What H.R. 1865 Means for Health Plans
Jan 09, 2020
On December 20, 2019, President Trump signed H.R. 1865 into law, entitled “Further Consolidated Appropriations Act, 2020.” The legislation is a sweeping funding bill that incorporates the SECURE Act’s numerous provisions affecting retirement savings and the management of employee benefit plans. We summarize below the key health benefit plan changes included in this legislation.
Repeal of the “Cadillac Tax”
What is it? The Cadillac Tax This was a 40% excise tax that would have been assessed on health plans that exceeded indexed, high- cost thresholds. The Cadillac Tax, was originally scheduled to take effect in 2018, had been postponed twice, and was most recently slated to go into effect in 2022.
What Happened? The tax was permanently repealed in the Appropriations Act.
Why Does it Matter?
- Employers will not have to pay the tax beginning in 2022, or have it passed through to them by their health insurers.
- Employers will not need to have to consider plan design changes to stay under the tax threshold.
- Employers that sponsor a retiree health benefits program may see a reduction in their retiree health benefit liabilities.
Repeal of the Health Insurer Tax/Fee (HIT/HIF)
What is it? The HIF is a premium tax on health insurance. The tax was temporarily suspended in 2017 and 2019, but reinstated in 2018 and 2020.
What Happened? The tax was permanently repealed in the Appropriations Act beginning in calendar year 2021. The tax will remain in effect for calendar year 2020, in part because most premium rates had already been locked in at the time the bill was signed.
Why Does it Matter?
- Insurers will not be required to pay the tax starting in 2021.
- The HIF will be eliminated from the calculation of insured premiums beginning in 2021, which should provide relief for employers with insured plans.
Repeal of the Medical Device Tax
What is it? The Medical Device Tax was a 2.3% tax on manufacturers for the sale of things like MRI and x-ray machines, hospital beds, pacemakers, surgical tools, etc.
What Happened? The tax was permanently repealed in the Appropriations Act, but had already been suspended from 2016 to 2019.
Why Does it Matter?
- Ambiguity over who would actually “pay” the tax made it an unpopular provision of the Affordable Care Act (ACA).
- Hospitals, medical- device manufacturers, and health plans will breathe easier knowing that the prices of devices won’t increase as a result of the tax.
Extension of the PCORI Fee
What is it? The PCORI (Patient-Centered Outcomes Research Institute) Fee is an annual fee based on the number of people covered under an employer’s health plan(s). It is used to fund clinical research and initiatives undertaken by the government sponsored PCORI. The fee is currently $2.45 per covered life, and indexes over time.
What Happened? The fee was set to expire in 2019-2020. It has been extended an additional 10 years.
Why Does it Matter?
- Employers sponsoring self-funded health plans will need to continue paying this fee directly to the federal government each year.
- Employers sponsoring fully-insured health plans may continue to see the fee passed down to them through their premium payments.
Most of these changes above enjoyed broad bipartisan support. However, many of these taxes were intended to generate revenue to fund critical functions of the ACA. The Joint Committee on Taxation estimated that the repeal of these taxes will eliminate approximately $370 billion of tax revenue over 10 years. While this loss of tax revenue does not directly impair the operation of the ACA, President Obama’s signature legislation continues to face legal challenges. Its continued viability may depend on the eventual resolution of the 5th Circuit case, Texas v. Azar, which will be the subject of a future blog post.
Dan Megelick, ASA, EA, CERA, MAAA is a Senior Consultant and Actuary in at BPAS’ Healthcare Consulting Services practice.