The Real Obamacare “Tax”

June 29th, 2012 by Tim Leave a reply »

Ackbar

“It’s a TAX!”

I was watching Fox News yesterday as the SCOTUS ruling upholding Obamacare’s individual mandate came to light.  Commentary was all over the map for the first 30 minutes, but then began to rapidly zero-in on the accusation that this was now a tax on the middle-class. They had found their message, and from then on sang out in perfect harmony. It was kind of amazing.

“(Americans will) like it even less when they understand it’s a tax,” Sen. Mike Lee, R-Utah, told Fox News.

One curious element is that nothing related to the mandate is different today than it was last week—excepting the label. The notion that people’s view of the mandate will change as a result of a renaming is a blatant play to the ignorance of the audience.

Still, even if we accept the new label of “tax”, is it really a new financial burden on the middle class as conservatives are saying?

For those who are currently uninsured and financially able to afford healthcare, Obamacare will impose a new financial drain. Although, in return they get health insurance. We can call that a tax if you like.

But on the flip side, those who are currently insured are presently picking up the tab for the uninsured through higher insurance premiums and medical costs. Getting the uninsured into the pool lowers policy rates for the rest of us. This is even more true as other popular provisions of Obamacare, such as preventing coverage denial for pre-existing conditions, comes into force. The net result of this is a lowering of the financial burden on the currently insured, which is a significant majority of citizens.

If forcing the uninsured into the pool is a tax increase, then it only seems fair the reduced costs to the insured be considered a tax cut.  At worst, this is a wash. At best, the tax cuts for the majority will significantly outweigh the tax increase to the minority.

Will there be individuals who will pay more as a result of Obamacare? Sure. But many more of us will pay less. So it’s pretty hard to argue in aggregate that this is a tax increase on the middle class.

10 comments

  1. Brian says:

    When I first read this I wanted to laugh. It seemed such a Pollyanna view to me. In reality though, I don’t know enough about the specifics of Obamacare to know. I don’t understand why you think the insured are paying higher premiums because of the uninsured. Is it because, on average, the uninsured are healthier? Are the insurance companies picking up the costs of the uninsured? Why are the insured paying higher medical costs because of the uninsured? The outrageous prices that hospitals charge for a procedure are usually for uninsured people (if they pay). The negotiated rates the insured pay are relatively reasonable. What I think you are getting at is the costs to the hospitals of the uninsured using the emergency room as a primary source of healthcare. I truly don’t know who pays for this. I suspect the hospital pays some, and the taxpayer pays some, whether or not they are insured. I also think a lot of this is covered by the uninsured who do pay. They sometimes pay rates that are 5 times what the insured pay. Then you claim that allowing people with preexisting conditions into the pool is going to lower premiums more? Really? How does that work? They are a net loser for the insurance companies or else they wouldn’t deny coverage in the first place.

    All that being said, I still don’t know if the claim you make is reasonable. There are 50 million uninsured Americans. As of 2010, 60% of these come from households that make less than $50,000. Insurance costs for a family of 4 are around $16,000. I don’t know the specifics, but I can’t imagine that this group, of around 30 million people, isn’t going to be a huge cost to the taxpayer. The other 40% of the uninsured will help, but I doubt it will come close to offsetting the costs of the 60%. To say it’s a wash is optimistic to say the least.

  2. Tim says:

    My point on preexisting conditions wasn’t as clear as it might have been. The rule against denying coverage of those with preexisting conditions is quite popular (even among Republicans). If we keep that, but do not require everyone to get into the pool, then premium costs will be much much higher. So especially with that rule, having the uninsured in the pool keeps the premiums lower than they will be otherwise.

    As to the cost of the uninsured, start with Sarah Kliff’s analysis which was cited in the SCOTUS opinion by Justice Ginsburg.

    Then look at this 2005 analysis showing that 8% of the average family’s health premiums are a cost shift resulting from healthcare provided to the uninsured. That amounts to about an $1100/year “tax” you pay to offset those without medical insurance or the ability to pay.

