2018 Budget Deal Delays Several Affordable Care Act Taxes and Fees

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On January 22, 2018, President Trump signed into law H.R. 195 (hereinafter referred to as the “2018 Budget Deal”) which ended the federal government shutdown and funds the federal government through February 8, 2018. In addition, the 2018 Budget Deal included a six-year funding extension to the Children’s Health Insurance Program. The 2018 Budget Deal also contains a two year delay to the effective dates of the “Cadillac Tax”, the medical device excise tax, and an annual fee on health insurance providers. This blog will review the two year delays to the above-referenced taxes and fees.

Generally, the Affordable Care Act (commonly referred to as Obamacare) imposed a 40% excise tax on high cost-employer sponsored health care coverage (commonly referred to as the “Cadillac Tax”). The “Cadillac Tax” is the subject of several of my prior blogs. See Cadillac Tax: Delayed and Deductible, December 28, 2015; Health Coverage Includable in “Cadillac Tax” Calculations, November 18, 2015; and New IRS Excise Tax on High Cost Health Plans – the “Cadillac Tax”, September 30, 2015.

The 2018 Budget Deal delays the effective date of the Cadillac Tax from tax years beginning after December 31, 2019 to tax years beginning after December 31, 2021 (e.g. two years). With the delay of the implementation of the “Cadillac Tax”, employers should continue to implement cost reduction programs designed to bring down the costs of their health plans (with a goal of getting below the high cost threshold). Hopefully, the additional two year delay will increase the likelihood that more employers will be able to successfully reduce health plan costs so as to avoid the “Cadillac Tax”.

Generally, the Affordable Care Act added Section 4191 to the Internal Revenue Code (the “Code”) which imposes a 2.3% excise tax on the manufacturer, producer or importer in connection with the sale of certain medical devices (i.e., a “taxable medical device”). Under Code Section 4191, a “taxable medical device” means any device (as defined under Section 201(h) of the Federal Food, Drug and Cosmetic Act) that is intended for humans, except for eyeglasses, contact lenses, hearing aids, and certain other medical devices which are purchased by the general public at retail for individual use.

The 2018 Budget Deal delays the effective date of the medical device excise tax from sales occurring after December 31, 2017 to sales occurring after December 31, 2019. Given that the 2018 Budget Deal was enacted on January 22, 2018, this delay has retroactive effect. Hopefully, given the short period of retroactive effect, the delay will not result in a significant number of refund claims or other administrative issues.

Finally, Section 9010 of the Affordable Care Act imposed an annual fee on certain entities engaged in the business of providing health insurance (e.g., health insurance providers). Generally, the annual fee is apportioned among entities with aggregate net premiums written over $25 million for health insurance for United States health risks (e.g., a covered entity) and each covered entity is liable for a fee, as determined by the Internal Revenue Service, based on its net premiums written during the applicable data year.

The 2018 Budget Deal delays the effective date of the annual fee on health insurance providers from years beginning after December 31, 2017 to the years beginning after December 31, 2019. Given that the payment date for the annual fee is during September of each fee year, the retroactive nature of the delay should raise minimal or no administrative issues.

In summary, the 2018 Budget Deal delays the imposition of the Cadillac Tax, the medical device excise tax, and the health insurance provider fee for two years. With respect to the medical device excise tax and the annual fee for health insurance providers, the applicable date is post December 31, 2019 and, with respect to the “Cadillac Tax”, the applicable date is post December 31, 2021.

Significantly, the 2018 Budget Deal only funds the federal government through February 8, 2018. Thus, we expect that subsequent legislation will need to be adopted to either provide for another short-term continuation of federal government operations or a longer term budget for the federal government for the rest of the 2018 fiscal year. There is a potential that additional delays (or repeals) or other changes to the Affordable Care Act will be included in this subsequent budget legislation. As such, employers will need to continue to monitor Congressional budget actions.

About the Author

Jonathan H. Nason
Jon is a tax lawyer who advises employers on the design, implementation and administration of employee benefit plans, including ERISA and HIPAA compliance.