there are nonetheless certain areas where telemedicine may be negatively impacted.
Notably, the definition of applicable coverage includes coverage for on-site medical clinics. To reduce costs and absenteeism, more companies are opening on-site medical clinics to offer a number of services to employees. Employers frequently partner with telemedicine providers to offer services at these clinics. However, providing a comprehensive set of services at on-site clinics can be expensive, and the Cadillac Tax may exacerbate those costs beginning in 2018. I note that while the Notice does not specifically address direct-to-consumer telemedicine services, those services would be included in the definition of applicable coverage to the extent that they are covered under an employer’s group health plan.
The Treasury and IRS anticipate that the definition of applicable coverage will exclude coverage provided by on-site medical clinics that provide “de minimis” care to current employees free of charge. Under the definition considered in the Notice, de minimis care is limited to first aid provided for treatment of a health condition, illness, or injury that occurs during working hours. Therefore, under this approach, the definition of applicable coverage would include coverage of telemedicine services at on-site medical clinics, making this a potential target for employers as they scale back their health offerings to minimize Cadillac Tax liability.
The IRS seeks comments on a couple related issues:
- Whether on-site medical clinics that provide services besides first aid should also be exempt from the definition of applicable coverage; and
- How the IRS should treat medical care provided by on-site medical clinics (for example, whether there should be a dollar limit on the cost of services provided). There are also unresolved issues that may be addressed in future notices.
Before issuing proposed regulations, the Treasury and IRS plan to issue another notice addressing potential approaches to other issues not described in Notice 2015-16, such as procedural issues relating to calculating and assessing the Cadillac Tax.
Telemedicine providers should consider submitting comments arguing for the exclusion of telemedicine services from the definition of applicable coverage, whether provided at on-site medical clinics or otherwise. Comments on the Notice, which are due on May 15, 2015, provide a valuable opportunity for stakeholders to participate in the rulemaking process.