Wednesday, May 20, 2015

How This Trio of PPACA Taxes and Mandates Falls Squarely on Taxpayers, Not Insurers. With Audio from Armstrong & Getty

On May 21st, I joined Armstrong and Getty in the 7 AM hour to discuss this article. Audio of my visit with them is in the first portion of this hour:

No, Your Preventive Care Isn't Free and Neither Are Your Politician's Bright Ideas

If the American taxpayer, or more importantly — voter, learns anything from the gargantuan federal boondoggle of PPACA, I hope it's the lesson that every tax, fee or mandate aimed at a corporation pummels the individual. 

Nothing is free, ever. And no corporation ever pays a tax. Corporations, instead, are sometimes enlisted by politicians and bureaucrats to collect taxes on behalf of the government. This is particularly true when elected officials find the tax in question to be politically undesirable. Solution: tax businesses and allow businesses to pass on the cost to consumers.  It's shocking and discouraging that it works, but it does.  And nowhere has it been more embarrassingly flagrant than in Obamacare. 

I recall conducting open enrollment meetings as early as 2011 and having employees ask me about those fairy dust adorned "free" preventive benefits now available due to the magic of Health Reform. I'd always take the time to explain that those annual physicals were absolutely not free.  No, just because the government forbid an insurer from charging a copay for an annual physical didn't make it free at all.  

Instead, it meant that the service was no longer paid for on an as-used basis. Now, all physicals are prepaid via a 0.5% to 1% increase in premium to all policyholders (whether they use their annual physical or not).  But sadly, far too many fail to grasp this basic principle and run around repeating the political spin that somehow congress and the President waived a magic wand and made preventive care absolutely free.  
Now, five years into this law riddled with more than 20 new taxes and fees, the devastating impact on the individual is finally gaining more coverage.  This is from the Associated Press as published at the New York Times about the so called "Health Insurer Tax" in Obamacare and how it is being funneled back onto taxpayers in an utterly stupefying way: 
There’s more than a touch of absurdity in the way an industry fee in President Barack Obama’s health care law is being passed along to state taxpayers. 
As Alice in Wonderland might say, a curious tax just got curiouser. The burden to states could mount to $13 billion in less than a decade. 
The Health Insurance Providers Fee was aimed at insurance companies. The thinking went: Because insurers would gain a windfall of customers, they ought to help pay for the expansion of coverage. Insurers say they have raised prices for individuals and small businesses to cover the new tax. 
As it turns out, they are raising their prices to state Medicaid programs, too.
The federal government issued guidance in October requiring states to build the tax into what they pay for-profit Medicaid health plans that serve low-income people. The first year’s tax was due to the IRS in September, and state governments are now settling up with insurance companies. 
It works like this: State governments pay insurers for the tax. The insurers then pay the tax to the federal government. The federal government then reimburses part of the cost to the states. 
It may sound absurd, but it’s not amusing to state governments, which wind up losing 54 cents for every dollar of the insurance tax. State taxpayers end up the biggest losers, without any added benefit to their state’s low-income Medicaid patients.  
“It’s like a merry-go-round with an extra loop in the middle,” said Rebecca Owen of the Society of Actuaries. 
The extra loop? The health law tax is not deductible for the insurance companies when they file their corporate income taxes, and state governments must kick in extra to cover that cost, too. ... 
“They had a naive notion we were going to get something from insurers” who were gaining many new customers from the health law, said economist Douglas Holtz-Eakin, president of the American Action Forum, a center-right public policy institute. “It defied any notion of good tax policy.” ... 
The states with the most managed care will be hurt the most. Florida will pay up to $1.2 billion over 10 years, according to a 2014 report by the actuarial firm Milliman. The same for Pennsylvania. Texas will pay up to $1 billion and Tennessee as much as $884 million. For California, the decade’s total will be up to $798 million and for Georgia, $647 million. ...
Obamacare's Medicaid expansion is also making news this week.  As those enrollments mount, we can now see that the number of people signing up is blowing past bureaucrats' projections.  This "free" benefit is going to end up wreaking havoc on state budgets which means maximum pain for taxpayers.  This is from Rachana Pradhan writing at Politico:  
Medicaid enrollment under Obamacare is skyrocketing past expectations, giving some GOP governors who oppose the program’s expansion under the health law an “I told you so” moment. 
More than 12 million people have signed up for Medicaid under the Affordable Care Act since January 2014, and in some states that embraced that piece of the law, enrollment is hundreds of thousands beyond initial projections. Seven states have seen particularly big surges, with their overruns totaling nearly 1.4 million low-income adults. 
The federal government is picking up 100 percent of the expansion costs through 2016, and then will gradually cut back to 90 percent. But some conservatives say the costs that will fall on the states are just too big a burden, and they see vindication in the signup numbers, proof that costs will be more than projected as they have warned all along. 
Obamacare originally expanded Medicaid — which traditionally served poor children, pregnant women and the disabled — to all childless low-income adults with incomes up to 138 percent of the federal poverty level (about $16,250 for an individual) across the country. But the Supreme Court made expansion optional in 2012. And 21 states, mostly with GOP governors, have resisted. 
“The expansion of Obamacare will cost our state taxpayers $5 billion,” Florida Gov. Rick Scott said in an interview with POLITICO last week, referring to the 10-year cost. “Name the health care program — I think the only one is Medicare Part D — that cost less than what they initially anticipated…Historically, if you look at the numbers, with the growth in Medicare costs, Medicaid costs, it’s always multiples.” A bitter critic of Obamacare, Scott at one point surprisingly backed expansion, but withdrew his support earlier this year. His state legislature is deeply split on Medicaid policy. 
In some states that did expand, the take-up has been startling — the result, officials say, of significant pent-up demand for coverage. In Illinois, nearly 541,000 people had signed up as of December, far beyond the 199,000 adults the state had estimated would enroll in 2014. The numbers increased to nearly 634,000 as of April. 
In Washington, 535,000 people had signed up as of March — already beating the state’s January 2018 goal. Officials’ projection for March had been just 190,365 newly eligible enrollees. ... 
Beyond the low-income adults that became newly eligible for Medicaid because of the health care law, states have long feared the budget impacts of the “woodwork effect” — people previously eligible for Medicaid who are only enrolling now because of the broader outreach surrounding Obamacare. 
Generally, even the states that have shunned Obamacare Medicaid expansion are seeing enrollment growth. The federal government does not cover as much of traditional Medicaid costs; on average, the feds’ share is 57 percent and the states pay the rest. 
That “woodwork” phenomenon could create budget concerns for states if enrollment is significantly higher than projections, acknowledged Matt Salo, executive director of the National Association of Medicaid Directors. But even that outcome, he stressed, “still solves a health care problem.” These people are now insured, and that could lead to less cost-shifting and crisis care that was also a fiscal strain on states. ...
And lastly we get to the Cadillac Tax.  This tax was so unpopular among PPACA's supporters and drafters that the Administration had to push its effective date out to 2018 to get unions to hold their nose and agree to support it.  By 2018 there would be a new President and almost entirely new congress, anyway.  The thinking was to let that group deal with this lipstick wearing swine.

Of course, the Jonathan Gruber crowd sold this to politicians as a tax on health plans and insurers - not people.  But that just means higher premiums in order to cover the cost of the tax.  Now businesses are forced to either pass on the exorbitantly high premiums to their policy-holding employees or to slash benefits to stay under the tax's threshold.  This is from Robert Wood, writing at Forbes:
A survey by the International Foundation of Employee Benefit Plans reveals that 62% of companies facing a 40% