Mid-week Update

Because the President has put taxes on the radar screen, it's worth noting that a fleet of new Affordable Care Act tax regulations along with less formal IRS guidance have arrived. The Internal Revenue Service's ACA page highlights the new regulations which concern the following assessments that kick in next month

• The 2.3% excise tax imposed on the sale of many medical devices, and 
• The 3.8% net investment tax imposed on the passive income of, and the additional 0.9% Medicare tax imposed on the salary and wage income of individuals with adjusted gross income over $200,000 for an individual and $250,000 for a married couple. 

Reuters explains that "The [medical device] tax applies mostly to devices used and implanted by medical professionals, including items as complex as pacemakers or as simple as tongue depressors." The tax does not apply to over the counter items or prosthetics. The medical device industry is pushing hard to repeal this tax, and the House of Representatives passed a repeal bill in June 2012. But the Senate has not taken up that bill and the Obama administration has threatened to veto it. The Administration's logic is that the ACA creates access to 30 million new customers for the medical device industry according to the Reuters article. Assuming for the moment the truth of this statement, that expansion will not occur until 2014. By that time, the weight of this new gross income tax may have sunk many medical device manufacturers.

America's Health Insurance Plans, the health plan trade association, released a new actuarial study about the ACA fee on health insurers that starts in 2014. This fee  is $8 billion in 2014 and goes up from there to $14.3 billion in 2018.  The fee is allocated to insurers based on their fully insured plan premiums, including FEHB plans. The fee is not deductible from the federal income tax that insurers pay. Like the medical device tax, this is an excess profits tax. The AHIP press release explains that

These Oliver Wyman reports are consistent with previous analyses on how the health insurance tax will impact the cost of coverage:

• According to the Joint Committee on Taxation: “For those insurance premiums that are subject to the fee, we estimate that the premiums, including the tax liability, would be between 2.0 and 2.5 percent greater than they otherwise would be.” 

• In a November 30, 2009 letter, the Congressional Budget Office stated that “New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices.  Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.” 

For health care reform to work, coverage needs to be affordable and there needs to be broad participation in the health care system.  The health insurance tax undermines the goal of affordability.