NRCC: ‘Obamacare’ Taxes Sick Puppies

A Republican claim that the federal health care law taxes “heart attacks, sick puppies and even new babies” is a dog. Turns out it’s a reference to excise taxes on certain medical devices.

The National Republican Congressional Committee crams a highlight reel of misleading claims about the health care law into a 90-second video that encourages viewers to sign an “I Want Repeal” petition. We’ve seen most of these before, but the claim about puppies and babies was new to us. And we found it takes more stretching than a puppy with fleas to make those claims hold up.

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With the Supreme Court poised to announce its decision on the constitutionality of the health care law, the NRCC hopes to turn up the heat on opposition to the law with an online petition and a campaign using the twitter hashtag #IwantRepeal.

As we said, most of the claims we’ve seen before, but we’ll start with one we hadn’t.

Taxes on Heart Attacks, Sick Puppies and New Babies?

The video claims the health care law includes “taxes on heart attacks, sick puppies and even new babies.” The video doesn’t mention it, but what it is referring to is a provision in the Patient Protection and Affordable Care Act (Sec. 9009) that spells out excise taxes on manufacturers of medical devices. In order to help pay for the expansion of health coverage for the uninsured, the law includes a 2.3 percent tax on certain medical devices starting in 2013. It’s expected to bring in $20 billion over 10 years. Proponents say device makers will sell more devices and reap more profits when an additional 30-some million potential customers gain health coverage and can afford them.

Not all medical devices are taxable. Those sold retail (directly to the consumer), for example, are exempt. So are device manufacturers that bring in revenues under $5 million a year.

Among the devices that are taxable: cardiac defibrillators, pacemakers, stents (“heart attack”-related devices) and ultrasound equipment (“new baby”-related). Most experts, including the nonpartisan Congressional Budget Office, expect at least some of the cost of the tax on manufacturers of medical devices to be passed on to consumers via higher health insurance premiums.

So that’s how the NRCC gets to its argument that the law includes taxes on heart attacks and new babies.

So what about taxes on “sick puppies”?

This also relates to the tax on medical devices. The NRCC passed along a report from the Internal Revenue Service that addressed the issue of whether veterinary devices would be subject to the tax. The gist of it is that taxable devices are those “intended for humans.” So if a medical device is exclusively used for veterinary medicine, it would not be taxable.

But there are also medical devices used in veterinary practices as well as in human medicine. The IRS says those would be taxable.

Steven T. Miller, deputy commissioner for services and enforcement, IRS: The commentator suggested that if the manufacturer can demonstrate that a device is sold for use in veterinary medicine, the excise tax should not be imposed on that sale. The proposed regulations do not adopt this suggestion because the statutory language does not limit the definition of “taxable medical device” to devices intended exclusively for humans. Therefore, a device that is intended for humans but that is also intended for use or used in veterinary medicine is a “taxable medical device” if it is listed as a device with the FDA pursuant to FDA requirements, and does not fall within an exemption under section 4191(b)(2), such as the retail exemption.

Gerrit Lansing, digital director at the NRCC, told us via email that the video was trying to make a point about medical device taxes (though, again, medical device taxes are never even mentioned in the video, and it only briefly flashes the image of a defibrillator, so the connection would be obscure to the casual viewer).

Lansing, June 18: The point of these labels is to demonstrate how absurdly broad the application of the medical device tax is. The medical device tax would basically tax all medical devices–in the most open-ended sense of the word “device”–that are not sold at retail. That means every medical procedure would be subject to a tax because there are devices necessary to those procedures that would fall under the limitlessly broad scope of the provision.

If HHS wants to further clarify what specific procedures and devices are safe from the tax, that’s up to them. But as it stands now, they haven’t done so.

The NRCC points to an editorial in the Wall Street Journal that says the cost of those taxes “will ultimately show up in insurance premiums.” Or, it says, companies will “offset the costs with layoffs or by slashing research and development.”

But it’s one thing to argue that taxes on medical device manufacturers may lead to higher health insurance premiums, and another to say the law directly taxes such things as “heart attacks, sick puppies or even new babies.”

The Kitchen Sink

Those were not the only misleading claims in the video. The fast-talking narrator rattles off buzzwords like “government takeover” and “grandma’s health care,” repeating the same old bogus bits we’ve fact-checked again and again. Such as:

“Massive government takeover of health care.” Actually, the law expands business for private insurance companies by requiring nearly everyone to have health insurance. Medicaid eligibility is also increased, but this is no government-run system, as single-payer advocates wanted. And as we’ve noted again and again, government already accounted for 43.6 percent of all health care spending before the new law was enacted, and that share is projected to rise by 3.8 percentage points by 2015, a year after the law takes full effect. Plus, much of that increase would happen anyway as more and more seniors reach Medicare age.

“Rising premiums.” Experts say the law thus far is responsible for a 1 percent to 3 percent increase in employer-sponsored premiums, due to new benefits, such as no preexisting condition exclusions for children and allowing dependents to stay on their parents’ insurance until age 26. That means the bulk of the 9 percent average premium increase recorded from 2010 to 2011 is due to rising medical costs, as usual.

“Cut $500 billion from Medicare.” The law reduces the growth in future Medicare spending by $500 billion over 10 years. As we’ve noted before, one political party’s proposed “savings” from Medicare is cast as a “cut” by the other party.

