OUR THOUGHTS ON:

Tanning Beds and Donut Holes...These Are A Few of My Favorite Things

Tax

By Ron Kramer

The passage of the new health care legislation was not one of my favorite things. So imagine my rage when I discovered that the legislation was about to attack or eliminate two of my favorite things – tanning beds and donut holes.

No tax accountant can survive tax season without tanning beds. The warm and soothing rays of the tanning salons provide the only sunshine we see between January 1 and April 15, particularly in Pittsburgh! I was disgusted to find out that Congress now wants to charge me 10% more for these services. 

I grew fond of “donut holes” while enjoying them with my young son as the “breakfast of champions” after many 5:30 a.m. hockey practices. We enjoyed many boxes of “Munchkins” together at our favorite donut shop. Then I discover that Congress was intending to eliminate the “donut hole” in the new health care legislation. Why, to make me a healthier person?

Soon after reading the new health care bill, I discovered that my fear for the elimination of “Munchkins” was unfounded. I found that Congress was instead referring to eliminating the Medicare Part D coverage gap informally know as the “Medicare Donut Hole”. Unfortunately, however, the news was not so good with respect to tanning salons.

Excise Tax on Indoor Tanning Salon Services
The new health care legislation imposes a 10% percent excise tax on the amount paid for indoor tanning services. The tax is imposed on the individual on whom the tanning service is performed and must be collected and remitted on a quarterly basis by the salon owner. The new excise tax is effective and shall apply to tanning services performed on or after July 1, 2010.

It is said that the new tanning tax was added to the health care legislation out of concern that the use of tanning beds creates a health problem with respect to skin cancer. Therefore, the imposition of tax on those using the services would help pay for the cost of health care for those individuals who may later be treated for skin cancer. However, it is interesting to note that the tanning tax replaced a proposed 5% excise tax on the cost of elective cosmetic surgery that was initially included in the bill. This tax, dubbed the “Botax,” would have raised nearly twice the revenue that is projected from the tanning tax ($2.7 billion over 10 years). Why did Nancy Pelosi have the “Botax” eliminated from the bill? Your guess is as good as mine!

Unfortunately, the tanning tax is just another example of the tax and administrative burden of the health care legislation being placed on the backs of small business, not to mention the increased cost to me of maintaining my “sunny” disposition during tax season.

Closing the Medicare “Donut hole”
Under Medicare Part D prescription drug coverage, seniors can lose coverage for the cost of prescription drugs for a portion of the year and have to go out-of-pocket for their drug costs during this time. This loss of coverage is referred to as being stuck in the “donut hole.”

Seniors get stuck in the “donut hole” if their prescription drugs cost too much to be paid for through basic Medicare coverage, but aren’t expensive enough to qualify for catastrophic coverage under Medicare.

For 2010, the “donut hole” will occur for seniors who spend between $2,830 and $6,440 for prescription drugs. Their total out-of-pocket cost in the “donut hole” could be as high as $3,610. The following table shows the Medicare benefit breakdown for prescription drugs, including the “donut hole” for 2010. 

Total Drug Cost
Cost to Senior
Senior Out-of-Pocket Cost
Portion Covered by Medicare
$0 - $310
$0 - $310
Deductible is out-of-pocket
No Medicare coverage of costs
$310 - $2,830
$310 - $940
25% out-of-pocket
75% covered by Medicare
$2,830 - $6,440
$940 - $4,550
All costs are out-of-pocket
No Medicare coverage of costs
Over $6,440
Over $4,550
5% out-of-pocket
95% covered by Medicare


The new health care legislation contains provisions to close the prescription drug “donut hole.” The new provisions provide for:

  • A $250 rebate to all Part D enrollees who enter the “donut hole” in 2010.
  • A 50% discount on brand name drugs in the “donut hole” beginning in 2011. (a 7% discount on generic drugs)
  • A phase in of additional discounts for brand name and generic drugs to close the “donut hole” completely by 2020.

By the year 2020, the combined industry discounts and government subsidies will add up to 75% of the cost of brand name and generic drugs, thus closing the “donut hole.”

The first $250 rebate checks to those seniors who already reached the “donut hole” in 2010 were mailed beginning June 10, 2010. The rebate checks will continue to be mailed as more seniors reach the prescription drug coverage gap during 2010. About four million seniors will receive rebate checks in 2010.

I suspect that the elimination of the Medicare D Prescription Drug “donut hole” will be much more complicated and expensive than the elimination of my “Munchkins.”


Schneider Downs provides accountingtax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH. 

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

 

 

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