A Quick Note On Health Care Reform Or, Why You Shouldn’t Love This Bomb.

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I was writing another post concerning the current health care reform bill, but got distracted by the news of the leaked preliminary CBO analysis, and figured I might as well combine the two posts and deem it one.

The CBO projects this legislation will save the federal government $130 over the first decade, and $1.2 trillion over the next ten year period. Color me skeptical. When has one of these long term estimates EVER been accurate, or erred on the positive side of cash flow as far as fiscal health goes? Almost all government spending estimates err in the wrong direction – this will cost much more than they are willing to admit.

Here are a few reasons that this bill will be more costly to us and the government than the CBO is willing to admit.

Under provision 1513, the government structures how businesses will be required to provide health care insurance for its employees. Here is the language lifted straight from the bill.

(a) IN GENERAL.—Chapter 43 of the Internal Revenue Code of 1986 is amended by adding at the end the following:
‘‘(1) any applicable large employer fails to offer
to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) for any month, and
‘‘(2) at least one full-time employee of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the
employee, then there is hereby imposed on the employer an assess
able payment equal to the product of the applicable payment amount and the number of individuals employed by the employer as full-time employees during such month.
‘‘(1) IN GENERAL.—In the case of any applicable large employer which requires an extended waiting period to enroll in any minimum essential coverage under an employer-sponsored plan (as defined in section 5000A(f)(2)), there is hereby imposed on the employer an assessable payment, in the amount specified in paragraph (2), for each full-time employee of the employer to whom the extended waiting period applies.
‘‘(2) AMOUNT.—For purposes of paragraph (1),
the amount specified in this paragraph for a fulltime employee is—
‘‘(A) in the case of an extended waiting period which exceeds 30 days but does not exceed 60 days, $400, and ‘‘(B) in the case of an extended waiting period which exceeds 60 days, $600.

Did you understand that? Me neither. Luckily there are some poor souls who can decipher this type of government-ease for us. Robert Book translates:

The Senate health bill (H.R. 3590) introduced by Senator Reid (D–NV) contains provisions (Section 1513) that would impose a tax penalty on any company with more than 50 employees that hires someone who qualifies for, and opts to accept, a health insurance premium subsidy—a penalty of $3,000 per employee per year. And the qualifications for that taxpayer subsidy depend on the worker’s family size and family income, not just the pay from that employer. A worker with more dependents would be more likely to qualify, and one with a working spouse or other family members would be less likely to qualify—and the IRS would be required to provide this family information to the employer.

If the bill is enacted, there would be three devastating results.

First, employers faced with the choice of hiring—for the same job at the same pay—say, a single parent of three, and a parent of two with a working spouse (or a teenager with working parents), the employer could face a $3,000 annual penalty for hiring the single parent—and is therefore likely to deny that person the job. Likewise, if one company lays off an employee with a working spouse, that could generate a $3,000 tax penalty for the other spouse’s employer—unless the other employer lays off the other spouse as well.

Second, if the employer hires two people in different family situations for the same job at the same pay, they could have vastly different health insurance options based on what their other family members are making. The one with another working family member would have to take a plan from one of their employers and pay up to 40 percent of the cost or face substantial tax penalties; the one with no (or lower-paid) other working family members could choose either the employer’s plan or any plan in the exchange—in the latter case, with a subsidy paid for by the other workers’ taxes.

Third, if more than a quarter of the employees qualify for subsidies, the company would be paying the same tax penalty as if it had not offered a health plan in the first place. Faced with paying a hefty tax penalty whether they offer health insurance or not, many companies would drop their health plan, harming the remaining workers who do not qualify for subsidies. Those workers would be forced to buy health insurance on their own, paying 100 percent of the premium (instead of 40 percent or less through the employer), and paying with after-tax dollars. Even if the company raises pay by the amount they would have paid for health insurance (less the tax penalty), employees would now face income taxes on compensation that would otherwise be non-taxed health benefits.

I thought that if Obama was elected there would be no new taxes for those making $250,000….. $225,000….. $200,000 a year. So this thing will suck for many low income Americans. In this case, this person might find him or herself unemployed, as the employer would lean toward cutting this employee in order to avoid the extra fees altogether. So much for helping the poor.

It gets better.

If a company hires “too many” employees who qualify for subsidies, it could be even worse for their co-workers who do not qualify. If at least one-quarter of employees qualify for the subsidy, the company will pay the same tax penalty regardless of whether or not it offers health insurance to its remaining employees—so it might as well drop the company health plan entirely. In that case, all workers would be required to purchase insurance on their own.

The end result could be financially devastating. Workers without the subsidy, instead of paying at most 40 percent of the cost of an employer-sponsored plan on a pre-tax basis, would have to pay 100 percent of the cost of a “qualified” plan in the new government-sponsored exchange (or remain uninsured and face tax penalties)—and in addition, will have to pay income and payroll tax on the entire premium.

And this provision completely ignores a growing trend in the workforce. More and more companies are filling their staff with part-time employees in order to reduce the cost and burden of various state and federal regulations. I run a small business and am a sole proprietor (I’m the only employee). In this regulatory environment, if I were to hire someone, I would only hire part-time help to keep my costs and government paperwork to a minimum.

In the MSNBC article that came out today, concerning the CBO assessment, I noticed this paragraph:

Hospitals and doctors, drug companies and insurers would gain millions of new paying customers, but they would also have to adjust to major changes. Medicare cuts would force hospitals to operate more efficiently or risk going out of business.

Uh Hu. There are already a shortage of hospitals and emergency rooms across the country, and many are currently surviving by the skin of their teeth, operating on a bare bones budget. An increase in medical coverage will increase the demand for these facilities. So the government will allow struggling hospitals to go out of business, especially if the reason they go out of business can be tied to this government regulation?….. Uhm, does anyone remember the recent bank bail-outs? TARP? AIG? GM? Chrysler?

Insurance companies would face unprecendented federal regulation. Health care industries would be hit with new federal taxes. Upper-income households would face a new tax on investment earnings.

….Which will drive premiums up. DUH.

PS. For anyone that wants to be brave enough, here is the text of the Senate bill.  Have fun trying to read it. I know I didn’t.

3 Comments to “A Quick Note On Health Care Reform Or, Why You Shouldn’t Love This Bomb.”

  1. By Jeff Alberts, March 19, 2010 @ 1:14 am

    Actually it’s not health CARE reform, it’s health INSURANCE reform.

  2. By Sonicfrog, March 20, 2010 @ 4:30 pm

    I know. But they’re framing it as “Health Care Reform”, so I’m rolling with it.

  • GayPatriot » About those CBO numbers. . . — March 18, 2010 @ 8:30 pm

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