Critics eye repeal of ObamaCare prescription drug tax

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Employers and drugmakers are eager to say good riddance to an excise tax on brand-name prescription medicines (the BPD) that could get stripped under the latest GOP plan to repeal ObamaCare.

While the law’s other major taxes, like the medical device or so-called Cadillac taxes, generated major campaigns seeking their repeal, the prescription drug fee has garnered little publicity. But it’s no negligible element among the law’s funding sources. It’s expected to bring in $27 billion over a 10-year period, according to the Joint Committee on Taxation’s 2010 estimates.

It may have fallen under the radar because nixing the drugmaker fee would have a moderate impact on health spending in comparison to the other ObamaCare taxes, according to Lori Robbins, managing director of the healthcare tax group in KPMG’s Washington National Tax practice.


“I would consider [the branded prescription drug tax] as middle of the road in terms of the appetite for getting rid of it,” Robbins said. Other Affordable Care Act provisions are “probably more unpopular than this particular fee because there are fees that are larger and perhaps even more difficult to administer.”

For example, the Cadillac tax on high-cost health plans, is expected to generate $87 billion in revenue over the first eight years of implementation, according to an August 2015 Congressional Research Service (CRS) report that cites estimates from the Congressional Budget Office and the Joint Committee on Taxation.

The 40-percent tax slapped on health insurance that exceeds certain thresholds is applied to especially generous health plans and seeks to discourage excessive health spending.  

Economists love it, but its broad unpopularity — among business and unions alike — even led 2016 Democratic presidential nominee Hillary Clinton to back repealing it.

And even amid the divisive political environment, Congress was successful in pushing its effective date to 2020.

Congress also agreed to push back implementation of the medical device tax to 2017, a bipartisan punt after the medical device industry argued it would harm U.S. medical manufacturers and cause big job losses.

The medical device industry mounted a major public relations blitz from the start for its repeal — and won some surprising backers for repeal, such as liberal Sens. Elizabeth Warren (Mass.) and Al Franken (Minn.). Both represent states with a large medical industry.

The 2.3 percent excise tax on the sale price of medical devices is expected to collect around $38 billion in revenue over a 10-year period, according to a January 2015 CRS report.

The tax was “justified partly because the medical device industry was among the commercial interests that stood to benefit from unanticipated profits as more individuals enroll in health care insurance, post-ACA,” the CRS report says.

Even though CRS said the job losses were negligible, it did call the tax relatively inefficient and likely to raise costs for consumers.

Passing on to consumers?

But the branded pharmaceutical fee never attracted bipartisan backing for repeal and it went into effect in 2010.

The conservative-leaning Tax Foundation and other reports suggest that the tax may have contributed to the rising costs of brand name drugs.

Those seeking its repeal are eager to argue that consumers bear the brunt of the costs as they push for the fee’s repeal.

But it’s “always a fuzzy question” on how much drugmakers are absorbing the fees and how much they’re passing it on to consumers,” said Anne Phelps, principal at Deloitte’s U.S. Health Care Regulatory Leader.

Andrew Mulcahy, health policy researcher at think-tank RAND Corporation, said that “under that kind of framework, a slap of a tax on a drug manufacturer — that doesn’t necessarily mean that they’re going to raise their price. They are already at the point where this is the most health insurers can pay.” That’s why employers, where most working-age Americans get their insurance, oppose the fee, he said.

He also said that consumers are “insensitive to changes in the drug prices.” For example, if someone needs a specialty drug that is likely to be a brand-name product, his or her insurance is going to pay for it or that person will have to pay out of pocket for that amount.

“And if the price happens to go up, you’re still going to pay for the drug,” Mulcahy said.

Indeed, employers dislike it because the fee “raises prescription costs for all payers in the healthcare system,” said Mark Wilson, vice president and chief economist for the HR Policy Association.

Congressional chopping block.

Rep. Kevin Brady (R-Texas), a key player in health policy as Chairman of the House Ways and Means Committee, says that he intends to take aim at the same provisions that Republicans attempted to repeal in a 2015 measure, including the BPD, in their new effort.  

That earlier version, which former President Obama vetoed as expected last year, called for eliminating key components of the health law, including the medical device and Cadillac taxes. It would also repeal the penalties in the employer and individual mandates, annual fees on health insurers and the premium tax credits and cost-sharing subsidies for insurance provided by the exchanges.

Brady argues that 2015 measure is a template that has already gone through the reconciliation, a complicated budgetary tactic that can move a bill out of the Senate with a 51-vote simple majority.

However, other lawmakers and experts suggest that some tax provisions may not make it to the first round of this year’s legislative chopping block.

A major reason: Republicans will need the funds for their replacement bill, or separate efforts to sweeten a possible tax reform legislation.

So even though the Cadillac tax is highly unpopular, it may not be immediately repealed through the forthcoming ObamaCare repeal bill that could be unveiled in February. Sen. Dean Heller (R-Nev.), a major opponent of the tax, is preparing for that possibility. He recently said that if the provision doesn’t make it to the healthcare bill, it can ride on another legislative vehicle — perhaps tax reform.

The fight over repealing other ObamaCare taxes means it’s still unclear whether the prescription fee will be gone in the first round of the health law’s repeal measures.

But there could be other opportunities to get rid of it. ObamaCare repeal is looking to be “a series of legislative actions and regulatory actions over the course of the next year or so,” said Deloitte’s Phelps.

Tags Al Franken Dean Heller Elizabeth Warren Hillary Clinton Kevin Brady
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