2020 Appropriations Legislation Repeals Cadillac Tax and Makes Other Changes Affecting Benefit Plans

As 2019 drew to a close, Congress enacted the Further Consolidated Appropriations Act, 2020, which includes significant benefit-related provisions. Highlights include:

• Certain Taxes Repealed. The following taxes, which were enacted as part of the Affordable Care Act (ACA) and had previously been delayed or suspended (see our Checkpoint article), are now repealed:

  • Cadillac Tax. The Act repeals the excise tax on high-cost health coverage (often called the Cadillac tax). The Cadillac tax would have imposed a 40% tax on the cost of employer-sponsored health benefits exceeding specified statutory thresholds starting in 2022.
  • Annual Fee on Health Insurance Providers. The Act repeals the annual fee on health insurance providers (defined to include health insurers, HMOs, and MEWAs), effective January 1, 2021. The fee, which took effect in 2014, was apportioned among covered providers based on their relative U.S. health insurance market share.

• Other Tax Provisions Modified or Extended. The Act modifies or extends certain tax provisions, including:

  • Reinstatement of PCOR Fees. The ACA created the Patient-Centered Outcomes Research (PCOR) Institute, funded in part by fees from certain health insurers and self-insured health plan sponsors, to support clinical effectiveness research. Under the ACA provision, PCOR fees were collected for plan years ending before October 1, 2019 (see our Checkpoint article). The Act reinstates the PCOR provision and continues the fee requirements through plan years ending before October 1, 2029. Appropriations for research are extended through the government’s 2029 fiscal year.
  • Deductible Medical Expenses. The ACA increased the threshold for deductible medical expenses from 7.5% to 10% of adjusted gross income, but the Tax Cuts and Jobs Act (TCJA) reinstated the 7.5% threshold for 2017 and 2018 (see our Checkpoint article). The Act retains the 7.5% threshold for 2019 and 2020.
  • Employer Tax Credit for Paid Family and Medical Leave. The TCJA created a tax credit for eligible employers providing paid family and medical leave to their employees for 2018 and 2019 (see our Checkpoint article). The Act extends it through 2020.
  • UBTI for Transportation Benefits. The Act retroactively repeals a TCJA provision that required tax-exempt organizations to treat amounts paid or incurred for qualified transportation fringe benefits, and parking facilities used in connection with qualified parking, as unrelated business taxable income (see our Checkpoint article).
  • Health Coverage Tax Credit (HCTC). Generally available to individuals who experience qualifying job losses and scheduled to expire at the end of 2019 (see our Checkpoint article), the HCTC is extended for one year.

EBIA Comment: Health plan sponsors likely will view repeal of the Cadillac tax as the key takeaway from this legislation. However, retirement plan sponsors and advisors will also be interested in changes made by the SECURE Act, which is included in the legislation and is covered in our separate Checkpoint article. For more information, see EBIA’s Health Care Reform manual at Sections XXX (“Tax on High-Cost Health Coverage”), XXXV.F.3 (“Increase in Medical Expense Deduction Threshold Under Code § 213”), XXXVI.H (“Patient-Centered Outcomes Research (PCOR) Fees”), and XXXVI.K (“Annual Fee on Health Insurance Providers”); EBIA’s Group Health Plan Mandates manual at Section XVII.M.7 (“Employer Tax Credit for Paid Family and Medical Leave”); EBIA’s COBRA manual at Section XXXIV (“Special Issues: The Health Coverage Tax Credit (HCTC) and the Special Second COBRA Election Period”); EBIA’s Cafeteria Plans manual at Section XX.F (“Expenses for Which Employee Claims a Deduction Under Code § 213 Cannot Be Reimbursed”); and EBIA’s Fringe Benefits manual at Section XX.T (“What Other Laws Apply to Transportation Fringe Benefit Plans?”).

Contributing Editors: EBIA Staff.