The SECURE Act
President Trump has signed a year-end spending package that will fund the federal government through September 30, 2020. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 is included in that spending package. The SECURE Act contains significant changes to retirement plan regulations. It also contains some significant changes affecting employer health plans.
Repeal of the Cadillac Tax
The SECURE Act fully repeals the very controversial Affordable Care Act (ACA) excise tax on high-cost employer-sponsored plans, more widely known as the Cadillac Tax. The Cadillac Tax would have imposed a 40% excise tax on the cost of any employer-sponsored health coverage exceeding $11,200 for single coverage and $30,150 for family coverage. These amounts take into account employer plus employee coverage, as well as contributions to Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs), and Health Savings Accounts (HSAs). As a result, the Cadillac Tax would have had a significant impact on employer-sponsored health plans. The Cadillac Tax was originally to take effect in 2018, however, Congress delayed the effective date on numerous occasions. Prior to the SECURE Act repeal, the Cadillac Tax was scheduled to become effective in 2022.
Repeal of The HIT Tax
The Health Insurance Tax (the HIT Tax) is an annual fee imposed upon health insurance providers. Specifically, the HIT Tax applied to fully insured employer plans, Medicaid managed care, Medicare Part D, Medicare Advantage plans, and policies in the individual and small group markets. The tax is divided among insurers based upon the value of their market share and premiums written and then passed on to employers. Generally, employers paid typically in the range of 2-4% of their premium for the HIT Tax. The HIT Tax began in 2015, but it was suspended in 2017 and in 2019. The HIT Tax repeal is effective for calendar years beginning after 2020.
The Medical Device Tax
The Medical Device Tax is a 2.3% excise tax on medical devices sold within the United States. The tax is imposed on the manufacturer, producer, and importer of the device. The tax became effective in 2013, but it was suspended by Congress from 2016-2019. The Medical Device Tax repeal is effective for sales after 2019.
10-Year Extension of PCOR Fees
The Patient-Centered Outcomes Research Institute (PCORI) was established under ACA to conduct research to evaluate the effectiveness of medical treatments, patient delivery systems, patient treatment strategies, etc. PCORI is funded, in part, from annual fees paid by insurance companies and employers with self-insured group health plans. The annual fees are determined based upon the number of participants in the group health plan. The annual PCOR Fee was set to expire either in 2019 or 2020, depending on plan year. The SECURE Act has extended the PCOR Fee requirement for insurers and group health plans. This means that insurers and group health plans will have to continue paying this fee until 2029 or 2030, depending on the plan year. The process of paying the fee, and filing a Form 720, will remain the same. The amount due per covered life will continue to be adjusted annually.
SIMA will continue to monitor these issue and provide updates if additional guidance is released by the IRS.