Future of Certain ACA Taxes and Fees

High Ridge Insurance Services reviews the latest on the attempted ACA repeal and which taxes and fees in particular are affected.

Overview

Steps are being taken to see the Affordable Care Act (ACA) repealed and replaced in 2017, including the introduction of the American Health Care Act (AHCA). While Republicans did withdraw the AHCA, Congress may choose to pursue replacement bill this year.

The ACA’s future is unclear, but there are some definitive changes already taking place regarding associated taxes and fees. Employers should stay apprised of any changes made to the existing ACA tax code and costs, so they know how their bottom line is affected.

HighRidge Insurance Services, LLC issues the following to give you an idea of the changes to come.

Failure of the AHCA

A vote was scheduled to take place on March 24, 2017, although Republican members of the House of Representatives could not secure enough votes to approve the AHCA and instead decided to cancel the vote. Consequently, the ACA will remain in place for the time being and employers must continue to comply with all applicable provisions.

At present, President Donald Trump and House Republican leadership have said they intend to focus on other issues, but it is still possible that Congress will choose to draft a new ACA repeal and replacement bill in the future.

Cadillac Tax Delayed

The ACA has a provision that places a 40% excise tax (an indirect tax charged on the sale of a particular product) on high-cost group health coverages. A high-cost group health coverage is considered any plan that is worth $10,200 per year for individual coverage or       $27,500 annually for a family plan. This provision – the Cadillac Tax – imposes a 40% tax on the difference between the cost of an employer-sponsored health coverage and the annual limitation.

The Cadillac Tax was originally set to become active in 2013, but it was delayed until 2018. In 2016, the federal budget delayed the tax further until 2020, in addition to removing a provision that stops businesses from claiming the tax as a business expense. The 2016 budget mandates a study on the age and gender adjustment to the annual limit.

Since its introduction, there have been several bills introduced into Congress meant to repeal this portion of the ACA. President Trump has not explicitly stated that he intends to repeal the Cadillac tax, but he has made it apparent that repealing and replacing the ACA is one of the top priorities of his administration. In addition to this, there is interest from members of both parties to repeal the Cadillac tax. The AHCA would have delayed it until 2025, but the House withdrew the bill before the vote could commence.

Moratorium on the Provider’s Fee

The ACA required an annual, nondeductible fee across the health insurance industry based on a percent of market share. The cost is treated as an excise tax and is due by September 30th of each year. September 30th, 2014 was the due date for the first payment. The 2016 federal budget suspended collection of the health insurance providers fee for the 2017 calendar year. In many cases, the health insurance providers were passing the cost along to the employers. As a result, this one-year moratorium could lead to substantial savings for some businesses.

Moratorium on the Medical Devices Tax

The ACA imposes a 2.3% excise tax on certain medical devices. This tax began in 2013. The burden of paying the tax to the IRS fell to the manufacturer or importer. The 2016 federal budget deferred collection of the medical devices tax for the years 2016 and 2017.

Reinsurance Fees

The ACA imposed fees on health insurance issuers and self-funded group health plans to promote a transitional reinsurance program at the beginning of the exchange (2014-16). The payments existed to help stabilize premiums for individual market coverage. 2016 was the last year of the transitional reinsurance program, so fees will not apply for 2017 or beyond. However, the costs owed in 2016 are due this year. Health issuers and self-funded group sponsors can choose to pay the plan in two ways: either as a lump sum or in two installments. The due dates to pay the fee are as follows:

Those choosing to pay the fee in two installments must submit the 2016 contribution paperwork and schedule a payment for the first collection by November 15, 2016. The first portion ($21.60 per covered life) is due by January 15th, 2017. The second payment ($5.40 per covered life) is due on November 15th, 2017.

Those electing to pay the reinsurance fees as one lump sum must also submit the 2016 contribution form and schedule a payment by November 15th, 2016. They must make the full payment of $27.00 per covered life by January 15th, 2017.

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This summary serves only as a brief overview of the latest updates to the ACA tax code.  Be sure to contact High Ridge for specialized questions on these topics to ensure you receive the proper guidance for your company.

High Ridge Insurance Services will continue to post updates on the most recent legislation changes and guidance affecting employers, benefits, and related legal and compliance issues. For further information or inquiries, please visit our contact page to reach us directly.

 

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