2016 Federal Budget Delays ACA's Cadillac Tax & Suspends Two Other Taxes

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SAN DIEGO, December 18, 2015 – On December 18, 2015, President Barack Obama signed into law the federal budget bill for 2016. Three specific tax provisions under the legislation commonly referred to as the Affordable Care Act (ACA) were addressed under this bill:

Excise Tax on High Cost Health Plans (a.k.a., Cadillac Tax)

Originally, the Excise Tax on High Cost Health Plans (hereinafter referred to as the “Cadillac Tax”) as part of the ACA, imposed a 40% excise tax on high cost group health plans. The legislation considered health plans costing more than $10,200 for self-only coverage, and $27,500 for other than self-only coverage, to be “high cost” health plans. The intent of the tax was to ensure lower cost health plans to employees, in addition to raising revenue to fund other ACA provisions.

The provision would tax the amount, if any, of the monthly cost of an employee’s applicable employer-sponsored health plan that exceeds the annual limitation (also called the employee’s excess benefit). The tax amount for each employee’s coverage is calculated by the employer/plan sponsor and paid by the coverage provider providing the coverage.

The Cadillac Tax was originally intended to take effect in 2013, but was immediately delayed until 2018. The new law, under the 2016 federal budget deal includes the following:

1) Further delays the implementation of the Cadillac Tax for an additional two years, until 2020
2) Removes the provision prohibiting the Cadillac Tax from being deducted as a business expense
3) Requires a study to be conducted on the age and gender adjustment to the annual limit ($10,200 for self-only and $27,500 for other than self-only)

Suspension of the Health Insurer Fee

Beginning in 2014, the ACA imposed an annual, non-deductible fee on health insurance providers, allocated across the industry according to market share. This Health Insurer Fee, which is treated as an excise tax, is required to be paid by insurance providers by September 30th of each calendar year. Thus, the first year of payment for the Health Insurer Fee occurred on September 30, 2014.

The new 2016 federal budget deal suspends collection of the Health Insurer Fee for the 2017 calendar year. Thus, health insurance providers are not required to pay these fees for 2017. Employers should be aware that there may be a reduction in premium cost in 2017 because of this Health Insurer Fee moratorium.

Suspension of the Medical Device Tax

The ACA imposed a 2.3 percent excise tax on the sales price of certain medical devices, beginning in 2013. Generally, the medical device manufacturer or importer would be responsible for reporting and paying this fee to the Internal Revenue Service (IRS).
The new 2016 federal budget suspends collection of the Medical Device Tax for two years(i.e., 2016 and 2017). As a result, this tax would not apply to sales made between January 1, 2016 and December 31, 2017.

Concluding Thoughts

The new budget deal for 2016 makes significant changes to these three ACA taxes; however, it does not affect any other provisions of the ACA. Employers should be aware of the future impact of these taxes and plan accordingly should they become effective.

For further review of the federal budget bill for 2016, go to:


Christopher K. Bao, Esq.
Manager Employee Benefits Compliance & Regulatory Affairs, MMA West
(949) 540-6924

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