New Health Care Taxes

by on December 9, 2012 at 10:01 pm in Current Affairs, Economics | Permalink

Robert Pear at the NYTimes has a good piece on the high-income taxes already scheduled to begin in January:

For more than a year, politicians have been fighting over whether to raise taxes on high-income people. They rarely mention that affluent Americans will soon be hit with new taxes adopted as part of the 2010 health care law.

The new levies, which take effect in January, include an increase in the payroll tax on wages and a tax on investment income, including interest, dividends and capital gains. The Obama administration proposed rules to enforce both last week.

Affluent people are much more likely than low-income people to have health insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.

DocMerlin December 9, 2012 at 11:29 pm

Top fifth? so 178k?
So 2 engineers married to each other?
Or one doctor?

Ray Lopez December 10, 2012 at 3:32 am

You can get data here: http://taxfoundation.org/article/summary-latest-federal-income-tax-data-2012#table6 IRS changed their methodology, but a reasonable data point is that ‘top 25%’ is income with a AGI of at least $69,126 (in 2010) and the ‘top 10%’ is an AGI of at least $116,623

Valeria December 25, 2012 at 12:49 pm

Sounds like an okay day to me Dayna I mean we wish we weren’t like this but we are and we make the best of it .and your daughter woudlnt’ have it any other way!! And neither would your teenager..although he might not want to admit it lol .xo

prior_approval December 10, 2012 at 7:26 am

Or hey, we could just read Dean Baker, who managed to post this information 5 and 1/2 hours before the research director of the Independent Institute -

‘New York Times Tries to Make Readers Believe that Obamacare Means Big Tax Increases
Sunday, 09 December 2012 14:26

Newspapers are supposed to be in the business of informing readers. It’s hard to see what information was provided when an article on the tax increases associated with the Affordable Care Act (ACA) told readers:

“Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.”

It’s difficult to know what this is supposed to mean. The most affluent fifth of households would be around 26 million households. If the tax increases amounted to an average of $6,000 per household that would come to $156 billion a year. However the next paragraph tell us that the projected tax take is $318 billion over ten years. This implies a tax hit on these families that is less than one-fifth as large. (The same tax would produce considerably more revenue ten years out than next year.)

Presumably the piece means that the tax will affect a narrow subset of the top quintile and that this narrow subset (mostly people with income over $200,000 a year), will see an average increase in taxes of $6,000 a year. The Tax Policy Center puts the number of tax filing units (roughly households) affected as 2.8 million. It should have been possible to more clearly describe the impact of the tax increases associated with the ACA.’

http://www.cepr.net/index.php/blogs/beat-the-press/new-york-times-tries-to-make-readers-believe-that-obamacare-means-big-tax-increases

Some economists look at the presented data to see whether it bears a semblance to reality before posting information, others don’t. Though in all fairness, Baker is a critic of just how poorly economic information is often presented by the media, something which nevers seems to be a primary concern here.

Andrew' December 10, 2012 at 8:12 am

“So 2 engineers married to each other? Or one doctor?”

Hey! That’s my schtick! ;)

Andrew' December 10, 2012 at 8:13 am

(There goes that NewUsed Camry I was dreaming about ;(

Bill December 10, 2012 at 1:13 pm

I had the same reaction as yours.

My other reaction was that the NYT article made it sound like this was a stealth tax increase. Ha. All of us rich people know quite well when our taxes are going up.

This was no surprise.

What was surprising was that someone had the guts to tax unearned income.

Rich Berger December 10, 2012 at 2:53 pm

“What was surprising was that someone had the guts to tax unearned income.”

The IRS may consider it “unearned income” to distinguish it from income earned directly from employment, but the return to savings and investment is certainly earned. I may be mistaken, but I thought this income was already subject to tax.

And as far as the guts to tax unearned income, I think the Obama regime does not have the guts come clean about taxes on other than the “rich”.

Richard Mason December 10, 2012 at 12:10 am

Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.

The opening prepositional phrase seems highly misleading. The unwary reader might be led to believe that “those affected” is roughly synonymous with “the most affluent fifth of households,” or that the most affluent fifth of households will see a $6,000 tax increase on average. But the tax increases only have a direct effect on single people making over $200K or couples making over $250K… so, more like the top 2 or 3 percent of households than the top 20%.

The article even offers up an example of a couple making $405,000 in a given year (thus being in the top 1% of income), and owing $2,700 in new taxes (still far shy of the $6,000 figure).

dirk December 10, 2012 at 2:01 am

Good spot. That’s the sentence of a writer who wants to mislead his readers.

