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A Project of The Annenberg Public Policy Center

Taxing Businesses – and Consumers?

The U.S. Chamber of Commerce’s Campaign for Responsible Health Reform has released a new ad that says politicians in Congress "want new taxes on health care companies, taxes that will get passed on to you."

The TV ad, which began airing Sept. 18 in 13 states, refers to the new Senate Finance Committee bill (aka Sen. Max Baucus’ bill), which proposes a tax on the most expensive health care plans, the type that gave rise to the term "Cadillac plan" during the presidential campaign.


It goes on to say that politicians want to raise "taxes on lab tests, X-rays and scans, medicines and, most of all, health insurance."

That, too, is a reference to the Baucus bill (not the other health care bills being debated in Congress) – or at least the Baucus bill as introduced Sept. 16. The ad is somewhat misleading, though. Technically, the "taxes on lab tests" and "X-rays and scans" are actually fees imposed on clinical laboratories and manufacturers of medical devices based on market share. For instance, the legislation as introduced called for a $750 million annual fee on the clinical laboratory sector that would be apportioned based on a lab’s share of the sector’s revenue for the past year. The bill didn’t propose added taxes on individual lab tests or X-rays. (After the ad was released, the clinical lab fees provision was removed from the legislation, which is still going through the mark-up process.) But even the nonpartisan Congressional Budget Office agrees these "fees" on companies will be passed on to consumers – it just doesn’t see them having much of an impact on consumers’ pocketbooks.

CBO (with data from the Joint Committee on Taxation) estimated the cost of insurance premiums for private plans to be sold on the insurance exchange. It said that the increased fees for laboratories, the makers of medical devices and importers of brand-name drugs would be passed on to policyholders and would cause a 1 percent increase in premiums. The tax on "Cadillac" insurance plans isn’t included in the CBO premium estimates, because that tax only pertains to employer-sponsored insurance.

CBO, Sept. 22 letter to Sen. Max Baucus: Those projected premium amounts include the effect of the fees that would be imposed under the proposal on manufacturers and importers of brandname drugs and medical devices, on health insurance providers, and on clinical laboratories. Those fees would increase costs for the affected firms, which would be passed on to purchasers and would ultimately raise insurance premiums by a corresponding amount. According to JCT’s estimate, those fees would generate roughly $10 billion in revenues in 2016, or about 1 percent of the affected premiums. The projected premium amounts for exchange plans do not include the effect of the excise tax on insurance plans with relatively high premiums, because individually purchased plans would not be subject to that excise tax.

Presumably the increase would amount to even less than 1 percent now that the fee on clinical laboratories is gone from the bill; the fees on importers of brand-name drugs and manufacturers of medical devices remain. The ad says Congress’ plan amounts to "over $300 billion in new health care taxes," and it’s true that the fees and taxes imposed would bring in $357.7 billion over 10 years in revenue, according a Sept. 22 analysis of the bill by the Joint Committee on Taxation. The taxes on insurance companies’ high-cost health plans, however, make up the majority – 57 percent – of that total. Under the latest Baucus proposal, health insurance companies would face a 40 percent excise tax on the cost of employer-sponsored health insurance plans above $8,000 for single coverage and $21,000 for families. There would be higher thresholds for plans held by retirees over age 55 and those in high-risk professions.