    About 15% of us are without medical insurance. That leaves about 98m/115m families paying the $1100/year tax. That’s about $104B.

    The latest CBO projections for the insurance coverage provisions put the total cost of Obamacare at about $110B/year. That’s pretty much a wash.

    Although certainly the insured won’t get to cash all of the $104B, but the Treasury also won’t have to pay for all of the $110B as there are other ACA bill provisions likely to bring that number down substantially (but probably not zero or negative as some are claiming).

    However, I’m not intending to defend the seriousness of claiming the $104B as a middle class tax cut. Rather, I’m pointing out the lunacy of viewing the small penalty for remaining uninsured as some giant middle class tax hike,

  3. Brian says:

    http://blogs.reuters.com/great-debate/2010/03/18/cbos-score-cloudy-with-a-chance-of-bankruptcy/

    http://www.politifact.com/truth-o-meter/statements/2009/sep/20/barack-obama/uninsured-cost-shifting-debated-experts/

    The CBO’s track record is not great in this sort of endeavor. The cost shifting analysis isn’t unchallenged either. I think the combination of the 2 is still an optimistic outlook.

    I read Sarah Kliff’s analysis, but have yet to read Ginsburg’s opinion. Does Kliff’s analysis have anything to do with the constitutionality of the law?

  4. Brian says:

    Also, read the dissenting opinion if you think its meaningless whether we call it a tax or not.

    Question – Does Roberts opinion that this was unconstitutional under the commerce clause carry any precedent? The majority of the majority didn’t agree but the dissenting side did.

  5. Tim says:

    Kilff’s analysis is used by Ginsburg in defense of the Commerce Clause allowance of the individual mandate. It’s basically data supporting that there is an interstate economic impact to not purchasing. Kliff was not making this point, but Ginsburg used it that way.

    And yes, there is disagreement over the projection models. Ultimately, we won’t know until we try something. We could try tossing everyone in the pool, or alternatively, try simply denying care to anyone unable to pay. Either approach should ultimately give us the answer. But either way, there’s no chance the cost of caring for the uninsured is zero. If we were pass a law requiring restaurants to feed anyone regardless of their ability to pay and expect them to absorb the cost, I don’t think too many people would assume the cost of a paying customer’s meal wouldn’t increase (or the quality decrease). That money’s going to come from somewhere. Hospitals are a business as well. They are not operating under sufficiently different constraints.

  6. Tim says:

    Yes, I think Roberts claim of the use of the commerce clause being unconstitutional carries quite a lot of precedent. In an historical context, it would mean that the Roberts’ Court would have ruled a law from the very first Congress in 1790 requiring ship owners buy medical insurance for their seamen as unconstitutional. Granted, courts certainly reinterpret laws over time. That’s their role. But it kind of lays to rest claims that Obamacare’s use of the Commerce Clause was an unprecedented use never intended by the founding fathers.

    I understand that calling it a tax matters in that it’s the avenue by which the individual mandate was allowed to stand. That’s a legal technicality of sorts. But in terms of its actual economic impact to anyone, the point is moot. The impact is identical to everyone whether we call it a tax or a penalty. So if this is an untenable burden on the middle class now, it was last week and last year as well. Why was no one screaming then?

    Further, there’s no constitutionality question that the government can tax everyone the cost of healthcare, and then either provide it (e.g. VA Medical) pay for it as it’s used (e.g. Medicare), or subcontract the job to states (e.g. Medicaid), or even to private insurers (e.g. Medicare Part B). That the health exchanges and personal mandate exist at all is only because this was the favorite and only position of conservatives. It was their idea. Tea Party darling Jim DeMint was all in favor of the mandate as late as 2007. The positioning of the mandate as a commerce clause penalty instead of a tax was similarly to help Republicans (who thanks to Norquist abhor anything with a tax label) to get behind their own health care policy. But for partisan reasons, they turned on it anyway. So in a very real sense, conservatives are screaming about the very elements of the plan that were put in place entirely to placate them. That’s not helpful.

