SAN FRANCISCO — Insurers and medical device makers are nervous that Congress will hold onto their Obamacare taxes even as it casts away other parts of the healthcare law.
The taxes, key to funding the Affordable Care Act’s insurance subsidies and Medicaid expansion, could prove too tempting for lawmakers to repeal, at least right away. President-elect Trump and Republicans might want to use them to pay for an Obamacare replacement or as a way to get moderate Democrats on board with tax reform later in the year.
To the industry, which has been lobbying for years to get the taxes permanently eliminated, it would be unfair to reverse the law’s health coverage expansions, which guaranteed them millions of new customers, but keep the taxes.
“If they screw around and don’t put it in reconciliation, we’re going to get hammered as an industry,” an insurance industry source told the Washington Examiner, referring to the budget reconciliation bill Republicans are using as a vehicle for repeal.
Marilyn Tavenner, president of the insurance association American’s Health Insurance Plans, warned in a blog post this week that insurers would charge more for premiums if the law’s health insurance tax, known as HIT, is allowed to go into effect next year.
“Repealing the HIT now will ensure that consumers and small businesses are protected from a 3 percent premium increase, and that state budgets won’t have to absorb this increase as part of their Medicaid budgets,” Tavenner wrote.
The HIT tax and the tax on medical device makers are parts of Obamacare that a number of moderate Democrats want to abandon. Rep. Krysten Sinema, D-Ariz., is sponsoring a bill to repeal the HIT. At least five Democratic senators and even more Democrats in the House are backing measures to get rid of the medical device tax.
“It’s had bipartisan support before, so I think the hope is [repeal] goes forward,” Rob Clark, a vice president for medical device maker Medtronic, told the Washington Examiner at the JPMorgan Healthcare Investor Conference.
The Advanced Medical Technology Association, known as AdvaMed, called Thursday for Congress and the new administration to repeal the medical device tax swiftly. “The bipartisan support … clearly demonstrates that members understand this tax needs to go now,” said AdvaMed President Scott Whitaker.
Yet the Democratic distaste for the Obamacare taxes make them an attractive lever for Republicans, who will likely need to get bipartisan support for broad tax reform later in the year. The taxes could be an effective tool, if they’re kept.
“There are so many controversial tax reform ideas Trump has, that in order to get the votes, they want to put in some bipartisan ideas,” said Ipsita Smolinski, founder of the health consulting firm Capitol Street.
Neither tax is being collected, after Congress froze the HIT tax for one year and the device tax for two years in a budget bill at the end of 2015. But industry executives say they’re prepared to start paying up, although they’re hoping for a repeal.
Ken Burdick, chief executive of Medicaid insurer Wellcare, said his company made its 2017 benefit decisions with the assumption that the HIT tax will kick in the following year.
“We’re operating on the basis that this is a one-year holiday in terms of the Affordable Care Act fee,” Burdick said. “We don’t wish for that, but we’re managing our business as if this is a one-year holiday.”
Cigna CEO David Cordani isn’t holding his breath, either.
“You don’t build a business plan based on those actions until it’s clear how they will transpire,” Cordani said. “It could be a choppy year in 2017.”
House Speaker Paul Ryan has released a healthcare proposal that calls for repealing most of the Affordable Care Act including its taxes. And the repeal bill Congress passed last year, which President Obama vetoed, would have ditched the HIT and medical device tax.
But now with the possibility of repealing the law actually before them, Republican leadership has released few details of what will be in a repeal bill. As they face escalating calls to replace the law at the same time, including mounting pressure from Trump, it’s not clear what they’ll come up with.
The Obamacare taxes bring in a sizable chunk of change for the federal government. Permanently repealing HIT and the device tax, with another tax on high-cost plans known as the “Cadillac” tax, would reduce revenue by $246 billion between 2018 and 2026, according to an August projection by the Congressional Budget Office.
The tradeoff for insurers was that they were promised more customers under the healthcare law and federal subsidies for those with lower incomes. But to Mario Molina, CEO of marketplace insurer Molina Healthcare, the taxes just result in more “paper shuffling.”
“We’ve been stuck with this stupid tax that does nothing but churn money and make calculating premium rates more difficult for the actuaries,” Molina said.
