Taxes and Fees Enacted as Part of the Affordable Care Act

Taxes and Fees Enacted as Part of the Affordable Care Act

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Updated January 26, 2018
Taxes and Fees Enacted as Part of the Affordable Care Act
Background and Provisions
the entire industry was $8 billion in 2014 and was set to
The Patient Protection and Affordable Care Act (ACA; P.L.
increase gradually to $14.3 billion in 2018. The fee is
111-148, as amended by P.L. 111-152) contains a number
indexed to the rate of insurance premium growth in years
of tax provisions that serve different purposes. Some of the
after 2018. The CAA temporarily suspended the fee for
more well-known provisions, such as the individual
2017. The fee is in effect for 2018 and is still set to collect
mandate and employer penalty, have revenue and budgetary
$14.3 billion. P.L. 115-120 suspends the fee for 2019.
effects but are primarily intended to encourage health
insurance coverage. The focus of this product is a number
Branded Pharmaceuticals Industry Fee
of other taxes and fees enacted as part of the ACA that
Effective 2011, the ACA imposes an annual fee on certain
primarily serve to raise revenue.
firms, manufacturers, and importers of branded
pharmaceuticals based on their market share of all branded
Tax on High-Cost Employer-Sponsored Coverage
pharmaceuticals sales (excluding orphan drugs). The fee
Effective 2022, a 40% excise tax, also referred to as the
levied on the industry peaks at $4.1 billion in 2018 and
“Cadillac tax,” is to be assessed on the aggregate cost of
remains constant at $2.8 billion in 2019 and beyond. Firms
employer-sponsored health coverage that exceeds a dollar
with less than $5 million in annual branded pharmaceuticals
threshold. The thresholds are adjusted for eligible retirees,
sales are exempt from paying the fee, and the amount of
workers in certain high-risk professions, and plans whose
sales taken into account for the purposes of imposing the
demographics differ significantly from the national
fee is reduced by certain percentages (between 90% and
workforce. The thresholds are also adjusted for inflation.
25%) for firms that have between $5 million and $400
million in annual branded pharmaceutical sales.
Increased Medicare Payroll Tax and Net
Investment Tax for High-Income Earners
Indoor Tanning Services Excise Tax
Effective 2013, the ACA imposes two taxes on married
Effective 2010, the ACA imposes a 10% excise tax on the
couples filing jointly with modified adjusted gross income
price of indoor tanning services provided by certain
(MAGI) exceeding $250,000 ($200,000 for single, non-
businesses. The tax does not apply to spray-on tanning
married filers). These thresholds are not adjusted for
services, topical creams and lotions, or phototherapy
inflation. An additional Medicare hospital insurance tax of
services performed by a licensed medical professional.
0.9% is imposed on employees who have wages in excess
There is also an exemption for “qualified physical fitness
of the threshold. (For all wage income, employees and
facilities,” such as gyms or fitness clubs, which offer
employers are each subject to Medicare hospital insurance
tanning as an incidental service to members.
payroll tax of 1.45%, or 2.9% total.) In addition, a 3.8% net
investment income tax (NIIT) is imposed on individuals on
Collections from most of these provisions are directed to
the lesser of either (a) their net investment income or (b) the
the general fund of the Treasury, with the exceptions being
amount by which their MAGI exceeds the threshold. Net
the Medicare payroll surtax (which is dedicated to the
investment income includes income from certain sources,
Medicare Part A Trust Fund) and the branded
such as interest, dividends, annuities, passive business
pharmaceutical fee (which is dedicated to the Medicare Part
income, and capital gains.
B trust fund).
Medical Device Excise Tax
Legislation in the 115th Congress
Effective 2013, the ACA imposes a 2.3% excise tax on the
On January 22, 2018, the President signed P.L. 115-120,
manufacturer’s price of certain medical devices intended
which provided continuing appropriations for FY2018
for consumption in the United States. Imports are taxed, but
through February 8, 2018. The legislation also enacted a
exports, certain products defined in statute, and products
two-year moratorium on the medical device tax (2018 and
that are directly available for retail sale to consumers are
2019) and a one-year moratorium on the health insurer
exempt from the tax. The tax was in effect through 2015,
providers fee (2018) and further delayed the
but the Consolidated Appropriations Act, 2016 (CAA; P.L.
implementation of the Cadillac tax for two years (from
114-113) temporarily suspended the tax for 2016 and 2017,
2020 to 2022). The $31.3 billion revenue loss associated
and P.L. 115-120 extended the suspension for another two
with these provisions is shown in Table 1.
years (2018 and 2019).
Congress could debate further delay or repeal of certain
Health Insurer Providers Fee
ACA taxes and fees. Table 2 shows revenue loss estimates
Effective 2014, the ACA imposes an annual fee on certain
from the American Health Care Reform Act (AHCA; H.R.
health insurance providers based on their market share.
1628), passed by the House on May 4, 2017. Although
Market share is calculated based on an insurance carrier’s
revenue loss estimates for AHCA predated the policy
share of premiums written in the previous year. The fee on
changes in P.L. 115-120, the scores could be informative
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about the relative magnitude of potential revenue losses
available on the Joint Committee on Taxation’s (JCT)
from repealing certain provisions. Revenue loss estimates
website.
for future bills that delay or repeal ACA taxes or fees could
vary from the AHCA score.

