Tax Notes Quotes Ronald Cluett on Proposed Shift in Health Plan Tax Liability

The Biden administration’s proposal to shift the excise tax for employer health plan compliance failures to third-party administrators (TPAs) would end with employers still footing the bill, according to tax professionals in the benefits industry.

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Ronald G. Cluett of Caplin & Drysdale raised several questions about the proposal, including whether the current excise tax maximum penalty of $500,000 for unintentional failures attributable to reasonable cause would apply to each plan a TPA administers or to the TPA as a single entity, whether the excise tax would apply to TPAs of insured small plans now exempt from the excise tax, and what the effect would be on multiemployer plans.

Cluett also noted problems that could arise because the proposal would shift the liability from employers to TPAs only in certain circumstances, when the noncompliance is the fault of the TPA.

“I can see plenty of potential disagreement about causation and its extent,” Cluett said. “So while this proposal might increase TPA compliance, as the green book states, it could also create adversity between employers and TPAs when noncompliance occurs.”

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