Three ACA Taxes Repealed, Individual Mandate Ruled Unconstitutional

by | Dec 20, 2019 | Employee Benefits

December 20, 2019

The week of Dec. 16, both chambers of Congress passed two year-end spending agreements to fund the federal government until Sept. 30, 2020 (H.R. 1158 and H.R. 1865). President Trump is expected to sign them into law before the Dec. 20 funding deadline. One of the agreements, H.R. 1865, the Further Consolidated Appropriations Act of 2020, included a full repeal of three taxes originally imposed by the Affordable Care Act (ACA): the 40% Excise Tax on employer-sponsored coverage (a.k.a. “Cadillac Tax”), the Health Insurance Industry Fee (a.k.a. the Health Insurer Tax), and the Medical Device Tax. Separately, on Dec. 18, the United States Court of Appeals for the Fifth Circuit ruled the ACA’s individual mandate is unconstitutional, but it did not invalidate the rest of the law. As a result, the rest of the law remains in effect. See below for more details.

Cadillac Tax:
The Cadillac Tax would have imposed a 40% excise tax on coverage in excess of certain thresholds. When originally enacted in the ACA, the thresholds were $10,200 for self-only and $27,500 for family coverage with a 2018 effective date. The Cadillac Tax was delayed multiple times since passage of the ACA, and is now fully repealed, meaning it no longer exists and will never take effect.

Many employers, unions, insurers and industry groups have opposed the tax based on concerns around administrative and financial burdens for employers and adverse outcomes for employees. Cigna is a founding member of The Alliance to Fight the 40,, a coalition of public and private sector stakeholders that successfully advocated for full repeal of the Cadillac Tax.

Health Insurer Tax:

H.R. 1865 also fully repeals the Health Insurer Tax, beginning in 2021. The $8 billion fee was implemented in 2014, and continued to increase each year. The fee only applied to insured business, including insured Medicare plans, based on each insurer’s share of the taxable health insurance premium base.

Due to the adverse impact on health insurance premiums, the fee was suspended in 2017 and 2019. It is important to note that the fee will be in effect for 2020 as no suspension was granted for that year; then, it will be repealed effective 2021.

Medical Device Tax:
The Medical Device Tax imposed a 2.3% excise tax on U.S. medical device revenues. The tax was in effect over 2013-2015, and was suspended from 2016-2019. H.R. 1865 fully repeals the tax, effective Dec. 31, 2019.

Other notable items passed in the spending agreements include: legislation requiring the Administration to maintain certain policies (e.g., “silver loading”) for the individual Exchange markets to ensure consumers do not experience any disruptions for plan year 2021; legislation to prevent brand drug manufacturers from blocking access to samples of their products for generic drug development (a.k.a. the Creating and Restoring Equal Access to Equivalent Samples [CREATES] Act); and legislation to fund several expiring health programs until May 22, 2020. Read the final two-year spending package for more details about these and other spending agreements.

Federal Appeals Court Ruling in Texas v. United States:
A panel of the United States Court of Appeals for the Fifth Circuit ruled the ACA’s individual mandate is unconstitutional Wednesday. The court upheld the district court’s determination that the individual mandate is unconstitutional because it is no longer a tax with the zeroed-out penalty. In the district court ruling, Judge O’Connor further stated that because the mandate was essential to the law, it could not be severed (or separated) from the rest of the ACA, which meant the entire ACA was invalid. The appellate court did not resolve the severability issue or determine if any other provisions of the ACA should also be struck down. Instead, the panel remanded the case back to Judge O’Connor for further analysis of which other provisions of the ACA, if any, should be invalidated along with the individual mandate.

As a result of this new ruling, all remaining provisions of the law remain in effect – except for the newly repealed taxes listed above with their separate effective dates – while the legal process continues.

California Attorney General Xavier Becerra, who leads the 20 Democratic states that defended the ACA in this case, announced that the California Department of Justice is prepared to ask the U.S. Supreme Court to review the Fifth Circuit’s ruling. This is expected to be a long process and we will continue to keep you updated until there is a final resolution.

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