  7. Brian says:

    I don’t care if the individual mandate is a conservative’s idea. Jesus Christ could have came up with the idea and sent it down from the mount with Moses and I still wouldn’t like the idea. It’s an attempt to keep vestiges of a free market system in place and prevent the government from taking over a large percentage of the economy. That’s laudable, but stupid. Once you take away a persons ability not to buy, you no longer have free market conditions. The government is in control anyway. Yes, hospitals have the right to make a profit. So do insurance companies. If they are going to have 15% more customers, then you can bet they will make 15% more profit. Also government workers get paid and so do IRS agents. So you take 1 part insurance company and 1 part AMA, not exactly lobbying powderpuffs, and mix with a generous round of government bureaucracy, and you think you have a recipe for cost savings? And the majority of the people who are expected to pay in have limited resources? What you have is the worst of both worlds. Free market greed and government inefficiency. I doubt the worst case scenario “is a wash.”
    Yes the government has the constitutional rights to raise taxes and supply health care. That would have been better than this. But that doesn’t magically make the mandate a better idea.
    And what do we get for the effort? A country where everybody has health care? Why no. There will still be uninsured. There will be people who will rather pay the penalty than get health insurance. They will still use the emergency rooms. Hospitals still have to care for them. If there was cost shifting before, it will still be there. Maybe not as much, but it will be there. And the uninsured will have less money to pay because of the check they wrote the government. Kliff’s analysis? That doesn’t go away either. There will still be uninsured that make the care for insured worse.
    You know what else Obamacare does? It takes disposable income away from the lower middle class. The poor already have Medicaid/medicare. There are middle class families that will lose most of their disposable income to Obamacare, or the penalty. There will be families that can’t afford the movies any more. There will be families that regularly go to the doctor. Not because they have appointments, but because that’s the only reading material they can afford.
    I don’t agree that this ruling overturns the 1780’s law that mandates that sailors get health insurance, or that it gives any insights into the framer’s thinking. There are lots of good counter points in the comments. The situations are different.

  8. Tim says:

    You are absolutely right that Obamacare is an attempt to keep vestiges of a free market system in place. That is because any attempts to create a non-free market health care system for the general population over the last 40 years have been DOA. Is this stupid? Yes. But it’s the only politically viable path forward. I don’t favor Obamacare as the best solution. Rather I favor it because it is a step. It’s momentum. The existing system has proven a failure. And the only alternative to Obamacare currently on the table is to leave the current non-governmental healthcare system as is, and then add back the Medicare/Medicaid clients back into the private sector. That is not a useful direction, and will result in even greater numbers of uninsured. It may have a positive effect on the deficit and budget problems, but it’s not clear it’s a positive effect on society. Obamacare is a long way from the right solution, but it’s more directionally correct than either doing nothing or the GOP alternative

    As I’ve written repeatedly in this space, I think the solution is ultimately a single payer system of some kind. The cost per capita is roughly half of what the US economy spends on healthcare. Is that perfect? No, but it’s proven to work in over a dozen other industrialized nations. It’s the pragmatic choice.

    I must say at this point, I’m a little confused on what you are advocating. I know it’s not Obamacare. Yet it doesn’t sound like you’re onboard with a government run program, and you seem to not like free market profit driven solutions for healthcare either. How do you think it should work?

