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Takeaway: Medical Device Tax delay/repeal seems inevitable; Cadillac likely gets another delay; narrow window for addressing HIF and vehicle needed

We have gotten a few questions on the prospects of further delays in certain ACA related taxes in the lame duck session now underway or the 116th Congress which convenes in January. Truth be told, ACA-era taxes represent one part of the health law for which there is almost universal support for repeal.

The 40 percent excise tax on benefit rich health plans (the “Cadillac Tax”) has never been implemented and is delayed until Jan. 1, 2022. Moratoria on collection of the Health Insurer Fee have been imposed for CY 2017 and 2019. The Medical Device Tax is on hiatus for all CY 2016 through CY 2019.

Even before the Medical Device Tax was suspended, collection of it and the tax on tanning services have fallen well below projections. Only the taxes on the Health Insurance Industry (HIF) and manufacturers and importers of branded drugs have performed as projected when they were imposed, largely because the law mandates a precise amount to be collected.

UNH, AET, HUM, MOH | ACA TAXES: HIF, MEDICAL DEVICE, CADILLAC AND PROSPECTS FOR DELAY/REPEAL - Slide1

The lackluster collections and the repeated delays of the Medical Device Tax make another deferral or outright repeal a possibility in the lame duck session. The vehicle is H.R. 184, Protect Medical Innovation Act of 2018 which passed the House in July and was sent to the Senate for consideration. If the Medical Device Tax is not repealed this year, it stands a good chance of being included in 2019 in a larger, bipartisan bill on pre-existing conditions before current law calls for it to be implemented in 2020.

Traveling with the H.R. 184 is H.R. 6311, Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018 which delays the Cadillac Tax another year, making it effective in 2022, and repeals the tanning services tax. The bill also redefines “full time” as a 40-hour workweek under the ACA, thus providing relief from the employer mandate. This last provision is a priority of House Republicans and opposed by Democrats so if it passes it will have to be this year.

Unfortunately for H.R. 6311’s prospects, leadership paired it up with another bill that creates a new “skinny” ACA exchange “copper” plan and expands the use of HSAs to working Medicare eligible populations, among other things. Both provisions might meet with some resistance in the Senate, making chances for passage more remote had these provisions not been included.

Like the Medical Device Tax, the Cadillac Tax might be paired with a compromise bill on pre-existing conditions early in the next session. Unlike the Medical Device Tax, the urgency to do anything about the Cadillac Tax just isn’t there. Current law does not require implementation until 2022.

There is some urgency to address the implementation of the HIF before mid-Q2 2019. The moratorium on implementation in CY 2019 appears to have had a positive impact in individual market premiums.

UNH, AET, HUM, MOH | ACA TAXES: HIF, MEDICAL DEVICE, CADILLAC AND PROSPECTS FOR DELAY/REPEAL - Slide2

The moratorium in 2017 has a similar impact on premiums collected on some of the major insurers.

UNH, AET, HUM, MOH | ACA TAXES: HIF, MEDICAL DEVICE, CADILLAC AND PROSPECTS FOR DELAY/REPEAL - Slide3

Because the tax puts upward pressure on premiums while there is a strong political desire to keep them low, there is some urgency to act on the HIF before mid-year when plan sponsors start submitting rates for review.

Right now there is no legislation under consideration that would extend the delay beyond 2019. Like the other taxes, however, the currently contemplated compromise on pre-existing conditions may be the best place for Congress to consider additional moratoria.

AHIP is doing it what it can to link future premium increases to the HIF and they are supported by some empirical, if not uniform, evidence to support that view. Unfortunately for UNH, which pays 20 percent of the fee, the rhetoric around “insurance company bailouts” that began over the risk corridor program persists.

UNH, AET, HUM, MOH | ACA TAXES: HIF, MEDICAL DEVICE, CADILLAC AND PROSPECTS FOR DELAY/REPEAL - Slide4

In short, the HIF may return in 2020 unless a suitable compromise can be reached before mid-year 2019.

Call with questions.

Emily Evans
Managing Director – Health Policy



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Thomas Tobin
Managing Director


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Andrew Freedman, CFA
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