The Senate Budget Committee’s Better Care Reconciliation

Act of 2017, revised on July 13, 2017, would have also
repealed certain ACA taxes and fees. Revenue loss

estimates for that bill are not provided below but are

Table 1. Revenue Loss from Select Provisions in P.L. 115-120, Continuing Resolution ($bil), FY2018-FY2027
2018-
Provision
2018
2019
2020 2021 2022
2023
2024 2025 2026
2027
2027
Delay Cadil ac Tax Implementation
-
(from 2020 to 2022)

-
$3.7
$7.5
$3.6
-
-
-
-
-
$14.8
Moratorium on Health Insurer
-
Providers Fee (2019)

$12.7
-
-
-
-
-
-
-
-
$12.7
Moratorium Medical Device Excise
$1.4
$1.9
$0.5
-
Tax (2018 and 2019)

-
-
-
-
-
-
$3.8
Total
$1.4
$14.6
$4.2
$7.5
$3.6

$31.3
Sources: JCT, Estimated Revenue Effects of the Revenue Provisions Contained in the “Extension of Continuing Appropriations Act, 2018,” as Passed by
the Congress on January 22, 2018, JCX-2-18, January 23, 2018, https://www.jct.gov/publications.html?func=startdown&id=5058.
Table 2. Revenue Loss from Select Provisions in House-Passed AHCA ($bil), FY2017-FY2026
2017-
Provision
2017
2018
2019
2020 2021 2022
2023
2024 2025 2026
2026
-Effective January 1, 2017

Repeal Net Investment Income Tax
$1.5
$16.7
$15.9
$16.7 $17.8 $18.7
$19.7
$20.7 $21.7 $22.7
$172.2
Repeal Health Insurer Providers Feea
-
$12.8
$13.5
$14.3 $15.1 $15.9
$16.8
$17.8 $18.7 $19.7
$144.7
Repeal Pharmaceuticals Industry Fee
$3.0
$4.0
$2.7
$2.7
$2.7
$2.7
$2.7
$2.7
$2.7
$2.7
$28.5
Repeal Medical Device Excise Taxa
-
$1.4
$1.9
$2.0
$2.1
$2.2
$2.3
$2.4
$2.6
$2.7
$19.6
-Effective July 1, 2017

Repeal Tanning Services Excise Tax
[b]
$0.1
$0.1
$0.1
$0.1
$0.1
$0.1
$0.1
$0.1
$0.1
$0.6
-Effective January 1, 2023

Repeal 0.9% Medicare Payrol Surtax
-
-
-
-
-
$0.5
$9.3
$14.7 $16.5 $17.6
$58.5
-Effective January 1, 2026

Delay Cadil ac Tax Implementationa
-
-
-
$3.4
$6.9
$8.7
$10.7
$13.4 $16.4 $6.6
$66.0
Total
$4.5
$35.0
$34.1
$39.2 $44.7 $48.8
$61.6
$71.8 $78.7 $72.1
$490.1
Sources: CRS analysis of JCT data, Estimated Revenue Effects of the Tax Provisions Contained in Title II of H.R. 1628, the “American Health Care Act
of 2017,” as Passed by the House of Representatives, JCX-27-17, May 24, 2017, https://www.jct.gov/publications.html?func=startdown&id=5000.
Estimates for the Senate version is available at JCT, Estimated Revenue Effects of an Amendment in the Nature of a Substitute to the Tax Provisions
Contained in Title I of H.R. 1628, the “Better Care Reconciliation Act of 2017,” as Posted on the Website of the Senate Committee on the Budget on July
20, 2017, JCX-39-17, July 20, 2017, https://www.jct.gov/publications.html?func=startdown&id=5018.
Notes:
a. Denotes a provision that was affected by P.L. 115-120. See estimates in Table 1.
b. JCT estimates an annual revenue loss less than $50 mil ion.

IF10591
Sean Lowry, Analyst in Public Finance
https://crsreports.congress.gov

Taxes and Fees Enacted as Part of the Affordable Care Act

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