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Health and benefit implications of year-end spending laws

Health and Benefits
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By Anu Gogna and Benjamin Lupin | January 16, 2020

Employers will want to evaluate their retirement, health and other benefit programs in light of changes enacted in 2019.

On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020, which includes significant changes for employer-provided retirement, health and other benefit programs. The following health and welfare benefit-related provisions have implications for employers: 

  • The Affordable Care Act’s (ACA’s) “Cadillac” tax and medical device tax were repealed as of January 1, 2020.
  • The ACA’s health insurance tax (HIT) will be repealed effective January 1, 2021.
  • The fee to fund the Patient-Centered Outcomes Research Institute (PCORI) paid by group health plans and health insurance issuers is extended for 10 years (through 2029).
  • A tax credit for employers that provide qualifying paid family and medical leave to certain employees is extended for one year (through 2020).

Key implications and suggestions for employers moving forward are outlined below.

General discussion and observations

ACA taxes repealed

Cadillac tax. The act fully repeals the Cadillac tax, which would have imposed a 40% excise tax when the value of a group health plan exceeded specified thresholds. Repeatedly delayed by Congress, the tax never took effect. 

  • Employer implications. Employer plan sponsors will need to review any potential plan design changes or future budgeting meant to avoid paying the tax in 2022. While employers may want to consider such changes for cost-saving purposes, no plan changes will be required to avoid paying the Cadillac tax. 

Medical device tax. This 2.3% excise tax on sales of medical devices, such as pacemakers, is repealed. This tax initially went into effect in 2013 but was suspended by Congress from 2016 to 2020.  

  • Employer implications. As this tax was imposed on the medical device makers, it had the least direct impact on employer plan sponsors, although it likely resulted in increased product costs, which could have been indirectly passed onto employers. Plan sponsors should consider discussing with their carrier or third-party administrator any potential savings due to this tax being repealed.

Health insurance tax. The HIT, repealed for calendar years beginning after December 31, 2020, applies to all insurers that offer fully insured health insurance in the marketplaces, the group market or public programs (such as Medicare and Medicaid). This tax was in place from 2014 through 2016. Although Congress approved a one-year moratorium for 2017, the HIT went back into effect for 2018 before being suspended again for 2019. So, while the HIT is suspended for 2019, it will apply for 2020 and then will be repealed as of 2021.

  • Employer implications. Repeal of the HIT will not take effect until 2021, meaning the tax, which has already been built into many fully insured health plan premiums for the 2020 plan year, will continue to be paid by employers as a pass-through from their fully insured carriers. Fully insured plan sponsors will need to make sure the HIT is removed from their 2021 plan renewal rates.  

PCORI fee extended 10 years

The act extends the PCORI fee1 until 2029. While originally scheduled to end in 2019 (for calendar-year health plans), this 10-year extension will continue to fund the PCORI Trust Fund. 

  • Employer implications. Once the IRS announces the adjusted dollar amount for 2020 PCORI fee filings, employer plan sponsors can budget for this fee in 2020 and beyond. The PCORI fee will continue to be paid by employers (for self-insured plans) or by the insurance carrier as a pass-through expense (for fully insured plans). 

Tax credit extended one year for paid family and medical leave

The employer tax credit for paid family and medical leave, originally enacted as a two-year program (2018 and 2019), is extended through December 31, 2020. Under the Tax Cuts and Jobs Act of 2017, the tax code was amended to provide a tax credit for employers who provide paid family and medical leave to certain employees. Eligible employers may claim the credit, equal to a percentage of wages they pay to “qualifying employees” while those employees are on family and medical leave, restricted to a maximum annual leave period of 12 weeks.2 The credit may now be claimed in the 2020 tax year. 

  • Employer implications. Employers with leave programs in place that met the eligibility requirements for the tax credit may earn the credit for 2020. Employers who did not adopt such a program (or did not previously amend their existing program to meet the tax code requirements) might have missed the deadline to make the required changes to claim the credit for 2020. Employers should evaluate their leave programs in light of this extension. The IRS will need to provide guidance on timing for adopting or amending programs to claim the tax credit in 2020.  

Footnote

1 For more information on the PCORI fee, see “PCORI fee due by July 31, 2019,” Insider, May 2019.

2 For more information on the tax credit for paid family and medical leave, see “ IRS issues guidance on tax credit for paid family and medical leave,” Insider, October 2018.

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