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Originally published December 10, 2012 at 5:13 PM | Page modified December 11, 2012 at 3:53 PM

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'Sleeper' fee in new health law

The Obama administration says it is a temporary assessment levied for three years starting in 2014, designed to raise $25 billion. It starts at $63 and then declines.

The Associated Press

Partial list of taxes and fees in health overhaul

A look at some of the new health-care law's major taxes and fees, estimated to total nearly $700 billion over 10 years.

Upper-income households: Starting Jan. 1, individuals making more than $200,000 per year and couples making more than $250,000 will face a 0.9 percent Medicare tax increase on wages above those threshold amounts. They'll also face an additional 3.8 percent tax on investment income. Together these are the biggest tax increase in the health-care law.

Employer penalties: Starting in 2014, companies with 50 or more employees that do not offer coverage will face penalties if at least one of their employees receives government-subsidized coverage. The penalty is $2,000 per employee, but a company's first 30 workers don't count toward the total.

Health-care industries: Insurers, drug companies and medical-device manufacturers face new fees and taxes.

Companies that make medical equipment sold chiefly through doctors and hospitals, such as pacemakers, artificial hips and coronary stents, will pay a 2.3 percent excise tax on their sales, expected to total $1.7 billion in its first year, 2013. They're trying to get it repealed. The insurance industry faces an annual fee that starts at $8 billion in its first year, 2014. Pharmaceutical companies that make or import brand-name drugs are already paying fees that totaled $2.5 billion in 2011, their first year.

People who don't get health insurance: Nearly 6 million people who don't get health insurance will face tax penalties starting in 2014. The fines will raise $6.9 billion in 2016. Average penalty in that year: about $1,200.

Indoor-tanning devotees: The 10 percent sales tax on indoor-tanning sessions took effect in 2010. It's expected to raise $1.5 billion over 10 years. The 28 million people who visit tanning booths and beds each year — most of them women under 30, according to the Journal of the American Academy of Dermatology — are already paying. Tanning salons were singled out because of strong medical evidence that exposure to ultraviolet lights increases the risk of skin cancer.

The Associated Press

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WASHINGTON — Your medical plan is facing an unexpected expense, so you probably are, too. It's a new, $63-per-head fee to cushion the cost of covering people with pre-existing conditions under President Obama's health-care overhaul.

The charge, buried in a recent regulation, works out to tens of millions of dollars for the largest companies, employers say. Most of that is likely to be passed on to workers.

Employee-benefits lawyer Chantel Sheaks calls it a "sleeper issue" with significant financial consequences, particularly for large employers.

"Especially at a time when we are facing economic uncertainty, (companies will) be hit with a multimillion dollar assessment without getting anything back for it," said Sheaks, a principal at Buck Consultants, a Xerox subsidiary.

Based on figures provided in the regulation, employer and individual health plans covering an estimated 190 million Americans could owe the per-person fee.

The Obama administration says it is a temporary assessment levied for three years starting in 2014, designed to raise $25 billion. It starts at $63 and then declines.

Most of the money will go into a fund administered by the Health and Human Services Department. It will be used to cushion health-insurance companies from the initial hard-to-predict costs of covering uninsured people with medical problems. Under the law, insurers will be forbidden from turning away the sick as of Jan. 1, 2014.

Of the total pot, $5 billion will go directly to the U.S. Treasury, apparently to offset the cost of shoring up employer-sponsored coverage for early retirees.

The $25 billion fee is part of a bigger package of taxes and fees to finance Obama's expansion of coverage to the uninsured. It all comes to about $700 billion over 10 years, and includes higher Medicare taxes effective in Jan. 1 on individuals making more than $200,000 per year or couples making more than $250,000. People above those threshold amounts also face an additional 3.8 percent tax on their investment income.

But the insurance fee had been overlooked as employers focused on other costs in the law, including fines for medium and large firms that don't provide coverage.

"This kind of came out of the blue and was a surprisingly large amount," said Gretchen Young, senior vice president for health policy at the ERISA Industry Committee, a group that represents large employers.

Word started getting out in the spring, said Young, but hard cost estimates surfaced only recently with the new regulation. It set the per capita rate at $5.25 per month, which works out to $63 a year.

America's Health Insurance Plans, the major industry trade group for health insurers, says the fund is an important program that will help stabilize the market and mitigate cost increases for consumers as the changes in Obama's law take effect.

But employers already offering coverage to their workers don't see why they have to pony up for the stabilization fund, which mainly helps the individual insurance market. The redistribution puts the biggest companies on the hook for tens of millions of dollars.

"It just adds on to everything else that is expected to increase health-care costs," said economist Paul Fronstin of the nonprofit Employee Benefit Research Institute.

The fee will total $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016. That means the per-head assessment would be smaller each year, around $40 in 2015 instead of $63.

It will phase out completely in 2017 — unless Congress decides to extend it.

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