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Rep. Erik Paulsen

Jerry Holt, Star Tribune

It's health subsidies vs. tax on med technology

  • Article by: KEVIN DIAZ
  • Star Tribune
  • June 4, 2012 - 9:46 AM

WASHINGTON - U.S. House Republicans are proposing to trim health insurance subsidies for low- and middle-income taxpayers to pay for a bill sponsored by Minnesota Republican Erik Paulsen that would repeal a new tax on medical device makers under President Obama's health care overhaul.

The plan could be a breakthrough for the two-term congressman, who has defined himself as a champion for the state's medical technology sector. But it could also open a new front in the ongoing battle over the federal health care law, which is now under review by the U.S. Supreme Court.

The $43.9 billion plan would "recapture" overpayments under a new health insurance tax credit to offset the estimated $29 billion in revenue that would be lost over the next decade by repealing the medical device tax. The repeal of that tax is a top priority for Minnesota's large medical technology industry.

Republican leaders plan to introduce the downsized subsidy measure before the House votes on Paulsen's bill later this week, GOP sources have told the Star Tribune.

The new GOP proposal would make people fully reimburse excess tax credits they receive under the new health care law's government-sponsored insurance exchanges. Currently, eligibility can be based on 2-year-old tax returns, and there's a cap on liability for overpayments.

A report on the GOP plan obtained by the Star Tribune notes that "the Democrats' health care law fails to adequately protect taxpayers from overpayments of health insurance exchange subsidies, even in the case of fraud."

Some Democrats argue that removing the cap would penalize people who suddenly find work, win promotions, suffer deaths in the family, get divorced or unexpectedly encounter other life-changing circumstances.

Republicans argue that the measure does nothing more than make sure people don't get benefits to which they're not entitled.

Staffers for the House Ways and Means Committee, which first examined the plan in April as a potential budget-saving measure, testified that it could result in 350,000 fewer people gaining insurance under the federal health law. Sander Levin of Michigan, the ranking Democrat on the panel, called it a "further" attack by the GOP on Obama's signature health care bill.

'Not a tax increase'

With 239 co-sponsors, including about a dozen Democrats, Paulsen's bill is expected to easily clear the House by Wednesday or Thursday. Looking forward, the new revenue offset is designed to pick up support in the Senate, where Democrats are wary about losing revenue needed to pay for the historic expansion of health coverage to some 33 million people.

But it remains to be seen how the new GOP plan will be received by Democrats such as Minnesota Sens. Amy Klobuchar and Al Franken, who otherwise favor eliminating the medical device tax. Their offices said they hadn't seen draft language but were reviewing the plan over the weekend.

Klobuchar spokesman Linden Zakula said she "will look at any and all proposals to get this done."

Some Democrats in the Senate have voted in the past to limit excess subsidy payments in order to backstop measures such as the "doc fix," which perennially delays scheduled cuts in Medicare physician payments. The subsidy also was reduced last year to offset the cost of repealing an unpopular 1099 business form reporting requirement under the health care law. That change was estimated to reduce the number of people gaining insurance by 265,000.

While liberal advocacy groups have opposed cuts to the tax credit program, some fiscal conservatives have given it their blessing. Americans for Tax Reform President Grover Norquist told the House panel reviewing the measure that "it is assuredly not a tax increase."

'American success story'

Paulsen's bill would cancel a 2.3 percent excise tax on medical devices scheduled to take effect in January. The tax is intended to help pay for the expansion of health care coverage under the Affordable Care Act, which Republicans call "ObamaCare."

Shepherding the bill through the Ways and Means Committee on Thursday, Paulsen called the industry "an American success story" that must not be stifled by excessive taxes and regulation. The worst part of the tax, he argued, is that it would be levied against all revenues, not just profits, meaning it could hit small start-up companies even before they go into the black.

Unlike past GOP-led measures to weaken or repeal the landmark 2010 health care law, Paulsen's bill has some support among Democrats in states with large medical technology sectors like Minnesota, with an estimated 400 firms employing 35,000 people.

Industry allies who have backed Paulsen's bill in a well-funded lobbying campaign say the tax will not only stymie innovation but drive companies and jobs overseas. Administration allies say those fears are being exaggerated by an industry that stands to make substantial gains from the expansion of health coverage to millions of newly insured customers.

Backers of the health care law note that devices imported from abroad would also be subject to the tax, while U.S. devices made for export would not be.

While siding with industry leaders like Minnesota-based Medtronic, Paulsen has been under pressure to ensure Senate passage by finding a budget offset to overcome Democratic concerns about lost revenue from the tax repeal.

Without an offsetting revenue measure, Democrats charge that the device tax repeal would simply add to future budget deficits, something they say the health care law was painstakingly crafted to avoid. Franken has conditioned his support for repeal on a "responsible and fiscally sound" budget offset. Klobuchar has not said if she would require an offset.

Klobuchar and Franken worked with Paulsen to halve the size of the excise tax when it was first proposed by Democratic leaders during congressional debate over the health care law. Now, along with Franken, both lawmakers could again be caught in the shifting crossfire of a political debate that pits an important home-state industry against the signal achievement of the Obama presidency.

Kevin Diaz is a correspondent in the Star Tribune Washington Bureau.

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