December 23, 2019
This past week was a very active week for the Affordable Care Act (ACA). On December 19, 2019, President Trump signed two short-term spending bills to prevent a government shutdown and continue funding through September 2020. One of the bills, H.R. 1865, the “Further Consolidated Appropriations Act of 2020” includes provisions that repeal the following three largely unpopular taxes and fees under the ACA:
The bill also extends the PCORI fees to be effective for 2020-2029.
Separately, on the previous day, the Fifth Circuit United States Court of Appeals has upheld a district court’s determination in Texas v. the United States ( available here) that the individual mandate is unconstitutional because it is no longer a tax with the zeroed-out penalty. However, it did not invalidate the rest of the law. As a result, its other provisions remain in effect as of this time. The ruling is expected to be challenged by California and other states, and likely end up with the Supreme Court.
The ACA imposes a 40 percent excise tax on high-cost group health coverage, also known as the “Cadillac tax.” This provision taxes the amount, if any, by which the monthly cost of an employee's applicable employer-sponsored health coverage exceeds the annual limitation (called the employee’s excess benefit). The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.
Although originally intended to take effect in 2013, the Cadillac tax was immediately delayed until 2018 following the ACA’s enactment. A federal budget bill enacted for 2016 further delayed implementation of this tax until 2020, and a 2018 continuing spending resolution delayed implementation of the Cadillac tax for an additional two years, until 2022. The Cadillac tax has been a largely unpopular provision since its enactment, and several bills have been introduced into Congress to repeal this tax over the past several years.
The 2019 continuing spending resolution fully repeals the Cadillac tax, beginning with the 2020 taxable year.
Beginning in 2014, the ACA imposed an annual, nondeductible fee on the health insurance sector, allocated across the industry according to market share. This health insurance providers fee, which is treated as an excise tax, is required to be paid by September 30 of each calendar year. The first fees were due September 30, 2014.
The 2016 federal budget suspended collection of the health insurance providers fee for the 2017 calendar year. Thus, health insurance issuers were not required to pay these fees for 2017. However, this moratorium expired at the end of 2017. A 2019 continuing resolution provided an additional one-year moratorium on the health insurance providers fee for the 2019 calendar year, although the fee continued to apply for the 2018 calendar year.
The 2019 continuing spending resolution fully repeals the health insurance providers fee, beginning with the 2021 calendar year. Employers are not directly subject to the health insurance providers fee. However, in many cases, providers of insured plans have been passing the cost of the fee on to the employers sponsoring the coverage. As a result, this repeal could result in significant savings for some employers on their health insurance rates.
The ACA also imposes a 2.3 percent excise tax on the sales price of certain medical devices, effective beginning in 2013. Generally, the manufacturer or importer of a taxable medical device is responsible for reporting and paying this tax to the IRS. The 2016 federal budget suspended collection of the medical devices tax for two years, in 2016 and 2017. As a result, this tax did not apply to sales made in those two years. A 2018 continuing resolution extended this moratorium for an additional two years, through the 2019 calendar year. The moratorium had been set to expire beginning in 2020.
The 2019 continuing spending resolution repeals the medical devices tax, beginning in 2020.
The ACA created the Patient-Centered Outcomes Research Institute (PCORI) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans. Under the ACA, the PCORI fees were scheduled to apply to policy or plan years ending on or after October 1, 2012, and before October 1, 2019.
The 2019 continuing spending resolution reinstates the PCORI fees for the 2020-2029 fiscal years. As a result, specified health insurance policies and applicable self-insured health plans continue to be responsible for paying these fees through 2029.
For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:
Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.