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H.R. 436 (112th): Health Care Cost Reduction Act of 2012
- Introduced:
- Jan 25, 2011 (112th Congress, 2011–2013)
- Sponsor:
- Rep. Erik Paulsen [R-MN3]
- Status:
- Died (Passed House)
The bill’s title was written by the bill’s sponsor. H.R. stands for House of Representatives bill.
- Full Title
To amend the Internal Revenue Code of 1986 to repeal the excise tax on medical devices.
- Summary
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No summaries available.
- Text
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Last updated Jun 12, 2012.
8 pages
- Primary Source
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View on THOMAS (The Library of Congress)
GovTrack gets most information from THOMAS, which is updated generally one day after events occur. Activity since the last update may not be reflected here.
- Citation
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Library of Congress Summary
The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress.
6/7/2012--Passed House amended.
Health Care Cost Reduction Act of 2012 - Amends the Internal Revenue Code to:
(1) repeal the excise tax on medical devices;
(2) repeal restrictions on payments from health savings accounts, Archer medical savings accounts, and health flexible spending and reimbursement arrangements to only prescription drugs or insulin (thus allowing distributions from such accounts for over-the-counter drugs);
(3) allow amounts in a flexible spending arrangement (FSA), up to $500, that are not spent for medical care to be distributed to the FSA participant as taxable income after the close of a plan year (currently, such unspent amounts are forfeited); and
(4) repeal the limitation on the recapture of advance payments of the tax credit for health insurance premium assistance that exceed the allowable credit amount for a taxable year.
House Republican Conference Summary
The summary below was written by the House Republican Conference, which is the caucus of Republicans in the House of Representatives.
This summary can be found at http://www.gop.gov/bill/112/2/hr436.
Background
Repeals the Health Care Law’s Medical Device Tax
Beginning in 2013, the president’s health care law institutes a 2.3 percent excise tax on the manufacture or import of certain “medical devices.”
The medical device industry employs more than 400,000 workers nationwide and invests nearly $10 billion in research and development ("R&D") annually. The tax is expected to stifle innovation, increase health care costs, and cost thousands of high-paying jobs.
One study concluded the tax could result in job losses in excess of 43,000 and employment compensation losses in excess of $3.5 billion. The study also demonstrated that the tax would "roughly double the device industry's total tax bill and raise the average effective corporate income tax rate to one of the highest effective tax rates faced by any industry in the world."
The new tax also will increase costs for patients. ln April 2010, the CMS Office of the Chief Actuary explained how various taxes and fees, including the medical device excise tax, would be passed onto patients in the form of higher prices. The Chief Actuary wrote: "We anticipate that these fees and the excise tax would generally be passed through to health consumers in the form of higher drug and device prices and higher insurance premiums, with an associated increase in overall national health expenditures ranging from $2.1 billion in 2011 to $18.2 billion in 2018 and $17.8 billion in 2019."
Moreover, the excise tax will increase the effective tax rate for many medical technology companies, thereby reducing financial resources that should be used for R&D, clinical trials and investments in manufacturing.
Repeals the Health Care Law’s Limitations on Using Health-Related Savings Accounts for Over-the-Counter Medication
Because of a provision in the president’s health care law, taxpayers may not currently use tax-free distributions from flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs), and Archer medical savings accounts (Archer MSAs) for the purpose of purchasing over-the-counter (OTC) medicine without a prescription from a physician. If HSA or Archer MSA funds are used to purchase OTC medicine (other than insulin) that is not prescribed by a physician, those funds are subject to full income taxation plus a 20 percent penalty because it would be considered a “nonqualified withdrawal.” With respect to FSAs and HRAs, taxpayers simply would be denied reimbursement from the accounts.
Allows Americans to Keep Unused FSA Funds
FSAs offered through a cafeteria plan allow participants to contribute pre-tax dollars from their paychecks to pay for approved out-of-pocket health care expenses not covered by insurance. Under the cafeteria plan rules, which apply to FSAs funded with pre-tax contributions from payroll deductions, an employee must forfeit any remaining balance in the cafeteria plan at the end of the year (which may include a grace period of up to two-and-a-half months at the beginning of the following year). This means that if an employee chooses to reduce his or her salary to fund an FSA but does not spend down his or her entire FSA balance by the end of the year, the remaining balance is forfeited to the employer.
