Tax freeze could mean revenue melt: CBO sees potential $253B loss

Congress' 2,009-page omnibus spending deal froze three of the Affordable Care Act's revenue-generating taxes, which makes a small financial impact — for now.

Supporters of the health reform law worry the flash freeze could turn into permafrost, and the taxes — which are delayed until after President Barack Obama leaves office — will be fully repealed, creating a much bigger hole in the federal budget.

Here are four things to know about the fears and the financial impact associated with the tax freezes.

1. The immediate impact of the freeze is $24.4 billion. The law put the Health Insurance Tax on hold for one year, and the "Cadillac tax" and the medical device tax on hold for two years. The Congressional Budget Office said the HIT would have made up to $12 billion in 2017 if it were not delayed, according to The Wall Street Journal. As for the Cadillac tax on high-cost employer health plans, the CBO estimates the delay will cost $9 billion in revenue by the end of 2019. The medical device tax delay would come with a $3.4 billion price tag by the end of 2017, according to the report.

2. However, the CBO said if the tax freeze becomes permanent, it would cost the federal government $253 billion by 2025. According to The Wall Street Journal, both supporters and opponents of the law see the tax delays as a step toward full demise of the cost-control measures in the law. Citing the CBO analysis, The Wall Street Journal reported a full repeal of the taxes would translate into the following amounts of lost revenue by 2025: $87 billion from the Cadillac tax, $23.9 billion from the medical device tax and $142.2 billion from the HIT.

3. Axing the taxes doesn't necessarily mean instant death for premium subsidies or Medicaid expansion. According to The Wall Street Journal report, some experts say the taxes are not directly tied to coverage expansion and the tax delay may even take some stress off premium prices. On the flip side, other experts say the tax freeze will eliminate part of the federal funding for Medicaid expansion, according to the report.

4. Most importantly, permanent tax cuts could make the ACA cost taxpayers in the long run. Loren Adler, research director for the Committee for a Responsible Federal Budget, told The Hill, "If those actually end up as repeals, all the sudden the law that was scheduled to save money in the first decade would cost money in the first decade."

 

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