ObamaCare 2013: Rich Tax, Poor Tax, High Tax, More Tax

With the November election debacle behind us, inquiring minds want to know what to expect from ObamaCare in 2013.   The answer is simple and resounding: “Taxes”.  Lots of them.  With all due respect to Dr. Seuss, it’s “Taxes here. Taxes there. ObamaCare taxes are everywhere!”

How can this be in light of President Obama’s recurrent promises not to raise taxes on anyone other than the “wealthy”?  Ah what a difference a word makes.  In this case, the word is “income”. All of President Obama’s recent assurances that middle class Americans won’t end up paying higher taxes referred only to “income” taxes.  In reality, most American – 77% according to the Tax Policy Center -- will be paying far more in taxes in 2013 than they did in 2012.

This is due in part to hefty new taxes associated with the ever-unpopular healthcare reform bill -- ObamaCare -- which is due to be fully implemented in 2014.

As with previous waves of ObamaCare implementation, the third set of installments, due this year, will consist of new taxes intended to pay for increased subsidies for health insurance and the significant expansion of Medicaid.

One of the new taxes is a 3.8% surtax on investment income that will impact individuals making more than $200,000 a year and couples earing more than $250,000. This income threshold is far less than the $400,000 cut-off for income tax hikes in the recently passed bill to avoid the so-called “fiscal cliff”.  Furthermore, taxing investment income has nothing to do with healthcare.

These same not-so-wealthy people will be hit this year with an additional 0.9% Medicare payroll tax.  The current 2.9% Medicare payroll tax increases to 3.8% in 2013. For someone who is self-employed this increase will represent a significant ding to take-home pay.

The goal here is apparently to raise $318 billion in additional Medicare taxes to help pay for the bloated and ill-conceived healthcare reform bill that Nancy Pelosi assured us was both “cost saving and deficit reducing”.

Another of the new ObamaCare taxes slated to strike this year is the 2.3% medical device tax.  This tax will apply to companies making anything from heart valves to stents to joint replacement parts.  The 2.3% is a tax on total revenues, regardless of whether or not the company has any profits at all. That means that a company doing $100 million in revenues will be required to pay an additional $2.3 million in taxes, even if they haven’t made a dime in profits.  Given that many medical device companies are small and work on razor-thin margins, this new tax will likely drive production and high-tech jobs overseas as a matter of pure survival.  The government is hoping to raise another $29 billion via the medical device tax.  This will only happen, however, if those companies don’t move abroad in order to stay afloat or close entirely.

Then there’s the new Flexible Spending Account (FSA) Tax that caps the amount of money that workers can set aside tax-free for medical expenses. Previously, there was no government cap on these funds.  Beginning this year, however, the federal government is limiting FSAs to $2,500.  Traditionally, people who have found Flexible Savings Accounts most valuable are those who have predictable, ongoing healthcare needs such as organ transplant patients, those on kidney dialysis, or individuals with nearly any chronic disease, including diabetes or congestive heart failure. Because workers will be able to put fewer pre-tax dollars into these accounts, their tax bills will increase because their taxable income will be higher — even if their overall income remains the same. This change was implemented in order to collect another $13 billion from taxpayers to help pay for our newly reformed healthcare.  

Allowances for Itemized Medical Deductions are also changed under ObamaCare in 2013.   This year, the healthcare expenditure threshold in order to itemize is increased from 7.5% of adjusted gross income to 10%. This will result in yet a further blow to those with the most significant medical expenses by limiting the portion of costs they can deduct on their taxes.  Estimated amount the government will raise with this ObamaCare tax change:  $19 billion.

One of the very few components of the healthcare reform bill that has been broadly favored, even by many conservatives, is the “non-discrimination for pre-existing conditions” clause.  But guess who’s going to be paying for that? The cost for covering those with pre-existing conditions is going to be paid for with a new $63-per-head fee. An estimate 190 million Americans will owe the per-person fee which is designed to raise $25 billion.  The monies will go into a fund administered by the Department of Health and Human Services, and will be used to protect insurance companies from the cost of covering people with medical problems.  You just can’t make this stuff up!

But wait –That’s not all.  There are also the new “taxes” for individuals and businesses that fail to comply with ObamaCare’s mandate that they purchase government-approved health insurance.  According to the law, virtually everyone must have healthcare insurance by 2014.   People have the option, however, of paying a “tax” (according to the Supreme Court, it’s not a “fine”).  As most other taxes in the Unites States, the “failure to comply” tax is based on income and starts at $95 a year for individuals and rises to $695 a year.  More than 6 million people are expected to decline to buy the mandatory insurance.  As a result, the Congressional Budget Office anticipates that penalties (oops, sorry Justice Robert: “taxes”) for non-compliance will generate more than $130 billion in the first decade they are in effect.

In a stunning example of the bill’s complete idiocy, the law then allows people to purchase a health-insurance policy after getting sick for the same price they would have paid if they had bought it earlier – back when it could legitimately have been called “insurance”.  Insurance, as a construct, only makes sense if people are paying premiums ahead of time to mitigate the cost of unpredictable medical events. This bastardized model for healthcare insurance provides little incentive for one to pay premiums when they are well. But the “failure to comply” taxes do generate revenues necessary to pay for the stupid bill, and that was apparently the point all along.

In total, ObamaCare will result in new taxes and fees totally in the range of  $700 Billion over ten years – monies required to help pay for the bill’s grossly expanded entitlements and healthcare insurance programs that we were told would be “cost saving”.

