Agreement to Fund Government Delays Three Health Care-Related Taxes
by Erica York, Tax Foundation, January 24, 2018
Lawmakers in the Senate and the House have struck a deal on a continuing resolution to end a brief shutdown and fund the government through February 16, 2018. The continuing resolution also delays several taxes related to health care. Specifically, it addresses three taxes created by the Affordable Care Act: the medical device tax, the “Cadillac tax,” and the health insurance tax.
Division D of the funding bill outlines the details of these delays:
- Medical Device Tax. This is a 2.3 percent excise tax levied on the sale of medical devices such as pacemakers, stents, catheters, and artificial joints at the manufacturer or importer level. A two-year delay of the tax expired on December 31, 2017, and the continuing resolution reestablishes that delay through December 31, 2019.
- Cadillac Tax. This is a 40 percent excise tax levied on health insurance plans if their value is above a certain threshold, and is designed to tax high-end employer-sponsored health plans. This tax has never actually been implemented because of delays made by previous legislation. The continuing resolution extends the current delay until January 1, 2022.
- Health Insurance Tax. This is an annual fee on certain for-profit health insurers based on their market share and the value of their business. Previous legislation suspended the tax for 2017, but it will be in effect for calendar year 2018 and is estimated to generate $14.8 billion. The continuing resolution suspends the health insurance tax for calendar year 2019.
The Joint Committee on Taxation has estimated that the net loss in revenue from delaying and suspending these three health-related taxes would be $31.25 billion over the ten-year period from 2018 to 2027.
Many of these taxes remain unpopular on both sides of the aisle, and these recently passed delays are not the first time lawmakers have agreed to suspend implementation of health care-related taxes.