Obamacare and tax reform: a progressive double play (Part II)

This is the second in a series of posts about paying for the Affordable Care Act. The first post, about expanding FICA taxes on wealthy taxpayers, can be found here.

In many of my posts, I've examined the benefits that the Affordable Care Act will provide (see here for examples). These things are (generally) good things, and good progressives should (mostly) applaud them.

But there's another side to the ACA that should really thrill anyone who believes that economic inequality is a problem: how we pay for it.  Not only is Obama care roughly revenue neutral, but the way it pays for expanding health insurance to disadvantaged Americans is by taxing well-off Americans to the tune of about $1 trillion over the health law's first decade.

The biggest single provision is Section 9015, which both raises the Medicare Hospital Tax on wealthy taxpayers and expands it to unearned investment income, which I discussed yesterday. However, there are several other small to medium-sized levies that the ACA imposes that are worthy of note. I discuss four of the largest ones here.  I get estimates for their relative financial impacts from this report by the Joint Committee on Taxation. Much of the inspiration and background for this post comes from John McDonough’s excellent book Inside National Health Reform. (Seriously, buy a copy if you can afford it – this guy deserves the royalties.)

Follow me below the fold for more details for details on fees assessed to insurance companies, drug-makers, medical device manufacturers and ... tanning salons (?!). 

Tax I: Annual fee on Health Insurers.  $60.5 billion between 2014-2019.

Wait, I thought the ACA was a sell-out to the insurance industry? Not quite. Companies do get millions more customers, but they accept a number of stringent regulations in return (see here and here for example). They also get this fee levied on them, which starts at $8 billion next year and rises to $12.1 billion in 2019 and is indexed to medical inflation increases afterward.  The fee is divided among insurance companies based on their market share. The insurance industry fought the hardest against health reform, and his fee is partially punishment for them not negotiating in good faith.

Tax II: Annual fee on Drug makers and importers. $27 billion between 2011 and 2019

There were many disappointments in the ACA surrounding drug-makers. First, reformers didn’t get the ability for Medicare to directly negotiate drug prices, which would have lowered rates dramatically. Nor did reformers succeed in legalizing re-importation of drugs, which would have allowed American consumers to legally purchase drugs at Canadian prices, which are much lower than their American counterparts. 

However, in return for keeping these lucrative preserves, the drug industry agreed not to oppose health reform, which kept tens of millions of dollars in negative ads off the air.  And big pharma also agreed to two major financial concessions. One involved giving senior citizens on Medicare Part D 50 percent discounts on branded drugs in the “doughnut hole,” which will result in billions of direct consumer savings. Second, drug manufacturers provide roughly $2.8 billion a year (which, alas, is not indexed to inflation) in direct payments to the government, divided among companies by market share.

The result: not a complete victory for coherent public policy, but a clear improvement over the status quo in regards to access to medicine.

Tax III: 2.3 percent excise tax on medical device makers. $20 billion 2013-2019.

Another huge cost driver of health care costs are all the gadgets we use (CT scanners, robotic surgery assistants etc.) getting introduced into the system. The initial deal that the medical device lobbyists cut with Congress included this excise tax on revenues. The industry has since come out strongly against the tax, but it's still on the books for 2013 at least. 

Tax IV: The 10 percent tanning tax. $2.7 billion 2010-2019

This fee is a “sin tax” like those levied on cigarettes and alcohol and are designed to curtail unhealthy behaviors. Most sin taxes are regressive, because poorer people often don’t have the resources to treat addictive behaviors that wealthier people do.  On these grounds, one might argue that the tanning tax actually isn’t progressive. But in any case, it only brings in a small amount of money ($300 million a year or so.)

And yes, it has likely affected at least one, wealthy, powerful person.  (Come on, I needed at least one cheap joke with all this boring accounting stuff to attract any readers)

How do we evaluate these four taxes? 

Might some of these costs be passed back to consumers? Certainly. 

Do these taxes and levies represent imperfect compromises with rent-seekers in the American health care system? Very much so.   

Do they represent ideal policy? Hardly.

However, on the whole these are four more taxes that are generally progressive in nature: taxing large corporations to provide health care for millions of underprivileged Americans.  They add up to roughly $110 billion in revenue between 2010 and 2019 and will cover about 12 percent of the ACA’s projected costs.

Tomorrow, I’ll start looking at the other side of tax reform embedded in the ACA: closing loopholes. I start with the much-derided “Cadillac tax” (it’s actually pretty progressive, though the UAW has some good reasons to want to kill it)