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Recent ACA Tax Changes and One Extension that Impact Your 2020 Compliance Requirements

Donna Hill, E2E's Senior / Medicare Specialist & Compliance Director, has written this overview to keep you informed about recent changes to three taxes imposed by the Affordable Care Act and the extension of another one.

Shortly before the holidays at the end of 2019, Congress reached an agreement to fund the government through September 2020 through the passage of H.R. 1158 and H.R. 1865.  H.R. 1865, also known as the Further Consolidated Appropriations Act of 2020, included a full repeal of these three taxes imposed by the Affordable Care Act and extended another one.

The “Cadillac” Tax

The Cadillac Tax is a 40% excise tax on the richest of health care designs.  This tax was supposed to begin in 2018 on any employer plans that exceeded annual premium of $10,200 for self-only coverage or $27,500 for family coverage.  The thresholds were set to increase to $10,800 and $29,500 in 2020.  The tax was intended to prevent employers from offering “rich” benefits in their health plans, believing this would help control the rising cost of health care.  The biggest flaw in this argument is that, according to a study by the Kaiser Family Foundation, 26% of employers would face this tax in 2020 on at least one offered plan, due to the rapidly rising costs of health insurance caused by implementation of the Affordable Care Act. It results in legislation that penalizes applicable large employers who provide more coverage to their employees.

The Health Insurer Tax

Beginning in 2021, this tax is also fully repealed.  It is a fee of a total of $8 billion imposed on the carriers of all fully-insured health plans – in the individual, group or senior market – pro-rated on the amount of fully-insured business that insurer carries.  The major objection to this tax is again related to the increasing price of health insurance under the Affordable Care Act.  Although the fee is assessed on the carrier, the carrier passes the fee on to the insured, thereby further increasing costs.

Medical Device Tax

This tax is a 2.3% excise tax on medical devices such as pacemakers, advanced imaging technology (CT Scan, MRI and ultrasound equipment), artificial joints, surgical gloves, and dental instruments.  Opponents have argued that the tax slows the development of innovative devices and costs medical technology jobs. Additionally, the tax inflated the cost of medical care.

PCORI Fee Extended 10 Years

The ACA requires sponsors of self-insured health plans and health insurers to pay a fee to help fund the Patient-Centered Outcomes Research Institute (PCORI). Under the original law, the final PCORI payment for sponsors of calendar year plans (for the 2018 plan year) was due July 31, 2019. The new legislation extends this fee for an additional 10 years.

For plan years ending January 1, 2019 through September 30, 2019 this fee was $2.45 per “belly button”, i.e. each person covered under the plan, including dependents.  This fee has increased incrementally each year and we can safely expect that it will continue to do so.  We are awaiting guidance from the IRS as to what the amount for plans ending through September 30, 2020 will be. Since insurers did not include the PCORI fee in insured premium rates for calendar year plans for 2019, IRS guidance may be needed in this area as well.

Contact an E2E Expert if you need help understanding and complying with the Affordable Care Act.

Donna Hill
Senior / Medicare Specialist & Compliance Director