House GOP Plan: Who Saves, Who Pays If the Medical Device Tax Is Delayed

Oct 15, 2013 1:08pm

House Republicans offered a pre-emptive response to a potential bipartisan Senate debt deal today, offering their own tentative plan, which adds a two-year delay to the Affordable Care Act’s medical device tax and a new condition requiring federal elected officials to enter the health care law’s insurance exchanges.

The White House has maintained, at least publicly, that it  would not discuss the health care law until the government shutdown ends and the debt ceiling is raised.

This morning, an administration spokeswoman called the House plan a “ransom for fulfilling their basic responsibilities … a partisan attempt to appease a small group of Tea Party Republicans.”

But as Senate leaders broker a deal in advance of the Oct. 17 default deadline, three provisions of the health care law have made appearances on the bargaining table. Democrats are most likely to accede to Republican demands that applicants provide income verification or proof that one qualifies for a subsidy. After that, there’s been discussion of delaying the “reinsurance tax,” a temporary fee meant to offset the initial, and likely substantial, cost of insuring applicants previously unable to find coverage because of age or illness.

The third point, which has been floating around for a week without triggering much of a rise from any of the relevant parties, is the medical device tax. While a concession, even here, would amount to less than a pound and more like an ounce of Obamacare flesh, the proposed, but initially denied, two-year delay of the tax could affect millions of Americans scheduled to collect corporate pensions.

The IRS describes the provision as an “excise tax on the sale of certain medical devices by the manufacturer or importer of the device,” meaning the government would take a cut on the sale of everything from pacemakers to surgical staples, picking up nearly $30 billion over the next decade.

To make up that shortfall, the federal government would likely allow a round of what’s been called “pension smoothing,” which allows companies to pay below-actuarial rates to pension funds now, while raising future rate promises as a make weight. The danger, as with any deferral of guaranteed payments, is that it will grow future liabilities. Moody’s addressed a similar plan in New York state by calling the practice “a stopgap with long-term risks.” It is, in purest terms, what lawmakers like to call “kicking the can down the road.”

The tax, though widely identified as a minor piece in the cumbersome Affordable Care Act, was the subject of quiet but strong and organized opposition from the medical device industry, which pulls in an estimated annual profit of between $100 and $116 billion, according to the Center on Budget and Policy Priorities.  The administration countered, arguing that the market for medical devices would grow with the expanding health care market, which is expected to welcome as many as 30 million new customers.

The “smoothing” plan was first presented  to President Obama during last Friday’s meeting with Senate Republicans by Maine’s Sen. Susan Collins.

Speaking to reporters after that exchange, Collins said the president did not reject the idea outright. However, she added, “The president, I should be clear, did not say, ‘What a great idea!’”

Whether or not Obama can stomach the idea of delaying the tax and, with it, deferring payments into millions of workers’ pension funds, remains to be seen.

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