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Newsbrief–Lawmakers Repeal ACA Taxes: Congress and the President Provide Employers and Employees with an Early Holiday Present

Put on the brakes and turn off the engine–there will be no implementation of the “Cadillac” tax.

On December 17 and December 19, respectively, the House and Senate pass two spending bills to fund the government through the end of the next fiscal year, i.e. September 30, 2020. One bill specifically includes the repeal of three major taxes that fund the Affordable Care Act (ACA). These taxes are the “Cadillac” tax, the health insurance tax (HIT), and the medical device tax. With the President’s signature on December 20th, the $1.4 trillion spending bill now becomes law.

Background

“Cadillac” Tax. The excise (“Cadillac”) tax is a provision of the 2010 ACA law that assesses employer penalties for offering health plans exceeding a certain value. Unpopular, with most lawmakers and employers, this provision would see employers choosing to reduce benefits rather than pay a tax. Over the years, the implementation of this provision has seen several delays and attempts for repeal. The latest schedule, prior to repeal, shows a 2022 implementation date.

Other Healthcare Changes

Not only does the spending bill repeal the “Cadillac” tax, but it repeals two other significant taxes that contribute to the escalating insurance premiums consumers pay. These are:

  • the health insurance tax; and
  • the medical device tax

The health insurance tax, or HIT, assesses an annual tax on health insurance companies while the medical device tax affects medical device manufacturers. Although the assessments are made on the insurance companies and medical device manufacturers, the costs pass through to the consumer resulting in higher insurance premiums and costs for medical devices.

Additionally, the spending bill grants an additional ten years of funding for the Patient-Centered Outcomes Research Institute (PCORI), which is an annual fee that health plans pay. The PCORI fees were set to run out this year. Employers with self-funded health plans and health insurers may not be able to avoid this fee in the future.

Implementation of the Law

Since the “Cadillac” tax is not currently in effect, the new law bars this provision of the ACA from ever being effective. The HIT, already in play for 2020, is set for implementation on January 1, 2021.

Employers need not take into account the potential tax when determining plan design choices in the future. Additionally, they should enjoy lower rate increases on fully-insured carrier plans since the carrier will no longer bear the burden of this tax.

OneDigital’s team of compliance experts are closely monitoring any updates or legislative changes and translating them on behalf of our clients. Visit OneDigital’s Compliance Confidence page to stay informed.

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