The President's Health Care Law: Provisions Going Into Effect in 2013

October 12, 2012

In less than three months, Americans will be hit with an onslaught of new tax increases and health care cuts implemented under President Obama’s 2010 health care law, the Affordable Care Act (ACA). With some of the most notable tax increases and destructive policy changes set to occur on or after January 1, 2013, I wanted to offer a quick summary of those provisions, along with related work in the U.S. House to reform this flawed law and put forward better policies.  

Medical Device Tax (Effective January 1, 2013): The Joint Tax Committee estimates that the medical device excise tax, which will impose an excise tax of 2.3% on the sale of any taxable medical device, will cost device companies and the American consumer $20 billion between the years of 2013-2019. Industry-based estimates show that implementation of the device tax could result in a loss of more than 1,900 jobs in Pennsylvania alone, which is another reason why on June 7, 2012, I voted to support H.R. 436. H.R. 436 would repeal the medical device tax while reducing the deficit by $6.7 billion over 10 years.

Medicare Tax Increase (Effective January 1, 2013): The Medicare Part A (hospital insurance) tax rate on wages will be increased by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly. A 3.8% assessment will be imposed on “unearned” income (including real estate transactions) for some taxpayers.  

Limiting Flexible Spending Accounts (Effective January 1, 2013): The amount of contributions to a flexible spending account (FSA) for medical expenses will be limited to $2,500 per year for health FSA plan years beginning after December 31, 2012; the $2,500 limit will be indexed for cost-of-living adjustments for plan years beginning after December 31, 2013. Under prior law, there was no limit on the amount of contributions to an FSA unless the employer imposed one.  

Employer Retiree Drug Subsidy (RDS) Deduction Elimination (Effective January 1, 2013): The federal tax-deduction for employers who receive the Medicare Part D retiree drug subsidy payments is set for elimination under the ACA. The retiree drug subsidy was established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) to encourage employers to continue offering prescription drug benefits to their retirees to prevent retirees from seeking benefits through Medicare Part D.  The ACA retains the drug subsidy but eliminates the employer’s ability to deduct the amount of the subsidy, which will come at a significant cost to organizations offering the most comprehensive coverage to current and future retirees.

Medicaid Disproportionate Share Hospital Payment Cuts (Effective October 1, 2013): Previously, state Medicaid programs were required to make DSH payments to qualifying hospitals that serve a high Medicaid and low-income population. The health care law will reduce states’ Medicaid DSH allotments beginning on October 1, 2013. The ACA requires aggregate reductions in Medicaid DSH allotments equal to $500 million in FY2014, $600 million in FY2015, $600 million in FY2016, $1.8 billion in FY2017, $5.0 billion in FY2018, $5.6 billion in FY2019, and $4.0 billion in FY2020. The HHS Secretary is required to develop the methodology by which allotments are reduced, but this is yet another item that is still to be published. In states that are forced to opt-out of the Medicaid expansion due to its prohibitive costs, safety-net hospitals will experience undiminished costs and less federal support.

Medicare Disproportionate Share Hospital Payment Cuts (Effective October 1, 2013): Previously, Medicare provided additional funding to hospitals that serve a high population of low-income patients, which also helped preserve access for Medicare beneficiaries. These payments, called Medicare Disproportionate Share Hospital (DSH) payments, will be reduced by 75 percent beginning on October 1, 2013. Hospitals will subsequently receive additional payments based a formula that includes the reduction of their DSH funds, the percentage change in the uninsured under-65 population and the amount of uncompensated care provided.

These changes to both Medicaid and Medicare could be devastating for many states, including in Pennsylvania, where more than 584,000 individuals depend on hospitals for their jobs through direct or indirect employment, and more than $27.2 billion in total labor income is generated directly and indirectly by its hospitals. Additionally, in 55 of the 67 Pennsylvania counties, hospitals remain among the top five employers, providing family sustaining jobs and solid benefits.