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As President Obama's health care reform bill is gradually implemented, there are growing concerns over new taxes required to pay for it. In particular, a tax on medical devices has sparked protest from some legislators and professionals within the health care industry.
The 2.3 percent excise tax went into effect on January 1, 2013. The provision is important for financing benefits under Obamacare: the Joint Committee on Taxation estimates that the tax could raise $29 billion over the next ten years, and medical device manufacturers have paid some $388 million to the IRS since the beginning of the year.
Since the law took effect, there's been some confusion over how and when to pay the tax. Not only does it factor into sales of complex medical devices such as CT scanners, X-ray machines, and pacemakers, it's also enacted on sales of other, more basic products, such as tongue depressors and possibly even latex gloves. The IRS lists certain devices that are exempt from the tax, including eye glasses, contact lenses, and other retail or over-the-counter items designed for individual use. Devices used exclusively for veterinary purposes are exempt -- but devices that are designed for both human and animal use are taxed. However, the details on how to make the distinction, when to apply the tax, and how much it could affect consumers and pet owners are still uncertain.
The complexity of the tax may lead to some manufacturers overpaying to comply with the law. As the Tax Foundation notes, an important component of the law is its "constructive sales pricing." That portion of the tax code is designed to allow firms that don't usually sell their products to outside companies to derive a market value for any medical devices they do sell. It presents an additional layer of compliance that manufacturers must navigate in order to avoid trouble with the IRS. Smaller firms are typically less able to hire advisors to guide them through the compliance procedures, which could exacerbate the problem. The IRS has now issued guidelines twice to medical device manufacturers.
On the other hand, there are some who believe the negative effects of the law have been overstated. The Center on Budget and Policy Priorities (CBPP) published a study suggesting that as the Affordable Care Act expands medical coverage to more people, the increased demand for medical devices will lead to higher sales of medical devices, offsetting the additional cost of the tax. CBPP also argues that any increased production costs that manufacturers have to pay to comply with the tax are unlikely to be passed on to the consumer.
In February, NTUF examined a bill sponsored by Congressman Erik Paulsen (R-MN) designed to repeal the 2.3 percent tax. It picked up over 212 cosponsors in the House, and the Senate version of the bill had 30 cosponsors as of this post's publication. Because NTUF estimated that the bill would likely only have regulatory- and revenue-related effects, under BillTally rules, we scored the legislation as a "No Cost" revenue bill. Last week, the Senate approved an amendment during budget votes that would repeal the tax altogether; that amendment passed by a bipartisan 79-20 vote.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The Late Edition: March 26, 2013
Today’s Taxpayer News!
Pete Sepp responds to the Senate budget vote which advanced the Marketplace Fairness Act.
How much does it cost to set up a healthcare exchange as mandated under ObamaCare? Reason magazine zeroed in on California to find out.
Taxpayers picked up the tab for ex-presidents to the tune of $3.7 million for 2012 alone. Read more HuffPo.0 Comments | Post a Comment | Sign up for NTU Action Alerts
As far as complexity goes, the Medicare system makes a Gordian knot look like an untied baby shoe, which is one reason why recent revelations over the budgetary savings behind an obscure part of the “fiscal cliff” deal amount to a cautionary tale.
The so-called American Taxpayer Relief Act – which preserved some of the 2001 and 2003 taxpayer relief laws but unwisely boosted tax burdens elsewhere – also contained a new “doc fix” that prevented Medicare reimbursement rates for doctors from declining.
One “pay-for” to absorb the costs of this policy involved a highly technical change to the process of how Medicare reimburses drug costs for patients with End Stage Renal Disease (ESRD). Instead of allowing certain oral ESRD medications to be absorbed into a “bundled” payment system next year, the legislation permitted separate, non-bundled reimbursement to continue until 2016. Although several changes to bundled payments were apparently under discussion in Congress for the better part of a year, they were included in the fiscal cliff deal on evidence suggested by the Government Accountability Office that doing so could help control other ESRD treatment costs for Medicare.
Shortly after passage of the fiscal cliff deal, the indignation erupted. The New York Times accused Congress of delivering “a gift” to a handful of biotech companies that make the excluded drugs, thereby costing Medicare as much as $500 million. The Washington Post chimed in (http://www.washingtonpost.com/opinions/katrina-vanden-heuvel-mitch-mcconnell-faces-a-difficult-reelection/2013/02/18/ada127d2-79d1-11e2-82e8-61a46c2cde3d_story.html), calling the provision “a $500 million windfall.”
But then the sizzle turned to fizzle upon release of a Congressional Budget Office (CBO) cost estimate for the provision, which showed what its proponents had thought all along.
