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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.

 

Background:

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.

 

Employer Action:

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.

 

Additional Resources:

 

The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog.

Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.