FUTURE OF CERTAIN ACA TAXES AND FEES

OVERVIEW

Several steps have been taken in 2017 toward repealing the Affordable Care Act (ACA), including the introduction of the American Health Care Act (AHCA). The AHCA was passed in the U.S. House of Representatives, but was rejected by the Senate, although it may be reconsidered in the future.

While the future of the ACA as a whole is currently unclear, some definitive changes have been made to some ACA taxes and fees for 2017.

  • Implementation of the Cadillac tax on high-cost group health coverage was delayed for two years, until 2020.
  • A moratorium applies for 2017 on the health insurance providers fee and the medical device excise tax.
  • The reinsurance fee expired after 2016.

ACTION STEPS

Employers should be aware of the evolving applicability of existing ACA taxes and fees so that they know how the ACA affects their bottom lines. Emery Benefit Solutions will continue to keep you informed of changes.

Overview

A federal budget bill enacted for 2016 made the following significant changes to three ACA tax provisions:

  • Delayed implementation of the ACA’s Cadillac tax for two years, until 2020;
  • Imposed a one-year moratorium on the ACA’s health insurance providers fee for 2017; and
  • Imposed a two-year moratorium on the ACA’s medical device excise tax for 2016 and 2017.

In addition, the ACA’s reinsurance fee expired after 2016, although the 2016 fees will be paid in 2017.

Status of the AHCA

Currently, Republicans in both the Senate and the U.S. House of Representatives have been using the budget reconciliation process in their efforts to repeal and replace the ACA. This means that the proposed bills can only address ACA provisions that directly relate to budgetary issues—specifically, federal spending and taxation. As a result, these proposals cannot fully repeal the ACA. Budget reconciliation legislation can be passed by both houses with a simple majority vote. However, a full repeal of the ACA must be introduced as a separate bill that would require 60 votes in the Senate to pass.

On May 4, 2017, the House voted 217-213 to pass the American Health Care Act (AHCA), which is its proposal to repeal and replace the ACA. As a result, the AHCA moved on to the Senate for consideration. In response, the Senate originally drafted the Better Care Reconciliation Act (BCRA) as its own ACA repeal and replacement bill, followed by amendments to the BCRA on July 13, 2017. However, on July 18, 2017, Senate Republicans abandoned the BCRA due to a lack of votes.

Then, on July 25, 2017, the Senate voted 50-50 to open up the AHCA for debate and amendments, with Vice President Mike Pence casting the tie-breaking vote in favor of the measure. As a result of the vote, the Senate began a 20-hour debate period, where amendments would be introduced and voted on in succession. The HCFA was the last amendment that was introduced during the 20-hour debate period.

Cadillac Tax Delayed

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 who provided the coverage.

Although originally intended to take effect in 2013, the Cadillac tax was immediately delayed until 2018 following the ACA’s enactment. The 2016 federal budget further delayed implementation of this tax for an additional two years, until 2020.

The 2016 federal budget bill also:

  • Removed a provision prohibiting the Cadillac tax from being deducted as a business expense; and
  • Required a study to be conducted on the age and gender adjustment to the annual limit.

There is some indication that this additional delay will lead to an eventual repeal of the Cadillac tax provision altogether. Over the past several years, a number of bills have been introduced into Congress to repeal this tax. Although President Trump has not directly indicated that he intends to repeal the Cadillac tax, he has stated that repealing and replacing the ACA is a main goal for his administration.

The AHCA would delay the Cadillac tax’s effective date even further, so that it would apply only for taxable periods beginning after Dec. 31, 2025.

Moratorium on the Providers Fee

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 Sept. 30 of each calendar year. The first fees were due Sept. 30, 2014.

The 2016 federal budget suspended collection of the health insurance providers fee for the 2017 calendar year. Thus, health insurance issuers are not required to pay these fees for 2017. 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 one-year moratorium may result in significant savings for some employers on their health insurance rates.

Moratorium on the Medical Devices Tax

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 does not apply to sales made between Jan. 1, 2016, and Dec. 31, 2017.

Reinsurance Fees

Under the ACA, health insurance issuers and self-funded group health plans must also pay fees to support a transitional reinsurance program for the first three years of Exchange operation (2014-16) to help stabilize premiums for individual market coverage. Fully insured plan sponsors do not have to pay the fee directly.

Because the transitional reinsurance program was operational only through 2016, reinsurance fees do not apply for 2017 and beyond (although the 2016 fees will be paid in 2017). Reinsurance fees may be paid in either one lump sum or in two installments.

For the 2016 benefit year, reinsurance fees are due as follows:

Paid in Two Installments   Paid in One Lump Sum
·       Due Nov. 15, 2016: Submit the 2016 contribution form and schedule payment of the first collection, then duplicate the form and schedule payment of the second collection.

·       Due Jan. 15, 2017: Remit the first contribution amount of $21.60 per covered life.

·       Due Nov. 15, 2017: Remit the second contribution amount of $5.40 per covered life.

  ·       Due Nov. 15, 2016: Submit the 2016 contribution form and schedule payment.

·       Due Jan. 15, 2017: Pay the full contribution amount of $27 per covered life.

For more information contact Sue Justice at sue@emerybenefitsolutions.com

This ACA Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

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