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Taxes and Fees under the Affordable Care Act

Filed under: Health Care Reform

The health care reform law, known as the Affordable Care Act (ACA), makes significant changes to the U.S. health care system, including new coverage requirements, patient protections and cost limitations. These changes affect health care providers, government programs, health insurance issuers, employers and plan sponsors, and individuals.

In order to fund many of these changes, the ACA imposes several new taxes and fees—many of which directly impact health plans and health plan sponsors. The following charts provide an overview of the ACA's new tax and fee provisions that affect health plans. Please contact Fickewirth Benefits Advisors for more information on these new taxes and fees.

TAX PROVISIONS

PROVISION APPLIES TO EFFECTIVE DATE SUMMARY
Small Business Health Care Tax Credit Small employers that:
  • Have fewer than 25 full-time equivalent employees (FTEs);
  • Pay average annual wages of less than $50,000 per FTE; and
  • Pay at least half of employee health insurance premiums (based on single coverage).
Beginning in 2014, the tax credit is only available through a SHOP Exchange.		 First Phase: Taxable years 2010-2013 Eligible small employers can receive a credit for contributions to purchase health insurance for employees. The credit is up to 35 percent of the employer's contribution to provide health insurance for employees. There is also up to a 25 percent credit for small tax-exempt organizations.
First Phase: Taxable years 2010-2013 Eligible small employers can receive a credit for contributions to purchase health insurance for employees. The credit is up to 35 percent of the employer's contribution to provide health insurance for employees. There is also up to a 25 percent credit for small tax-exempt organizations.
Increased Tax on HSA and Archer MSA Withdrawals Withdrawals prior to age 65 that are not used for qualified medical expenses Distributions after Dec. 31, 2010 The ACA increased the additional tax on HSA withdrawals prior to age 65 that are not used for qualified medical expenses from 10 to 20 percent. The additional tax for Archer MSA withdrawals not used for qualified medical expenses also increased from 15 to 20 percent.
Additional Medicare Tax for High-wage Workers Employees who earn wages in excess of $200,000 in a year Taxable years beginning in 2013 The ACA increases the Medicare hospital insurance tax rate by 0.9 percentage points for high-income individuals. Employers must withhold the additional taxes on wages paid in excess of $200,000.
Individual Shared Responsibility (Individual Mandate) All individuals who do not fall within a specific exemption (including children) Jan. 1, 2014 The ACA requires most individuals to obtain acceptable health insurance coverage or pay a tax penalty. Individuals may be eligible for an exemption from the penalty in certain circumstances, including if they cannot obtain affordable coverage.
Individual Health Insurance Subsidies

Individuals who:

  • Have low income (between 100% and 400% of the federal poverty level);
  • Are not eligible for (or enrolled in) minimum essential coverage; and
  • Enroll in coverage through an Exchange.
 Jan. 1, 2014 The ACA makes federal subsidies available through the Exchanges, in the form of premium tax credits and cost-sharing reductions, for low-income individuals who are not eligible for or offered other acceptable coverage.
Employer Shared Responsibility (Pay or Play Rules) Large employers that employ, on average, at least 50 full-time employees, including FTEs, on business days during the preceding calendar year (including for-profit, nonprofit and government employers) Jan. 1, 2015 Large employers may be subject to penalties if they do not provide health coverage to full-time employees (and dependents), or if the coverage they provide is not affordable or does not provide minimum value. A full-time employee is an employee who was employed on average at least 30 hours of service per week.
High Cost Plan Excise Tax (Cadillac Tax) Coverage providers of high-cost group health coverage (which can be the insurer, the employer or a third-party administrator) Jan. 1, 2018 A 40 percent excise tax is to be imposed on the excess benefit of high-cost employer-sponsored health insurance. The annual limit for purposes of calculating the excess benefits is $10,200 for individuals and $27,500 for other than individual coverage.

The ACA also establishes several other taxes that do not affect health plans, including the Indoor Tanning Services Tax and the Medical Devices Excise Tax.

FEES

PROVISION APPLIES TO EFFECTIVE DATE SUMMARY
Patient-centered Outcomes Research Institute (PCORI) Fee Health insurance issuers and sponsors of self-insured health plan.

Plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

The first possible payments were due July 31, 2013.

 The ACA imposes new fees to fund health care research through the Patient-centered Outcomes Research Institute. The initial fee is $1 per covered life, increasing to $2 per covered life for 2013 (and adjusted annually for later plan years).
Reinsurance Fee Health insurance issuers and sponsors of self-insured group health plans Calendar years 2014-2016 Health insurance issuers and self-funded group health plans will be required to make contributions to fund the transitional reinsurance program based on a federal contribution rate established by HHS. For 2014, HHS announced a national contribution rate of $5.25 per month ($63 per year) per covered life. States may collect additional contributions on top of the federal contribution rate.
Health Insurance Providers Fee

Any entity that provides health insurance for any U.S. health risk, including:

  • Health insurers
  • HMOs
  • MEWAs
  • Providers of Medicare Advantage, Medicare Part D prescription drug coverage or Medicaid coverage
The fee does not apply to companies whose net premiums written are $25 million or less.		 Paid by Sept. 30 of each calendar year, beginning in 2014

The health care reform law imposes an annual, non-deductible fee on the health insurance sector, allocated across the industry according to market share. The fee will be assessed on health insurers’ premium revenue with respect to health insurance above $25 million. The aggregate annual fee for all covered entities is expected to be:

  • $8 billion in 2014;
  • $11.3 billion in 2015 and 2016;
  • $13.9 billion in 2017; and
  • $14.3 billion in 2018.
Beginning in 2019, the cost of the fee will increase based on the rate of premium growth.

This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

© 2013 Zywave, Inc. All rights reserved.

BK 10/13

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