How Reconciliation Can Change ACA

ACAWhile it will take support from Republicans and Democrats to fully replace Obamacare, a simple majority of Republican senators could repeal parts of the law through reconciliation. Here are just a few:

  • The individual and employer mandates can be reduced to zero
  • The Cadillac tax, currently delayed to 2020, could be repealed
  • Individual subsidies to purchase exchange coverage can be reduced to zero

Another welcome step requiring only a simple majority in the Senate would be increasing the limits on FSA and HSA contributions.

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ACA Fee Moratorium and Self-Funding

sip-acaWhen Congress delayed the Cadillac Tax until 2020, the same law placed a one-year moratorium on the annual fee the ACA imposes on health insurance carriers. While the fee does not have a direct impact on TPAs or self-funded plans, it does sometimes impact stop loss premiums.

Since this fee applied to insurance carriers and not the majority of self-funded plan costs, some small group plans that moved to level funding may experience a slight cost increase in 2017. When the tax returns in 2018, the revenue targets are expected to increase. If the tax increases from its previous levels of 3% to 4%, the potential savings available to self-funded and level-funded plans will increase as well.

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Cadillac Tax Delayed Until 2020

na-sipwinter2015When President Obama signed the new Consolidated Appropriations Act of 2016 into law in late December, he delayed both the Cadillac and Medical Device taxes by two years, from 2018 to 2020. The legislation also provided for the deductibility of the Cadillac Tax, which is an excise tax of 40% on the “excess benefit” of high cost employer-sponsored coverage, regardless of whether the health plan is fully insured or self-funded.

The cost thresholds associated with “high cost” coverage were initially indexed annually from a base value of $10,200 for individual coverage and $27,500 for other than self-only coverage, adjusted to reflect the age and gender composition of the employee population. The Cadillac Tax was originally intended to take effect in 2013, but in 2010, was postponed from 2013 to 2018. The Medical Device tax was originally projected to raise $29 billion over 10 years to help pay for Obamacare. While the delays were welcome news to employers and medical device makers alike, most are still hoping for outright repeals.

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New Law Provides Two-Year Delay of ‘Cadillac Tax,’ Imposes Moratorium on Medical Device Excise Tax

President Obama recently signed the Consolidated Appropriations Act of 2016, which (among other things) provides a two-year delay of the Affordable Care Act’s excise tax on high-cost employer-sponsored health coverage (commonly referred to as the “cadillac tax” and governed by Internal Revenue Code section 4980I) and imposes a moratorium on the medical device excise tax.

Cadillac Tax Delay
Prior to the delay, the 40% tax was set to take effect in 2018 and would generally be imposed on plans that cost more than $10,200 (for self-only coverage) and $27,500 (for family coverage). As a result of the new law, this tax will not be effective until 2020.

Medical Device Excise Tax Moratorium
The 2.3% medical device excise tax that manufacturers and importers pay on sales of certain medical devices has generally been effective since January 1, 2013. As a result of the new law, this tax will not apply to sales during calendar years 2016 and 2017.

For more details, please review the new law in its entirety.

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