Vivian Darkbloom December 10, 2012 at 2:32 am

On the other hand, that depends somewhat on how you define “tax”. One of the effects of the ACA is that it forces many people to purchase health insurance policies that are not wise financial choices for them. For example, a person with, say, $1 million in savings (whether or not they are “rich” by the standard definition based on “income”) might very sensibly conclude that a catastrophic health insurance policy is the most suitable financial choice for them. That is true “insurance”. That policy might have a very high deductible (say, $10K or higher) per year and much lower premiums. They likely cut down on unnecessary consumption at the “pre-paid medical care all-you-can-eat buffet”. The ACA’s “minimum coverage” standards makes it illegal to depend on this type of insurance policy and therefore drives many of these policies out of the market. (On the other hand, the ACA imposes an excise tax on *overly generous* health insurance plans. This is truly schizophrenic). The effect of the minimum standard rules is to force those individuals into an insurance pool designed to subsidize others. I call that a “tax”.

There is, of course, no direct correlation of this forced subsidy (aside from the new direct taxes imposed by the ACA); however, there would be a strong correlation. The arbitrary cut-off of $250K for all these measurements is, in any event, idiotic, but it makes brilliant political sense.

Andrew' December 10, 2012 at 11:07 am

Interesting. How is it we were never able to get them to explain exactly how they were helping people and penalizing free-riders at the same time?

mulp December 10, 2012 at 12:08 pm

Define “catastrophic” in concrete terms in your idea of “catastrophic health insurance policy”.

A one million dollar deductible? A million in medical bills in one years would be catastrophic.

A one hundred thousand deductible? A ten thousand deductible?

A three thousand dollar deductible?

A State can put a $3000 deductible policy in as a bronze plan if that is a standard policy in the State, or probably a $5000.

What will be determined over time is whether these catastrophic policies actually work as the conservatives theorize: By paying more out of pocket, people will chose to not get sick or have accidents, leading to lower cost health care which will make health care more affordable and thus eliminate bankruptcy defaults on medical bills.

If the people over time with high deductibles end up with unpaid bills and thus are getting uncompensated care, then this is just a dodge to get free health care. How would that be “conservative individual responsibility”?

What I find interesting is how Obamacare is blamed for everything and requires things it does not. I had to buy a high deductible $5000 policy in 2003 which cost almost twice the COBRA comprehensive policy it replaced, and then in July 2003 its price increased 10%, then another 10% a year later, and then 8%, then 10%, then 8%… Only in 2010 did it not go up, and in 2011 it went down, and then in 2012 in July it went up as it included preventative care coverage.

Now that I’m on Medicare, I have the comprehensive coverage I had under COBRA, which costs as best as I can tell only slightly more. Part A buy in is under $500, the Part B is $400, the supplemental is $120, Part D is $30 – so $5000 deductible is about $900 and the $20 copay and $140 deductible and better drug benefit is full cost about $1050. (My out of pocket is obviously less because the Part A is “free”, Part B premium is 25%, for most people). If I bought the same from the insurer, it would have been $1400 or so, based on the assumption by the insurer that buying the low deductible means you are in need of lots of medical care.

The evidence that paying out of pocket drives down costs is zero.

Vivian Darkbloom December 10, 2012 at 1:05 pm

I gave the example of $10,000 annual deductible. Actually, the ACA will restrict this to about $6,350 for an individual policy with no co-pay.

If a person wants to choose a plan with a lower deductible, that’s fine with me. The point here is that it will be *illegal* for any individual to insure himself or herself with a plan that has a higher deductible than about $6,350 per year per estimates by Kaiser Health. But, I guess the lesson here is that Father Knows Best.

http://www.kff.org/healthreform/upload/8177.pdf

Andrew' December 10, 2012 at 1:05 pm

“The evidence that paying out of pocket drives down costs is zero.”

Worst ending since “The Happening.”

High-deductible is actually just about the only thing that has any evidence showing it drives down costs.

http://www.rand.org/news/press/2011/03/25.html
“Largest Study of High-Deductible Health Plans Finds Substantial Cost Savings, but Less Preventive Care”

David N December 10, 2012 at 1:55 pm

The term “catastrophic” is suspect, but lets consider high deductible plans, like one that might be paired with an HSA. These plans cover pretty much everything a conventional PPO/HMO plan does, after the deductible. And before the deductible you pay the negotiated insurance rate for medical expenses.

