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Health Plan Sponsors Welcome Repeal of Cadillac Tax: Opportunities and Uncertainty Lie Ahead – SECURE Act Series

Sponsors of health plans have long known that the only constant in life is change. In 2020, that is surely to remain true.

Ding-Dong! The Cadillac Tax Is Dead!

On December 20, 2019, as part of the year-end appropriations bill, the Affordable Care Act’s (ACA) so-called 40% “Cadillac Tax” on high-cost health plans was finally, after much lobbying and other efforts by sponsors and health care payers, put to an end with a full repeal. The “Cadillac Tax” was currently scheduled to take effect in 2022 (after two delays), and would have taxed employer-sponsored plans worth more than $10,200 for “self-only” coverage and $27,500 for other coverage (in 2018 and would have been indexed for inflation in future years). The tax was initially intended to help reduce health care costs and pay for the ACA.

Compliance Note:  Plan sponsors should note, however, that the reporting of the value of employer-provided coverage on the Form W-2 in Box 12, using Code DD, did not change. As a result, employers should continue to report the value on Form W-2.

As part of the same bill, two other ACA taxes were also repealed: (i) the health insurance tax, and (ii) the 2.3% tax on medical devices. While the repeal of the medical device tax is effective beginning in 2020, the repeal of the health insurance tax is not effective until 2021, so sponsors of fully-insured health plans will need to wait another year for any premium savings passed on from insurers due to the repeal of the tax.

It’s Alive! The PCORI Fee Is Extended for 10 Years

The ACA imposes a fee on insurers of specified health insurance policies and plan sponsors of self-insured health plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). 2019 was supposed to be the last year that most sponsors paid the PCORI fee. The fee has now been extended for 10 years, through plan and policy years ending before October 1, 2029.

The fee is required to be reported once a year on the second quarter IRS Form 720 (Quarterly Federal Excise Tax Return) and paid by its due date, July 31. The fee is based on the average number of lives covered under the policy or plan. For plan years ending from October 1, 2018 through September 30, 2019, the dollar amount was $2.45 per covered life.

Compliance Note:  Sponsors of self-insured health plans should continue to add payment of the PCORI fee to their compliance calendars, monitor applicate rates, and budget for the payments for the next 10 years. Insurers of fully-insured health plans are responsible for reporting and paying the PCORI fee.

Where We’re Going We Don’t Need Roads! Health Coverage Opportunities and Uncertainty

 2020 ushers in two new health reimbursement arrangements (HRAs). Proposed regulations were issued in 2018 as reported here and final regulations were issued in June 2019. The final rules allow HRAs and other account-based group health plans to be integrated with individual health insurance coverage or Medicare, if certain conditions are satisfied (an Individual Coverage HRA). The final rules also set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits (an Excepted Benefit HRA).

While 2020 brings these new health coverage options, it remains to be seen if there will be significant uptake from employers to disrupt the traditional group health plan coverage model. With the demise of the Cadillac Tax, plan sponsors are still likely to continue to grapple with the rising costs of health coverage and the ever-changing legal landscape. Questions remain:

  • Will the ACA survive? As reported previously, the decision in Texas v. U.S. declaring that the ACA is unconstitutional in its entirety because of the individual mandate continues to make its way through the courts to determine the issue of severability and will ultimately be decided by the U.S. Supreme Court

  • Will proposed legislative “fixes” and enhancements to expand access to Health Savings Accounts (HSAs) pass this year? Will HSAs dominate in a post-ACA world?

  • Will new Association Health Plan regulations be upheld, giving smaller companies more options to pool together to offer group health plan coverage?

  • How will the results of the Presidential election affect health coverage options in future years?

Answers to these and other questions could have a significant impact on plan sponsors (and their employees’) health care options and choices in the coming months and years. However, one answer remains clear: there will certainly be more change.

©2020 Epstein Becker & Green, P.C. All rights reserved.

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About this Author

Member of the Firm

TZVIA FEIERTAG is a Member of the Firm in the Employee Benefits & Executive Compensation practice, in the Newark office of Epstein Becker Green. She has worked exclusively in the area of employee benefits for more than 16 years, advising employers of all sizes, including Fortune 500 companies, other public and private companies, and start-ups, on all aspects of ERISA compliance and the day-to-day operation of employee benefit plans.

Specifically, Ms. Feiertag’s experience includes:

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