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Three Affordable Care Act tax provisions loom on the horizon, now that efforts to completely dismantle the law have stopped.
A fee on health care providers and a 2.3 percent tax on the sale of medical devices such as surgical equipment and MRI machines take effect in 2018. A 40 percent excise tax on parts of high-cost health plans—the “Cadillac tax"—is to follow two years after. Those dates leave employers in a tricky limbo: preparing for a tax that may be delayed again.
Congress has already delayed the three provisions since the ACA, or Obamacare, was enacted in 2010. There is some appetite to do so before the end of this year, particularly since efforts to repeal the law have fallen apart. Those delays could be tacked on to a tax extenders bill or added as a tax title on a year-end legislative package, a former Capitol Hill aide and a current aide told Bloomberg Tax.
“We are looking for opportunities to delay or eliminate some of the ACA taxes in other vehicles,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) told Bloomberg Tax Oct. 24.
Lawmakers likely will address the health insurance providers fee and the medical device tax, both universally unpopular, at the end of the year, since House Speaker Paul D. Ryan (R-Wis.) and Brady have said publicly they won’t address ACA taxes in tax reform. House Republicans already face tricky calculations as they try to slash corporate and individual tax rates, overhaul the international tax system, and pass their measure through the Senate without Democrats—and adding multibillion-dollar health care tax provisions to that math would be too complicated.
Although the vehicle to delay the taxes isn’t clear yet, there is widespread congressional interest in taking care of them. Critics of the health insurance providers fee say it increases premiums, and Brady and others have panned the medical device tax for costing jobs and slowing innovation—though there is some skepticism about that claim.
Sen. Heidi Heitkamp (D-N.D.) introduced a bill Oct. 18 to delay the providers fee and make it tax-deductible if it is enacted after that. She told Bloomberg Tax she hopes the bill will be added to a year-end package of some kind. The fee, imposed on insurers based on their market share of net premiums collected, was suspended by Congress for 2017 but takes effect in 2018.
Nearly 200 lawmakers, including 43 Democrats, sent House Speaker Paul D. Ryan (R-Wis.) a letter Oct. 24 urging him to stave off the medical device tax.
Because the ACA was passed using reconciliation, a strategy that allowed Democrats to pass it without Republicans, no provisions could add to the deficit outside of a 10-year budget window. Thus, some of the taxes included to fund the law were designed to never really take effect, but to help with budget calculations, a Republican aide said. The aide spoke on the condition of anonymity because no plan has been announced publicly.
Chris Condeluci, principal at CC Law & Policy PLLC, said it’s most likely Republican leaders will treat the health insurance providers fee and the medical device tax as tax extenders—meaning they would need to be addressed again in 2019. Including them in a different package not only requires a tax title, but opens the legislation up to members who want to attach other tax-related provisions.
“Leadership wants to deflect or doesn’t want to open the door, the Pandora’s box, to addressing only limited tax provisions and then dealing with the onslaught of interests who want their tax provision addressed,” he said. Condeluci is a former tax staff member on the Senate Finance Committee and helped craft portions of the ACA.
Insurers have likely already written the tax into their premiums for 2018 and beyond, said Timothy Jost, a professor emeritus at the Washington and Lee University School of Law. Even if the tax is delayed, those calculations aren’t reversible, he said.
Erin M. Sweeney, a member at Miller and Chevalier Chartered in Washington, said she has clients already holding meetings on the Hill urging lawmakers not to enact the health insurance providers fee.
“I think that the watch word is ‘be prepared,’ but for the possibility that these taxes go into place in 18, but be ever hopeful that their activity on the hill is going to be successful,” she said.
Making the tax into an extender adds uncertainty for employers and “creates a level of exhaustion” as they must plan while waiting on Congress to act each year.
There is also “a concern that at the end of the day, when this ultimately becomes a part of the permanent landscape,” all this is really going to do “is drive people from fully insured market to the self-insured market,” she said.
Fully repealing the medical device tax would cost about $20 billion over 10 years, according to the Congressional Budget Office. Repealing the tax on health insurers would cost about $116 billion over 10 years, and the repeal would have to be offset by raising other taxes or reducing spending because of “pay-as-you-go” rules.
Fully repealing the Cadillac tax would cost $100 billion over a decade, according to the Committee for a Responsible Federal Budget, and that amount would rise over time. Though the House-passed health care bill (H.R. 1628) would repeal some Obamacare taxes, it wouldn’t permanently repeal the Cadillac tax, because doing so would add to the deficit outside of the budget window. The bill’s five-year delay would cost $48.7 billion, according to the Joint Committee on Taxation.
“Maybe tomorrow, maybe never, certainly not today, that seems to be situation of the Cadillac tax,” Jost said.
The Cadillac tax will remain in play until there’s a plan to replace its revenue, Sweeney said.
“It’s hard to imagine a situation between now and 2020 where there’s a thoughtful analysis of ‘How do we restructure those building blocks?’” she said.
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