Effective for plan years beginning after 2012, the provision would allow employees with health FSAs funded through salary deductions to “cash out” any remaining balance at year-end, up to a maximum of $500. The rebate would be included as income of the employee for federal income tax purposes and as wages for payroll tax purposes in the year of the rebate (because the same amount would have been excluded from both income and wages in the previous year).
Eliminates the Health Care Law’s Insurance Subsidy Overpayments
The President’s health care law fails to adequately protect taxpayers from overpayments of health insurance Exchange subsidies, even in the case of fraud. Exchange subsidy eligibility and the amount of the subsidy will be based on two-year old income tax return data. Because Exchanges will rely on self-reported information and income can change (new job, promotion, spouse returns to the workforce, etc.), the government will conduct an annual review to determine if someone received more taxpayer-funded subsidies than he/she was entitled to receive.
If an overpayment was made, the recipient is required to repay some or all of the overpayment, subject to certain limits. Congress has twice overwhelmingly passed, and President Obama has signed, legislation to increase the amount of overpayments recipients are required to repay (the Medicare “doc fix” in 2010 and the 1099 repeal bill in 2011). HHS Secretary Sebelius described the subsidy recapture provision as “making it fairer for recipients and all taxpayers.”
This provision would require those who receive Exchange subsidies to which they are not entitled to repay the full amount of overpayments.
Summary
Section 1. Short title; table of contents: Subsection (a) provides that the short title is the “Health Care Cost Reduction Act of 2012”. Subsection (b) provides the table of contents.
Section 2. Repeal of medical device excise tax: Under the president’s takeover of health care law, effective in 2013, a 2.3 percent excise tax will be imposed on the manufacture or import of certain “medical devices” (as defined by section 201(h) of the Federal Food, Drug, and Cosmetic Act). This section would repeal this medical device excise tax. The provision would reduce revenues by $29.1 billion FY 2013-22.
Section 3. Repeal of disqualification of expenses for over-the-counter drugs under certain accounts and arrangements: Also a provision in the president’s health care law, taxpayers may not use tax-free distributions from flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs), and Archer medical savings accounts (Archer MSAs) for the purpose of purchasing over-the-counter (OTC) medicine other than prescription drugs or insulin. Effective for expenses incurred after 2012, this section would repeal this prohibition. The provision would reduce revenues by $4.0 billion FY 2013-22.
Section 4. Taxable distributions of unused balances under health flexible spending arrangements:
Health flexible spending arrangements (FSAs) offered through a cafeteria plan allow participants to contribute pre-tax dollars from their paychecks to pay for approved out-of-pocket health care expenses not covered by insurance. Under cafeteria plan rules, an employee must forfeit to their employer any remaining balance in the cafeteria plan at the end of the year; a “use-it-or-lose-it” rule. Effective for plan years beginning after 2012, this section would allow employees with health FSAs funded through salary deductions to “cash out” any remaining balance at year-end, up to a maximum of $500, and would treat it as taxable compensation. The provision would reduce revenues by $4.1 billion FY 2013-22.
Section 5. Recapture of overpayments resulting from certain federally-subsidized health insurance: Beginning in 2014, the president’s health care law provides advanceable and refundable tax credits (“Exchange subsidies”) for the purpose of purchasing certain health insurance through state-based Exchanges. Some beneficiaries will fail to properly report changes in their financial situation, resulting in these beneficiaries receiving subsidies to which they are not entitled based on their actual income for the year. Under current law, beneficiaries earning less than 400 percent of the Federal Poverty Level and receiving a subsidy overpayment only have to return a limited portion of the overpayment. This section would require those who receive Exchange subsidies to which they are not entitled to repay the full amount of overpayments. This provision would reduce the deficit by $43.9 billion FY 2013-2022.
Cost
The Congressional Budget Office (CBO) estimates the bill would decrease the deficit by $6.7 billion over the 2013-2022 period.
Enacting the bill would affect both direct spending and revenues; therefore, pay-as-you-go procedures apply.
For more complete information see June 5, 2012 CBO letter here.
House Democratic Caucus Summary
The House Democratic Caucus does not provide summaries of bills.
So, yes, we display the House Republican Conference’s summaries when available even if we do not have a Democratic summary available. That’s because we feel it is better to give you as much information as possible, even if we cannot provide every viewpoint.
We’ll be looking for a source of summaries from the other side in the meanwhile.