The correct comparison is to add the deductible to the annual total of premiums, and compare that number to the total premiums for a conventional plan. It is true that premiums for high deductible plans have been rising, but it is very likely still the case that if you were to have an illness where you had to pay the full deductible every year you would still be saving money compared to paying for a conventional plan.

Vivian Darkbloom December 10, 2012 at 2:09 pm

mulpa,

A couple of further observations about your comment:

1) I’m not blaming ObamaCare for what happened to you in 2003—I’m objecting to the provision of ObamaCare that restricts my freedom of contract and likely results in higher costs for me and the entire health care system;
2) I’m wondering why you “had to” buy a “high deductible $5,000 policy”. Surely, you could have purchased a “low deductible policy”, albeit at a much higher cost? You apparently made a rational decision that at that time the high deductible policy made financial sense for you;
3) The fact that you are paying less for Medicare does not surprise me, but how much you pay does not have much to do with how much Medicare “costs”. The beauty of government programs like Medicare is that “costs” are often not very easy to put one’s finger on and therefore people are often mislead into thinking that they’re getting stuff at a bargain. Of the 2011 Medicare outlays of $523 billion, only $63 billion was paid for through premiums. The rest was paid for via Medicare taxes –$182 billion (I’m sure you paid those in the past), general revenues–$205 billion–and the rest from miscellaneous sources other than premiums. If you pay income taxes, you pay for the part coming out of general revenues, too. If you don’t, then someone else pays. That someone else might be your kids because much of it is deficit financed.

mw December 10, 2012 at 8:14 am

The opening phrase *is* highly misleading–and of course a terrible (but no doubt intentional) choice of quote to excerpt for this post when it would take less space and convey more information to say “0.9% on income over 250k and 3.8% on investment income over 250k.”

Meanwhile people who make all their money from investment income presently make NO contribution to SS or medicare–but clearly that’s totally fair, and *definitely* doesn’t need to be mentioned in this discussion. $6,000! A big number!!!

Andrew' December 10, 2012 at 9:09 am

SS and Medicare were intended to be pay-as-you-go self-financing programs.

The amount that politicians (e.g. Democrats) want to tax people in order to change this to a welfare transfer is irrelevant to me. THAT they are doing it is what is relevant to me.

mulp December 10, 2012 at 12:44 pm

All insurance is pay as you go.

And a retirement savings fund is not a replacement for Social Security; you need to buy the right term life policies plus disability policies at every step of the way in addition to putting money into retirement savings to match SS. But the life insurance and disability insurance is pay as you go, and would be a large cost early and mid-life when incomes are traditionally lower.

I guess you are of the view that if you were a chemistry graduate in 1970 who started working for Kodak you chose to be poor in your late 50s and 60s as digital eliminated chemical imagining in less than a decade. No one wants to adapt an advanced chemist to a new industry when the five years it takes to master the field is when he begins planning to leave – hiring a 30-something means decades of return for the five year maturing. Kodak is just one of the starker fast collapses in industry. In your view, there should be no social insurance for things happening in three to four decades because individuals should predict the world they work in decades out??

All insurance is wealth transfer. My house burns down, and your wealth and that of hundreds of others is transferred to me, just in small payments of your wealth from each of you. Odds are you will never get a penny of your wealth back, except in the fact your house does not burn down because your wealth in small bits was used to lobby government to impose taxes on your wealth of building codes that increase construction costs for fire resistant construction, You must pay for 25 times the number of outlets you need – with one outlet you can run extension cords all over the place and if they set your house on fire, insurance pays for the loss – the insurers have used government to transfer your wealth to the electrical industry. Obviously Ben Franklin who promoted such practices was a Democrat. (He supported requiring lightening rods to reduce fires, and fire departments to reduce fire insurance losses).

Andrew' December 10, 2012 at 1:14 pm

“All insurance is wealth transfer.”

Either wrong or dissembling. Here is how.
Wealth transfer is the healthy pay to the sick. The ‘sick’ are defined poor in the amount of medical services that will be paid for by the healthy/wealthy. Conversely, insurance is the healthy and sick pooling their risk and then the pool paying for unforeseen medical expenses. The wealth is not transferred. Each person holds the mitigation of risk. In the case of something like a prediction market this is a tangible asset. It’s less obvious with insurance, but it is the contract. The latter situation is EXACTLY what some are trying to move away from towards the former. That’s exactly why things like the mandate and the hand-wringing over adverse selection.

