Cadillac Tax Repealed, PCORI Fee Extended

Morgan Lewis - ML Benefits
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Morgan Lewis - ML Benefits

On December 20, 2019, President Donald Trump signed into law the Further Consolidated Appropriations Act, 2020 (Act). After years of delayed effective dates, the Act finally repeals the 40% excise tax on high-cost health coverage, often referred to as the “Cadillac tax.” Furthermore, the Act extends the Patient-Centered Outcomes Research Institute (PCORI) fee scheduled to originally sunset at the end of 2019.

  • Repeal of the Cadillac Tax. As noted, the Act repeals the 40% excise tax on high-cost health coverage. This excise tax was one of the most significant revenue provisions of the Patient Protection and Affordable Care Act (ACA) and has been the subject of great debate and discussion over the years. The repeal of the “Cadillac tax” undoubtedly comes as good news to plan sponsors that no longer have to consider the potential impact of the tax when making plan design changes.
  • 10-Year Extension of PCORI Fee. ACA established the Patient-Centered Outcomes Research Institute to support clinical effectiveness research and funded this mission by requiring group health plans to pay a fee to support its research. The PCORI fee was scheduled to sunset at the end of 2019, but the Act amends Section 4375 of the Internal Revenue Code to extend the PCORI fee with respect to all plan years ending on or before September 30, 2029. The PCORI fee is calculated based on the number of covered lives under the group health plan, $2.45 per covered life for 2019, and is adjusted annually by the IRS.

Please contact the authors or your Morgan Lewis contacts if you have questions regarding year-end legislation, health plan design following the repeal of the Cadillac tax, and PCORI fee payment and reporting issues.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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