Analyzing the Obamacare tax increases

Given the tendency of many Republican opponents of the Obamacare law to exaggerate and mistake the size, nature and number of taxes in the law, it’s hard to keep one’s head straight. But various analysts are trying to help.

This Bloomberg piece provides a decent overview of the taxes in the new law, with links to the good work of others.

The biggest taxes are extremely progressive, meaning they fall only on individuals with incomes above $200,000 and households above $250,000.

A bunch of others, including the famous individual mandate which has now been declared by the Supreme Court to be a sort of a tax, are best understood as incentives to do something wedded to a penalty if you don’t (for example, some businesses can choose between offering health insurance to their employees or paying a tax/penalty that will defray some of the costs to the government of helping your employees get health care).

After Rush Limbaugh and several Republican office-holders called the Affordable Care Act the biggest tax increase in history, blogger Kevin Drum put together some of the comparisons showing that to be ridiculously false, Politifact gave it a “pants on fire” rating, and Ezra Klein of the Washington Post’s “Wonkblog” put published a graph showing the size of the tax increase, compared with others in crecent history.

But Klein ended on this note:

“I’ve written previously that a major difference between the Clinton and Obama administrations — at least thus far — is that Clinton was much more willing to raise taxes than Obama. That’s an argument I’m going to have to retire.”

Comments (21)

  1. Submitted by Thomas Swift on 07/05/2012 - 09:41 am.

    This is not a tax.

    It is a holding fee.

    For $750 a year, the government holds an ObamaCare spot for you. When you need a triple bypass, you check into the hospital and take advantage of the “always open” enrollment feature, and you’re covered.

  2. Submitted by Alec Timmerman on 07/05/2012 - 09:50 am.

    The intersection of can afford but choose not to purchase

    The “tax” will only apply to the intersection of those who can afford and choose not to. Some estimates put that at 1% of Americans, or about 4 million. I think many of these estimates assume everyone will pay this “tax” which is not even remotely true.

    This is a tax on anyone who a) can afford insurance b) doesn’t have insurance

    How many readers fit BOTH those categories?

  3. Submitted by Neal Rovick on 07/05/2012 - 10:11 am.

    The fact is that there are no new costs associated with Obamacare.

    All of these costs are already borne within the healthcare system, in one form or another. Either in higher premiums of people who do have insurance or through various governmental programs to cover uncompensated care or the uninsured. And these indirect means of covering cost are more inefficient and burn up money for no real health care impact. And when you consider that the uninsured usually come in sicker, with many more complications, those back-door compensations really cost more. And by the time these people reach Medicare age, they are sicker and require more extensive “repair” than those who arrive with a well-regulated health regimen.

    To pretend that this is a “new” cost implies that there is a healthcare fairy that magically covers the cost of the uninsured.

    Like the old commercial, “you can pay it now or you can pay it later”. Right now, we are paying more, later in the process, through back-door charges.

    • Submitted by Tim Milner on 07/05/2012 - 01:11 pm.

      I beg to differ

      with Neal’s statement “The fact is that there are no new costs associated with Obamacare”

      My business compensation plan has always paid slightly above market rates for wages with excellent benefits. Our employees pay very little out of pocket for their healthcare coverage. This compensation plan has been extremely effective – the vast majority of my 60+ employees have been with the company for 5 years, more than half have been with us for 10+ years. They like this compensation plan.

      But I have been told by my accountant, that under the ACA, the company should be prepared to pay a tax/fee because of the “Cadillac” health plan I offer my employees. Does not matter that this is what my employees prefer – the current guideline says it is too generous so the company needs to pay more if that is what we want to keep.

      I may be allowed to keep the plan but pay income taxes on the “excess” amount because the “excess” benefit would no longer be a deductible expense.

      I could reduce the scope of the healthcare plan and avoid this tax/fee. Not sure how that helps my employees by giving them less coverage than what they have previously had.

      I could pay what ever the “Cadillac “ tax/fee is – but no one has yet been able to tell me how much it might be for my company. Will it be affordable?

      I could try and reduce my employee count through efficiencies and/or automation. Because if I can get under 50 employees, a whole different set of ACA rules apply most of which are less onerous and/or expensive. Not sure the economy is really looking for more $18-20/hour workers to be laid off right now. (And seems counter intuitive after choosing to keep the staff intact during the recession at a considerable cost)

      Quite frankly, the least expensive option I have is to stop providing all healthcare benefits and pay the penalty/tax. Based on what has been published, the company would save nearly $10,000 per month!! (What we pay now for healthcare less the penalty/tax for not providing healthcare). I could just distribute that $10,000 per month saving to the employees as a salary increase. Recognizing, of course, that salary increase would be taxed (SS, Medicare, Income, etc).