Rich Berger December 10, 2012 at 1:50 pm

True insurance is not wealth transfer, but risk pooling. This goes for property and casualty insurance, health insurance, life insurance and annuities.

What ever happened to you to make you so bitter?

Brian Donohue December 10, 2012 at 2:08 pm

@Rich, not risk pooling per se…it’s more accurate to think of insurance as ‘subdividing’ of risks. Here’s a classic from Paul Samuelson on the subject:

http://www.casact.org/pubs/forum/94sforum/94sf049.pdf

But I agree with you and Andrew’ generally- there is a movement to slap an “insurance” label on stuff that is no such thing.

mw December 10, 2012 at 2:43 pm

Let’s try this definition of welfare transfer: Bob’s income is $100,000 of wages and he pays 15% of it towards medicare and SS. Bill’s income is $10,000,000 of capital gains and he pays 0% of it towards medicare and medicaid. Bob gives money to Bill.

How did I do?

Andrew' December 10, 2012 at 2:52 pm

Incomplete. Does Bill use Medicare/SS? If yes, then why the —- would you do that?

mw December 10, 2012 at 3:30 pm

I see. If that’s your objection, let’s have Bob and Bill be exactly equally well off–$500,000 a year, Bob gets 90% from wages and 10% from cap gains and Bill gets 90% from cap gains and 10% from wages. Either they should *both* collect medicare and SS, or they both should *not* collect. Either way, Bob gives money to Bill.

Rich Berger December 10, 2012 at 3:43 pm

Also, Bill derives no additional SS benefits from his income and also pays $1,500,000 in Federal income tax. Now we’re talking real wealth transfer.

If he is retired and collecting SS, he is paying taxes on that, too.

Vivian Darkbloom December 10, 2012 at 2:56 pm

Meanwhile, people who make *all* their money from investment income presently don’t qualify for ANY SS or Medicare benefits and this *definitely* does not need to be mentioned in this discussion.

Vivian Darkbloom December 10, 2012 at 2:59 pm

I now see Andrew appears to have already made this point, more or less, in the comment immediately above.

mw December 10, 2012 at 3:15 pm

Let Bill make $50,000 of wage income too.

Rich Berger December 10, 2012 at 4:08 pm

Furthermore, if Vivian’s numbers are accurate, a large chunk of Medicare’s cost is coming out of those capital gains taxes. Of course, SS benefits are based on wages and there are no additional benefits accrued due to “unearned income” as the IRS calls it. No bias there!

Don December 10, 2012 at 1:08 am

Holy cow, Obamacare is terrible, I will have to downgrade my BMW to the non-sunroof version next year. All so a moocher can get proactive healthcare? They already healthcare when they’re deathly ill for FREE at hospitals! Sure they’re automatically bankrupted by it but that’s their problem. Obama!!! * shakes fist skyward *

NAME REDACTED December 10, 2012 at 1:32 am

Benefits of living in Texas:
I’m a 30 year old male and I pay 140 dollars a month for my health insurance. I do not get any benefits from my job, so I pay the full amount.
You can get even cheaper than mine, but I chose to go with a well-known insurance company.

Ricardo December 10, 2012 at 2:31 am

Shouldn’t this read, “Benefits of being a 30 year old male in good health”?

Nobody ever claimed that the target population of the benefits of Obamacare was 30 year olds (presumably) without any pre-existing conditions who can afford to pay around $2,000 per year for insurance + care.

Finch December 10, 2012 at 9:22 am

I thought that was exactly who was targeted by Obamacare. Didn’t we need those people to sign up so they could subsidize the other folk? It was both a punishment for free-riding and a “you’ll thank me if you get the right kind of sick.”

Urso December 10, 2012 at 9:36 am

According to Justice Ginsburg (who of course is herself either approaching or just at 80), young folks shouldn’t complain that we’re getting screwed here because we will be repaid “in the fullness of time,” meaning, I guess, that in 50 years we’ll have the chance to screw over a new generation.

Andrew' December 10, 2012 at 10:09 am

The healthy are the only “targets.”

mulp December 10, 2012 at 1:57 pm

The alternative is to make the old, infirm, sick, and disabled the targets. How much will the NRA argue gun owners should pay to shoot at live targets in order to subsidize viagra and laser removal of tatoos for the young and healthy?

Either the sick and infirm and disabled were once healthy, or they were born that way, and making them gun targets at birth would cut health care costs.

