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Small Business Employee Benefits and HR Blog

New ACA Health Insurance Industry Taxes and Fees

The Affordable Care Act applies new taxes on pharmaceutical manufacturers and importers, health insurance companies, and device manufacturers and importers. taxes

Here's a look at the new Affordable Care Act (ACA) health insurance industry taxes and fees.

Pharmaceutical Manufacturers and Importers

Beginning in 2011, the law imposes a fee of $27 billion over ten years on drug manufacturers and importers based on their share of “covered” sales to government purchasers. Sales are adjusted to reflect any price concessions, including discounts and rebates. Covered sales exclude the first $5 million in sales, 90% of sales between $5 million and $125 million, 60% of sales between $125 million and $225 million, and 25% of sales between $225 million and $400 million. Companies will pay the fee by September 30 of each year. The fee is not deductible.

Health Insurance Companies 

Beginning in 2014, the law imposes a fee on health insurance companies based on the value of net premiums for policies sold in the United States. The fee does not apply to self-insured plans. The value is calculated by determining each insurer’s share of total premiums in a year and a year-specific aggregate. The share for each company is then determined as a percentage of the total market. The first $25 million in net premiums are excluded, and 50% of net premiums between $25 million and $50 million are excluded. Insurers must pay the fee by September 30 of each year. The fee is not deductible.

The Joint Committee on Taxes (JCT) estimates $60.1 billion in revenues over 10 years as a result of the provision.

Medical Device Manufacturers 

As of 2013, manufacturers and importers pay a 2.3% excise tax on their sales of certain medical devices. The tax does not apply to eyeglasses, contact lenses, hearing aids, and devices sold at retail establishments for individual use.

JCT estimates $20 billion in revenues over 10 years from this provision.

Tanning Salons

The law imposes a 10% tax on amounts paid for indoor tanning services. The tax is collected by tanning salon service providers and is effective after July 1, 2010.

JCT estimates the provision will raise $2.7 billion over 10 years.

Biofuel Producers

The law excludes certain byproducts of paper manufacturing, also called “black liquor”, from the existing biofuel producer credit effective for fuels sold or used after 2010. The biofuel producer credit provides a nonrefundable credit of $1.01 per gallon of qualified cellulosic fuel. 

JCT estimates the provision will raise $23.6 billion in revenues over 10 years.

Funding for Comparative Effectiveness Research

The law creates a new trust fund financed by appropriations and a new tax on health insurance policies sold in the United States to support comparative effectiveness research that investigates clinical comparisons of the effectiveness of procedures, drugs, devices, and services.

The tax, also called the PCORI research fees, is equal $2 per covered life ($1 for health policy years ending during fiscal year 2013) for issuers of insurance and for plan sponsors of self-funded plans. The dollar amounts are indexed to health cost growth and apply until 2019, when the tax ends.

JCT estimates the provision will raise $2.6 billion in revenues over 10 years.

Sources: IRS and US Chamber of Commerce.