By ARTHUR VAN BUREN
Shareholder-in-Charge, LBMC Healthcare Tax Practice
Funding Bill Delays Health-Related Taxes
Medical device companies, companies that provide health insurance to their employees, and health insurance providers obtained some relief when the federal government enacted legislation on Jan. 22, 2018 to keep the government running.
The Extension of Continuing Appropriations Act of 2018 (H.R. 195) kept the federal government funded through Feb. 8, 2018, and also delayed three health-related taxes that were created as part of the Affordable Care Act.
First, the medical device excise tax – which was supposed to go into effect Jan. 1, 2018 – has now been now delayed until Jan. 1, 2020. The suspension is retroactive and applies to sales incurred after Dec. 31, 2017. The medical device excise tax is a 2.3 percent tax that manufacturers and importers would pay on sales of certain medical devices.
The PATH Act (signed into law in 2015) included a two-year moratorium on the tax, which delayed the tax until Jan. 1, 2018. In addition to the delay now to 2020, there have been discussions about legislation that may be introduced to permanently repeal the tax. Conceptually, this staves off an anticipated increase to the consumer in the cost of the medical device.
Second, the excise tax on high-cost, employer-sponsored health coverage that was supposed to go into effect Jan. 1, 2020 has now been delayed until Jan. 1, 2022. This tax, otherwise known as the “Cadillac Tax,” is a 40 percent excise tax imposed on employer-sponsored health benefits where the value of the benefit exceeds certain thresholds. There are calls to repeal this tax, as well.
Lastly, the annual fee on health insurance providers was suspended for 2019. Unfortunately, it still applies to 2018. The PATH Act had also suspended the fee for 2017. The fee applies to each covered entity engaged in the business of providing health insurance for United States health risks. Usually this fee is passed on as part of the insurance premium, so hopefully this will result in lower net costs to employers.
Bottom Line: The medical device industry is in a state of continual innovation which makes their excise taxes unpopular. Health insurance is a highly debated political topic as premiums continue to rise. Now that tax reform has been enacted, the spotlight may move back to actual healthcare, making a permanent repeal of each of these taxes more likely.