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Friday, January 27, 2012

Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act (ACA)

Janemarie Mulvey
Specialist in Health Care Financing

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 as amended) will, among other things, raise revenues to pay for expanded health insurance coverage. According to the Joint Committee on Taxation, these health-related provisions are projected to increase federal revenues by about $392 billion over 10 years.

The majority (64%) of the health-related revenues will come from individuals, largely from taxes imposed on higher income tax filers though the Medicare payroll tax and adding an additional tax on net investment income. A much smaller share of revenues derived from individual taxpayers will come from limitations on tax-advantaged accounts (such as flexible spending and health savings accounts) and on the itemized deduction used to pay for health care expenses.

The remaining approximate one-third (36%) of these health-related revenues will be derived from taxes and fees on health insurers, plan administrators, and health companies. Specifically, these revenues include 

          an excise tax on high-cost employer-sponsored health insurance; 
          an annual fee on health insurance providers; 
          an annual fee on manufacturers and importers of brand-name pharmaceuticals; 
          an excise tax on manufacturers and importers of certain medical devices; and 
          an excise tax on indoor tanning services. 
The new law will also limit the deductibility of compensation for health insurance executives. While the provisions above are directly targeted toward firms in the health care sector, there is an additional provision that will affect all employers who provide prescription drug coverage to Medicare beneficiaries, which will eliminate the tax deduction for expenses allocable to the Medicare Part D subsidy to employers.

This report summarizes the health-related revenue provisions in ACA, their effective dates, and, where data are available, potential impacts of these provisions.

Date of Report: January
18, 2012
Number of Pages:
Order Number: R4
Price: $29.95

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