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Pausing Obamacare Taxes Expected to Fuel More Calls for Change

By Melissa Attias, CQ Roll Call

January 4, 2016 -- President Barack Obama’s willingness to sign a year-end spending package that suspended more than $30 billion worth of taxes mandated by the health care law will energize opponents' efforts to further alter his signature legislative achievement, though the most significant changes may have to wait until after the elections.

The omnibus funding and tax package (PL 114-113) made the most significant legislative revisions yet to the law by placing a two-year moratorium on the “Cadillac” tax on high-cost employer health plans and an excise tax on medical devices and suspending a levy on insurers for one year. The revenue-raisers helped cover the cost of the insurance expansion in the Affordable Care Act.

Powerful interests created a blueprint for further efforts by rallying bipartisan opposition to the taxes and casting them as economically ruinous without gutting the central pillars of the coverage expansion. Language suspending the taxes was then folded into a must-pass bill to keep the government running without an insistence on offsets.

The White House cast the changes in budgetary terms, saying they would not alter efforts to reduce the uninsured population and that the law would continue to shrink the deficit. Suspending the three taxes was projected to cost $32 billion over a decade.

“There is no impact that the two-year suspension of the ‘Cadillac tax’ will have whatsoever on the continued strength and functioning of the marketplaces moving forward,” White House Press Secretary Josh Earnest said before the package was cleared. “Their funding streams are entirely separate.”

Still, Obama’s willingness to temporarily shut off the taxes—at least two of which the White House has openly opposed repealing—coupled with the recent enactment of other smaller changes to the law will encourage more proposed revisions.

Robert J. Blendon, a professor of health policy and political analysis at Harvard University, said even a Democratic successor to Obama will tolerate more changes, which could include further delays of the three taxes. Any immediate action is unlikely without a must-pass bill on the horizon that's on par with the omnibus, he said.

Obama's acquiescence “sends a signal that the tax and regulatory pieces of the bill are open for revision after the election,” Blendon said.

There’s already widespread skepticism over whether the device and insurance taxes will be reinstated, or if the yet-to-be-imposed Cadillac tax will ever take effect. The omnibus paused the medical device tax in 2016 and 2017 and the tax on insurers in 2017. The Cadillac tax, due to take effect in 2018, will be suspended until 2020.

Curtis S. Dubay, a research fellow in tax and economic policy at the conservative Heritage Foundation, said he would wager that the next president and Congress will suspend the device and insurance taxes again so that their next renewals would take place at the same time as the Cadillac tax, before 2020. All three could then continue to be put off on a short-term basis together.

Piece by Piece

Both Dubay and Joseph Antos, a health care and retirement policy scholar at the American Enterprise Institute, compared the scenario to the series of temporary patches Congress used to repeatedly block Medicare payment cuts to physicians until a permanent fix was enacted last year (PL 114-10).

“Everyone’s expecting that the pauses will be permanent ... We’ll be back in the SGR world again,” Antos said, referring to the old sustainable growth rate formula that dictated the cuts.

Pennsylvania Republican Joe Pitts, chairman of the House Energy and Commerce Health Subcommittee, also indicated he isn’t expecting the taxes to take effect and said lawmakers are taking a incremental strategy because of the cost of a full repeal of the taxes. “It’ll be piecemeal,” he told CQ Roll Call.

Republicans Charles Boustany Jr. of Louisiana and Erik Paulsen of Minnesota, the sponsors of House bills to completely scrap the health insurance and device taxes respectively, both expressed optimism that the levies would be permanently repealed.

Boustany called the health insurance tax suspension “a big victory in that it finally is an affirmative statement that this tax is a problem, it’s causing increases in health insurance premiums for everybody, and it’s something that should be dealt with and eliminated.”

Many Democrats, meanwhile, are eager to prevent the Cadillac tax from taking hold because of its potential effect on union and public employee health plans. Democratic presidential hopeful Hillary Clinton notably released a statement in September supporting repeal of the tax, though she said the cost should be offset.

Other Revenue

A Republican budget reconciliation package (HR 3762) that Obama has threatened to veto offers a roadmap to what other components in the health law could be targeted.

Beyond the device, health insurance and Cadillac taxes, the package would scrap penalties on individuals and employers who refuse to comply with the health law's coverage mandates, as well as repealing in 2018 the law's subsidies to help individuals buy health coverage through its insurance marketplaces and its expansion of Medicaid.

The reconciliation bill would also target an annual fee on brand name prescription drug manufacturers the Congressional Budget Office (CBO) estimates would cost nearly $30 billion over a decade to repeal. A spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA) declined to comment on whether the big industry trade group would push for relief, but health policy experts are skeptical given the growing public attention over rising drug prices.

“PhRMA is definitely trying to keep its head down,” Antos said.

Another potential target is the law’s levy on indoor tanning services, which CBO projects would cost a relatively modest $800 million over a decade to repeal.

Getting rid of the overhaul’s additional Medicare tax on high earners, meanwhile, has a much larger price tag of $123 billion over 10 years. Eliminating the health law’s tax on net investment income of individuals, estates and trusts with earnings above certain thresholds would also prompt a significant drop in revenues, with an estimated cost of nearly $223 billion over a decade.

“If you look at where the money is in the bill, those taxes are probably not going to be politically popular to get rid of,” said Washington and Lee University law professor Timothy S. Jost, who supports the overhaul.

But efforts to repeal other revenue-raisers already have generated some bipartisan interest.

The House Ways and Means Committee advanced legislation (HR 1270) with a handful of Democratic cosponsors last year to scrap the law’s restriction on using health savings accounts to pay for over-the-counter drugs. Lawmakers also introduced a bill (HR 1886) with some Democratic support to remove a requirement that insurers pay into a program that provides money to health plans that enroll high-cost individuals, though that program will phase out after 2016.

In addition, the House passed legislation (HR 1190) in June to scrap a Medicare cost-cutting board prescribed in the law that has yet to be implemented. Eleven Democrats joined Republicans in support of the measure—a count that would have been higher if the cost had not been offset by tapping the law’s funding for prevention and public health programs.

Neil Trautwein, vice president for health care policy at the National Retail Federation, said his group worked particularly hard on winning relief from the Cadillac tax and that he hopes the health law changes in the funding package are the “new normal.” Still, he predicted that attempts to stop more of the law’s taxes would receive strong pushback for the remainder of the Obama administration, especially outside of the government funding context.

“I don’t see any white flags over the White House,” Trautwein said.

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