- The Washington Times - Tuesday, August 19, 2014

The Obamacare program got a double dose of bad news Tuesday as a federal watchdog reported its tax on medical devices is bringing in less money than expected, while a Federal Reserve study warned that many private companies expect to see their health costs soar because of the president’s signature health law.

The audit released Tuesday by the Treasury Inspector General for Tax Administration (TIGTA) said the widely criticized medical device tax is proving unwieldy and has brought in less money than the law’s architects had hoped, raising larger questions about the government’s ability to manage the other taxes included to help pay for the health care law.

The IRS hasn’t even been able to identify exactly which FDA-registered manufacturers should be paying the 2.3 percent excise tax on their sales of medical devices, TIGTA inspectors said in the new report.

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A separate study made public Tuesday added to Obamacare’s woes as the New York Federal Reserve reported that half of state manufacturers and a third of service sector firms contemplating a change in their health insurance carrier expect the law to “considerably” increase their health care costs next year.

More than a third of manufacturing firms and four in 10 on the service side said they would not be changing their company health plans for the coming enrollment season.

“For those that were planning a change, however, the most widely reported adjustments involved higher deductibles, increased copays, higher out-of-pocket maximums and an increased employee contribution to the premium,” the Fed reported.

The medical device tax brought in $913 million in the first half of 2013, or about 75 percent of what the IRS had estimated, TIGTA auditors said.

Also, the inspector general said the IRS mistakenly assessed 219 penalties totaling more than $700,000 during a grace period between March 31 and June 30. While the tax agency reversed 133 of those penalties, the inspector general flagged the other 86 penalties so that the IRS could erase them and issue apologies to the affected taxpayers, the report said.

The medical device tax, which kicked in last year and is projected to raise $20 billion between fiscal 2013 and 2019, is one of the Affordable Care Act’s most contentious provisions. Members of both parties have eyed its repeal for more than a year, even though Democrats generally are reluctant to fiddle with President Obama’s signature health care law for fear it will provide an opening to Republican critics determined to repeal the law.

GOP lawmakers were quick to jump on the TIGTA findings.

“Everything from this ill-conceived tax’s structure to its implementation has been a disaster. It is no surprise that 79 senators went on the record to repeal this job-killing tax,” said Sen. Orrin G. Hatch, Utah Republican, referring to a symbolic budget vote taken last year.

But Senate Majority Leader Harry Reid supports the medical device tax as an important part of Obamacare, and the Nevada Democrat has refused to bring a repeal to the Senate floor.

Lawmakers from states with a high concentration of medical device companies say the tax is a job killer that needs to go, and Republicans are salivating over the prospect of retaking the Senate this fall and rolling back Obamacare where they can.

“Obamacare is chock full of unworkable measures such as the medical device tax — a provision with strong bipartisan opposition,” said Rep. Diane Black, Tennessee Republican. “This new report from TIGTA that highlights more problems implementing this job-killing tax makes the case for repeal even stronger, especially with a Republican majority in the Senate next Congress.”

While the Department of Health and Human Services took heat for HealthCare.gov’s flawed rollout during Obamacare’s first round, the IRS is charged with making sure the law’s patchwork of subsidies and taxes are distributed and assessed correctly.

But the IG said the tax agency is having trouble figuring out who qualifies and who is exempt. For instance, a coding method known as the “North American Industry Classification System” does not accurately identify businesses that sell medical devices, so it is not reliable in identifying firms that must pay the tax, the report said.

The IRS is coming up with a “compliance strategy” to make sure businesses are aware of the tax and complying with it, the report said.

“We agree with your recommendations and appreciate your acknowledgment of the efforts we have already made to implement this provision,” Karen Schiller, a division commissioner for the IRS, wrote to the auditors. “These efforts include developing a comprehensive implementation plan, revising forms and instructions, delivering education and outreach and training personnel.”

The revenue agency earned kudos from the same inspector general this month for reporting accurate income and family size data to the new health exchanges, but there is hand-wringing among analysts and the tax-prep industry about what’s to come.

But the Fed study provided more fodder for Obamacare critics.

Twenty percent of firms surveyed by the New York Fed planned to trim their workforce and increase their ranks of part-time employees. A contentious part of Obamacare, the “employer mandate,” requires firms of 50 or more workers to provide health coverage or pay fines. Companies have reported hiring freezes to stay below the threshold, or they’ve trimmed part-timers’ hours because the law defines full-time work as at least 30 hours per week.

Also, the survey said more than a third of manufacturers and a quarter of service firms plan to raise prices charged to customers because of the law.

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