Merry Christmas, the Medical Device Tax Is Suspended

With mere hours left before members of Congress headed home for the Christmas and New Year’s holidays, both the House and the Senate passed legislation which suspended the medical device tax, delayed the Cadillac tax, and made permanent the R&D Tax Credit. President Obama is expected to sign this into law before 2015 ends.

Negotiators in Congress and the White House had been scrambling over the final days in December to get an end of the year tax deal pulled together.

The news that a deal was in the works broke in mid-December as several news outlets reported that

Senate Majority Leader Mitch McConnell (R-Ky.) wanted to show voters ahead of next year’s election that Republicans knew how to work the legislative process and craft a year tax package or a more robust tax package.

“I lean toward the latter and I hope we can achieve that, ” said McConnell.

For the Democrats, Leader Harry Reid (Nev.) said “The negotiations got started in earnest last night. Over the weekend we didn’t get much done.”

Senator Ron Wyden (Ore.), the senior Democrat on the Senate Finance Committee, chimed in and also seemed to put a tailwind on the negotiations saying: “I think it went through a trough this weekend, and then, maybe, early yesterday afternoon a bit of a breakthrough.”

One of the more popular elements of the year end deal and what was the fulcrum point of a more comprehensive agreement was the research and development tax credit and the Section 179 deduction for small-business expensing. Both were due to expire at the end of 2015 and a combination of Republicans and pro-business Democrats formed a solid bloc in favor of those extensions. In fact, as we reported above, the final legislation which passed both House and Senate provide for an indefinite extension of the R&D tax credit.

Also on the table were expansions of the child tax credit, the earned income tax credit and the American opportunity tax credit—which were important elements of President Obama’s 2009 stimulus package.

Medical Device Tax and the “Cadillac Tax”

But, most encouragingly, both sides of the Congressional aisle lined up to push across the finish line delays—not repeal—the “Cadillac tax” on high-benefit plans and the medical device tax.

Getting White House support, however, required language that fixes ObamaCare’s so-called risk corridors—a program intended to help insurance companies that take a financial hit by participating in government-run health exchanges.

Those ‘risk corridors’ became a particularly high profile issue when on Tuesday, December 1, 2015, the head of the largest insurer in the U.S. dropped a bombshell and told investors that their company was losing money on the government-run health insurance exchanges and should have stayed out of participating in any of the plans.

Stephen Hemsley, the CEO of UnitedHealth Group, said offering policies through the health exchanges was “a bad decision. In retrospect, we should have stayed out longer. It will take more than a season or two for this market to develop.”

In mid-November the company announced that it might drop out of the exchanges altogether for 2017. Next year, he says the company will make decisions on a market-by-market basis about whether to keep selling exchange policies.

The White House wants to fix the so-called risk corridors so that insurers like UnitedHealthcare remain in the program.

In fact, Obamacare nearly ran out of money because of a policy rider sponsored by Senator Marco Rubio (R-Fla.) on a year-end spending bill in 2014 that bars the Department of Health and Human Services from tapping into other accounts to fund it.

The politics of this, particularly on the cusp of the 2016 elections made it extraordinarily difficult for GOP leaders to work on a risk corridor fix with the White House. In fact, one GOP leader characterized the risk corridor fix as a “bailout for insurance companies.” One Senate Republican leadership aide seemed to put another nail in the coffin when they were quoted in The Hill as saying “This is not on the table. Risk corridors is [sic] fully off the table.”

But, with the stage set for some horse trading before Congress heads home for Christmas and New Year’s with their constituents, key members of both houses cut the deal.

There was a Will, There was a Way

There was strong bipartisan agreement to delay the medical device tax for a couple years and re-up the universally popular R&D tax credit. These bright shiny baubles became the gift to put all sides into the Christmas spirit.

The give and take was:

• For the Dems – kill the Cadillac tax, which hits the health plans of union members especially hard.
• For the Reps – delay both the R&D tax and the Medical Device tax
• For the Dems – pay for the tax delays with other savings or tax increases
• For the Reps – lift the ban on oil exports (how did that get in here?…politics)

House Ways and Means Committee Chairman Kevin Brady (R-Tx.), who turned up the pressure on the talks two weeks ago by offering a bill that would serve as a fallback if a major deal fails to materialize, removed a major roadblock when he said the ObamaCare provisions could still be added to the bill.

“Clearly, we’re moving forward with the two-year extension and considering adding a medical device and a Cadillac tax pause on there, ” Brady said, adding that the decision will be made before the bill is taken up by the House Rules Committee on a to-be-determined date.

The two-year bill’s focus is “ensuring Americans that before we leave, we will do our work on these tax extenders, ” Brady said.

And the White House is ready to sign.

The estimated price tag for all this? One estimate goes as high as $800 billion.

But, hey, it’s Christmas.