Obamacare ruling means medical device tax starts in 2013

Mike Verespej

Published: June 28, 2012 6:00 am ET

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Topics Public Policy, Medical

WASHINGTON (June 28, 3 p.m. ET) — The U.S. Supreme Court decision to uphold nearly all the provisions of the two-year-old $940 billion health-care reform law means that medical device manufacturers will begin paying a 2.3 percent excise tax on medical devices in 2013.

The tax is expected to cost device manufacturers $20 billion annually unless Congress can overturn that portion of the law.

“Unless repealed, a $20 billion tax on medical devices could result in the loss of up to 43,000 American jobs,” said Advanced Medical Technology Association President and CEO Stephen Ubl. “We have consistently opposed the medical device tax because of its damaging effects on economic competitiveness, jobs and research and development.”

The House has voted to repeal the tax, but Senate repeal is considered unlikely.

Manufacturers and the business community consider the medical device tax just one of the potential problems of the health-care reform law — the most extensive piece of health care legislation since Medicare.

Starting in 2014, the sweeping reform package mandates that all companies with 50 or more employees offer a certain level of health insurance or face fines of as much as $2,000 per employee. It also adds a new tax on investment income to manufacturers incorporated as subchapter S corporations.

In addition, starting in 2018, it places a 40 percent excise tax on benefit-rich “Cadillac” plans — that is, employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage, $11,850 for retirees, $27,500 for family coverage and $30,950 for high-risk professionals.

Society of the Plastics Industry Inc. President and CEO Bill Carteaux has said previously that the new taxes and fees will inhibit the ability of U.S. companies to compete in the global marketplace and that the law does not address the issues that have resulted in the healthcare cost crisis — such as lack of competition in many insurance markets, runaway litigation, or the inability of businesses to pool risk across state lines.

He is also concerned that states will pass on the costs from their expanded Medicaid responsibilities to the business community.

The 5-4 decision issued by the court June 28 keeps intact the vast majority of the Patient Protection and Affordable Care Act, including the mandate that everyone has to purchase health care insurance. That had been challenged by 26 states and several business groups as unconstitutional because a mandate of that type is not permissible under the commerce clause of the U.S. Constitution.

But the Supreme Court ruling notwithstandng, whether the health care law stays in place after November depends on the upcoming elections, as Republican Presidential candidate Mitt Romney has vowed to repeal the law if Republicans gain control of the White House and Congress.

“What the court did not do, I will do on my first day as president,” Romney said.

In making its landmark decision, the high court ruled that the individual mandate to buy health insurance was constitutional because the financial penalty for non-compliance can be considered a tax.

“The practical characteristics pass muster as a tax under our narrowest interpretations of the taxing power,” wrote Chief Justice John Roberts in the majority opinion, adding that it was not within the court’s jurisdiction to evaluate whether the law “embodies sound policies.”

“It is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but [who] choose to go without health insurance,” wrote Roberts. “Such legislation is within Congress's power to tax. The federal government does not have the power to order people to buy health insurance, [but it] ... does have the power to impose a tax on those without health insurance.”

Ironically, President Barack Obama had said repeatedly during the prolonged debate over the bill that the financial penalty for failure to buy health insurance “is absolutely not a tax increase.”

While upholding the law, the court did, however, strike down one provision that would allowed the federal government to impose sanctions on a state’s existing Medicaid funding if a state declines to expand Medicaid according to the law's provisions.

The dissenting judges blasted the majority decision.

“To say that the individual mandate merely imposes a tax is not to interpret the statute but to rewrite it,” said Justice Antonin Scalia who wrote the dissenting opinion. “Imposing a tax through judicial legislation inverts the constitutional scheme, and places the power to tax in the branch of government least accountable to the citizenry.”

“In our view, the act before us is invalid in its entirety,” said Scalia. “[It] exceeds federal power both in mandating the purchase of health insurance and in denying non-consenting states all Medicaid funding”—a provision that the entire court did strike down.

Starting in 2014, the health-care reform law bars insurance companies from denying coverage to people with pre-existing medical conditions and will not allow them to charge people with health problems higher premiums. It also bars insurers from setting a dollar limit on health coverage payouts, and requires them to cover preventative care at no additional cost to consumers.

The law also creates a framework for states to set up insurance marketplaces where small businesses and people without employer-provided coverage can buy insurance.

The law will require individuals to have health insurance, either through their employers or a state-sponsored exchange, or face a fine beginning in 2014. That penalty will be waived for people with very low incomes, people who are members of certain religious groups, and when health insurance premiums exceed 8 percent of family income even when you include employer contributions and federal subsidies.

The 2,700-page law has nine major sections and more than 450 different provisions.

Starting next year:

• Employers will no longer be able to exclude from taxation the subsidies they receive for maintaining retiree drug coverage for their Medicare-eligible retirees.

• Annual contributions to flexible spending accounts for individuals will be limited to $2,500.

• The 2.3 percent excise tax on medical devices goes into effect.

• The Medicare tax rate paid by employees will increase from 1.45 percent of their wages to 2.35 percent.

The employer mandate to provide coverage or face penalties goes into effect Jan. 1, 2014 as does an excise tax on the health insurance industry. The 40 percent excise tax on benefit-rich plans goes into effect Jan. 1, 2018.


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Obamacare ruling means medical device tax starts in 2013

Mike Verespej

Published: June 28, 2012 6:00 am ET

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