The new healthcare bill (HR 3200), “America’s Affordable Healthcare Choices Act of 2009,” promises to provide every American with affordable quality healthcare and to control healthcare cost growth. The Democrats who drafted and support the legislation point to provisions in the bill that would build on what works in today’s health care system and fixes the parts that are broken, protect current coverage–allowing individuals to keep the insurance they have if they like it–and preserve their choice of doctors, hospitals, and health plans.
The bill proposes to achieve these reforms through offering:
· A “Health Insurance Exchange”—a transparent and functional marketplace for individuals and small employers to comparison shop among private and public insurers;
· A public health insurance option that promises to operate on a level playing field, subject to the same market reforms and consumer protections as other private plans in the Exchange, and it will be self-sustaining–financed only by its premiums.
· Essential benefits – A new independent Advisory Committee with practicing providers and other health care experts, chaired by the Surgeon General, will recommend a benefit package based on standards set in the law.
· A sliding scale affordability credits – Affordability credits will be available to low- and moderate-income individuals and families.
· Caps on annual out-of-pocket spending
· Increased competition
· Expanded Medicaid – Individuals and families with incomes at or below 133 percent of the federal poverty level will be eligible for an expanded and improved Medicaid program. Recognizing the budget challenges in many states, this expansion will be fully federally-financed.
· Improves Medicare – Senior citizens and people with disabilities will benefit from provisions that fill the donut hole over time in the Part D drug program, eliminate cost-sharing for preventive services, improve the low-income subsidy programs in Medicare, fix physician payments, and make other program improvements.
· Individual responsibility – Except in cases of hardship, once market reforms and affordability credits are in effect, individuals will be responsible for obtaining and maintaining health insurance coverage. Those who choose to not obtain coverage will pay a penalty of 2.5 percent of modified adjusted gross income above a specified level. (More on this below.)
· Employer responsibility – The proposal builds on the employer-sponsored coverage that exists today. Employers will have the option of providing health insurance coverage for their workers or contributing funds on their behalf. Employers that choose to contribute will pay an amount based on eight percent of their payroll. Employers that choose to offer coverage must meet minimum benefit and contribution requirements specified in the proposal. (More on this below.)
· Assistance for small employers – The smallest businesses—those with payrolls that do not exceed $250,000—are exempt from the employer responsibility requirement. The payroll penalty would then phase in starting at 2% for firms with annual payrolls over $250,000, rising to the full 8 percent penalty for firms with annual payrolls above $400,000. In addition, a new small business tax credit will be available for those firms who want to provide health coverage to their workers. In addition to the targeted assistance, the Exchange and market reforms promise to provide a long-sought opportunity for small businesses to benefit from a more organized, efficient marketplace in which to purchase coverage.
So far I have provided a lot of information about what the new healthcare bill promises to offer. Here’s the rub: How will we pay for it?
Section 441 of the new bill states that there will be a surcharge on “high-income individuals with the following sliding scale:
(1) 1 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $350,000 but does not exceed $500,000,
(2) 1.5 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $500,000 but does not exceed $1,000,000, and
(3) 5.4 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $1,000,000.
Republican’s in their dissenting view, provided in written form on July 13, 2009, point-out many flaws in the new healthcare bill, including:
“… Americans with health insurance would pay thousands of dollars more per year for coverage, and a host of new taxes on individuals and businesses would further hamper efforts to revive an already struggling economy if this bill becomes law. The bill violates oft-repeated promises by the President and others that health care reform won’t cause people to lose coverage they like, that taxes won’t increase on families with income less than $250,000 and that tax rates won’t increase above what they were during the 1990s.”
Republicans point-out that only one hearing was held on the discussion draft released in June, and that, despite claims that the United States is already spending too much on healthcare, the bill finances even higher spending with more than $820 billion in new taxes that will be paid for by families making as little as $20,000, small businesses, and manufacturers—all while we are in the midst of a recession and with unemployment moving quickly toward 10 percent.
Section 441 of the bill (addressed above) attempts to plug part of the fiscal hole it creates with a new surtax on individuals and small businesses, with a 5.4-percent surtax rate, combined with the already scheduled increase in the top marginal rate to 39.6 percent, which would result in an increase in the top Federal income tax rate from 35 percent in 2010 to 45 percent in 2011.
Adding in the 2.9-percent Medicare payroll tax and hidden marginal rate increases that operate by phasing out certain deductions, the proposed top Federal rate would jump to about 48 percent, and the average top Federal-State marginal tax rate would be over 52 percent.
While nominally aimed at individuals, the surtax will fall heavily on small businesses, the engine of job creation. According to a Joint Committee on Taxation data projection for 2011, 42 percent of small business income (including the income of sole proprietorships, partnerships, and S corporations) would be subject to the surtax.
Not content to just tax “the wealthy,” the bill also imposes large taxes on some of America’s poorest families. Effective in 2013, section 401 would impose a tax on individuals without “acceptable coverage”, which would hit single filers with incomes as low as $9,350 and married couples with incomes as low as $18,700 (in 2009 dollars). This undermines President Obama’s ongoing promise not to raise taxes on families with incomes under $250,000.
The overall conclusion by Republicans is that the bill adds nearly $240 billion to the deficit this decade, with the bulk of those costs occurring at the end of the budget window. In 2015 alone, the bill will add $40 billion to the federal deficit. By 2019, that figure will rise to $65 billion and the deepening debt impact shows no signs of slowing down in future years. In short, the $240 billion that this bill would add to the deficit this decade is just the tip of the fiscal iceberg.
Regardless of which side one believes, there can be no denying that the costs associated with this bill would be enormous, and are projected to be $1 trillion or more over the next decade. That money will have to come from somewhere, and it is clear that taxes will have to be increased, very likely on all of us, and on all businesses, to cover this cost. While the distribution of these taxes can be debated, the numbers are so large that every one of us will feel the sting, should the bill go forward in its current form.