The CBO report, requested by Senate Finance Committee Republican staff, examined several scenarios associated with ESRD oral drugs, and determined that the two-year delay in putting the drugs into the bundled payment scheme amounts to a savings of $100 million. Extending the delay to 2017 pumps the savings up to $500 million, owing to a “competitive Part D market dynamic coupled with more intensive generic erosion.” Oops.
The provision and its surrounding brouhaha caught my eye because of our previous work on Medicare reform in general and ESRD in particular.
Several years ago National Taxpayers Union weighed in on what was at the time a patently ridiculous government policy that compelled ESRD patients receiving dialysis to make Medicare their primary provider (ahead of private insurance) after 30 months of treatment. According to testimony on various Medicare reforms NTU submitted in 2008 to the Senate Finance Committee:
This payment arrangement exists for only one disease – ESRD – and is unknown anywhere else in the federal government’s health insurance system. …We find the current policy of forcing privately insured ESRD patients undergoing dialysis treatments onto the Medicare rolls after 30 months to be fiscally unwise as well as disdainful toward consumers who may wish to remain under their primary carrier’s coverage. We agree with the Administration’s position that changing this rule should be a part of any effort to “rationalize Medicare payment policy” and in so doing save taxpayers considerable outlays. The Administration has proposed extending the period of private insurance coverage [Patient Coverage Extension, PCE], from 30 to 60 months.
The latter passage is also important to the current debate, since it illustrates that Medicare rules surrounding ESRD treatments have often been very narrowly drawn. Thus, it would not be unusual for ESRD-specific provisions to show up in later laws without them necessarily being tied to nefarious “giveaways.”
The past is prologue in another aspect. Back then doubters said that the concept of PCE could trap patients in private care settings whose quality and facilities would be inadequate, while claiming the burden of throwing more ESRD sufferers into Medicare was minimal. But then as now, CBO’s estimates got in the way of naysayers’ arguments. As we noted in 2008, “The 2007 CBO Budget Options publication includes an analysis of extending the PCE period from 30 to 60 months, a change CBO determined would save Medicare $1.02 billion over five years and $3.07 billion over 10 years.”
To be clear, we’ve had our disagreements with CBO’s scoring methods. Most recently, for example, the President called for extracting more “rebates” from pharmaceutical companies supplying drugs to Part D. The very term “rebate” is deceptive, since it amounts to a forced payment from manufacturers to the government (not consumers) while putting at risk the resources companies need to discover new blockbuster cures. CBO continues to score rebate proposals like the President’s as budget savings, even though their impact on private-sector drug development (and in turn cost-cutting therapies for government health programs) could be highly detrimental.
Yet, beyond all of the obtuse discussions over delays in ESRD drug bundling, it appears that several media sources may have jumped to conclusions about the fiscal cliff deal’s provision in pursuit of a “gotcha” story.
The ultimate upshot of this episode, however, is that unraveling the complexities of the Medicare system and finding a simpler way forward for patients and providers is an absolute imperative. Our 2008 testimony prescribes a host of still-relevant reforms ranging from comprehensive means-testing to allowing purchases of health insurance across state lines. Policymakers must focus on core issues such as these rather than allowing hype over topics such as Part D drug bundling to inordinately occupy their attention.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The Late Edition: March 11, 2013
NTU’s Pete Sepp speaks out about the spending cuts in the sequester, which although not ideally placed, still proved a win for fiscal conservatives. Read more from Real Clear Politics.
GMU’s Mercatus Center has taken a look at the complex decisions facing state lawmakers about the optional expansion of Medicaid under ObamaCare.
The chart below illustrates the choices states will need to make:
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The sequester continues to dominate the headlines in Washington, but several Congressional committees are closely examining another important and controversial subject: the Affordable Care Act, better known as ObamaCare.
Yesterday, the Oversight Subcommittee of the House Ways & Means Committee held a hearing to review the tax provisions found in ObamaCare. This coincided with a lengthy new report from the Joint Committee on Taxation (JCT) that describes the law’s 47 new taxes or tax related provisions. All in all, ObamaCare’s new taxes will extract approximately $1 trillion from taxpayers over the next 10 years.
As the JCT study shows, several of these tax hikes just took effect at the beginning of 2012, like the 2.3 percent excise tax on medical device manufacturers and an increase in Medicare payroll taxes for higher income earners. Some will not kick in until 2014, like the individual mandate tax and the health coverage provider “fee,” and the “haircut” on the medical expense deduction, a write-off claimed by more than 10 million people. It takes effect this year but won’t be felt until tax returns are filed in 2014. And some, like the “Cadillac tax” on high-cost employer-provided insurance, won’t take effect for several years.
