UPDATE 12/19/19: Congress passed the Further Consolidated Appropriations Act 2020 (“Act”) on December 19, 2019. The Act permanently repeals the HIT tax, effective January 1, 2021. The HIT tax will still be in effect for 2020.
Absent legislative action, the Affordable Care Act Health Insurance Tax (HIT) will resume in 2020. Although the HIT is levied on insurers, the tax is expected to be passed on to employers and employees in the form of increased health insurance costs. The HIT is expected to increase premiums by 2.5-3% for the 2020 plan year.
The Affordable Care Act imposes a fee on “covered entities,” which includes health insurance issuers, health maintenance organizations, and non-fully insured MEWAs. Self-insured employers are not “covered entities” subject to the tax. The HIT was previously in effect from 2014 to 2016 but was suspended by Congress in 2017 and 2019.
The HIT is a fixed amount determined annually by the IRS. The fixed amount is then allocated among covered entities, based on their market share and the premiums charged in the prior year. For 2020, the IRS estimated that the HIT will be approximately $15.5 billion.
Although Congress has previously suspended the HIT, it is unclear whether Congress will delay the tax in 2020. A bi-partisan bill was introduced in February of this year to delay the tax until after 2021, but has not been brought up for a vote.
Employers have no action item, as they are not subject to the HIT. The HIT is expected to raise health insurance premiums and employers should be prepared for an increase in their 2020 rates absent legislative action.
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