      The only thing I can’t do, which companies like 3M, IBM, Wells Fargo, etc. can do – is opt out!! Yep, they were able to crave out a provision so that they do not have to participate in the ACA. Interestingly, I pay a HIGHER percentage of my employees healthcare than at least 1 of these firms do – yet I can’t opt out.

      This is only one of several cost related issues my company faces with ACA.

      Should there be healthcare access for all? Absolutely. Does ACA bring some good ideas to the table? Absolutely (the coverage of dependents under 25, the elimination of life time limits are a few great ideas – and interestingly enough – ideas that the insurance industry was ready to continue even if ACA had been struck down). Is ACA a tax that will increase costs? Absolutely – and it’s looking like a big one with some huge ramifications for small businesses like mine.

      So I am sorry to say Neal, cost will increase, potential for many people, under the ACA as currently written and interpreted.

      • Submitted by Neal Rovick on 07/05/2012 - 02:12 pm.

        My point is, in the net, for the economy as a whole, there is no increase in cost–it’s simply shuffling the costs around, hopefully to more efficient money-flows.

        If you think there are huge increases in the system as a whole, where do you imagine all that “new” money is going?

        I didn’t say company XYZ won’t see any changes, I’m saying that the changes for the economy will net out to the same or less. After all, the goal is greater efficiency.

        And, as is recognized in the remainder of the western countries, the most efficient system is the single-payer system. There is no way that we will not end up there with the trajectory of costs that exists.

      • Submitted by Paul Brandon on 07/05/2012 - 05:23 pm.

        as currently interpreted?

        Since most of the ACA has not gone into effect yet, it’s hard to say how it will be interpreted, or what its costs will be relative to the predictable increases in the cost of you health insurance if the ACA did not take effect.
        Did your accountant take this into account, or did he/she assume that your health insurance costs would not change over the next few years?
        If so, you need a new accountant.

        • Submitted by Tim Milner on 07/05/2012 - 08:12 pm.

          Yes Paul he did

          and quite frankly is estimating that, at least in the 1st few years, my rate of health insurance increases may actually go higher than the rate increases I currently experience.

          No one is quite sure how to estimate the effect of more people being covered under Medicare and another significant cut in Medicare reimbursements to hospitals, clinics and doctors. Right now, the government does not reimburse the true cost of covering Medicare patients – a significant factor in healthcare cost increases as hospitals/clinics/doctors pass the difference in reimbursement on to the private insurers in the form of higher rates.

          So, if more people have Medicare coverage, and the Medicare usage stays the same even with the reimbursement cuts, the odds favor the payment balances staying about the same.

          But if Medicare usage increases, with more people in its coverage at lower reimbursement rates, then those folks will cause the hospital/clinics/doctors to not be able to cover costs. Which will mean rates will continue to go up in the private sector.

          My accountant is watching closely.

          Here is a real example. Have you noticed the growth in the number of ER rooms in the Twin Cities? Nearly every hospital has increased ny 50-100% the number of their ER rooms. Not because ER’s make all that much money for the hospitals. But because patient visits have increased dramatically. Part of the reason why – a co-payment is due for Medicare / Medical Assistance patients at an Urgent Care – but not at an ER. So, ER see a lot of earaches, rashes, sore throats, etc – because it’s free. And the hospitals, by law, must see everyone who comes in and document the visit. They can not refuse care – even if the care being requested more appropriately (and cost effectively) treated in a doctor office. It’s a very expensive proposition to provide ER rooms (which I’m told cost $1500+/hr to staff/maintain) verse a doctor’s office (I am guessing less than 20% of that cost). But if patients have no financial incentive to use the most cost effective care – they will choose the most convenient. Hence the growth in ER rooms.

          ACA grants great access – and does NOTHING to address the biggest driver of costs – the lack of incentive for people to use the cost effective means for their healthcare. Until this is addressed, costs will continue to spiral out of control. But my guess is no one is ever going to get around to this part now that the access issue has been solved (at least for now)

          • Submitted by Harris Goldstein on 07/06/2012 - 04:10 pm.

            You make some very good points but…

            ER usage – the most expensive (and probably least effective) way to address a health issue that isn’t a true emergency – is high not only due to copayments. The ER is the one place you can go (with the exception of some free clinics) and not be refused care for lack of payment. So, while I don’t think it does enough, I don’t agree that it does nothing.

            I would argue that the biggest driver is our own health and nutrition habits. This is where those who argue against any government involvement in healthcare (including requiring ERs to treat anyone who shows up – at least to the point of stabilization) have a point. But if we use that same logic, we would eliminate fire departments, ambulances, Coast Guard rescue, flood insurance in flood plains, and any other form of government designed to help us when we’re stupid.