Meanwhile, the House Energy & Commerce Committee and Senate Health, Education, Labor & Pensions Committee released a joint report showing other disturbing facts about ObamaCare. It demonstrates that contrary to President Obama’s claims, the law will make health insurance significantly more expensive for families and individuals. According to the report:
“Some estimates show some Americans facing startling premium increases of 203 percent because of the law. A study by actuarial firm Oliver Wyman suggests premiums in the individual market will increase an average of 40 percent. The Society of Actuaries similarly estimates an average premium increase of 32 percent in the individual market.”
As then-Speaker Nancy Pelosi infamously said in 2010, “we have to pass the [health care] bill so that you can find out what’s in it.” Well, we continue to learn more about ObamaCare and, unfortunately for taxpayers, it ain’t pretty.20 Comments | Post a Comment | Sign up for NTU Action Alerts
The Late Edition: March 4, 2013
A recap of the programs on the chopping block because of last Friday’s sequester, and the $1 trillion in spending cuts found by the Public Interest Research Group and NTU. Read the story in The Reporter.
Will the President forego some of the $83.4 billion he proposed in his State of the Union Speech as calculated by the National Taxpayers Union Foundation now that the sequester has begun to take affect? Unlikely, says Fox News.
Wondering which states are still declining to expand their Medicaid programs under Obamacare? Check out the detailed chart below from the Kaiser Family Foundation showing where each states stands.
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The U.S. spends substantially more on health care, of both the public and private variety, than many other developed countries. Consider this graphic from PBS, which uses Organisation for Economic Co-operation and Development (OECD) Health data:
The OECD has a full run-down of the numbers here. Their figures offer an interesting glimpse at the nature of health care provision, financing, and outcomes across a number of different countries.
But why are health care costs and expenditures rising? The Government Accountability Office (GAO) released a report on Tuesday that offers some possible explanations. The report was requested by Senator Jeff Sessions (R-AL) of the Senate Budget Committee, and was discussed in a recent hearing on the effect that the Patient Protection and Affordable Care Act (ACA) could have on long term budget figures. According to the report, the primary factor behind the rising cost of health care could be due to changes in health-related technology:
The chart above is taken from page 30 of the report, and it compares the relative influence certain factors have on health care costs. The factors were identified by four different studies conducted over a 20 year range. It is important to note that there is always a degree of uncertainty when analyzing something as complex as the health care industry. Nevertheless, the graph shows the general agreement among these researchers that technological change may be most responsible for driving health care cost growth per capita. "Technological change" is identified as "changes in clinical practice that enhance the ability of providers to diagnose, treat, or prevent health problems." Specifically, this could mean the development of new drugs, more precise surgical machinery, or new treatment procedures.
At first glance, the conclusion might seem somewhat counter-intuitive -- after all, as medical technology becomes more advanced, shouldn't expenditures on health care be decreasing? GAO explains:
"In general, a technological change that enables providers to treat a previously untreatable disease will increase health care spending, while expanding disease management or shifting disease management to prevention or cure can lead to either increased or decreased health care spending. However, the introduction of new treatments and technologies may result in increased health care spending due to the possibility that health complications may arise from a new treatment, or that patients survive one disease long enough and eventually are diagnosed with an additional disease with additional treatment cost."
The takeaway is that health care spending is affected by a web of interconnected variables, especially as medical technology changes rapidly. Ironically enough, higher health expenditures could be a sign that the services are working as designed. As the population grows, ages, and becomes increasingly eligible for health services under the ACA, the Congressional Budget Office expects to see health care spending continue to grow. The debate going forward will likely center around how much of that spending should be privately or publicly funded.
On a related legislative note, Congressman Erik Paulsen introduced a bill to repeal the recently-enacted 2.3 percent tax on medical devices. NTUF examined that bill, among others, in last week's edition of the Taxpayer's Tab. The bill was introduced to "... [eliminate] barriers to medical innovation, ensuring patients have access to life saving technologies," according to the sponsor.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Florida Gov. Scott Joins Medicaid Flip-Floppers Club
Watch out John Kasich, the White House may have a new favorite GOP governor. Just weeks after his face-to-face meeting with HHS Secretary Sebelius where he explained that Medicaid expansion would cost the Sunshine State a whopping $26 billion over the next decade, Governor Rick Scott is now welcoming the expansion with open arms.
As a result of the Supreme Court’s June 2012 Obamacare decision, states have the option to expand this failing, fraud-ridden program. Right now, it is imperative that conservative state leaders take a stand by saying “NO.” Governor Scott seemed to understand this back in July, when he clearly explained why both insurance exchanges and Medicaid expansion are wrong for Florida:
“Floridians are interested in jobs and economic growth,” Governor Scott said. “Neither of these major provisions in Obamacare will achieve those goals, and since Florida is legally allowed to opt out, that’s the right decision for our citizens.”