“Installed an unelected board of 15 bureaucrats to essentially ration grandma’s healthcare.” They’re not bureaucrats, and the law says they can’t ration care. Instead, the Independent Payment Advisory Board is charged with finding ways to slow down the growth of Medicare spending, and its 15 voting members will be medical professionals, economists, health care experts, and consumer and senior representatives.  The board’s suggestions “shall not include any recommendation to ration health care” or “restrict benefits,” according to the law. And Congress can reject the board’s proposals.

“[HHS Secretary] Kathleen Sebelius handed out hundreds and hundreds of Obamacare waivers to the Democrats’ friends in big labor.” These temporary waivers didn’t only go to labor unions but to hundreds and hundreds more non-labor unions, such as McDonald’s and Ruby Tuesday. The waivers only exempt the companies from one requirement of the law and only until 2014. They allow the companies to continue to offer so-called “mini-med” plans that offer limited benefits and low annual spending limits for low-income employees until 2014, when those employees would have an alternative for insurance coverage through the state-based exchanges. The law requires a higher and higher cap on annual benefit limits until that year, when companies won’t be allowed to have any annual spending limits on most benefits. Thirty-four waivers were granted to union plans and 417 were granted to group plans created by unions and multiple employers. All told, that’s 37 percent of the 1,231 total waivers granted. Unions apparently did not receive special favors: Many unions and multi-employer groups are listed among the 144 applications that were denied.

“Adds $340 billion to the deficit and costs us $1.7 trillion that we don’t have.” Actually, the nonpartisan Congressional Budget Office has long said that the law is expected to reduce the deficit. The CBO estimated that the law would decrease the deficit by $210 billion over the 2012-2021 period (see Table 1). The $1.7 trillion figure is the gross costs of the insurance coverage provisions over an 11-year period, 2012-2022. But CBO projects the law’s costs will be more than offset by the revenue-raising provisions and by the restraint on future Medicare spending.

And there’s more. The NRCC video says the law could cause “a possible doctor shortage.” With 30 million to 33 million more Americans gaining insurance under the law, there is concern that doctors’ offices will be packed and wait times will increase. But the alternative, of course, would be keeping those millions of Americans off the insurance rolls. The federal law does include incentives for doctors to go into general practice — offering scholarships and loans to medical students and increasing graduate training positions, especially for primary care. The law also increases Medicare and Medicaid reimbursements to primary care physicians. It remains to be seen what impact this will have on the supply of doctors.

Finally, the video claims that the law has led to “dropped coverage.” But the NRCC didn’t send us any evidence that the law had caused employers to drop coverage. Instead, it sent us information on surveys that found employers, overall, weren’t sure what they would do once the law is fully implemented.

One survey asked small-business owners how likely they would be to consider dropping health coverage “[i]f a substantial share of employees … became eligible for a significant government subsidy to pay for health insurance they purchased from a government sponsored exchange.” Nearly 26 percent said they were “very likely” and 31.5 percent said they were “somewhat likely” to “seriously explore the idea” under that condition. And in a follow-up question, those businesses said most, if not all, employees would have to leave for the exchanges before they’d drop coverage: Thirty-five percent said “all” full-time employees would have to leave on their own, and 43.4 percent said “a majority” would have to do so.

That study also comes from the National Federation of Independent Business, which opposes the law and in fact filed a lawsuit against it.

Another survey, by McKinsey & Co., found that “[m]ore than 30 percent of employers overall, and 28 percent of large ones, say they will definitely or probably drop coverage after 2014″ (our emphasis added). But, again, that’s because employees would have the option of joining state-based exchanges. The report found that “most” employers would increase compensation if health benefits were dropped and that the possible change in health coverage could well benefit employees. “This development should not suggest, however, that employers considering the elimination of [employer-sponsored insurance] are focused exclusively on the bottom line, at the expense of their employees. In fact, because of the subsidies, many low-income employees will be able to obtain better health coverage, for less out of pocket, on an exchange than from their employer,” the report said.

Yet another survey cited by the NRCC fails to provide evidence that the law will cause employers to leave employees without health care. That 2012 poll, by Towers Watson, a business and human resources consulting firm, found that “23% of companies are very confident that they will continue to offer health care benefits for the next 10 years,” a metric that the group says “has steadily deteriorated since 2007.” As for a direct impact of the health care law, the survey found that only 3 percent of companies were “somewhat or very likely” to drop plans for workers who would receive no subsidy in 2014 or 2015, and 45 percent were “somewhat to very likely” to offer insurance to some employees, sending the rest to the exchanges.

So where does all that leave us? Paul Fronstin, director of the health research program at the Employee Benefit Research Institute, told us that “the only thing that the surveys really say about what employers might do is that it’s on their mind.” Said Fronstin: “I think it’s just way too early to know what employers are going to do. They don’t know what they’re going to do.”

The NRCC also points to a CBO report that said under its most pessimistic scenario 20 million workers could lose their employer-sponsored coverage. But that scenario was one of four analyzed by the CBO, which said it was more likely that 3 million to 5 million would lose employer coverage on net, with some of those workers voluntarily choosing a plan from another source. The CBO’s optimistic scenario found that more workers, not fewer, would receive employer-based plans.

– Robert Farley and Lori Robertson

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