            Then there’s the question of why differing health care organizations differ so widely on cost vs. outcome. Why is the Mayo Clinic so much better in this regard? Partly due to the parochial nature of health care delivery, partly to inability to share best practices. The ACA does address the latter; whether to the degree needed is another question.

            Medicare has the unenviable position of both paying too much for care (as measured by outcomes) and too little (as measure by rates for procedures). We should see if the private sector can do better – but wait we tried that. We subsidized HMOs to cover Medicare (as a kickstart) and found that they could not continue to offer this once the subsidies were ended. BTW, this was a smart thing to try even though it apparently failed. Although frankly I think we’ll see HMOs back in this market once their convinces that there will not be subsidies and they are paid for results, not activity.

            I agree that low reimbursement rates for Medicare (and for “free” care) drives up health care premiums. I view this as a tax; but it only effects those responsible enough to purchase healthcare (kind of like paying a sales tax on what your neighbor buys). And those who actually pay for healthcare out of pocket at the “list” prices hospitals charge.

            The ACA reminds me of Winston Churchill’s comment: “democracy is the worst form of government except all the others that have been tried”.

          • Submitted by andrea schaerf on 07/11/2012 - 02:07 pm.

            Co Pays and Co insurance

            Medicare and most Medicare Supplemental plans have copays and coinsurance fotr Both ER and for Urgent care. I cant imagine having a cold and waiting hours in the ER. When people have affordable options they use them. Most plans have lower copays for urgent care. you can usually find out the wait time before you go. I dont think your accountant has his information right in this case. i would suggest consulting more experts prior to choosing health care.

      • Submitted by Thomas Swift on 07/05/2012 - 05:11 pm.

        Dirty little secret ObamaCare believers don’t want to admit….

        It’s true that responsible people pay for our feckless neighbors in increased premiums, but no leftist worth his tofu will admit what the obvious consequence of always open enrollment will be.

        How many people will reufuse to continue to pay $12k a year for coverage when, for a fraction of that one can simply pay the ObamaCare placeholder fee and enroll right when you need insurance, then drop it again.

        Now that i’m being told what I *must* do by the government, refusing to play along is a clear duty!

        • Submitted by Alec Timmerman on 07/05/2012 - 11:01 pm.

          It’s a conservative idea, so obviously there are better

          Most “leftists” realize that this idea hatched in the Heritage Foundation, touted by Newt Gingrich, and implemented first by Mitt ROmney is a turd, but were left with little other option to getting to universal coverage.

          Obviously a single payer system with private service delivery is the smartest, most efficient, and effective option, but we are left with this conservative turd because of politics.

          • Submitted by Thomas Swift on 07/06/2012 - 09:27 am.

            “we are left with this turd because of politics”

            Yes, leftist politics.

            Obama & Pelosi couldn’t get this “turd” past clear thinking conservatives in Congress, so they pulled a little trick known as “reconciliation” to sneak it through in the dead of night.

            Perhaps you’d forgotten that, so for your convienence I’ve included a helpful link: http://conservativeoutpost.com/90_second_explanation_obamacare_reconciliation_and_slaughter_rule

            Helpers gonna help.

            • Submitted by Alec Timmerman on 07/06/2012 - 06:46 pm.

              Thank you for admitting….

              Obama & Pelosi couldn’t get this “turd” past clear thinking conservatives in Congress,

              Thank you, Thomas, for finally clarifying what all of us knew as obvious. The Heritage Foundation, Newt Gingrich, Mitt Romney and Justice Roberts are not “clear thinking” because they all agreed with Obama and Pelosi.

        • Submitted by Alec Timmerman on 07/05/2012 - 11:03 pm.

          Also….

          You should stop paying your social security taxes, medicare, all FICA witholdings.

      • Submitted by Sarah Magnuson on 07/05/2012 - 08:40 pm.

        I beg for clarification

        Kudos to you Tim for compensating your employees well, both with wages and benefits. Based on your statements, it appears that you value your employees and understand that the excellent benefits they receive appear to be correlated with longevity and perhaps even efficiency at your plant because of lower turnover.

        Because of that, I am confused by your rational of options you have. You state that you could reduce the scope of the healthcare plan and avoid what the tax/fee would be, and this has already been done this year by companies who have changed health care plans by having a larger deductible, yet returning the cost of savings back to the employees with the amount of the deductible in wages. Yes, there is a tax then on the wages (versus benefits), but it has been a net-zero change in cost for the company. This is one way to continue to provide great benefits while “skirting” the extra tax.

