Healthcare reform: Who’s getting stuck with the bill?

by Shelly Towns

Many people have the mistaken idea that “socialized healthcare” means that medicine and care will now be free for everyone, but in all actuality, nothing could be further from the truth.

The new healthcare bill represents one of the largest, most sweeping domestic policy changes in a generation, and aims to provide an estimated $940 billion in healthcare to over 32 million uninsured Americans (and that’s only for the first ten years). Such a large sum of money must come from somewhere, and since the U.S. government is already in debt up to $13 trillion, it certainly isn’t being paid for munificently by Washington.

With the reform slated to take effect in over the course of the next several years, it is important to understand exactly who will be footing the bill for the oft-nicknamed free healthcare.

Higher taxes for the wealthy

A significant portion of the bill for national healthcare will come from a higher tax on medicare for wealthy Americans. This might not sound like a very big deal until we consider that “the wealthy” is defined as any individual making over 200,000/year or married couple earning over $250,000/year. Anyone who fits into that braket will see their Medicare Part A (hospital insurance) tax raised from 0.9% to 2.35%.

Additionally, the bill will enact a new tax on the wealthy that targets “unearned income.” Unearned income encompasses earned interest and dividends paid from investments and business holdings, all of which will soon be taxed at a rate of 3.8%. CSMonitor reports that this tax and the raised medicare tax is expected to fund as much as $210 billion by the year 2019, more than any other healthcare fundraising effort.

The “Maserati Tax”

The Maserati Tax is not a tax on high end automobiles, but actually an additional tax on insurers for very expensive healthcare plans. This tax used to be known as the Cadillac tax, however the new tax scales back the bracket and applies to only the most expensive health insurance plans. According to MSNBC, “It would apply only to the portion of plans costing more than $10,200 a year for individuals, up from $8,500, and $27,500 for families, up from $23,000.” The tax is scheduled to take effect by 2018 and is projected to raise $32 billion in funding for the new healthcare bill in the first 2 years alone. Note that this tax applies to the insurers, not the actual policy holders.

Cuts to Medicare

Enacting new taxation isn’t the only way to find cash for new social programs. An alternative measure is to cut spending in existing programs, which is another measure that our government plans to take to fund the new healthcare.

Medicare Advantage is a program that allows medicare beneficiaries to receive their benefits through a private insurer if they decide. The new healthcare bill aims to cut subsidies to this program by $132 billion over the next ten years and reinvest the savings into healthcare reform. In addition, CSMonitor reports that $40 billion cuts will be made to home healthcare programs and $22 billion cuts will be made to various hospital programs. It is unclear for the time being how such funding cuts will effect the medical industry, however many are worried that taking billions of dollars away from such services could be detrimental to the level of quality they have come to expect from their healthcare.

New industry fees

The new healthcare bill stands to drive tens of millions of new customers through the doors of healthcare providers across the industry. Because of this federally mandated increase in business, the Obama Administration decided that it is only fair that various sectors of the industry that will benefit most from the legislation foot some of the costs of the bill. White House negotiations have resulted in several new fees that should go a long way to funding the new bill. Drug companies, who are gearing up to receive a massive influx of new medication orders, have agreed to pay the administration $16 billion by 2019. Health insurance companies will also be required to pay $47 billion by 2019, as they will soon be inundated with new contracts as well.

Additionally, medical equipment manufactures, who will be providing billions of dollars of new technology to patients and healthcare organizations as the bill rolls out its mandates, will be the subject of a new 2.9% excise tax beginning in 2013.

The tanning tax

Traditionally, the authors of new legislature target popular vices (such as cigarettes and tobacco) and popular “luxuries” to hit with new taxes. Capitalizing on a trend that has been on the rise for the past decade, the healthcare bill includes a 10% tax on all indoor tanning services. It is hoped that this tax will represent a very small portion of the new bill by bringing in an expected $2.7 billion by 2019. Of course, since sunny beaches and backyard lawn chairs remain a free source of natural tanning, it is possible that a significant increase in the price of indoor tanning will drive many current customers away from the UV beds. This would in turn make the tax less effective than estimates predict.

Shelly Towns manages online marketing strategy for Angie’s List, which collects ratings and reviews on local contractors and doctors. Whether you want to find a doctor or a general contractor, Angie’s List provides you with the resources to find the best.

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  • http://www.twitter.com/alicearobertson Alice

    I don’t think it’s just the wealthy who will be paying. In about eight years I believe we will start paying tax on the worth of our health insurance? I surmise if it is worth maybe $20,000 I will owe quite a bit when that’s added as income. We will be older, so again I surmise older people pay higher premiums which could really hurt their income when they retire. I realize this could be changed, but I believe insurers have to pay about 40% of this, which will mean higher premiums and employers cutting our benefits.

    I must be blinded on this issue, because it seems like a majority are being knee-capped, to help the minority?

  • http://notwithstandingblog.wordpress.com The Notwithstanding Blog

    About the Maserati tax, you write that “Note that this tax applies to the insurers, not the actual policy holders.”

    This is not true. The economic impact of any tax is split between the producers and consumers of the taxed good, regardless of who the government targets (“economic incidence is independent of statutory incidence”).

    As I would imagine that the market for health insurance features demand that is more inelastic than supply, the incidence of the tax will fall even further on the consumer.

    This is not to make an argument for or against the tax, simply to point out that the idea that it’s imposed on “insurers, not policyholders” is a political fiction not substantiated by basic economics.