Budget Deal Cuts Potential Health Law Tax Revenue

The sweeping $1.1 trillion spending bill that passed this month included three relatively modest changes to the Affordable Care Act. But both supporters and opponents of the law see them as momentous symbols of more permanent, potentially costly, changes to come.

The bill included a two-year delay on the law’s “Cadillac tax” on high-value health plans, a two-year suspension of the tax on medical devices and a one-year moratorium on a tax levied on all private health insurance.

The most significant of these changes by far is the delay to the “Cadillac tax,” currently scheduled to start in 2018. The provision was designed to reign in high priced insurance policies and the unnecessary health care spending they encourage.

The two-year delay means the government will miss out on about $3 billion in revenue in 2018 and $6 billion in 2019, according to a recent Congressional Budget Office analysis.

But for most, the short-term price tag is not the primary concern, but rather the long-term change it may forecast.

“The big concern with the delay is, it’s not a delay, it becomes a rolling permanent deferral,” said Peter Orszag, an economist who was President Barack Obama’s first director of the Office of Management and Budget.

Opponents of the tax, however, say it only encourages employers to decrease workers’ vital benefits packages.

According to the Kaiser Family Foundation’s recent analysis, about 1 in 4 employers are expected to offer health plans that would incur the Cadillac tax in 2018, but this figure is expected to increase significantly in coming years, as it is tied to insurance premiums as they relate to the rate of inflation. Insurance premiums have been growing more rapidly than that rate for many years.

The analysis shows that about 30 percent of employers will be affected by the tax by 2023 and about 42 percent five years after that, if their health plans remain the same and health costs continue upward at the same pace.

At that point, the tax’s revenue would balloon to an estimated $91 billion by 2025, according to the congressional Joint Committee on Taxation.

Significant potential revenue loss is likewise predicted to accompany the postponement of the tax on medical devices and private health insurance.

Freezing the medical device tax is estimated to cost the government about $1.4 billion in 2016 and $2 billion in 2017, according to another Congressional Budget Office analysis.

Opponents of the tax say it discourages the development and sales of innovative, lifesaving medical technology, therefore stunting the country’s growth in the field of medical research.

The tax on health insurers was expected to raise as much as $12 billion in 2017, according to the same analysis. But the tax’s challengers assert this is a small price to pay to protect the American consumer, who shoulders this tax through insurance premium increases.

Overall, these alterations to the Affordable Care Act are not anticipated to have a large impact on Washington revenue in the immediate future, but they could be first signs of permanent changes to come.

Many Republicans are still in favor of repealing the law or implementing broader cuts to its regulations.

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