Unbelievable! Congress Can't Find $30 Billion For Medical Device Excise Tax Repeal

Commentary by John R. Graham

Source: Forbes 

Congress may be on the verge of repealing Obamacare’s medical device excise tax. I am all for repealing it, which will reduce funding for Obamacare by $24 billion over ten years. Of course, that means it will increase the deficit by $24 billion, which means Congress has to offset repeal by cutting spending by the same amount.

(DISCLOSURE: From 2012 to 2013, I served as a Vice President for payment and health care delivery research and policy at the Advanced Medical Technology Association, the medical devices trade group.)

Can’t be done, says Senator Orrin Hatch, Chairman of the Senate Finance Committee: “It’s pretty hard to come up with a $30 billion offset,” (as reported by the Wall Street Journal’s Isaac Stanley-Becker). I am not sure how Senator Hatch rounded the figure up to $30 billion, but that does not really matter.

It should be as hard to find $24 billion or $30 billion of spending offsets as it is to find a cup of coffee at Starbucks SBUX +0.00%. Here are some examples, plucked from the pages of President Obama’s budget proposals:

  • Medicare bad debt. The president’s budget proposes $31 billion in savings over 10 years by reducing Medicare’s coverage of bad debts owed hospitals and other facilities. Currently, the federal government pays 65 percent of facilities’ bad debts. As far back as 2011, President Obama proposed reducing this to 30 percent. Doing so would not only reduce the burden on taxpayers, it would also force hospitals to be more transparent with respect to communicating prices and payment obligations to Medicare beneficiaries.
  • Medigap plans. The president also proposes to increase deductibles for new Medicare beneficiaries, instituting a home-health deductible and adding a surcharge to Part B premiums for beneficiaries who buy Medigap (Medicare supplemental) plans. In his budget, these save $8.5 billion over 10 years. The problem with Medigap plans is that they fill in beneficiaries’ deductibles and copays, making them insensitive to the total cost of the Medicare services they consume. Discouraging beneficiaries from buying such plans will make them more cost conscious. Although a version of this was included in the Medicare Access and CHIP Reauthorization Act enacted in April 2015, it does not take effect until 2020. An earlier start would save taxpayers’ money faster.
  • Medicare Part D exclusive pharmacies. The president has proposed allowing Medicare Part D drug plans to use more tools to reduce the abuse of prescription drugs by opioid addicts in Medicare Part D. This would reduce fraud, as described in an NCPA policy report.
  • Medicaid provider taxes. In his February 2012 budget, President Obama proposed reforms to Medicaid provider taxes. “Provider taxes” are tricks used by hospitals and states to increase their dependence on federal Medicaid money. Hospitals agree to submit to a special “tax” by the state. However, this tax flows into the state Medicaid program, which uses it to get more federal dollars. Therefore, every dollar the hospital is “taxed” actually increases its revenue by more than the tax! If this abuse had been stopped when President Obama proposed his reforms, the savings would have been $22 billion over 10 years.
  • Site-neutral payments. This refers to paying the same fee for a procedure, whether done in an ambulatory clinic or hospital. Currently, hospitals are overpaid. For example, a level II echocardiogram costs Medicare $453 in a hospital outpatient facility versus $189 in a freestanding physician office. A site-neutral payment rule would pay $189 to all facilities. President Obama’s budget proposes to phase this in starting in 2017, and estimates savings of $29.5 billion over 10 years as a result.

Mr. Stanley-Becker’s article even suggests that Congressional Republicans are refusing to find spending offsets because they want to make Obamacare officially increase the deficit. Obamacare is already fiscally irresponsible enough without deliberately making it worse.

Senator Elizabeth Warren (D-MA) says she will not vote to repeal the device tax unless there are spending offsets. In this situation, conservatives have found an unlikely ally.

Investors’ Note: Medronic (NYSE: MDT), Abbott Laboratories (NYSE: ABT), Thermo Fisher Scientific (NYSE: TMO), Baxter International (NYSE: BAX), and Becton, Dickinson & Co. (BYSE: BDX) are device makers for which repeal of the medical device excise tax would likely be a material event.

John R. Graham is a Senior Fellow at the National Center for Policy Analysis and Co-Organizer of the Health Technology Forum: DC. His articles are collected at JRG Health Sector Analysis.