  9. Brian says:

    I guess the answer is I don’t advocate any of the current proposals, because none of them make sense to me. You say things can’t get worse, I say they can. You say that single payer systems cost half of what we spend. I say, maybe not here. I think you have to look at the US system and come up with a unique solution that addresses the problems here. You also need a solution that has incentives to eliminate waste. So here’s a rough draft of a system that I would support.
    The real question is, why is healthcare so expensive in the U.S.? I say one of the reasons is because so many people are insured, not uninsured. If something is covered, people aren’t going to say no when the doctor recommends it. Of course the doctor makes more money the more procedures and tests that they do. Of course the insurance company fights against this sort of thing, and they are vilified for it. What about the $106 billion in cost shifting? Would that happen if insurance wasn’t so prevalent? No.
    Another reason is malpractice costs. One google search says malpractice costs 55.6 billion a year. I think something needs to be done to lower this number. Put a cap on settlements. Find a way to get rid of frivolous lawsuits.
    Also, we need to separate health “insurance” from a health care plan. Insurance should be something that protects you from the catastrophic. Most insurance lumps that sort of protection into coverage for everyday health care items. In doing so, people lose sight of what costs what.
    I’m sure there’s more areas that need to be addressed. I know I’m not an expert.
    So this is what I envision as a healthcare plan that would work. Let government handle the insurance part. If someone racks up necessary medical bills in a year that is over say $20,000 and more than 75% annual income or more $50,000, they automatically get enrolled in Medicare. Take the financial ruin for people off the table. Also, any shots or vaccinations that are necessary for the well being of all should also be covered.
    Then open up the free market for health care plans. Let the people decide what to spend. Let them pay somewhat realistic fees. $500 could cover a checkup and all other appointments for a year. Or just pay as you go. An appointment might go $50-$60. That extra test? $100, if you want it. Yes, I realize that some people would decline tests that they really should have. But people that use more will pay more. I think that for 95% of the people, their medical bills would be less than what their insurance currently costs.
    Finally, let the emergency rooms say no to people who do not have life threatening injuries. They can have someone on staff to make Doctor’s appointments for the people that come in that need them. We shouldn’t be clogging up the emergency rooms with non emergencies anyway.

  10. Tim says:

    I think you have some good ideas in there. I completely support tort reform. It’s a piece of the puzzle, but in aggregate, I don’t think it makes a big dent in the problem. I suspect its main advantage may be to get doctors to stop doing so many CYA tests to avoid a possible suit. Absolutely worth doing though.

    I also agree that people need more direct exposure to the cost of healthcare and insurance. For most, the cost is buried by their employer and they don’t really know what they pay for insurance. Both Clinton and Bush tried to fix this, but both efforts died on the vine. Obamacare gets at a bit of this with the Cadillac Insurance Plan Tax, but doesn’t really tackle the whole issue. If people actually had to write a $1000 check every month for insurance, there’d be all kinds of support for all manner of reform.

    High deductible health plans also get at this, and are becoming the more popular health plan offered to employees in the private sector.

    The problem I don’t know how to solve is that most people are not in a position to shop for healthcare. In emergent situations, you are pretty much at the mercy of the medical staff. You’re not going to be calling in for price quotes as you follow the ambulance with your kid in it to the hospital. But even in non-emergent situations, most people are not educated enough consumers to shop for a reasonably priced MRI or colonoscopy. I just don’t see that happening at scale. So just being aware of the cost is not necessarily going to mean being able to effectively use free-market methods to control it.

    The key point being, that none of these things (or the things you discuss) are at odds with the ACA. The ACA is not the end of health reform, it’s the beginning. Rather than focusing on its politically motivated repeal, focus should be on improving it.

    Will the ACA make things better or worse? In fairness, no one knows for sure. That’s going to be the nature of any reform. And it may well be that things get worse before that get better. But ACA at least creates momentum for change.

    The political reality remains that should ACA get repealed, no one will touch health reform in any fashion for over a decade.

    In a recent previous discussion, you were advocating for a multi-party system of government. While I agreed that there was enormous merit to the idea, I contended it wasn’t politically feasible to implement anytime soon. This is essentially the same gambit. It’s not that your healthcare ideas are without merit. It’s that they are not politically realizable anytime soon.

    Democracy rarely gets a new program right the first time out. It’s pretty much the nature of the beast. It’s far too easy for perfection to become the enemy of the good. I’d rather take a step in the right direction now than stay put until everyone figures out the whole path… because that will never happen.

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