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Tax Extenders: Obamacare Taxes Destroy Jobs and Raise Premiums

May 13, 2014

This week the Senate will debate a tax extenders package drafted by Senator Wyden and the Finance Committee. As several Democrats have said, this bill includes many provisions that will promote jobs and economic growth. But Democrats failed to address two important tax laws that are having detrimental effects on job growth and the economy.

Republicans sought votes in committee to postpone Obamacare’s medical device tax and health insurance tax. Finance Committee Democrats blocked those efforts. Chairman Wyden has said that this will be the last tax extenders bill he considers as committee chairman. Now is the time for a two-year delay of these onerous Obamacare taxes.  

Medical Device Tax Stifles Innovation and Destroys Manufacturing Jobs

Starting in 2013, the health care law levies an almost $30 billion tax on medical device manufacturers that develop products such as pacemakers, artificial joints, and ultrasound equipment. This 2.3 percent tax is applied to revenue, not profits. In some cases, companies could pay more in federal taxes than they generate from day-to-day operations. Both CBO and the CMS chief actuary have warned that the medical device tax would largely be passed on to consumers in the form of higher premiums.

Alternatively, device makers may shift product construction and distribution overseas. A February 2014 survey found that the industry lost 33,000 jobs during the device tax’s first year. The tax not only suppresses job creation and limits economic growth, it also slows research and development investment into breakthrough medical devices. The industry survey found a 30.6 percent reduction in R&D as a direct result of the medical device tax.

“Thirty-four Senate Democrats joined Republicans on [March 21, 2013] in a nonbinding but overwhelming vote to repeal a key tax in President Barack Obama’s health reform law … it has huge political significance as momentum builds for bipartisan consensus to get rid of another piece of Obamacare.” -- Politico, March 22, 2013

Senate Democrats have already joined Republicans in an ‘overwhelming vote to dump’ the medical device tax. During consideration of the fiscal year 2014 budget resolution, the Senate passed an amendment repealing the health care law’s medical device tax. Every Republican and 34 Democrats joined forces to pass the bipartisan amendment by a vote of 79 to 20.

Health Insurance Tax Costs Jobs and Increases Premiums

President Obama’s health care law includes a tax on health insurance providers starting in 2014, based on net premiums in the fully insured market. The aggregate tax in 2014 is $8 billion. It climbs to $11.3 billion in 2015 and 2016, reaches $14.3 billion in 2018, and after that grows by premium inflation. The Joint Committee on Taxation has said these costs will be borne by taxpayers, consumers, and middle-class workers in the form of higher prices, lower profits, and decreased wages. Supporters of the law argue insurance companies will simply absorb the tax. Independent experts tell a different story.

  • 286,000 Jobs Lost. Last week, the NFIB Research Foundation released a study estimating that Obamacare’s health insurance tax will cost between 152,000 and 286,000 private sector jobs by 2023. The study predicts 57 percent of those job losses will be borne by small businesses.
  • Premiums Estimated to Rise 3 to 4 Percent. The NFIB job impact report used data from a March 2011 study conducted by former Congressional Budget Office Director Doug Holtz-Eakin showing that the health insurance tax will raise premiums by as much as three percent — or nearly $5,000 per family over a decade. Actuarial firm Oliver Wyman also produced an October 2011 report calculating that the health insurance tax “will increase premiums 2.8% to 3.7%” by 2023.
  • Repealing HIT Saves Americans Money. In June 2011, the Joint Committee on Taxation forecast that eliminating the health insurance tax “could decrease the average family premium in 2016 by $350 to $400.”
  • Experts Agree HIT Makes Premiums More Expensive. Oliver Wyman released a separate report in November 2012 showing that over 10 years the health insurance tax would add an average of $5,140 for family plans in the individual market, $6,883 for family plans in the small-group market, and $7,186 for family plans in the large-group market. Then on February 20, 2014, the American Action Forum released a research paper calculating that the tax would “result in a premium increase of $60 to $160 per person in 2014, rising to $100-$300 by 2018, for the average insured individual — and over $260 per family in 2014, rising to over $450 in 2018, for families with employer-sponsored, fully insured coverage.” This will only increase over time as the Obamacare health insurance tax grows.

President Obama’s health care law imposes more than $1 trillion in new taxes on employers, manufacturers, and middle class families. The law violates President Obama’s pledge not to raise taxes on families making less than $250,000 per year. These tax increases take money out of the pockets of hard-working Americans. They are a direct, and personal, economic harm created by the Democrats’ health care law. Just like the jobs destroyed, the wages decreased, and the added government debt, they are part of the mountain of evidence showing how disastrous Obamacare is for our economy.