Federal Budget and the Affordable Care Act

On December 18, 2015 a federal budget bill for 2016 was passed by U.S. Congress and signed by President Obama. This bill makes significant changes to three Affordable Care Act (ACA) Taxes, and THW Insurance wants to guarantee that our clients are informed on the matter.

The federal budget bill immediately went into effect, causing a two-year delay of the ACA’s Cadillac Tax until 2020, temporarily suspending collection of the health insurance providers fee until 2017, and delaying the medical devices tax for 2016 and 2017.

 The Cadillac Tax, a 40 percent excise tax on high-cost group health coverage, was originally intended to begin in 2013. The tax was proposed as an incentive for businesses to select more economical health insurance plans for employees, thus raising capital to fund other ACA provisions.  The tax was designed so that if / when an employer-sponsored health plan were to exceed the annual financial allocation, the tax amount for each employee’s coverage would be calculated by the employer and paid by the coverage provider responsible for providing the high-cost plan. The ACA’s enactment promptly delayed the plan until 2018, and the new 2016 federal budget has supplemented an additional delay until 2020.

As a result of the new law, the provision that prohibits the Cadillac tax from being deducted as a business expense has been removed, and a study must be implemented on the age and gender adjustment to the annual limit.

While there is speculation that the 2020 delay will result in an ultimate repeal of the tax provision, although President Obama has signified that he will veto legislation that repeals any provisions of the ACA.

In addition to the moratorium on the Cadillac Tax, the new federal budget for 2016 also suspends the non-deductible health insurance providers fee until 2017.

The new budget also suspends collection of the medical devices tax for 2016 and 2017, meaning that the 2.3 percent excise tax on certain medical devices that is imposed in the ACA will not apply to sales made between January 1, 2016 and December 31, 2017.

This post serves as an informational overview for our clients and website visitors—the entire Health Care Bulletin can be viewed here.