The opponents of abortion argue that the disabled have a right to live, but generally argue that once born they have no right to live if that means government forces a wealth transfer to care for them, thus killing them at birth is not a violation of their rights, but humane.

Andrew' December 10, 2012 at 2:00 pm

False choice. Insurance doesn’t make those people better. Only medical technology (current and future) will.

IVV December 10, 2012 at 2:57 pm

NRA gun targets?

I swear, I’ve seen straw combust before, but wow, that’s spectacular.

Cliff December 10, 2012 at 2:17 am

This is going to cause all kinds of crazy games with investments to avoid these taxes. It’s not a good thing. Why a tax on investments? Because you want more consumption? I mean, guaranteed people will manipulate incomes below the $250k level, get paper divorces, change their investment mix, only take capital gains in years with abnormally low incomes, etc. to avoid this.

So Much For Subtlety December 10, 2012 at 2:50 am

Some Texan once said that a billion here, a billion there, pretty soon you are talking about real money. The other side of that is a few thousand dollars here, a few thousand dollars there, pretty soon the middle class is feeling a lot of pain.

Look, this level of spending (for want of a better description of what would put a drunken sailor after sixteen beers and in desparate need of a dark corner to shame) cannot be maintained by taxing the rich. The military? Yes. Even some care for the poor and Seniors. But this level of spraying money at every problem can only be met by massive tax increases on the middle class. Probably a VAT. Which is regressive.

Even if America does not go that route, this spending will be passed on. America is cheap. The higher taxes are, the less cheap it will be and the lower economic growth will be. That will hurt the poor. Just look at the cost of everything in, say, Norway.

What America will end up with is the middle class paying large amounts in taxes to get back the services they used to buy for themselves. Which is fine if the State can provide better and cheaper – they often can for things like drug sales because they are a bulk buyer. In general, though, it is unlikely. Which means everyone is paying more for a worse service.

It is not as if the American health care system couldn’t be reformed to provide a better service for a lot less. But Obamacare won’t do it. It will be like the British NHS which everyone assumed would be cheaper, but wasn’t.

All in all, this means a lower level of care, that costs more, raises prices on everything with or without a VAT, and results in lower growth and higher (especially long term and youth) unemployment. America goes down the French route, it will have French outcomes. But with the worse British style health service it seems.

It is a little bit worse than a lack of a sun roof.

Ricardo December 10, 2012 at 6:23 am

Most of your comment is baffling but this statement — “Just look at the cost of everything in, say, Norway” — is particularly so. Norway is an oil-rich country that, in PPP-adjusted terms, is much wealthier than the U.S. How is Norway supposed to serve as an example of the horror of high taxes?

Andrew' December 10, 2012 at 10:14 am

Then throw out the “Norway” part if that is confusing.

The gist is that I’d like to use the individual market. The statist plan can’t allow me to do that because it is not actually a value-added so they need me as a revenue source.

Andrew' December 10, 2012 at 10:16 am

Or put differently, if ‘your’ (the general you) system can’t survive me being in the individual market that ‘your’ system has already decimated then ‘your’ system can’t suck enough balls.

mulp December 10, 2012 at 2:23 pm

When has US health care cost less per person than the statist Canada Medicare, the statist NHS, the statist German system, the statist Japanese system, the statist French system, the statist Israeli system, the statist libertarian Swiss system? When has the US health care covering Canadian, Britisn, German, Japanese, French, Swiss, Israeli immigrants and their children and grandchildren improved faster and ended up with better national outcomes than those statist nations health systems? Perhaps you believe the corrupt statist system in the US which leaves tens of millions to waiting in ERs for care is so great that we attract all the sick and disabled with bad genes to the US from Canada, UK, France, Japan, Israel, Germany…???

The private sector in the US pays nationally per capita as much it is in Canada for total health care per capita. Then taxpayers pay nationally as much as Canada for health care. But in Canada they require you to go on vacation or work for two years in the long wait for your death bed, unlike in the US where the $10,000 a day death bed price has created instant access to death beds so death is delivered two years earlier in life in the US.

And Andrew’, I couldn’t afford to remain in the individual market given the 8-10% premium increases on my $5000 deductible insurance from 2003 to 2009, even when slowed to 4-5% annually under Obama care. The Medicare cost for better cover that is unsubsidized is $100 less at age 65 than free market insurance in live free and die NH bought from an Indiana corporation at 64, 6 months. The Medicare buy in is also the average for all those 65-85+ while my free market premium was for a 1 year age band that required having coverage in the prior year age band – my ~$900 monthly premium was based on my three decades of continuous coverage.

