Tax Repeal and PCORI Fee Extension in the Spending Bill

The recently passed and signed spending bill repealed three sections of the ACA: (1) a 40 percent tax on generous “Cadillac” employer health plans, (2) a 2.3 percent tax on medical devices, and (3) the health insurance tax. Congress had previously prevented the Cadillac tax from taking effect until 2022, and the House voted over the summer to abandon it permanently, but it is finally repealed for good. The medical device and health insurance taxes have been enforced on and off since the Affordable Care Act was passed, but with the enactment of this new legislation, each of the three sections have been repealed with differing effective dates.

The legislation also contained one surprise: the extension of the Patient Centered Outcomes Research (PCORI) Fee through 2029.

PCORI Fee Extension

Sec. 104 of the bill extends the PCORI fee through 2029.  This fee is applicable to fully-insured group health care plans as well as self-insured group health care plans. The fee will continue to increase through 2029 to match the increased appropriations.

Cadillac Tax

The Cadillac Tax was originally intended to target high-cost health care plans, hence its moniker, and related perks exceeding certain limits. Those limits were purposefully calculated at the time to be more than twice as much as the average annual health insurance contributions made by employers, and the 40% tax applied to the amount over the limit. The burden would not have been on the employee but the insurers or employers, the idea being that it would force insurers and employers to reduce excess health care spending, especially for those at the top. However, the law faced opposition from the beginning and as a result the effective date on the tax was continually pushed out. The date was reset in 2015; by that time, the IRS hadn’t published final regulations. The date was eventually extended again to 2022 (where the limits would have been $11,200 for individuals and $30,150 for families). With the new spending bill, the ACA’s Cadillac Tax is repealed.

2.3 percent tax on medical devices

As with the Cadillac Tax, the 2.3% excise tax on medical devices faced criticism from the medical industry since its inception. On December 5, 2012, the Internal Revenue Service (IRS) issued final regulations on the tax that manufacturers and importers pay on sales of specific medical devices. In 2015, Congress issued a two-year moratorium on the tax—It was slated to begin after December 31, 2017, but on January 22, 2018, the reprieve was extended (retroactive to January 1, 2018) for another two years, scheduled to run out on December 31, 2019. With the passing of the new legislation, this tax has also been repealed.

Health Insurance Tax (HIT)

The HIT tax—an excise tax on health insurance providers (in the context of fully insured plans)—has also been repealed. One of the primary criticisms of the HIT from many organizations (including the Congressional Budget Office) was that the tax would simply be pushed off on consumers in the form of higher premiums. The tax originally took effect in 2014 but was suspended in 2017, and that suspension was again extended in 2019. The spending bill repeals the fee starting with the 2021 calendar year.

This document is provided for general information purposes only and should not be considered legal or tax advice or legal or tax opinion on any specific facts or circumstances. Readers are urged to consult their legal counsel and tax advisor concerning any legal or tax questions that may arise.

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