February 10, 2016

Obama Administration’s Fiscal Year 2017 Federal Budget Proposes Modifying the Affordable Care Act’s Excise Tax

The federal Budget for Fiscal Year 2017, which was published on February 9, 2016, proposes improving the Affordable Care Act’s excise tax on high-cost health plans in three ways:

  1. Modify the threshold to be the greater of either the current law threshold (generally, $10,200 for single coverage and $27,500 for all other coverage tiers) or a “gold plan average premium” to be calculated and published for each state. The “gold plan average premium” would be a weighted average of the premiums for the lowest-cost silver self-only Exchange/Marketplace plans offered for each age and county in the state, multiplied by 8/7 to simulate the cost of an actuarially equivalent gold plan. A family multiplier would be applied to this amount to create the family threshold.
  2. For health Flexible Spending Arrangements (FSA), the cost of coverage with respect to salary reduction contributions would be defined as the average amount elected for the year by similarly-situated employees (rather than amounts actually contributed on an employee-by-employee basis). Currently both employer and employee contributions are included and are calculated by employee.
  3. Require a study of the potential effects of the tax on firms with unusually sick employees, to be conducted by the Government Accountability Office in consultation with the Department of the Treasury and other experts.

Congressional republicans are unlikely to accept President Obama’s budget proposals, but may consider other proposals to modify or repeal the excise tax. For example, on February 4, 2016, Senator Orrin Hatch (R-UT) introduced the Health Savings Act of 2016 (S 2499), which, among other items, would exclude Health Savings Account (HSA) and health FSA contributions from the excise tax. There are several bills that have been introduced to repeal the tax in its entirety.

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