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Proposed GOP Healthcare Bill Would Repeal Nearly All ACA Tax Increases

3 min readBy: Scott Greenberg

Earlier this evening, Republicans on the House Ways and Means and Energy and Commerce committees released legislation that would repeal almost all of the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases in the Affordable Care Act, in addition to making a number of other changes to federal health care policy.

The Affordable Care Act contained 21 separate measures to raise federal revenue; the House Republican healthcare bill released this evening would explicitly repeal 14 of those:

  1. A 10 percent tax on the sales of indoor tanning
  2. A 2.3 percent tax on the sales of medical devices.
  3. A tax on health insurance providers, designed to collect $14 billion a year from the industry as a whole.
  4. A tax on manufacturers and importers of branded prescription drugs, designed to collect $2.8 billion a year from the industry as a whole.
  5. The individual mandate, a provision that penalizes individuals who do not purchase health insurance. There has been some controversy as to whether the individual mandate is a tax; the Tax Foundation submitted a brief on this issue in 2012.
  6. The employer mandate, a provision that penalizes businesses with more than 50 full-time employees that do not purchase health insurance for their employees.
  7. The Net Investment Income Tax, a 3.8 percent surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on capital gains, dividends, interest, and other passive income earned by households with over $200,000 in income ($250,000 for joint married filers).
  8. The Additional Medicare Tax, a 0.9 percent surtax on wages and salaries earned by households with over $200,000 in income ($250,000 for joint married filers).
  9. A limit on the deductibility of salaries paid to health insurance executives. Generally, businesses are allowed to deduct up to $1 million in wages and salaries paid to each employee; the Affordable Care Act lowered this threshold to $500,000 for employees of health insurance companies.
  10. A limitation on the ability to purchase over-the-counter medication with HSAs, Archer MSAs, and FSAs (all of these are tax-preferred savings accounts, designed to help households purchase healthcare).
  11. An increase in the penalty for improper withdrawal of funds from HSAs and Archer MSAs.
  12. A limitation on the use of FSAs as part of cafeteria plans.
  13. A limitation on the ability of businesses to deduct some expenses subsidized by Medicare Part D.
  14. A rule that households may only deduct medical expenses over 10 percent of their income. The bill would return this threshold to 7.5 percent of household income.

Meanwhile, it appears that the House Republican healthcare bill would leave six of the revenue-raisers in the Affordable Care Act in place: [1]

  1. The Cadillac TaxThe Cadillac Tax is a 40 percent tax on employer-sponsored health care coverage that exceeds a certain value. The aim: to curb health-care cost growth, reduce favorable tax treatment of employer-provided insurance, and help fund the Affordable Care Act (ACA). It was repealed in late 2019 before taking effect. , a 40 percent excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on high-cost healthcare plans. The draft House Republican healthcare bill would leave the Cadillac Tax in place but delay its implementation to 2025. The Cadillac Tax has already been delayed once, which many took as a sign that the tax will never be implemented.
  2. The codification of the economic substance doctrine, a long-standing common law rule intended to discourage tax avoidance, which had been somewhat ambiguous before set in stone by the Affordable Care Act.
  3. The Patient-Centered Outcomes Research Fee, a small fee on certain health insurance policies to fund a federal research center. The fee is set to expire in 2019.
  4. Several new requirements on tax-exempt hospitals, which raise a small amount of federal revenue.
  5. Several new requirements on Blue Cross and Blue Shield organizations that receive tax benefits, which raise a small amount of federal revenue.
  6. A requirement that employers report the value of health benefits on their employees’ W-2 forms, which raises a small amount of revenue.

In addition, the bill would repeal the premium tax credit created by the Affordable Care Act and create a new refundable tax credit for purchasing health insurance. It would also increase contribution limits for HSAs.

UPDATE: The Joint Committee on Taxation has released revenue estimates of each of the tax changes listed above, which are compiled here.

[1] One of the 21 revenue-raisers in the Affordable Care Act, the exclusion of “black liquor” from the biofuel producer credit, is left out of this list, because the biofuel producer credit expired on December 31, 2016.