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March 19, 2013

19 Specific Taxes Directly Related To Healthcare Reform

Summary:

Based upon the count of many experts, there appear to be 19 specific taxes or increased taxes directly related to healthcare reform, estimated by some experts to total $500 billion over 10 years.

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Introduction
As we approach April 15 and many of us are thinking about our taxes, we are starting to notice some tax changes and many of these are related to healthcare reform, i.e. the Patient Protection and Affordable Care Act of 2010 (PPACA). Whether or not you are “for” or “against” healthcare reform as currently legislated, you will definitely feel the impact of some new taxes.

This article attempts to identify and list the taxes that are directly related to the Patient Protection and Affordable Care Act. This article is intended to list and identify taxes associated with healthcare reform — it is not intended to take any formal position for or against healthcare reform. In fact, the author has strong opinions that the US healthcare system is desperately in need of serious healthcare reform and that many aspects of the current reform approach outlined in the Patient Protection and Affordable Care Act make serious attempt to address some of the key issues.

Background
Based upon the count of many experts, there appear to be 19 specific taxes or increased taxes directly related to healthcare reform, estimated by some experts to total $500 billion over 10 years. I have ranked the taxes from largest to smallest, with a description of the tax and when it was effective or will be effective for those not yet in effect.

Summary of PPACA Related Taxes

  1. Surtax on Investment Income ($123B): By far the largest tax and going into effect January 2013, this is a new 3.8% surtax on investment income for households with more than $250,000 income.1
  2. Increase in Medicare Payroll Tax ($87B): Beginning January 2013, this tax increases the Medicare employee and self-employed tax on wages in excess $200,000 for an individual/$250,000 for a family by 0.9%.2
  3. Mandate Tax ($65B): Beginning January 2014, any individual without a qualified health plan will be subject to an income surtax.3 In addition any employer not offering health coverage, and at least one employee qualifies for a health tax credit, will be subject to a tax. Any employer requiring a waiting will be subject to an additional tax.4
  4. Tax on Health Insurers ($60B): Beginning January 2014, all health insurance companies and health plans are subject to a federal premium tax, which phases in until 2018.5
  5. Excise Tax on Comprehensive Health Insurance Plans ($32B): Beginning in January 2018, there will be a 40% tax on “Cadillac” health insurance plans.6 Cadillac health insurance plans are those with very rich benefits and are determined by a comparison to an inflation adjusted premium level.
  6. “Black Liquor” Tax ($24B): This is a tax on a special type of bio-fuel.7 Tax in effect during 2007 – 2009, ended in January 2010 as part of healthcare reform bill.
  7. Tax on Innovator Drug Companies ($22B): $2.3 Billion annual tax on the industry imposed relative to sales made that year. Began in January 2010.8
  8. Tax on Medical Device Manufacturers ($20B): Beginning January 2013 there is a 2.3% excise tax on all items >$100.9
  9. High Medical Bills Tax ($15B): Beginning January 2013, the threshold for deducting high medical bills was increased to 10% of adjusted gross income.10
  10. Flexible Spending Account Cap ($13B): Beginning January 2013, the formerly unlimited FSA is now capped at $2,500. This tax has been called the “special needs kids tax” since this eliminates the option of families with special needs children to tax effectively pay for tuition for these children.11
  11. Medicine Cabinet Tax($5B): As of January 2011, Health Savings Accounts(i.e., HSA) are no longer able to purchase non-prescription, over-the-counter medicines other than insulin.12
  12. Elimination of Prescription Drug Subsidy($5B): As of January 2013, employers no longer able to deduct prescription drug subsidy for coordination with Medicare Part D drug program.13
  13. Codification of “economic substance doctrine” ($5B): Beginning January 2010, new provision permitting the IRS to disallow legal tax deductions when the IRS deems the action lacks “substance.”14
  14. Tax on Indoor Tanning Services ($3B): Beginning July 2010, new 10% excise tax on indoor tanning salons.15
  15. HSA Withdrawal Tax Increase ($1.4B): Beginning January 2011, taxes for withdrawals were increased from 10% to 20%.16
  16. Health Insurance Executive Compensation Limit ($0.6B): Beginning January 2013, PPACA establishes a $500,000 limit for annual executive compensation.17
  17. Blue Cross Blue Shield Tax Increase ($0.4B): Beginning January 2010 a special tax deduction is permitted only if loss ratio is greater than 85%.18
  18. Excise Tax on Charitable Hospitals (minimal): Beginning January 2010, new $50,000 tax on hospitals if they fail to meet specific rules established by CMS.19
  19. Employer Reporting of Health Insurance on W-2 (minimal): Requires employers to include additional information on W-2’s regarding health insurance plans.20

Bottom Line
Although there may be many well intended uses for these taxes, it is clear that healthcare reform has significantly increased tax revenues. The outstanding question remains, will the Patient Protection and Affordable Care Act reduce the cost of health care, increase the access to care, and improve the quality of care for everyone? These were and have been the primary objectives of any healthcare reform effort. As we as a country look forward to our financial futures, we need to carefully assess the impact of health care reform, make modifications where appropriate, and refocus on the key objectives to be sure we achieve what we all know to be the key issues at hand: reduce costs, improved access, and maximum quality of care.

1 Reconciliation Act, pages 87-93.

2 Reconciliation Act, pages, 87-93, 2000-2003.

3 PPACA, page 317-337.

4 PPACA, Pages 345-346.

5 PPACA, Pages 1986-1993.

6 PPACA, Pages 1941-1956.

7 Reconciliation Act: Page 105.

8 PPACA, Pages 1971-1980.

9 PPACA, Pages 1980-1986.

10 PPACA, Pages 1994-1995.

11 PPACA, Pages 2388-2389.

12 PPACA, Pages 1957-1959.

13 PPACA, Page 1994.

14 Reconciliation Act, Pages 108-113.

15 PPACA, Pages 2397-2399.

16 PPACA, Page 1959.

17 PPACA, Pages 1995-2000.

18 PPACA, Page 2004.

19 PPACA, Pages 1961-1971.

20 PPACA, Page 1957.