        The other thing that is confusing and perhaps you could clarify. You state that “Quite frankly, the least expensive option I have is to stop providing all healthcare benefits and pay the penalty/tax. Based on what has been published, the company would save nearly $10,000 per month!! (What we pay now for healthcare less the penalty/tax for not providing healthcare). I could just distribute that $10,000 per month saving to the employees as a salary increase. Recognizing, of course, that salary increase would be taxed (SS, Medicare, Income, etc).” According to the ACA, a cadillac policy is one that costs $10,200 for an individual and $27,500 for family coverage. My real confusion is this…if you truly provide a cadillac plan right now, you would save $27,500 by dropping coverage for a family, unless all of your employees are single?

        Another key piece of this legislation is the Insurance Exchanges. This tax on the cadillac plan does not go into effect until 2018, so you have 6 years to be shopping around to try and find a good plan that is under the parameters of what qualifies for “cadillac”, and the premise is that the Insurance Exchange will create larger risk pools as well as create a transparent, competitive market where you can shop for coverage. Here is a link as to why this was put into the ACA. After studying the taxes, mandates, and reasoning behind some of them, in my opinion it appears that controlling costs and forcing health care and insurance providers to become more efficient is as much a part of this law as making health care affordable and accessible to everyone. Forbes Magazine has an interesting take on this. I would be interested in knowing what your thoughts are. http://www.forbes.com/sites/aroy/2012/05/14/how-obamacare-tackled-the-pitfalls-of-employer-sponsored-insurance-reform/

      • Submitted by Pat Berg on 07/06/2012 - 08:25 am.

        Opt-out?

        You wrote “The only thing I can’t do, which companies like 3M, IBM, Wells Fargo, etc. can do – is opt out!! Yep, they were able to crave out a provision so that they do not have to participate in the ACA.”

        Please provide your source for this claim.

  4. Submitted by Ann Spencer on 07/05/2012 - 10:16 am.

    This is all semantics!

    In the real world, it matters not an iota whether the money paid for not purchasing health insurance is called a tax, a penalty, a unicorn or a bicycle. The effect is exactly the same.

    I don’t understand the faux outrage over this. If it’s a tax this week, it was a tax last year, and the year before that, yet I don’t recall any protests about it on that ground. The penalty (or whatever you want to call it) provision has been in the bill from the beginning, has been widely discussed (at one point, John Boehner tried to make hay of the cost of the extra IRS agents to enforce it), and was not concealed in any way. If the GOP thought it was a tax, why haven’t they been all over it before now?

    To get even deeper in the weeds, the majority opinion also held that, while the payment is a tax for purposes of determining whether Congress has the authority to impose it, it is not a tax under the Anti-Injunction Act, which states that federal courts do not have jurisdiction to restrain collection of a tax before it is actually paid. Since the requirement to carry health insurance doesn’t kick in until 2014, the Supreme Court would not have had jurisdiction to consider the penalty provision if it determined that it was a tax within the meaning of the Anti-Injunction Act. So, although it falls within Congress’ broad taxing powers, it is not a tax for jurisdictional purposes.

    None of this “angels dancing on the head of a pin” stuff makes a bit of practical difference. If you get health insurance, you don’t pay. If you refuse to buy it, you do pay because otherwise you’re a free rider whose costs get shifted to the insured.

    • Submitted by Ginny Martin on 07/05/2012 - 11:32 am.

      good summation

      Ann: This makes it so clear. Thanks for the good summary. I especially like the angels dancing on the head of a pin.

  5. Submitted by Charlie Curry on 07/05/2012 - 10:26 pm.

    Response to Mr. Milner

    As Mr. Brandon has indicated, not all the particulars are known, so sweeping generalizations based on insufficient facts (even – or perhaps especially – if supplied by an accountant) may not predict the future very well.

    I realize that your accountant is undoubtedly in charge of helping you prepare for the worst possible scenario; after all, it’s not for nothing that economics (and by association accounting) is called the Dismal Science. However, similar stuff has happened in the past without Armageddon showing up the next day. Some of us remember that at some point in the past, life insurance provided as a company benefit became partially taxable if it was over a certain threshold. Same for car allowances, lunch allowances, and other perks that were previously tax-free. Outside the job, interest on loans other than mortgages became non-deductable, too. Armageddon didn’t show up then, either.

    I don’t consider myself to be particularly generous with my tax calculations & I certainly grumbled that I was losing a perk just as I was getting used to it. But the overall effect on my actual income and taxes was relatively small & I’m still here to blog about it…from a newish computer, no less.

    The scenario you describe is certainly possible, but I suspect that the real net dollar increase may be much smaller than what you and your Person in Charge of Dismal Science (accountant) are predicting.

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