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IRS unveils rules for Obamacare sales tax on insurance companies (and super PACs)

Federal tax regulators outlined the rules pertaining to a tax on health insurance companies (and super PACs, curiously) in Obamacare that will cost$58.8 billion over five years before rising after 2018.

“Under section 9010(e)(1) [of Obamacare], the aggregate fee amount for all covered entities (referred to as the applicable amount) is $8 billion for calendar year 2014, $11.3 billion for calendar years 2015 and 2016, $13.9 billion for calendar year 2017, and $14.3 billion for calendar year 2018,” the IRS stipulates in a notice of proposed rule-making today, explaining that the cost of the “fee” in 2019 will increase “the rate of [health insurance] premium growth.”

Although the law refers to this new financial burden as a “fee,” the IRS explains that it’s really a tax (where have we heard that before?).

“Section 9010(f)(2) treats the fee as a tax described in section 275(a)(6) (relating to taxes for which no deduction is allowed),” the IRS says.

“This tax alone will mean that next year an individual purchasing coverage on his or her own will pay $110 in higher premiums, small businesses will pay an additional $360 for each family they cover, seniors enrolled in Medicare Advantage will face $220 in reduced benefits and higher out-of-pocket costs, and state Medicaid managed care plans will incur an additional $80 in costs for each person enrolled,” Karen Ignagni, president of the American Health Insurance Plans (AHIP) said in a statement, per Life Health Pro.

The Congressional Budget Office predicted in 2009 that the cost of the tax “would be passed on to purchasers and would ultimately raise insurance premiums by a corresponding amount.” The IRS hopes to preclude that by pegging the tax to the “gross income” of insurance companies, which “includes fees recovered from policyholders.”

The tax will not fall on most non-profit organizations, but will hit super PACs: non-profits “carrying on propaganda, or otherwise attempting, to influence legislation . . . participat[ing] in, or interven[ing] in, any political campaign on behalf of (or in opposition to) any candidate for public office,” will have to pay the tax. Elsewhere in the notice, the IRS simply says that non-profits that “engage in political campaign activity or substantial lobbying” will not receive an exemption from the tax.

That rule will tend to hit Republicans more than Democrats. “[T]hanks in large measure to super PACs, Republicans outspent the Obama campaign and its Democratic allies over the same period by roughly $50 million, shelling out nearly $250 million, compared with $198 million for Democrats, according to the same figures, not including hard-to-monetize efforts by unions and other groups backing Democrats,” The Wall Street Journal reported after the 2012 election.
Joel Gehrke