House Republicans hope to force Democrats into a choice Thursday between repealing a tax on oxygen tanks, X-ray machines and other medical equipment that could cost jobs in their district, or letting some Americans keep excess subsidies to be doled out under President Obama’s health-care law.
In their latest effort to undo part of the president’s signature domestic achievement, Republicans have scheduled a vote on a bill to erase an impending tax on manufacturers of medical devices, and they propose to make up the lost revenue by once again dipping into “overpayments”: $44 billion the government is expected to pay out over the next decade in insurance subsidies beyond what those taxpayers should be getting based on their income.
The $44 billion would cover not only a repeal of the medical-device tax, at $29 billion, but also would produce enough money to cover another Republican-planned bill later this month that would remove new restrictions on how Americans may use tax-deductible health savings accounts.
President Obama twice has signed bills that claw back some of the subsidy overpayments included in his original health law, but the White House said he likely would veto this bill if it reaches his desk.
And congressional Democrats also are drawing a line, saying this latest attempt to recover all the overpayments goes too far because it could scare people away from signing up for subsidized insurance at all.
“If you went out there and started pulling up tiles off that floor, it wouldn’t seem like much when you took up this first tile,” Rep. Jim McDermott, Washington Democrat, said. “Well, then you take one over there, over there, over there and pretty soon you got no tile floor left. I’m worried about having the tile floor left in 2013.”
Repealing the 2.3 percent tax on medical devices has won support from some Democrats, especially those from states with a large share of the industry, but they’re unlikely to support attempting to recover all the overpayments.
Still, lawmakers on both sides acknowledge the overpayments are a problem stemming from the sheer complexity of the Affordable Care Act. The law provides health-insurance subsidies to lower-income Americans on a monthly basis but bases their eligibility on annual income. The result is that a recipient whose income goes up in the middle of year could inadvertently collect thousands in subsidies for which he or she doesn’t qualify.
For Republicans — who oppose the Affordable Care Act’s system of insurance subsidies to begin with — the solution is to make taxpayers return the money.
The Joint Committee on Taxation, which scores tax legislation for Congress, has estimated that could push 350,000 people away from obtaining coverage, which Democrats said undermines the law’s goal of insuring more Americans.
Health-care experts on both the right and the left agree that using the tax system to deliver insurance subsidies has made things complicated.
Ed Haislmaier, a research fellow at the Heritage Foundation, said the problem lies in grading the subsidies on individuals’ incomes, which are subject to frequent change. A better solution would have been to base the subsidy on percentage of insurance costs, he said.
“They should never have designed it this way in the first place,” he said. “They should never had tried to do income sliding-scale tax credit like this. It has enormous complications; the whole thing is a completely backwards way of doing it.”
Judith Solomon, vice president for health policy at the Center for Budget and Policy Priorities, said the system inherently leads to overpayments and it’s not fair to ask taxpayers who followed all the income reporting rules to owe the government money at the end of the year.
“The decision to provide assistance with premiums through the tax code has caused this kind of built-in overpayments,” she said. “It sort of built it into the design.”