Congress’ Short Term Spending Bill Delayed Three Obamacare Taxes


January 25, 2018

After a three-day shutdown of the federal government starting Friday, Congress passed a stopgap measure on Monday, January 22, to ensure that operations could continue for the next three weeks. The temporary spending resolution, which funded the Children’s Health Insurance Program (CHIP), among other things, included provisions for suspending or delaying implementation of three Obamacare taxes. These taxes have been delayed before, with opponents claiming that they would cause undue burden on insurers and health insurance customers alike.

Medical devices tax suspended until 2020

Under the Affordable Care Act, three specific taxes were introduced to help fund some of the law’s major provisions, such as tax subsidies for low- and middle-income families that enable them to purchase health insurance. The first of these is a tax on medical devices, which imposes a 2.3 percent levy on things like pacemakers and joint replacement products. The Medical Device Manufacturers Association spent $1.2 million each in 2015 and 2016 lobbying against the tax, arguing that it halts innovation, increases the cost of medical devices, and limits or eliminates jobs in the industry.

The Congressional Budget Office (CBO) estimated that the medical device tax would generate nearly $24 billion in revenue over the next decade. And while the tax took effect in 2013, it was suspended in 2016 following a two-year moratorium under the Consolidated Appropriations Act of 2016. Now, lawmakers – largely conservative – want to delay reinstating the tax until January 2020. The medical device tax would have generated $3.27 billion this year and next according to CBO projections.

Lobbying against HIT

Along with the medical devices tax, the health insurance tax (HIT) was also suspended and is now scheduled to take effect in 2019. The HIT was originally implemented along with other Obamacare taxes, but as with the medical devices tax, it got suspended via moratorium in 2015. That moratorium was supposed to expire this year, but Congress suspended it once more with the short-term spending resolution issued Monday.

The HIT imposes a fee on all insurers offering “fully insured coverage,” which includes private plans, employer-sponsored plans, Medicare Advantage and more. In 2014, insurers paid $8 billion in HIT fees, which jumped to $11.3 billion between 2015 and 2016. At that point, the tax was suspended for one year. It’s been estimated that insurers increased 2018 premium rates by 2.7 percent in anticipation of the HIT. In dollars, that translates to consumer premiums increasing by $165 to $500 for the year. If the tax had been reinstated this year, experts estimate that it would have generated about $14 billion in revenue.

A break for price job-based plans

Finally, the so-called “Cadillac tax,” which has not been implemented yet, was delayed once more, this time slated to take effect in 2022. Under the ACA, employer-sponsored health plans that meet certain price criteria would be subject to a 40 percent excise tax, charged to employers but likely passed on to employees via lower wages, higher out-of-pocket medical costs and higher cost sharing.

The Cadillac tax has been widely unpopular since it was first introduced, but it has been successfully delayed more than once. The U.S. Chamber of Commerce is among opponents of the tax who say it would create burdens for employers and their workers. According to the Joint Committee on Taxation, suspending these three ACA taxes would add $31.25 billion to the federal deficit between now and 2027.