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Side-Benefit from Government Shutdown

02/13/2018  |  By: Art Van Buren, CPA, Shareholder, Tax Services

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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 January 22, 2018 to keep the government running.

The Extension of Continuing Appropriations Act of 2018 (H.R. 195) keeps the federal government funded through February 8, 2018, and also delays 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 January 1, 2018 is now delayed until January 1, 2020. The suspension is retroactive and applies to sales incurred after December 31, 2017. The medical device excise tax is a 2.3% tax that manufacturers and importers would pay on sales of certain medical devices. The PATH Act (signed into law in 2015) included a 2-year moratorium on the tax which delayed the tax until January 1, 2018. In addition to the delay to 2020, there have been discussions about legislation that may be introduced to permanently repeal the tax. Conceptually, this means a reduction 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 January 1, 2020 is now delayed until January 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 health care, making a permanent repeal of each of these taxes more likely.

Posted in: Tax