Michigan Medical Device Company To Layoff 1,000 Because Of Obamacare Tax.
Medical firms, consumers brace for changes that bring higher fees
Display Structures Inc. President Diane Dearing, with husband Steve, is worried about upcoming taxes. (Todd McInturf / The Detroit News)
Taxpayers, especially businesses, will be hit with billions of dollars in new charges starting in January under provisions of the Affordable Care Act that will be ushered in with the new year.
Among the new provisions is a surtax on investment income for those earning $250,000 or more, a $2,500 cap on flexible spending accounts and a 2.3 percent excise tax on manufacturers of medical devices that has led Kalamazoo-based Stryker Corp. to slim its workforce.
The looming health taxes have taken a back seat to the expiration of the Bush-era tax cuts set to automatically increase Jan. 1 unless Congress takes action to avoid the recession-threatening "fiscal cliff." While the biggest provisions of the health care act — namely the individual mandate — won't take effect until 2014, notable tax provisions have taken hold, and some businesses say the coming wave will exacerbate an anemic business climate.
Stryker, which makes products ranging from EMS stretchers to knee replacements and surgical tools, is trimming about 1,000 employees from its global workforce of more than 20,000 in anticipation of the 2.3 percent tax on its sales of medical devices.
The company estimates it will owe $100 million in the first year, or about 20 percent of its global research and development investments.
"Stryker remains significantly concerned with the upcoming medical device excise tax and its negative impact on jobs and innovation, and will continue to work with Congress to try to repeal the tax," Stryker CEO Kevin A. Lobo said in a statement.
The Michigan Chamber of Commerce hasn't studied how the taxes will affect Michigan businesses and consumers, but the business organization believes the taxes will ultimately be passed down to consumers, said Wendy Block of the Michigan Chamber of Commerce.
What's more, many employers and consumers are not aware of the taxes in the pipeline.
"There is a hypersensitivity (to taxes imposed) in 2014, but a lot of the taxes hit in 2013," Block said. "It's been kind of off folks' radars, and at the end of the day they probably aren't too focused on them or aware of them."
Burden is spread out
The health care law, which opponents refer to as Obamacare, was enacted in 2010 and mandates most Americans obtain health insurance by 2014. It also sets up insurance exchanges, expands Medicaid eligibility, reduces the growth of Medicare's payment rates and taxes insurance plans with relatively high premiums.
The aim is to reduce the number of uninsured in the United States.
To pay for the plan, a series of tax provisions was enacted. Some are in effect, while the main impact will be realized in 2014 with a tax on health insurers as well as individuals who fail to buy insurance, under the so-called mandate. The layers of new tax provisions mean the law is scheduled to reduce the deficit over time. Repealing it would add $109 billion to the deficit over a decade, according to a July study by the Congressional Budget Office.
"One of our top priorities in crafting the Affordable Care Act was to ensure that health care reform would not add to the deficit," said U.S. Rep. John Dingell, D-Dearborn, who championed the legislation.
"To help pay for the ACA — which for the first time will provide health insurance to 33 million uninsured Americans — the law cracks down on waste, fraud and abuse in Medicare and Medicaid, and increases taxes for some in the health industry that will benefit from health reform through millions of new patients."
The tax burden to pay for the health care legislation is spread over several sources — drug companies, health insurers and even indoor tanning services.
"The impact of most taxes (is) on the margins and, depending on who you are shooting at, you may hit some other parties and collateral damage," said Tom Miller, resident fellow at the Washington-based American Enterprise Institute, a right-of-center think tank.
The 2013 tax that likely will have the biggest disincentive on business expansion, Miller believes, is a new 3.8 percent Medicare payroll tax rate on wages and self-employment profits above $200,000, compared to 2.9 percent.
"You are not just hitting more affluent individuals; you tend to hit the unincorporated smaller businesses," said Miller, co-author of the book "Why Obamacare Is Wrong for America."
Small business worried
Business has been struggling at Troy's Display Structures Inc. Unable to recover from the recession, the small manufacturer once employed 23 people but now is down to five.
President Diane Dearing believes the upcoming taxes through 2014 could be the last straw for businesses like hers trying to keep the doors open.
"It's one thing after another," said Dearing, whose company fashions metal for displays and exhibits. "… Nobody understood it (the health care law) when they passed it and, for the most part, a lot of people still don't understand it."
She's especially worried by the 2014 annual fee on health insurance providers, which is estimated to generate $60 billion through 2019. Businesses and employees, Dearing believes, will ultimately have to stomach the tax in the form of higher health care costs.
"There are so many stealth taxes that are going to affect us in ways we don't even realize yet," Dearing said. "I just wish they would be aboveboard and straightforward in taxation."
One of the new fees is a $63-per-person assessment that kicks in on medical plans. The temporary three-year fee starts in 2014 and declines to nothing by 2017. It's estimated to raise $25 billion to help insurers cover people with pre-existing conditions who can't be turned away under the law starting in 2014.
In all, the congressional Joint Committee on Taxation estimated in 2010 the health care act would generate $437.8 billion in revenue through 2019. The revenue was estimated at $38 billion in 2013 and $48 billion in 2014.
"In 2013, it's still a warm-up," Miller said. "The big show is 2014."
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