Blaming the high cost of health care in the US on statist policies is just so bizarre unless you are arguing the corporations have taken control of US government to get a right to pick your pocket, while in Canada, France, Germany, Israel, Japan, individuals control government and keep the corporations from pick pocketing,

athEIst December 10, 2012 at 9:11 pm

I believe it was Everett Dirksen(R-ILLINOIS)

Rich Berger December 10, 2012 at 5:38 am

I thought this tax was well known. But then, I do not rely on the NYT for my news.

The Other Jim December 10, 2012 at 10:21 am

>I do not rely on the NYT for my news.

It’s absolutely horrifying that anyone does.

John Thacker December 10, 2012 at 6:58 am

Another increase in taxes is that Obamacare significantly raised the amount of medical expenses one has to pay as a percentage of AGI before being able to deduct them from taxes, from 7.5% to 10%.

It’s an annoying “tax increase” because it hits precisely people who have had catastrophic illnesses this year or otherwise had to pay a lot out of pocket.

John Thacker December 10, 2012 at 7:01 am

Deduct from taxable income, I mean.

I would like to hear the justification for raising taxes on the sickest people with moderate income. Note that people with truly high income are unlikely to pay over 7.5% of AGI in medical expenses, and of course people with low income don’t itemize.

Ricardo December 10, 2012 at 9:06 am

In 2014, insurance subsidies will kick in that cap a household’s maximum spending on insurance premiums at 9.5% of AGI or less. I believe the limit you refer to above is being raised to avoid giving a double subsidy to moderate income households.

That said, maybe it’s a raw deal to impose this change one year before the subsidies kick in. However, after 2014, it’s tough to argue that people should be getting tax breaks at the same time they are getting subsidies for health insurance.

Andrew' December 10, 2012 at 9:14 am

“tough to argue that people should be getting tax breaks at the same time they are getting subsidies for health insurance.”

It’s not tough at all. Health insurance and medical spending aren’t the same thing. It’s that easy.

Some people want to make them more than the same thing. Other people (e.g. me) think this is exactly what is making the medical and insurance markets a disaster. All the former people are doing is hosing the latter people (e.g. me) who are willing to fix the disaster (or at least not be part of the problem) at mostly our own annoyance and expense if they’d simply let us.

mulp December 10, 2012 at 2:39 pm

So, in your view, health insurance is for paying for marketing, overhead, high salaries for executives, bonuses, dividends, not for paying for medical services and products.

I bet you think the libertarian solution is paying a doctor $50 a month for his being on call, giving you checkups, scripts, vaccinations, and the other common reasons for a doctor visit because that is free market?

And if a community of doctors get together and pool their time and sell this service for $50 a month under the brand Blue Shield, that is free market.

If the were to join together and do this as a health maintenance organization where a high deductible policy was bundled in, that would be free market.

And if a bunch of doctors contracted with the HMO in an accountable care organization to provide the basic doctor care at $50 a month.

For Blue Shield to go to employers to get customers and make sure the government provides legal status to lower costs, that is statist?

But for Nixon to push for employees being offered access to an HMO as an alternative to health insurance, that is statist interference in the market?

For Medicare to have a payment advisory board develop a fee schedule that bundles doctor care into a monthly fee of $50 a month is statist interference in the market?

The only way to eliminate the state from any free market agreement is for their to be no means of enforcing agreements, other than the patient shooting the doctor to settle disputes – courts are statist.

John Thacker December 10, 2012 at 9:34 am

I’m sorry, no that makes no sense. The deduction is not for premiums, which are already deductible, but for out of pocket expenses after insurance (or for those without.) It’s for people with, say, cancer who may still have insurance but max out their annual out of pocket.

Are you claiming that we should tax very sick people spending a lot out of pocket to bring down the premiums of healthy people? That seems odd.

Ricardo December 10, 2012 at 9:53 am

John, you are incorrect on whether individual insurance premiums are deductible. Please see IRS tax topic 502 on the deduction for medical and dental expenses: “Medical care expenses include the insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy covering qualified long-term care services.”

http://www.irs.gov/taxtopics/tc502.html
http://www.irs.gov/publications/p502/ar02.html#en_US_publink1000178947

The answer to your question is given above: I don’t necessarily think it’s a good idea to be changing the deduction this year but, starting in 2014, very sick people of moderate income will receive a direct subsidy that effectively caps their premium spending at 9.5% or less of AGI. You have to take this subsidy into account before declaring — without showing any of the relevant math — that the post-2014 effect of PPACA will be to tax very sick people to bring down the premiums of healthy people.