While his flip-flop may help him curry favor with left-leaning voters in advance of his reelection campaign, it also casts a shadow of doubt over his status as a dependable taxpayer ally.
Medicaid expansion, as I’ve recently discussed, poses immense risk to state and federal budgets. It’s a government program already on the brink of collapse with low reimbursement rates and payment delays, not to mention rampant fraud (the improper payment rate in 2008 was 10.5 percent). Scott has to know that by expanding Medicaid to an additional 1 million Floridians, these problems will only get worse.
At the state level, Florida is already struggling to pay for Medicaid. While the federal government picks up the tab for the first three years and then promises to cover 90 percent of the expansion, the Sunshine State will still be responsible for a whopping $1.4 billion from 2014-2022. Tax hikes anyone? And this assumes that the debt-plagued federal government will follow through on its financial promise -- Obama has already proposed scaling back federal match rates starting in 2017.
The law will also have disastrous effects at the federal level. According to a recent report from the Kaiser Commission on Medicaid and the Uninsured, full-scale Medicaid expansion will cost the federal government $800 billion between now and 2022. Thanks to Governor Scott’s wobbly-kneed approach to the health care law, federal spending will increase by an estimated $20.3 billion through 2022 to cover Florida’s tab, according to the Heritage Foundation. However, that money is not “free”: current and future Florida taxpayers would still have to bear part of this burden (and that of other state expansions) on their federal tax returns. Instead of increasing the size and reach of the federal government, state officials should seize this opportunity to rein in Washington’s dangerous spending habit.
By calling for expansion of Medicaid under the health care law, Governor Scott has spurned the Florida taxpayers that put him in office and disappointed many more across the country. Expanding Medicaid would make Florida a co-owner of the government’s dramatic expansion into the health care system and demonstrate true fiscal irresponsibility. Hopefully, legislators in the Sunshine State will see the light and reject Governor Scott’s proposed expansion.0 Comments | Post a Comment | Sign up for NTU Action Alerts
The Late Edition: February 5, 2013
Idaho lawmakers are considering whether the state will set up a healthcare exchange as mandated under “ObamaCare”, something NTU has been active in opposing. Only eighteen states have complied so far, and the Idaho Freedom Foundation has compiled the statements of Governors who opposed setting up the exchanges.
This Mercatus Center publication examines “sin taxes” and the popularity they have recently garnered from revenue-hungry lawmakers looking to avoid making cuts during the economic downturn.0 Comments | Post a Comment | Sign up for NTU Action Alerts
…when he announced yesterday that Ohio will expand Medicaid? As a result of the Supreme Court’s June 2012 Obamacare decision, states have the option to expand this failing, fraud-ridden program. Right now, it is imperative that conservative state leaders take a stand by saying “NO.” Frustratingly, Kasich is the most high-profile Republican governor to call for the program’s expansion. When you also consider his severance tax hike proposal, one starts to wonder if Kasich is still a dependable taxpayer ally.
Medicaid expansion, as I’ve recently discussed, poses immense risk to state and federal budgets. It’s a government program already on the brink of collapse with low reimbursement rates and payment delays, not to mention rampant fraud (improper payment rate in 2008 was 10.5 percent). Kasich has to know that by expanding Medicaid to an additional 365,000 Ohioans, these problems will only get worse.
At the state level, Ohio is already struggling to pay for Medicaid. While the federal government picks up the tab for the first three years and then promises to cover 90 percent of the expansion (though, I’d argue, don’t count on it – Obama has already proposed scaling back federal match rates starting in 2017), the Buckeye State will still be responsible for a whopping $1.2 billion from 2014-2022. Tax hikes anyone?
Kasich’s decision also impacts taxpayers nationwide. If all 50 states were wise enough to reject Medicaid expansion, the country would save an estimated $800 billion between now and 2022, but that would be entirely too fiscally responsible, so it probably won’t happen. Thanks to Governor Kasich’s wobbly-kneed approach to the health care law, federal spending will increase by an estimated $17.4 billion through 2022 to cover Ohio’s tab, according to the Heritage Foundation. If other governors fall in line behind Kasich, watch out.
In the past month, we’ve seen the good, the bad, and the ugly at the state level. With yesterday’s announcement, Governor Kasich has spurned the Ohio taxpayers that put him in office and disappointed many more across the country. Expanding Medicaid would make Ohio a co-owner of the government’s dramatic expansion into the health care system and demonstrate true fiscal irresponsibility.0 Comments | Post a Comment | Sign up for NTU Action Alerts