1. Form W-2 reporting rules under ACA. Beginning with the 2012 W-2 forms issued in early 2013, employers are required to report the "aggregate cost" of "applicable employer-sponsored coverage" each year on Form W-2.ii The "applicable premium" under COBRA is one of the methods that are often used for this purpose.
2. ACA expansion of wellness incentives. For plan years beginning in 2014, the premium incentives that may be used to encourage participation in wellness programs are being expanded from 20% to 30% of the "cost of individual coverage" (up to 50% for tobacco-related programs). There has not been much explicit guidance on how to calculate the "cost of individual coverage" for self-funded plans. For this reason, it is likely that many will consider using the "applicable premium" method under COBRA.
3. "Cadillac Tax." For taxable years beginning after 2017, an excise tax of 40% will be payable on the cost of coverage in excess of certain thresholds.iii For this purpose, the cost of coverage is defined with reference to the "applicable premium" used for COBRA purposes.
The expanded usage of the "applicable premium" under COBRA is increasing the importance of having appropriate and up-to-date calculation methods for health plan coverage costs. Employers and plan sponsors should work with their consultants and advisors to make sure that the methodologies used for COBRA rates, W-2 reporting, wellness incentives, and the "Cadillac Tax" are consistently applied on an annual basis and that they are actuarially sound.
iERISA Section 602(3). The applicable premium is generally the premium charged by the insurance company for insured plans. For self-funded plans, special calculations by a qualified actuary are often used.
iiPPACA, Pub. L. No. 111-148, 9002
iiiThe thresholds for 2018 are $10,200 for self-only coverage and $27,500 for coverage other than self-only. These amounts are adjusted in various situations as described in Code Section 4980I.