TUESDAY, JANUARY 8, 2013
The basic goal behind the Patient Protection and Affordable Care Act (“ObamaCare”) is that every American would have medical insurance. While this goal is admirable, it comes at a very high cost that will likely affect most Americans – even those who are already insured.
First, a snapshot of the American population as it relates to health insurance. Approximately 84% of Americans are currently covered by some form of medical insurance –be it an individual plan, an employer-sponsored plan, Medicare or Medicaid. This leaves about 16% without medical insurance. Roughly 6% of the 16% are not eligible for ObamaCare benefits leaving 10% of the American population as the real target of the new law. It is designed to get the 10% (about 37 million people) on board, insured, and paying into the system.
This 10% is made up of people who are not covered by health insurance for a variety of reasons. Some have the means to pay for their own medical expenses and choose not to purchase health insurance. Others feel they’re healthy and don’t perceive a need for health insurance. Quite possibly the largest uninsured group are those who cannot afford the high cost of buying health insurance.
2014 is the year that some of the most visible changes will take effect. This is the year that a “Health Insurance Exchange” is to be operating in each state and every eligible American citizen will be required to be covered by medical insurance or pay a fine – the so-called “insurance mandate”. The exchange will be a place, likely a website, where people can visit and view the pricing of all insurance companies that have been approved to sell their health insurance product on the exchange. All insurance companies selling via the Exchange are required to offer the four levels of coverage mandated by ObamaCare. (In case you’re wondering, you read that correctly…you and everyone in the entire country will have the same identical four choices of insurance coverage and, in a nutshell, the difference between the four plans is how much you are willing to pay out of pocket for your medical care. Insurance plans will pay 60%, 70% 80% or 90% of your eligible medical expenses.) The only choices then become (1) which level of coverage you want, and (2) the buyer’s preference of insurance company. The goal of the Exchanges is to simplify the health insurance to an experience that it is similar to buying a can of beans off the store shelf. As we currently understand it, there will be NO agents involved to coach you through the buying process with Exchanges – only “Navigators” who will be unlicensed state employees, or Federal employees in those states that refuse to operate their state Exchange. So far, only 19 states have agreed to establish their own Exchange.
With the estimated cost of ObamaCare pegged at $1 trillion over the next decade, and the majority of the targeted group of people being unable to afford it, one might begin to wonder who pays for it. Here are some of the things that may reach into your pocket to help fund ObamaCare – most of them beginning in 2013. These are in addition to the tax changes that affected most working Americans on January 1st.
- New Medicare Tax. There are two. (1) The Medicare payroll tax will increase from 1.45% to 2.35% (that’s 62%) for individuals earning $200,000 or families earning $250,000. (2) A new Medicare tax on unearned income tax will apply to things like capital gains, interest, dividends, annuities, royalties, rents, etc. at a rate of 3.8% for individuals earning $200,000 or families earning $250,000. This could apply to capital gains from the sale of certain homes. Together, these are expected to raise $210 billion.
- New Fees. Pharmaceutical companies and the Health Insurance Industry will begin paying fees in 2014 ranging from 8% to 13.9% of revenues. Expected to raise $107 billion. It would seem reasonable to expect these fees to be passed along to the consumer.
- Penalties / Fines. Individuals who do not purchase health insurance and certain employers who do not offer health insurance to their employees will have a fine imposed with the intent of reducing the number of people without insurance. Expected to raise $65 million.
- Excise Tax on “Cadillac” Plans. Beginning in 2018, if an employer provides a robust health insurance plan for its employees and pays a premium that exceeds $10,200 for individuals or $27,500 for families, a 40% tax will be imposed on the insurance company that sold the plan where the premium that exceeds these amounts. Again, just an assumption, but one could guess that the insurance company will pass this added cost along to the employer and, if the employees share in the cost of their health insurance, this tax could be paid by the employee. (These premium levels are not indexed for inflation!) Expected to raise $32 billion.
- Increased Penalty for HSA Distributions. If you have a High Deductible Health Plan and fund the high deductible with a Health Savings Account, you used to pay a 10% penalty on non-allowable purchases using the HSA. A provision in the PPACA doubled the penalty to 20% beginning in 2011. Expected to raise $1.4 billion.
- New FSA limits. Through 2012, an employer was able to contribute an unlimited amount into an employee’s Flexible Spending Account (FSA). Beginning in 2013, there is a tax-free cap of just $2,500. Like the new tax on Cadillac plans, this places an additional restriction on employer-provided health insurance benefits. Expected to raise $13 billion.
- New Excise Tax on Medical Devices. ObamaCare imposes a new 2.3% tax on manufacturers and importers of many medical devices (certain medical equipment, prosthetic devices including replacement knees, hips, etc.). Expected to raise $20 billion.
- Medical Expense Deduction. If you pay a high amount out-of-pocket medical expenses and itemize deductions when calculating your income tax, the threshold increases from 7.5% of income to 10% of income in 2013.
- Tax on Tanning Salons. Beginning in 2010, ObamaCare imposed a new 10% tax on indoor tanning services. Expected to raise $3 billion.
Whew! While none of these things affect everyone, and while each may seem like small pieces, collectively this is how the Federal government intends to pay for ObamaCare…all to make sure that 10% of the population gets health insurance.
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