As each new component of ObamaCare is unveiled, Americans will get a clearer and clearer picture of its travesty. Ultimately, the promise of “affordable” insurance will fail by an even greater margin than the Democrat’s stated goal of “universal coverage.”   Costs will continue to escalate, personal choice will be limited, and quality of care will decline. 

In the prescient and oft-quoted words of political satirist, PJ O’Rourke, “if Americans think healthcare is expensive now, wait ‘til they see what it costs when it’s free”.   Not even Dr. Seuss has a clever rhyme that.

Re-thinking Healthcare Insurance: A Prerequisite to Successful Healthcare Reform Kelly Victory, M.D.

It has been nearly 18 months since the passage of the Patient Protection and Affordable Healthcare Act, the single most significant legislative change to be passed in our lifetimes. Hopefully by now, most Americans are aware – and President Obama himself has admitted -- that the 2600-odd pages of legislation known as the “Healthcare Reform Bill” ultimately constitute nothing other than an attempt at health insurance reform.  The primary goal of the bill, cost containment, was an abject failure, and there are only minimal references to the pressing issues of quality and access. The resultant bill is little more than a continuation of the complex shell game we have been playing with regard to who is going to pay, who they are going to pay it to, and when they are going to pay it.

Unfortunately, a further essential flaw of the reform legislation is that it fails to address the fundamental, underlying fallacy of healthcare insurance in this country.  Insurance, as a product, is excellent for mitigating and diversifying risk, and accounting for unpredictable and catastrophic events.  It is not an economically viable solution, however, to address routine and/or maintenance issues.  In addition, insurance premiums are normally predicated on some calculation of one’s overall risk profile.  Automobile insurance, home-owners insurance, and life insurance policies all reflect these basic constructs. For reasons that are not entirely clear, however, we apply an entirely different set of expectations when it comes to healthcare insurance.

Take automobile insurance as an example; it is illegal to drive a car in most states without carrying car insurance.  We expect that the policy will off-set the costs if significant car damage is incurred as a result of an accident or an act of nature.  Yet, when one goes to fill up the car with gas, change the oil, or rotate the tires, there is no expectation that one’s car insurance would pay the bill. Likewise, one cannot obtain a home mortgage without carrying homeowner’s insurance.  The policy is meant to protect the homeowner in the event of catastrophic damage from fire, storms, vandalism, etc. -- But when you repaint the house or mow the lawn, there is no expectation that this would be covered.  So why then, should healthcare insurance be anticipated to pay for routine expenditures on maintenance items like annual physicals, routine blood pressure checks, pap smears and immunizations?   


Can you imagine what car insurance would cost if you wanted it to cover every fill-up and trip to the Jiffy-Lube?  How affordable would homeowner’s insurance be if you had a rider that covered snow plowing and routine lawn care? 

It appears that healthcare “insurance”, the way most Americans expect it to be, is a misnomer;  we want to pay the low rates associated with “insurance”, but be protected as if we have a “pay ahead” plan – one where all of our healthcare needs are covered, from the routine and expected to the catastrophic.  Such a policy can be nothing other than astronomically expensive.

Furthermore, healthcare insurance is the only insurance where risk profile is not a routine factor in the calculation of premiums. One can essentially guarantee an increase in car insurance rates after obtaining multiple speeding tickets, while  completion of a safe driving course or ice-driving school will generally result in a reduction.  Failure to install smoke detectors or buying a home located in a flood plain will most certainly result in higher homeowner’s insurance premiums.  Sky diving, race car driving and heli-skiing will generate an entirely different life insurance premium than a less aggressive risk profile.  


If we applied this same model to healthcare insurance then, shouldn’t smokers, and those who are sedentary by choice, pay a premium for those life-style choices?  We know that certain modifiable, life-style behaviors such as smoking, failure to wear seat belts, physical inactivity, etc. drive excess healthcare costs, yet this sort of “profiling”, when applied to healthcare insurance, has been seen as discrimination and anathema.   

Americans are going to need to get their heads around the concept of personal responsibility when it comes to healthcare.  Healthcare insurance, like every other form of insurance, simply cannot cover soup to nuts and remain affordable.  That model also defies the very concept of “insurance”.  On the other hand, we can promote the use of individual savings mechanisms such as Health Savings Accounts (HAS’s) that provide a way for individuals to accrue pre-tax dollars in an account that they then control to cover downstream healthcare costs. This supplemental savings, when added to standard catastrophic insurance, allows individuals plan and save ahead for routine and maintenance healthcare items.

Likewise, lifestyle choices and personal behaviors must be factored in to the determination of risk profile and therefore, premiums.  While we can’t expect people to pay more for things that are not within their control, such as a family risk of colon cancer or a personal history of congestive heart failure, we should incentivize and reward those who choose not to smoke or to remain physically fit by offering them a lower insurance premium. 

The President and Congress failed us miserably in passing the wholly inadequate and highly flawed healthcare reform legislation last year.  Much time and effort will be required to defund, repeal and replace misguided and convoluted provisions within the bill.  That said, no healthcare reform, whether presented on behalf of conservatives or liberals, has a hope of success until Americans reset expectations when it comes to the very fundamentals of healthcare insurance.

                                  blog founded by Kelly Victory

                       written by Kelly Victory MD all rights reserved