Shortly after delivering his year-end news conference on Friday, December 18th, President Obama signed the Consolidated Appropriations Act, 2016. The signing of this $1.1 trillion dollar spending bill delayed three ACA-related taxes: the “Cadillac Tax,” the health insurance provider fee, and the medical device tax. This alert provides an overview of the three tax delays.
Perhaps the most highly anticipated (and equally lamented) of these taxes among politicians, employers, and benefits professionals is the “Cadillac Tax.” Added under §4980I of the Internal Revenue Code, this tax is a 40% excise tax imposed on any excess benefit provided to an employee (including a former employee or retiree). The spending bill not only delayed this tax by two years (pushing the effective date from 2018 to 2020), but also repealed an ACA provision that provided the tax would be non-deductible by employers as a business expense.
Health Insurance Provider Fee
The spending bill also includes a one year suspension (for 2017) on the collection of the health insurance provider fee. The one-year suspension on the collection of this fee (which has been in effect since 2013) is anticipated to cause approximately $12 billion in lost revenue for the federal government. Employers and industry professionals will certainly be interested in following whether the suspension of this tax will result in consumer premium savings.
Medical Device Tax
Medical device manufacturers will also see a tax delay. The spending bill eliminates the medical device tax for 2016 and 2017. The suspension of this tax over the next two years is anticipated to cause approximately $2 billion in lost revenue for the federal government.
Impact of these Delays
While support to indefinitely delay or repeal the Cadillac tax is strong, the excise tax is a significant source of revenue for funding the ACA and an important element of the ACA’s cost control strategy. It will be interesting to see how the future of this tax evolves, especially given the anticipated financial impact of the delays in the health insurance provider fee and medical device tax.
The laws and regulations outlined in this alert are complex and may affect organizations differently. The content herein is provided for educational and informational purposes only and does not contain legal advice. Please contact our office if you have any questions about the tax delays discussed in this alert and how they may impact your organization.
Dated: December 22, 2015