On December 20, 2019, the President signed appropriations legislation that includes provisions affecting the Affordable Care Act (ACA) and other health and welfare plan topics (Further Consolidated Appropriations Act, 2020 (Act) (Pub. L. No. 116-94 (Dec. 20, 2019))). The Act, which includes amendments to the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (Code), also contains extensive provisions affecting retirement plans (see Legal Update, Government Funding Legislation Includes the SECURE Act, Which Changes Retirement Plan Requirements).

The Act repeals the ACA's so-called "Cadillac plan" tax – an excise tax of 40% that would have been imposed on the cost of employer-sponsored health insurance coverage that exceeded an annual dollar limit (26 U.S.C. § 4980I; see Article, Cadillac Plan Excise Tax Under the ACA). Widely unpopular, the Cadillac tax was previously delayed until 2022 under legislation enacted in January 2018 (see Legal Update, Government Funding Legislation Delays Cadillac Plan Tax Until 2022).

In a conforming amendment, the Act adds a new definition of "applicable employer-sponsored coverage" for purposes of the ACA's W-2 reporting requirements for employer-sponsored health coverage (26 U.S.C. § 6051(a)(14); see Practice Note, W-2 Reporting for Employer-Sponsored Health Coverage). Before the Act, that term was defined in part by cross-reference to the Cadillac plan rules. Under the Act, applicable employer-sponsored coverage is defined as group health plan coverage made available to the employee by an employer that either:

The Act's definition of applicable employer-sponsored coverage also contains exceptions (for example, for certain excepted benefits) (26 U.S.C. § 9832(c)(1); see Practice Note, Excepted Benefits).

In addition, the Act repeals the ACA's annual fee on covered entities engaged in the business of providing health insurance for US health risks (ACA Section 9010; see Practice Note, Expatriate Health Plans Under EHCCA and the ACA: Exemption from ACA Section 9010 Annual Fees on Health Insurance Providers and Legal Update, IRS Announces ACA Section 9010 Aggregate Fee Amount for 2020). The annual fee consisted of a fixed amount allocated among Section 9010 health insurance providers based on each provider's relative market share. Section 9010 fees were suspended for 2017 and 2019, but – absent this provision of the Act – would once again have been imposed in 2020.

Finally, the Act repeals the medical device excise tax, effective for sales after December 31, 2019 (see Legal Update, Trump Administration Orders Delay of ACA Implementation).

The Act includes a ten-year extension (2020 through 2029) of the ACA's Patient-Centered Outcomes Research (PCOR) Trust Fund, funding for which otherwise would have ended in 2019 (26 U.S.C. § 9511; see Practice Note, Patient-Centered Outcomes Research (PCOR) Fees Under the ACA). The PCOR funding mechanism, which includes fees on health insurance and self-insured health plans, is also extended through 2029 (see Legal Update, IRS Announces 2020 Benefit Plan Limit Adjustments: PCOR Dollar Amount).

Additional PCOR-related provisions under the Act address:

The Act also amends a provision addressing the PCOR research policy agenda to provide that the institute's research will be designed to reflect the full range of clinical and patient-centered outcomes relevant to patients, clinicians, policymakers, and others in reaching informed health decisions. Clinical and patient-centered outcomes will include potential burdens and economic impacts of using particular medical treatments, such as:

The Act also includes provisions addressing reporting of the effectiveness of PCOR research activities.

The Act includes a limited-duration exemption from ERISA's prohibited transaction rules (and certain of its self-dealing prohibitions) for the offering of pharmacy benefit services to either:

(29 U.S.C. § 1106(a), (b)(1), and (b)(2); see Practice Note, Prohibited Transactions and Exemptions Under ERISA and the Code and Group Health Plans Toolkit.)

The exemption also applies to:

Several conditions must be met for this limited exemption to be invoked. For example, the arrangement's terms must be at least as favorable to the group health plan as the plan could obtain in a similar arm's length arrangement with an unrelated third party. Under another condition, the plan must retain an independent fiduciary to monitor the plan's consultants, contractors, subcontractors, and other service providers regarding pharmacy benefit services offered by such entity or its related organizations. The independent fiduciary must also monitor the transactions of the entity and its related organizations to ensure that the exemption's conditions are met during the plan year.

The exemption is generally available for five plan years after the Act's enactment date.

The Act extends through January 1, 2021, the health coverage tax credit (HCTC), a refundable tax credit that otherwise would have expired at the end of 2019 (see Standard Document, COBRA Election Notice: Reinstated Health Coverage Tax Credit (HCTC)). The HCTC permits certain individuals to receive a tax credit of up to 72.5% of the premiums paid for certain kinds of health insurance coverage (referred to as "qualified health coverage"), which includes payments for COBRA health plan continuation coverage (26 U.S.C. § 35; see COBRA Toolkit). The HCTC is available to certain individuals who either:

(For more information, see Practice Note, COBRA Overview: Reinstated Health Coverage Tax Credit.)

The Act includes a one-year extension, through December 31, 2020, of the employer credit for family and medical leave, which was enacted under the Tax Cuts and Jobs Act (TCJA) (Pub. L. No. 115-97 (2017); 26 U.S.C. § 45S; see Practice Note, Employer Credit for Paid Family and Medical Leave Under the TCJA (Code Section 45S) and Tax Cuts and Jobs Act (TCJA) Compliance for Fringe Benefits and Health Plans Toolkit). This provision, which otherwise would have expired at the end of 2019, permits certain employers to claim a general business credit based on wages paid to qualifying employees who are on family and medical leave, subject to conditions.

The Act also repeals a TCJA provision that required tax-exempt organizations to treat as unrelated business taxable income (UBTI) amounts paid or incurred for benefits that included:

(See Legal Update, Tax Reform Is Enacted, With Significant Implications for Executive Compensation and Employee Benefits.)

Repeal of the ACA taxes and fees addressed above, which were among the "pay-fors" for the ACA, will be welcome news for employers and others – some of whom have been calling for repeal of these provisions for several years. According to government estimates regarding the three repealed provisions, removal of the Cadillac plan tax and Section 9010 fees will have the most significant long-term budget consequences, while repeal of the medical device excise tax will have a somewhat lesser cost over the next ten years.