ACA Update: Additional ACA Tax and Fee Changes

Both houses of Congress passed and President Trump signed a bipartisan spending bill which included Affordable Care Act (ACA) tax and fee changes, into law on Friday, December 20, 2019.

In addition to the Cadillac Tax being permanently repealed, the following changes were made to existing requirements:

PCORI Fees

Patient‐Centered Outcomes Research Institute (PCORI) fee is a temporary fee on both fully‐insured and self-insured health care benefits that originally applied to the seven policy years between 2012 and 2019. The fees are intended to fund the Patient Centered Outcomes Research Institute, which is an independent, non‐profit organization created under the Affordable Care Act to conduct research for patients and caregivers on enhancing health care outcomes.

The 2019 spending bill reinstates PCORI fees for the 2020-2029 fiscal years. As a result, specified health insurance policies and applicable self-insured health plans must continue to pay these fees through 2029.

Health Insurer Tax (HIT)

Beginning in 2014, the ACA imposed an annual, non-deductible fee on health insurers based on market share.  While employers were not subject to the tax, insurers in many cases include the tax in the cost of employer sponsored health plans.

The HIT was suspended for the 2017 and 2019 calendar years.  Thus, it applied in 2018 and will apply for the 2020 calendar year.  The 2019 spending bill fully repeals HIT beginning with the 2021 calendar year.  As a result employers should see in change in ACA fees assessed by health insurance carriers in their 2021 renewals.

Medical Devices Excise Tax

The ACA imposed a 2.3% excise tax on the sale of certain medical devices, beginning in 2013. Generally the manufacturer or importer of a taxable medical device is responsible for reporting and paying this tax to the Internal Revenue Service. The 2016 federal budget suspended collection of this tax for two years, in 2016 and 2017. A 2018 continuing resolution extended this moratorium for an additional two years, through the 2019 calendar year. The moratorium was set to expire beginning in 2020.

The 2019 spending bill permanently repeals the medical devices tax, beginning in 2020. Therefore, as a result of both moratoriums and the repeal, the tax does not apply to any qualifying sales made after January 1, 2016.

Key Takeaway:

The end of year spending bill included a number of important tax changes for health insurance costs.  In addition to the removal of the Cadillac Tax from the ACA, the bill included the full repeal of the Health Insurer Tax (HIT) and the Medical Device Excise Tax.  However, the bill also extended the PCORI fees through 2029.

If you have questions or concerns about these changes, please contact your M3 Account Team.

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This information is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.

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