Health insurers and device makers are scrambling to prevent Obamacare taxes from starting up next year after efforts to repeal them crumbled in Congress.
The Affordable Care Act’s sales tax on medical device makers and tax on insurers were halted in 2016 and 2017, but both are set to start in 2018 if Congress does nothing. Industry groups are now facing the return of taxes for a law that many expected would have been repealed by now.
The medical device tax was created to help fund Obamacare. It charges a 2.3 percent tax on the sale of certain medical devices such as pacemakers and imaging devices such as MRIs.
The medical device industry is reaching out to lawmakers over the prospects of standalone legislation to repeal the tax or attaching it to must-pass legislation such as a reauthorization of the Children’s Health Insurance Program or spending and debt limit bills coming in December.
The industry is bullish on Congress passing standalone legislation to repeal the tax. Repeal of the tax has long had bipartisan support from Republicans as well as Democrats who represent districts with a heavy biotech presence.
“What stands out for the [medical device] tax is this is an issue that stands on its own merits,” said J.C. Scott, chief advocacy officer for the device trade group AdvaMed. “The House has passed it five times as a standalone bill and the last vote was 280 members of support.”
Another option is to attach the repeal of the medical device tax to Republican efforts to overhaul the tax code.
“It is fundamentally a corporate tax issue rather than an issue of healthcare policy,” he said.
But Scott said he isn’t sure when tax reform could get passed. Some Republicans have said they hope to get it done by Thanksgiving and others by the end of the year, but neither deadline is certain.
AdvaMed points to a federal report in February that the tax, which went into effect in 2013 until it was stopped in 2015, led to job losses of nearly 29,000 in the medical device industry from 2012 to 2015. However, the report from the U.S. Department of Commerce didn’t blame the losses on the tax.
Meanwhile, Senate Republicans are pushing to delay the health insurance tax until 2019. A group of 11 Republicans introduced a bill that would postpone it, and 46 bipartisan House members sent a letter to House leadership calling for a delay.
The insurer tax levies a 4.6 percent tax on every plan sold on Obamacare’s marketplaces.
The insurance industry’s main lobbying group, America’s Health Insurance Plans, has “advocated for eradication or delay of the tax consistently for several years,” spokeswoman Kristine Grow said.
She declined to say what moves the group is making. AHIP officials have been reaching out to lawmakers to educate them on the tax, including testifying at hearings.
The group estimates that eliminating the tax again next year could reduce premiums by $158 per customer on the individual market.
The push for another delay comes as efforts to repeal Obamacare stalled in the Senate likely for the rest of the year.
A budget resolution that Republicans plan to use to pass tax reform in the Senate with only 51 votes did not include repealing Obamacare. Some Republicans have said that they will bring up Obamacare again after tax reform is completed, but there is no timeline on when reform will be finished.
And the prospects for repeal are uncertain since 2018 is an election year.
A bill to repeal and replace Obamacare was defeated in late July in the Senate with another bill that would have repealed the law but left it in place for two years while a replacement was crafted. The Senate narrowly defeated by 49-51 a “skinny” repeal bill Republicans were going to use as a vehicle to start talks with the House on a new repeal bill.
The Senate tried again to repeal Obamacare late last month with a bill that would have sent Obamacare funding to states through block grants and cut Medicaid overall. That bill also failed.
AHIP came out in opposition to that bill, which was sponsored by Republican Sens. Lindsey Graham of South Carolina and Bill Cassidy of Louisiana, partly because it left the health insurer tax intact.
Meanwhile, companies are bracing for both taxes to return next year.
The nonpartisan Kaiser Family Foundation reported that letting the health insurer tax return next year could lead to an increase in Obamacare premiums of as much as 3 percent. Some Obamacare insurers have pointed to the tax as a reason for raising premiums next year.
Scott said some device makers are already planning for the tax to return.
“It is a company-by-company decision, but we know there are some who are setting aside money in case the tax returns,” he said.
Scott said device makers are justifiably frustrated that the medical device tax could return. He pointed out that every Obamacare repeal bill in the House and Senate repealed the tax.
“I think our folks are very frustrated that we are here at the fourth quarter of the year and that Congress hasn’t been able to put it across the finish line,” he said.
