On December 20, 2019, President Trump signed into law the 2020 Further Consolidated Appropriations Act—spending legislation which also included important changes for employer-sponsored health plans, repealing several taxes enacted as part of the Affordable Care Act (ACA) and extending one. Here’s the roundup: Gone (the Good):
The Cadillac Tax,
HIT (Health Insurance Tax),
Medical Device Tax, and
The Parking and Public Transit Benefits Tax.
Extended (the Bad): PCORI has been extended for another decade. **However, as of June 1, 2020, the IRS has yet to set the rate for 1/1 plans ending 12/31/2019. It is expected to be at or above the $2.45 per person charge. June 5, 2020 update: IRS released $2.54 per person rate (details here).** TBD (the Ugly):
Individual mandate still up in the air (a divided panel in the US Court of Appeals, 5th Circuit, rules 2-1 in favor of 20 states led by Texas, that filed suit seeking to strike down the ACA); and
no ACA regulations (still/yet) on making 105(h) applicable to fully-insured plans.
Repealed: Cadillac Tax. This measure would have imposed a 40% excise tax on plans with annual premiums exceeding $10,800 for individuals or $29,500 for a family. Implementation of the tax was supposed to happen in 2018 and has currently been delayed to 2022. While the Cadillac tax was never levied, its looming existence has made it very difficult for employers to plan future benefit levels and costs. Moreover, the way that the tax was structured would have led to many employer plans, not just the “gold-plated” ones, being subject to an excise tax in future years.
Repealed: Health Insurance Tax (HIT). This provision, which went into effect in 2014, imposed an annual tax on health insurers. Actuarial analyses have found that the tax added to the cost of coverage purchased in all market segments, including individual, large and small employers. In 2018, Congress enacted a one-year suspension of the tax, but it was scheduled to go back into effect at the end of 2019. If it had not been repealed, the HIT would have imposed a $16 billion tax on health plans in 2020.
Repealed: Medical Device Tax. This was a 2.3% excise tax on the value of medical devices (x-ray machines, hospital beds, MRI machines) sold within the United States. Since it went into effect in 2013, it was suspended twice. Critics of the tax cite research that shows that it lowered the medical device industry’s research and development spending.
Extended until 2029/2030: Patient-Centered Outcomes Research Institute (PCORI). This annual fee is a tax on health plans, which was included in the ACA as an initial funding mechanism for the federal program which funds research on the comparative effectiveness of medical treatments. The fee (which is set annually and was $2.45 per person covered by the plan in 2019) is paid by insurers for fully-insured plans and employers sponsoring self-insured plans. It was set to sunset this year, with the last payment due on July 31, 2019 for calendar year plans and July 31, 2020 for non-calendar year plans. The Appropriations Act extends the PCORI fee for another 10 years, extending the financial and administrative burden on insurers and employers. Insurers and Employers (with HRAs or any other self-funded plans) will be paying PCORI fees until 2029 or 2030 depending upon their plan year.
Retroactive-Repeal: Parking Tax (and Return of Employee Only Parking). Medical Device Tax. Section 512(a)(7), enacted as part of the 2017 Tax Cuts and Jobs Act (the “2017 Act”), required tax-exempt organizations to include in unrelated business taxable income their costs for providing “qualified transportation fringe benefits” to their employees. The 2020 Act repeals section 512(a)(7) in its entirety and retroactive to the date of its enactment — in other words, it is as if section 512(a)(7) never existed.
It is expected that the IRS will issue guidance relating to the repeal – rules for amending Forms 990-T that included the parking tax, and for claiming refunds of those taxes.
In the meantime, tax-exempt organizations may cease making any estimated tax payments related to the repealed parking tax.
Also, just in time for the new year, nonprofits can consider promptly re-installing “employee parking only” signage that was removed in response to the 2017 Act
As per Notice 2023-70, the IRS is adjusting the fee that insurers or self-insured health plan sponsors will pay to fund the federal Patient-Centered Outcomes Research Institute (PCORI) trust fund for...