January 9, 2020

Budget Bill Repeals Portions of the Affordable Care Act

By Ted Ginsburg, Director, Tax & Business Services

nurse holding multi-color puzzle piece Tax & Business

On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020 (HR 1865). Among the provisions of this act are the repeal of three excise taxes created under the Affordable Care Act (ACA). Following are the excise taxes that were repealed and a discussion of the ongoing excise taxes.

Repealed – the “Cadillac” Tax

This excise tax, found in Internal Revenue Code (IRC) Section 4980I, had been postponed in the past and was not scheduled to take effect until tax years beginning after December 31, 2021. It would have imposed an excise tax on employers (paid directly by self-insured programs, imposed on carriers in fully insured plans that would then pass the excise tax on to the employers) that offered health insurance coverage providing benefits beyond a certain actuarially determined amount.

Repealed – the Medical Device Tax

This excise tax, found in IRC Section 4191, imposed a tax on the sale, use, or lease of a taxable medical device by its manufacturer or importer, equal to 2.3% of the sales price. This section of the IRC is repealed for medical device sales occurring after December 31, 2019; for sales that occurred on or after January 1, 2016, through the date of repeal, a moratorium is imposed.

Repealed – the Annual Fee on Health Insurance Providers

This excise tax, found in IRC Sections 4375 and 4376, imposed an excise tax on both fully insured health programs and self-insured health programs, equal to $2 (adjusted for inflation) for each person covered under the program. This was also known as the Patient Centered Outcomes Research Institute (PCORI) fee. It is repealed for years beginning after December 31, 2020.

Ongoing Excise Taxes

The PCORI fee will continue to be in effect through the end of 2020; therefore, two additional filings for self-insured programs (using Internal Revenue Service (IRS) Form 720) will be required.

The employer mandate, contained in IRC Section 4980H, continues in effect. This provision imposes an excise tax on an “applicable large employer” (ALE) that does not offer health coverage providing a stated level of benefits at an “affordable” out-of-pocket cost to at least 95% of its full-time workforce. ALEs continue to be required to issue IRS Form 1095-C to their employees. The IRS has been aggressively imposing this excise tax on employers that do not offer the coverage.

For questions about how these updates may impact you, please contact your Marcum tax professional.