Ricardo December 10, 2012 at 10:35 am

Also, in 2014, insurers will no longer be able to impose maximum annual benefits for e.g. people with cancer so the example is inapplicable after 2013. A family of 4 that earns $50,000 per year, itemizes deductions and spends $20,000 in medical expenses will, starting in 2014, be required to purchase health insurance but will also have its premiums capped at around $4,000 dollars for a “silver” with a deductible that is no more than an additional $4,000. Such a family would save $12,000 in medical expenses thanks to the subsidy + risk pooling and would have to give up an itemized deduction that is almost certainly worth far less.

If you have a concrete example of how a family under slightly different circumstances would be unambiguously hurt on net by PPACA rules, please share.

Andrew' December 10, 2012 at 11:00 am

So are you saying premiums are or are not deductible?

Andrew' December 10, 2012 at 11:11 am

Additionally, see Vivian’s comment above.

Requiring purchasing insurance and requiring insurance pools to pay for eliminating caps and such are just taxes writ smallish. Capping premium payments won’t come from the tooth fairy. It seems it has to be a transfer of revenue losses from the government to the insurance pool, aka a tax.

mulp December 10, 2012 at 2:48 pm

Andrew’ – young people buying their own health insurance have been screwed because they only pay $150 a month which is $1800 a year but with an exclusion of the 7.5% of income not to mention the standard deduction, they don’t get a tax deduction for medical that cuts their taxes. It is better for them to pay $20,000 a year for health insurance because that will give them a big tax deduction just like the old guy who is 64.

The tax code was better when the standard deduction was on $800 and 50% of taxpayer got to cut their taxes by itemizing deductions. Today only about 10% itemize, so they were screwed by Reagan’s 1986 tax reform which raised their taxes by taking away their tax loopholes.

But note that the Republicans are pushing really hard on eliminating all deductions to raise tax revenue, including by taxing your employer provided health benefit as income.

John Thacker December 11, 2012 at 8:23 pm

If you have a concrete example of how a family under slightly different circumstances would be unambiguously hurt on net by PPACA rules, please share.

I am married and have insurance through my job.The insurance premiums before PPACA were nowhere near 9.5% of our AGI. However, I have recently received news of testis cancer, malignant (but treatable.)

Since I kept and have my jobs, I already have risk pooling through my job and this will not bring up my health insurance premiums. I am seeing (at the moment) absolutely no benefits from the PPACA insurance premium rules.

However, I am extremely likely to max out my out of pocket spending in both years (since chemotherapy will span both end of 2012 and 2013), and my out of pocket spending limit is higher since I am married, but my wife is finishing grad school so she doesn’t bring up our AGI much (also, my AGI will be lowered due to disability through my job instead of working being 75% of previous wages.)

The jump from the 7.5% to 10% of AGI before allowing deduction of medical expenses will cost me possibly $1000 in taxes for 2013. The benefits that you claim I receive are not affecting my at all since my insurance is through my job. They may well benefit me in the future, but testis cancer when treated isn’t a particularly high risk condition, and I am planning to stay in my job for a long time (and my wife will work.)

I think that there’s too much emphasis in general on the idea of making sure people have insurance rather than making sure that they have treatment, and that this mentality led to this result.

I feel that I am having to pay more when very sick to make up for people who are healthy to get cheaper premiums, especially (due to the chances in the difference premiums allowed between young and old) baby boomers in their 50-55 who have been perfectly healthy but would start to fact higher premiums due to their age.

Taxing those with cancer at 33 in order to make insurance premiums cheaper for healthy people in their 50s who have never had anything serious still strikes me as an odd public policy choice.

Hearing all these “compassionate” supporters of the law refuse to take my concerns seriously because they don’t want to have cognitive dissonance is also annoying, but understandable.

John Thacker December 11, 2012 at 8:24 pm

If anything, our company health insurance premiums went up faster this year than they did the last couple years, where they had been stagnant. But YMMV there without more data.

John Thacker December 11, 2012 at 8:47 pm

In any case, it seems like regulations to keep insurance premiums lower would make it less likely that they qualify for this deduction, and double dip. So a higher percentage of people qualifying for the deduction are people who are very sick, and have lots of out of pocket inspections.

