ACA Taxes Repealed

There is never a dull moment in Congress, particularly as it relates to healthcare reform!  For most of the year (2019) we have been reading and hearing about congressional efforts to eliminate so called “surprise medical bills”, and reduce escalating drug prices.  What we ultimately got (via the SECURE Act*) were Affordable Care Act (ACA) tax cuts.  In total, $373 billion worth of ACA related tax cuts resulting from a House and Senate passed spending/funding bill.  This is a significant reduction considering the estimated amount of ACA related taxes on individuals and businesses was estimated to reach $500 billion by 2023 (Source: Invetopedia, June 25, 2019).

The ACA included some 21 new taxes/tax changes when it was passed and signed into law back in 2010.  Three of the more prominent ACA taxes, which are being ELIMINATED as a result of the SECURE Act are:

  1. The Medical Device Tax – a 2.3% tax assessed on specific medical devices. Delayed twice by congress, it was set to take effect in 2020.
  2. The Health Insurance Tax – sometimes referred to as the HIT tax, assessed at a rate of approximately 2% – 4% of certain health insurance premiums. (Note: The HIT tax was suspended by congress in both 2017 and 2019, and will apply in 2020 before being permanently eliminated in 2021.)
  3. The Cadillac Tax – a 40% employer excise tax on premiums and spending account contributions that exceed certain thresholds, delayed twice, and was set to take effect in 2022.

The Cadillac tax alone was to account for $200 billion, while the HIT tax was set to generate $256 billion between 2017 – 2026.  The government collected $8 billion, $11.3 billion, and $14.3 billion in HIT taxes in 2014, 2015, and 2018 respectively (Source: AHIP Issue Brief, May, 2017).

And let’s not forget that the ACA’s individual mandate related penalty was reduced to $0 at the federal level starting in 2019, courtesy of The Tax Cuts and Jobs Act enacted in 2017.  This penalty was designed with the twofold purpose of encouraging the purchase of health insurance AND generating tax revenue.

So the question now is, where is the money going to come from to fund the rest of the ACA, particularly the generous subsides paid out to purchasers of individual health insurance on the state/federal exchanges?

Stay tuned!

*SECURE – Setting Every Community Up for Retirement Enhancement Act