2 Taxes Supporting ACA May Be Delayed 2 Years

Dec. 17--Two taxes underpinning the Affordable Care Act would be suspended for two years under terms of a spending package that was approved by the U.S. House Tuesday, a development that was embraced by Pittsburgh-area medical device makers and organized labor alike.

Final House and Senate votes could come as early as Friday on bills that would delay implementation of the 2.3 percent tax on the sale of medical devices and the 40 percent Cadillac tax on high-cost health insurance plans. The medical device tax went into effect in 2013; the Cadillac tax wasn't supposed to go into effect until 2018.

The spending package was part of an agreement to keep the government running through the end of the fiscal year in September 2016. CardiacAssist Inc. was among the local medical device makers buoyed by news of the tax delay.

"The medical device tax was just a waste of our time," CFO Bob Dickson said. "It made no sense. We can redeploy that cash."

A delay in the tax would save the O'Hara-based maker of circulatory support systems about $375,000 annually, Mr. Dickson said, enough to hire four or five new employees, depending on salary level. The money could also support research.

The tax is levied on sales, not the bottom line. That hits smaller, startup companies before they have even turned a profit and stifles innovation, said Peter DeComo, chairman and CEO of South Side-based Alung Technologies, who called the tax a "blow to the medical device industry, a blow to innovation."

"This will have a huge impact on stock performance and shareholder value for large medical device companies," he said. Alung's products improve blood oxygenation for people who are critically ill. The products are not yet sold domestically, so the company is exempt from paying the medical device tax.

Small companies would not be the only beneficiaries. If signed into law, the tax delay would translate into earnings-per-share bumps of 2.9 percent and 2.8 percent in 2016 and 2017 respectively for medical device companies covered by Wells Fargo Securities LLC, according to a report by Larry Biegelsen, senior analyst.

The Cadillac tax on health plans would apply to insurance coverage costing more than $10,200 annually for an individual or $27,500 for a family, adjusted annually for inflation. An American Health Policy Institute study in 2014 found that 38 percent of large employers would be affected by the tax, which was opposed by the AFL-CIO, American Federation of Teachers and other groups from the beginning.

The tax would also generate about $120 billion between 2018 and 2024, according to the Congressional Budget Office, money earmarked to support provisions of the ACA, including expanding health insurance to the uninsured.

Doug Moore, director of employee benefits at Bellevue-based insurance brokerage Seubert & Associates, said he has been running forecasts for clients to find out when their benefit plans will bump up against the Cadillac tax. So called first-dollar health plans, which don't require any contribution from the employee, are especially vulnerable, he said.

Still, the tax delays will leave holes in Obamacare that will need to be plugged with revenue from other sources, Mr. Moore said. "I just wonder where the dollars will come from," he said.

Kris B. Mamula: kmamula@post-gazette.com or 412-263-1699.

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