So it seems like that your argument is that the healthy people are getting an equivalent benefit through lower premiums, but very sick people with higher out of out pocket costs are just getting screwed, and you’re okay with that. Since, after all, the objective is to get people to have insurance, not care.

Givco December 11, 2012 at 1:31 am

The subsidies and coverage requirements apply to policies sold on exchanges right? Half the states aren’t setting up the exchanges. And the legislation doesn’t offer subsidies or impose employer taxes in states that have Federal exchanges. Elizabeth Fowler-care is, as far as legislative composition, a D minus for that, for the complexity of its tax provisions, the collapse of the disability program and so on.

Brian Donohue December 10, 2012 at 8:10 am

The American people have voted on the European style welfare state. They voted in favor.

I say, we all gotta pay for it.

The cliff just keep lookin’ better and better.

Orange14 December 10, 2012 at 8:46 am

LOL! Medicare is already means tested and has a hefty premium once you reach 65 and are in a high income bracket. I know this for sure because my wife and I are each paying over $300/mo for Part B (normal premium is $100/mo). This is also nothing to surprising. People may rag at Dean Baker because of his liberal outlook but at least he’s separating the truth from the fiction!

Andrew' December 10, 2012 at 9:18 am

Nobody rags at Dean Baker. Let’s not extend the woe-is-me victimhood any more than we have to.

Andrew' December 10, 2012 at 9:33 am

Maybe we should though. There is a litany of taxes in the story, and the thrust is just that they exist. Baker et.al. isolate one vague explanation of the biggest part as a pseudo-strawman to dismantle. It’s fine. I still largely respect Dean Baker. He usually tells you when he’s employing his liberal outlook goggles. That’s all I ask for.

Rich Berger December 10, 2012 at 10:02 am

I checked into that Part B premium and as far as I can tell, the higher premiums only kick in at joint income of over $170K. Not so much means testing. You must be a rich guy, so why are you complaining? You haven’t been paying your fair share – that’s what President Obama always tells me.

Andrew' December 10, 2012 at 9:25 am

So, democrats want to make the ‘rich’ pay, but make sure the rich understand that it’s not that much.

If only we had real politicians in the Republican party.

AB December 10, 2012 at 10:03 am

“Some Texan once said that a billion here, a billion there, pretty soon you are talking about real money.” Perhaps, but the remark is generally attributed to Senator Everett Dirksen, Republican of Illinois.

stock rocket December 10, 2012 at 12:11 pm

Kong is freakin hilarious this morning and a must read:

http://www.forexkong.com

Things are lining up for the dollar slide.

Dr Econ December 10, 2012 at 3:41 pm

I wish people would stop calling the extra money high-income earners will pay under ACA taxes. They are not taxes to pay for government services. They are collectively enforced charitable contributions designed to provide well-deserved services to the poor. They are compulsory only because of the collective goods aspect of welfare payments gives incentives for doing what is good and right. Standard maximization of a simple cardinal social utility function makes these redistributions Pareto optimal. We have to force the rich to assume their social responsibilities, markets cannot make them. They should be happy Obama is assisting them in doing the right thing. A contribution to a good cause is not a tax, it’s a boon.

The Anti-Gnostic December 11, 2012 at 9:29 am

It’s amazing how squishy all these gimlet-eyed economists get on certain topics. Isn’t this the dismal science, or have they invented a new science? The major effect of welfare that I can see is not a social safety net but subsidy of poor lifestyle choices.

Wuilmary December 23, 2012 at 1:58 am

Summary: Looking to find and test the skills of an eecerienpxd ASP.Net developer. Skills: Self-sufficient in ASP.net + SQL/VB Design skills is a plus. Compensation: First project should take less than 1 month to complete $4000 $7000 + Bonus Based on completion of project, can transition to full-time position if wanted. Details: Must be able to commute to mid-town toronto Can work from home Don’t message me if you don’t like in GTA Must have sold experience in ASP.net & SQL Portfolio: Please provide me with sample of work in past. Availability: Must be available to meet by Thursday 10th of November. Compensation: $4000-$8000/month This is a part-time job. This is a contract job. Principals only. Recruiters, please don’t contact this job poster. Please, no phone calls about this job! Please do not contact job poster about other services, products or commercial interests.

John Thacker December 11, 2012 at 8:25 pm

Does this apply just as much as when you’re taxing the sick to give to the healthy?

Comments on this entry are closed.

Previous post:

Next post: