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Healthcare Reform Update: Budget Deal Impacts ACA Tax Provisions

By on January 28, 2016 in Uncategorized with 0 Comments

On December 18, 2015, President Obama signed the Consolidated Appropriations Act of 2016 (H.R. 2029) into law. The legislation affects several taxes implemented by the Affordable Care Act (“ACA”), however, the ACA’s substantive provisions will remain intact.

Notably, the legislation delays the effective date of the excise tax imposed on high cost employer-sponsored health coverage, colloquially referred to as “Cadillac plans.” Initially non-deductible and set to go into effect in 2018, the Cadillac tax will now be delayed until January 1, 2020 and will be tax deductible for employers. The Cadillac tax is intended as a tool to finance the ACA and curb the rate of healthcare costs by discouraging overuse of healthcare services. In 2020 a 40% tax will be assessed on annual plan premiums that exceed threshold amounts. The 2018 threshold amount was set to $10,200 for individuals and $27,500 for families and will adjust prior to the 2020 implementation. The threshold amount can also increase for certain employers based on the group’s age, gender, and the risk of the profession.

The recent legislation also imposes moratoriums on the health insurance providers fee (HIP) and the medical device excise tax. The HIP fee or tax is an assessment on covered entities engaged in the business of providing health insurance for United States health risks, and whose annual premium revenue exceeds $25 million. Health insurers share in the payment of this industry-wide annual tax in an amount proportionate to the insurer’s market share. The federal government will forgo collection of the $13.9 billion HIP tax for 2017. The HIP tax, which will resume in 2018, is meant to fund subsidies for low-income individuals and families when purchasing insurance on exchanges established by the ACA. Additionally, the 2.3% medical device excise tax will be in moratorium for 2016 and 2017. This tax has been in effect since 2013 and is imposed on the sale of certain medical devices by the manufacturer or importer of the devices.

ACA opponents tout these tax adjustments as the beginning of the ACA’s unraveling. However, the Cadillac tax delay and moratoriums on the HIP and medical device taxes do not alter the substantive provisions of the ACA.


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