Fees & Taxes

The Affordable Care Act (ACA) imposes several new fees and taxes on health plans and issuers, including the Transitional Reinsurance Program Fee, PCORI Fee, Health Insurance Providers Fee, and the “Cadillac Tax.”

Fees and Taxes

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The Affordable Care Act (ACA) imposes several new fees and taxes on health plans and issuers, including the Transitional Reinsurance Program Fee, PCORI Fee, Health Insurance Providers Fee, and the “Cadillac Tax.”  The ACA also imposes an Additional Medicare payroll tax on wages above a certain threshold.  These fees and taxes serve different purposes that range from funding the subsidies that are available through the public Exchanges to funding research into more effective methods for delivering health care.

Transitional Reinsurance Program Fee

The ACA establishes a Transitional Reinsurance Program (TRP) that is designed to help stabilize premiums in the individual market from 2014 through 2016.  Under TRP, all health insurance issuers and self-insured group health plans will submit contributions to support reinsurance payments to issuers that cover high-cost individuals in non-grandfathered individual market plans.

Issuers and self-insured group health plans are subject to the fees with respect to each “covered life” enrolled in major medical coverage.  A “covered life” includes not only the enrolled employee but also the covered spouse and dependents.

For 2014, the TRP fee was $63 per person per year ($5.25 per person per month).  The fee decreased in 2015 to $44 per person per year ($3.67 per person per month).  The fee will be $27 per person per year ($2.25 per person per month) for 2016.

Additional information on the TRP fee is available in our October 2014 Briefing, which is available below.

Patient-Centered Outcomes Research Institute (PCORI) Fee

The ACA created a private, nonprofit corporation known as the Patient-Centered Outcomes Research Institute (PCORI).  The goal of PCORI is to serve as a resource so that patients, clinicians, purchasers and policy-makers can make informed health decisions.  To achieve this goal, PCORI will create and manage a variety of effectiveness studies regarding the delivery of health care and the money to pay for these studies will be raised by a PCORI fee.

The PCORI fee will be imposed for each plan year ending on or after October 1, 2012 and before October 1, 2019.  PCORI fees are based on a dollar amount times the average number of lives covered:

  • $1 for plan years ending on or after October 1, 2012 and before October 1, 2013
  • $2 for plan years ending on or after October 1, 2013 and before October 1, 2014
  • $2.08 for plan years ending on or after October 1, 2014 and before October 1, 2015
  • For the following plan years, the fee will increase in accordance with the percentage increase of the National Health Expenditures as determined by the Department of Health and Human Services

The Internal Revenue Service (IRS) announced the fee for plan years ending on or after October 1, 2015 and before October 1, 2016 will be $2.17 per covered life.

Plan sponsors of self-insured plans are responsible for paying the PCORI fee.  For fully-insured plans, the issuer must calculate and pay the fee.  Some plan combinations will result in the double counting of covered lives and additional fees.  For example, if a group health plan consists of a fully-insured medical benefit and a self-insured prescription drug benefit, both the insurer and the plan sponsor would pay the fees for the same group of covered lives.

The fee must be reported using IRS Form 720 and paid no later than July 31st of the calendar year immediately following the last day of the plan year to which the fee applies.

Additional information on the PCORI fee is available in our June 2013 Briefing that is available below.

Health Insurance Providers Fee

Beginning in 2014, the ACA imposes a fee on “covered entities” that will be used to help fund the subsidies lower-income individuals receive when purchasing coverage through a public Exchange.  In general, “covered entities” include health insurance issuers and exclude employers offering self-insured coverage, governmental entities, certain nonprofit corporations and certain voluntary employees’ beneficiary associations (VEBA).

Each covered entity will report annually on their net written premiums by April 15th.  They will receive from the IRS a statement indicating the fee amount due for the year by August 31st and payment must be made on or before September 30th.

The Consolidated Appropriations Act of 2016 suspended collection of the Health Insurance Provider fee for the 2017 calendar year. Thus, health insurance issuers are not required to pay these fees for 2017 only.

Excise Tax on High-Cost Coverage – “Cadillac Tax”

A 40 percent excise tax will be imposed, beginning in 2020, on the cost of coverage that exceeds certain dollar thresholds.  The limits are $10,200 for individual coverage and $27,500 for family coverage but thresholds for pre-65 retirees and high risk employees (police, firefighters, EMTs, etc.) are $11,850 for individuals and $30,950 for families.

Included in the cost of coverage are employer and employee contributions toward premium, including medical, prescription drug, behavioral health, chiropractic, Employee Assistance Programs, on-site clinics, employer and employee contributions to health Flexible Spending Accounts, employer contributions to Health Reimbursement Arrangements, and employer and pre-tax employee contributions toward Health Savings Accounts.

More information on the Cadillac Tax is available in our January 2015 Briefing that is available below.

Additional Medicare Tax

The ACA added an Additional Medicare Tax that went into effect on January 1, 2013.  The 0.9% increase in the Medicare payroll tax applies to wages above certain thresholds.  The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers.  Employers are responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

 

Additional Information
Health Care Reform: New Spending Bill Means Changes to ACA Tax Provisions
On December 18, 2015, the House and Senate approved and President Obama signed a $1.1 trillion spending measure for the federal government that includes significant changes to several tax provisions in the Affordable Care Act.
Health Care Reform: Excise Tax on High-Cost Employer Health Plans
To date, the Department of the Treasury has provided little regulatory guidance on the Cadillac Tax and, as a result, there are quite a few open questions about how it will apply in practice. This Briefing lays out what we currently know based on the statutory language along with some possible strategies for minimizing the impact of the tax.
Health Care Reform: Transitional Reinsurance Program Fee
The Affordable Care Act establishes a Transitional Reinsurance Program (TRP) designed to help stabilize premiums in the individual market from 2014 through 2016. This Briefing outlines who is required to pay the TRP fee, the amounts due and the deadline for payment.
Health Care Reform: What are PCORI Fees? The Patient Centered Outcomes Research Institute
This Briefing outlines the PCORI Fee, including who must pay the fee and when it is due.