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Provision |
Background |
Potential Impact of Repeal |
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Excise Tax on High-Cost Employer-Sponsored Coverage (Cadillac Tax) |
Section 9001 of the ACA imposes an excise tax on self-insured employers (and insurers) if the aggregate value of employer-sponsored health insurance coverage for an employee exceeds a threshold amount. The tax is equal to 40% of the aggregate value that exceeds the threshold amount. In 2015, the tax was effectively delayed until 2020, and many anticipated that the provision was slated for eventual repeal due to pressure from both employer and labor groups. |
Repealing this provision would mean that large employer-sponsored plans would no longer be limited to designs that restrict the aggregate value to the threshold amount.
Following the enactment of the ACA in 2010, many large employers were required to value and report liabilities for the cost of future benefits offered to retirees as impacted by the Cadillac Tax pursuant to Financial Accounting Standards Board (FASB) and Governmental Accounting Standards Board (GASB) accounting rules. This has increased the future cost of such coverage for accounting purposes in anticipation of the 2020 effective date. Repeal of this provision would also mean that large employers would no longer be required to currently reflect the impact of the Cadillac Tax in their future benefit healthcare coverage costs.
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Over–the-Counter Medications |
Section 9003 of the ACA established a new uniform standard for medical expenses. Under this standard, distributions from health Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) can only be used to reimburse the cost of over-the-counter medicines or drugs if purchased with a prescription. |
Repeal of this provision may allow participants in health FSAs and HSAs to use these accounts to reimburse certain over-the-counter drugs without a prescription. |
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Health Savings Account Tax |
Section 9004 of the ACA increased the tax on withdrawals from HSAs that are not used to pay for qualified medical expenses from 10% to 20%. |
Unclear, but one possibility is that repeal could reduce the penalty back to 10%. |
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Flexible Spending Account Limit |
Section 9005 of the ACA reduced the contribution limit on health FSAs to $2,500, as indexed. |
Repealing this provision could eliminate the dollar limit on health FSA contributions (many employers limited FSA contributions to $10,000 prior to enactment). |
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Annual Fee on Health Insurance Providers |
Section 9010 of the ACA imposed an annual fee on certain health insurance providers, effective January 1, 2016. This fee is referred to as the HI Tax or the 9010 Fee. The 9010 Fee is set to generate $4.3 billion for calendar year 2018; for calendar years after 2018, the total revenue is indexed to the rate of premium growth. |
Repeal would likely eliminate this tax on insurance providers. |
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Deduction for Retiree Prescription Drug Costs |
Section 9012 of the ACA changed the rules regarding the tax exclusion for retiree drug subsidy payments. As a result, the amount otherwise allowable as a corporate tax deduction for retiree prescription drug expenses was reduced by the amount of the excludable subsidy payments received. |
Unclear, but complete repeal could increase the amount of expense deductions that corporations can take for prescription drug cost. |
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Remuneration Paid by Health Insurance Providers |
Section 9014 amended the Internal Revenue Code (the Code) to prohibit health insurance providers from deducting as business expenses any remuneration paid to an officer, director or employee in excess of $500,000 (one-half of the otherwise applicable cap of $1 million for other employers). |
Repeal of this provision would mean that health insurance providers would be subject to the same Code section 162(m) deduction rules as other employers. |
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Medicare Surtax on Higher-Income Individuals |
Section 9015 of the ACA included a 0.9% Medicare surtax on higher-income individuals, effective for taxable years beginning after December 31, 2015. |
Complete repeal of this provision would eliminate the tax and may impact executive compensation arrangements and planning. |
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Individual Mandate |
Under section 1501 of the ACA, each non-exempt U.S. citizen and legal resident are required to maintain minimum essential coverage. Individuals who fail to maintain minimum essential coverage are subject to a tax penalty. |
Complete repeal of the individual mandate would mean the repeal of the concept of “minimum essential coverage” (MEC). Employer-sponsored plans would no longer be bound by the requirements connected with this ACA concept, including, potentially, the MEC reporting requirements (see below). |
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Employer Mandate |
Under section 1531 of the ACA, applicable large employers are required to pay a penalty if they do not meet certain coverage requirements and any full-time employee purchases health insurance through an exchange using a premium tax credit or a cost-sharing reduction. In terms of the coverage requirements, an applicable large employer could be subject to the penalty if it:
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Does not offer coverage for all its full-time employees,
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Offers minimum essential coverage that is unaffordable, or
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Offers minimum essential coverage that does not meet certain actuarial requirements.
However, it is important to note that the penalty under the employer mandate for failing to provide sufficient coverage is only triggered where employees receive a premium tax credit or a cost-sharing reduction.
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Repeal of this provision would roll back the employer coverage requirement as well as the associated regulatory requirements authorized under the statute, such as the look-back stability safe harbor for identifying full-time variable hour employees. Note, however, that the employer mandate and the penalties for failure to comply with the mandate can be treated as separate provisions for purposes of any repeal legislation. For example, if the employer coverage requirement were eliminated from reconciliation legislation as a result of a point of order challenge by one Senator pursuant to the Byrd Rule (described in the first ACA Brief installment), the mandate would not be repealed. However, Senate Republicans could still seek to repeal the penalty provisions under Internal Revenue Code (Code) section 5000A separately. Under this set of facts, the employer mandate could remain the law of the land, but there would be no statutory excise tax enforceable against employers that failed to comply with the mandate. |
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Premium Tax Credits and Cost-Sharing Subsidies |
Sections 1401, 1411, and 1412 of the ACA create refundable premium assistance credits and cost-sharing subsidies for taxpayers with household incomes between 100% and 400% of the federal poverty level who:
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Do not receive health insurance through an employer or a spouse’s employer, and
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Who purchase coverage through an exchange.
Only employees who receive a premium tax credit or a cost-sharing reduction can trigger a penalty for an employer under the ACA’s employer mandate provisions (Code section 4980H).
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As noted above, repealing this provision would eliminate the two “triggers” for the employer mandate, and could effectively gut the employer coverage requirement even if the statutory mandate itself were to survive repeal. |
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Adult Dependent Exclusion |
Section 1004 of the ACA amended Code section 105(b) to extend the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the taxable year. This change is also applied to the exclusion for employer-provided health coverage for such children.
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Complete repeal of this provision would eliminate the extension for children up to age 27 and would mean prior rules limiting coverage to children up to age 19 (or up to age 24 in the case of full-time students) could apply. |
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Health Insurance Coverage Reporting |
Under section 1514 of the ACA, each applicable large employer that is subject to the employer responsibility provisions of the ACA must report certain health insurance coverage information to both its full-time employees and to the IRS (Forms 1094 and 1095). This reporting requirement began in 2016. |
Repealing this provision would repeal a significant ACA reporting requirement for large employers. Note, however, that repeal of the employer mandate (Code section 4980H) and/or the individual mandate (Code section 5000A) could arguably negate this reporting requirement even without direct repeal. |
