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The Independent Institute
Commentary

Prospects for Repealing PPACA’s Taxes on Medical Devices and Health Insurance


On July 2, the Treasury Department unilaterally decided not to enforce PPACA’s employer mandate. As Robert Book has explained, failure to enforce the employer mandate effectively nullifies the individual mandate, too. This toughens the challenge of repealing the medical-device excise tax and the health-insurance premium tax, both of which are priorities for those industries.

Last May, the Congressional Budget Office (CBO) updated its estimate of revenue from the employer mandate to $140 billion for 2014 through 2023, and estimated revenues from the individual mandate at $45 billion. The first year’s take from the employer mandate was estimated at $10 billion, plus $2 billion from the individual mandate. That $12 billion comprises one quarter of the $48 billion required to fund PPACA’s coverage expansion in 2014. (Because of timing delays, the penalties are recorded as being received in 2015.)

House Republican leadership quickly moved two short bills that seized momentum from Treasury’s announcement. H.R. 2667 would amend PPACA to insert the one-year employer-mandate delay in the legislation; and H.R. 2668 would extend the delay to the individual mandate, as well.

With respect to scoring, the CBO seems to have been taken aback by the Administration’s move. Responding to H.R. 2667, the CBO asserts that the bill would have no fiscal effect because it would merely “codify” that which the Treasury has already dictated. According to the CBO, the new law “would not affect direct spending or revenues. Therefore, pay-as-you-go procedures do not apply.” The CBO seems to have deleted $10 billion to $12 billion of tax revenue from its PPACA estimates for one year even without Congress legalizing Treasury’s decision.

The Joint Committee on Taxation (JCT) scored the device tax and insurance tax in June 2012, when it estimated the cost of the medical-device excise tax at $29 billion (2013 through 2022), of which $7 billion is due to be collected in 2013 through 2015. (The medical-device makers’ trade association just reported that its members have already paid $1 billion in 2013.) The cost of the health-insurance tax was estimated at $102 billion, of which over $15 billion is due to be collected by 2015.

Both industries have succeeded in getting bipartisan support for repeal bills that carry little weight—because they have no “pay fors”. As Forbes contributor Dean Zerbe notes, these are votes “to replace this stupid tax by raising some unknown tax on unknown persons at an unknown time”. Now that Senator Max Baucus and Representative Dave Camp have joined forces to develop comprehensive tax reform, the medical-device makers and health insurers have both decided to sell their repeal proposals as part of this bigger effort.

Will this work? As long as PPACA exists, it has to. While these taxes remain in the PPACA “bucket” there is no chance of repeal, for at least three reasons:

  1. As noted above, the PPACA hole just got at least $10 billion deeper.
  2. Republicans and Democrats will never agree on cutting PPACA spending to pay for repealing these taxes.
  3. Proposing “pay fors” from within PPACA would force these industries to attack their comrades inside the government-medical complex—which they are loath to do after PPACA put so much more taxpayers’ money on the table for all to share.

Moving the argument for repeal away from PPACA and towards comprehensive tax reform gives these industries an almost infinite number of “pay fors” from sectors in which they have no interest. Indeed, if Republicans and Democrats can agree to cut back corporate welfare significantly, the medical-device makers and health insurers can even make an “anti-cronyism” case—that they have been isolated for unfair, punitive, taxation.

But time is their enemy: The illusion that PPACA is reducing government health spending or the deficit will soon be shattered, making it difficult for the federal government to give up any revenue until the legislation is repealed entirely- 2017 at the earliest. And comprehensive tax reform is hardly a sure thing, especially with Senator Baucus retiring at the end of this term.

The medical-device and health-insurance industries are doing everything within their power to repeal these harmful taxes. However, success is a long shot—as long as PPACA remains on the books.


John R. Graham is Senior Fellow at The Independent Institute.