By John McManus, president and founder, The McManus Group
Hours after the House of Representatives impeached President Donald J. Trump, it passed a gargantuan omnibus appropriation package costing $1.4 trillion in 2020 that continues the bipartisan unravelling of the Affordable Care Act (i.e., Obamacare) by repealing three taxes critical to its financing: the “Cadillac tax” on high-cost insurance plans, the medical device excise tax, and the health insurance tax. Together, their repeal costs the federal government $373.3 billion in lost revenue over the next 10 years according to the Joint Committee on Taxation.
While it’s true that Congress has been suspending all three taxes at intermittent intervals since their enactment 10 years ago, a full repeal of all three taxes caught many in the healthcare community by surprise. It represents the death knell of remnant cost control features Democrats attempted to foist on various health sectors. (The Independent Payment Advisory Board, tasked with implementing cost-control policies when Medicare spending exceeded certain prescribed thresholds, was repealed in 2018, and cuts to hospitals that serve disproportionately poor patients have been repeatedly delayed.)
Labor and business were united in repealing the 40 percent excise tax on the value of health plans that exceeded $10,000 for an individual policy or $27,500 for a family policy, which came to be dubbed the “Cadillac tax.” They took advantage of a new House “Consent Calendar” rule requiring a House vote or committee action on any legislation that had reached 290 cosponsors, thereby forcing a vote this summer. Having stacked up 370 cosponsors, the repeal bill sailed through the House by a whopping 419-6 vote in July, providing momentum for full enactment.
The AFL-CIO conditioned its support of the U.S.-Mexico-Canada trade agreement on the Cadillac tax’s full repeal. And the House passed that Trump administration priority as its last vote of the year shortly after enacting the spending and tax package.
That the medical device and health insurance industries were also able to secure full repeal of their respective taxes is a testament to their doggedness in educating policymakers of the adverse consequences of the taxes. The 2.3 percent excise tax on medical devices was extremely punitive to smaller companies that often had little or no profit and caused layoffs when it was briefly implemented a few years ago. The medical device industry lost 29,000 jobs during the three years the tax was in effect. Actuaries had estimated the health insurance tax would raise premiums by about $7,000 over the next 10 years for a typical family policy.
Yet Congress left one ACA tax in place with no change: the $2.8 billion annual pharmaceutical fee, paid by drug companies based on their share of the federal programs. That annual fee had grown from $2.5 billion in 2011 to $4.1 billion in 2018, but under the fee’s formula, it dropped to $2.8 billion in 2019 and thereafter. Focused on playing defense, the pharmaceutical industry never asked that this tax be repealed.
Prospects for Drug Legislation in 2020?
Although the House passed Speaker Nancy Pelosi’s (D-CA) partisan drug pricing bill on a party line vote the last week of the session, little pharmaceutical policy was included in the enacted spending package. Congress failed to address the “catastrophic cliff” in the Part D benefit, under which Medicare beneficiaries with high drug costs will see their out-of-pocket exposure increase sharply in 2020 and thereafter due to a budget gimmick in the ACA. The sole pharmaceutical provision included in the package was the CREATES Act, which addresses generic delay for drugs with Risk Evaluation and Mitigation Strategy (REMS) labels regarding safety concerns.
But Congress laid the foundation for a vote on more comprehensive healthcare legislation — namely pharmaceutical pricing and “surprise billing” — later this spring by only extending expiring popular health provisions through May 22. That means Congress must pass a subsequent health package before Memorial Day.
While that deadline provides an opportunity to enact more impactful pharmaceutical policy, the very same political forces that have prevented bipartisan consensus in 2019 will only intensify as the 2020 election approaches. Most fundamentally, does Speaker Pelosi want to hand President Trump a victory on prescription drugs — a priority for the nation’s seniors — months before the election? And will the progressive caucus in the Democratic House allow bipartisan and bicameral consensus on Part D benefit redesign, modernizations to financing of Part B physician-administered drugs, and sensible IP reforms that do not call for complete government control over the pharmaceutical sector?
Judicial Threat to Obamacare Looms
Even as Congress continues to dismantle key aspects of the ACA, the courts continue to consider litigation that can more fundamentally overturn the law.
On December 18, the 5th Circuit Court of Appeals stuck down the individual mandate in the Affordable Care Act by a 2-1 vote, ruling that it was unconstitutional. But it did not invalidate the entire law, rather sending it back to a federal district judge to determine whether the mandate is severable from the rest of the law, which touches many aspects of the healthcare system.
When the Supreme Court ruled in 2012 that the individual mandate to purchase health insurance in the ACA was constitutional in the landmark National Federation of Independent Business vs. Sebelius decision, it did so on the basis that the mandate was enforced through Congress’ authority to impose taxes. However, that tax was repealed in the omnibus 2017 tax cut bill.
Texas and other Republican-led states brought the suit, which was defended by 21 Democrat-led states. At issue is whether the mandate, lacking the enforcement tax, makes the entire ACA law unconstitutional or just that particular provision. The sprawling law impacts nearly every aspect of healthcare — from protections for individuals with preexisting conditions and required pharmaceutical manufacturer discounts in Part D to hospital reimbursement rates in Medicare and Medicaid and nutritional labels on menus. Clearly, many of these provisions have little to do with a requirement to purchase health insurance.
The fate of the decade-old law is likely to remain in limbo until after the 2020 elections. Legal experts believe a Supreme Court hearing may be delayed until 2021.
John McManus is president and founder of The McManus Group, a consulting firm specializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University.