Affordable Care Act Taxes Delayed

The government shutdown has drawn a lot of attention to the challenges Congress faces in trying to find a middle ground between the competing parties vision of the future. The legislation that provided a temporary extension in January also delayed the implementing of three Affordable Care Act taxes. Originally, these health care taxes were all designed to offset the cost of expanding insurance coverage to low- and middle-income Americans, but many of them have remained unpopular, and implementation has been suspended or postponed in past years. To help our clients, prospects and others understand the impact of these taxes and their delay, JLK Rosenberger has provided the key facts below.

“Cadillac Tax”

The so-called Cadillac Tax, which taxes employers who offer very expensive health insurance plans, is designed to encourage employers to lower health care costs. The tax would impose a 40% surcharge on job-based health insurance coverage with premiums of more than $10,200 per year for individuals and $27,500 for families. Many employers were clearly opposed to this measure, particularly because they would not be able to deduct the surcharge as a business expense, and Congress has expressed a strong bipartisan desire to repeal the Cadillac Tax entirely. The Cadillac Tax was originally intended to take effect this year, but President Obama delayed the effective date until 2020. The recently passed legislation now delays the Cadillac Tax by two more years (until 2022).

Medical Device Tax

Medical device companies are very pleased with the delay of the health care taxes, particularly that of the medical device tax. This tax, which would impose an industry-wide 2.3% excise tax, was delayed by two years before the first payments were due. The medical device tax will now go into effect on Jan. 1, 2020. The two-year suspension will purportedly cost the federal government about $3.7 billion during that time period.

Health Insurance Tax

The health insurance tax would be applied to all health plans and has been the source of an ongoing lobbying effort by the insurance industry. They argue that the tax simply serves to increase the cost of health insurance for individuals and businesses. In fact, experts in multiple disciplines, including actuaries and independent analysts, agree that the tax does tend to increase insurance prices. The temporary repeal of the levy will help provide relief and certainty to millions of small businesses and their employees next year. Although the health insurance tax will be collected this year, it will be suspended during 2019 – which may help reduce price increases for 2019 – and is slated to come back in 2020.

Children’s Health Insurance Program

The legislation that delayed these three health care taxes also includes a six-year reauthorization of the Children’s Health Insurance Program (CHIP). CHIP, which is jointly run by the federal government and individual states, provides health coverage to about nine million children. Although the program is broadly popular across party lines, Congress failed to reauthorize spending on CHIP in September, and several states were on the verge of running out of funds for the program before the shutdown deal was reached.

Contact Us

It’s important to note that the three Affordable Care Act taxes have been delayed, but they have not been repealed. Since the revenue generated from these taxes will amount to a considerable number, it’s likely they will be reviewed for implementation in the future. If you have questions about the delays or need assistance with tax planning or compliance, JLK Rosenberger can help. For additional information, please call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.