The omnibus spending/tax extenders legislation enacted on December 18 contains several provisions relating to the Affordable Care Act (ACA). These changes are described in more detail below.
Delay of Healthcare-Related Taxes
The “taxibus” legislation imposed short-term moratoriums on three of the taxes included in the ACA:
- Two Year Delay on Excise Tax on High-Cost Employer Sponsored Health Coverage (Consolidated Appropriations Act of 2016, Title I, § 101)
The “Cadillac” excise tax imposed on high-cost employer sponsored plans will be delayed until 2019. This tax was originally set to take effect beginning in 2017. This provision imposes a 40% excise tax on the “excess benefit” an employee receives under an employer-sponsored plan. An “excess benefit” is the amount, if any, of the aggregate cost of the coverage of the employee for the month over the applicable dollar limit for that employee for the month. These limits are currently $10,200 for individual coverage and $27,500 for family coverage.
- Two Year Moratorium on Excise Tax on Medical Devices (Protecting Americans from Tax Hikes Act of 2015, Title I, § 174)
Section 4191 of the Internal Revenue Code imposes a 2.3% excise tax on the sale of certain taxable medical devices (not including eyeglasses, contact lenses, and hearing aids). This tax has been in effect since December 31, 2012. The tax extenders bill imposes a moratorium on this tax for sales after December 31, 2015 through December 31, 2017.
- One Year Moratorium on Annual Fee on Health Insurance Providers (Consolidated Appropriations Act of 2016, Title II, § 201)
Section 9010 of the ACA imposes a fee on each “covered entity” engaged in the business of providing health insurance for US health risks. A covered entity is generally one with net premiums written for health insurance that is (1) a health insurance issuer; (2) a health maintenance organization; (3) an insurance company; (4) an insurer that provides health insurance under Medicare Advantage, Medicare Part D, or Medicaid; or (5) a non-fully insured multiple employer welfare arrangement. The fee does not apply to: (1) self-insured employers; (2) governmental entities; (3) certain nonprofit corporations; or (4) certain voluntary employees’ beneficiary associations.
The moratorium applies only to the 2017 calendar year – the fee went into effect for 2014 and remains in effect through the end of 2016. Under the legislation, the fee is scheduled to resume in 2018.
Deductibility of Cadillac Tax
The tax-extenders bill added a deduction for the Cadillac tax imposed on certain high-cost employer sponsored plans. Employers required to pay the Cadillac excise tax are now permitted to deduct it from their federal taxable income. The omnibus bill amended Section 4980I(f)(10) to eliminate the provision that denied a deduction for the Cadillac tax.