2020 Budget Bill Includes Repeal of the Cadillac Tax, Health Insurer Tax, and Extension of the PCORI Fee
The Further Consolidated Appropriations Act, 2020 (the "Budget Bill") made a few important changes pertaining to health plans and providers, such as the repeal of the Affordable Care Act's ("ACA's") Cadillac Tax, medical device excise tax, and annual fee on health insurance providers. However the Budget Bill also extends the PCORI fee to the year 2029. These changes are discussed below in more detail. The Budget Bill may be found here. Note that the Budget Bill also contained the SECURE Act, which made a number of changes in the pension area. See the Cheiron alert dated January 6, 2020.
Provisions Affecting Health Care Plans1
- Extension of PCORI Fee to 2029: The Act extends appropriations to the Patient-Centered Outcomes Research Trust Fund (the "PCORI fee") to 2029. Originally scheduled to sunset in 2019, the PCORI fee is imposed by Sections 4375 and 4376 of the Internal Revenue Code (the "Code") for the purpose of funding clinical effectiveness research. The fee is reported on the Form 720 with payment due by July 31. The fee is calculated by multiplying the applicable dollar amount by the average number of covered lives for the plan year. For policy years and plan years that ended on or after October 1, 2018 and before October 1, 2019, the applicable dollar amount was $2.45. The fee for policy years and plan years that end on or after October 1, 2019 and before October 1, 2020 has not yet been released. Cheiron's alerts dated July 12, 2019, July 5, 2018, July 11, 2017, July 6, 2016, July 2, 2013 and December 21, 2012 provide additional information about the PCORI fee.
- Repeal of annual fee on health insurance providers: The Budget Bill permanently repeals the annual fee on health insurance providers for calendar years beginning after December 31, 2020. Section 9010 of the ACA, originally effective in 2014, imposes a fee on each covered entity engaged in the business of providing health insurance. There was a moratorium on the fee for 2017 and the fee was suspended for 2019, but not for 2020. Therefore, payment of the fee still is required for 2020.
- Repeal of medical device excise tax: The Budget Bill permanently repeals the medical devices excise tax for sales after December 31, 2019. The ACA through Section 4191 of the Code imposed a 2.3 percent excise tax on the sale of certain medical devices by manufacturers, producers, or importers effective January 1, 2013. In 2015, Congress approved a 2-year moratorium, and extended that 2-year moratorium in 2017, resulting in the no tax in 2016 through 2019.
- Repeal of Cadillac Tax: The Budget Bill permanently repeals the excise tax on high cost employer-sponsored health coverage (dubbed the "Cadillac Tax"). Originally scheduled to be effective in 2018 and later postponed until 2022, the Cadillac Tax was imposed by Section 4980I of the Code and would have applied a 40% excise tax to the extent that the cost of coverage exceeded a statutory dollar limit.
CHEIRON OBSERVATION: The Cadillac Tax and the Medical Device tax were repealed before they became effective. The Health Insurer tax will produce savings for fully insured plans generally in the range of 2% - 3½% of premium. For Medicare Advantage (MA) plans and Medicare Prescription Drug Plans (PDP), the Health Insurer tax savings is much more significant as a percent of premium because the insurer was also taxed on the portion paid by Medicare. As a result, sponsors of plans for Medicare retirees may find MA and PDP more cost effective.
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Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.
1 These provisions are found in Sections 104, 501, 502, and 503 of Division N of the Act, respectively.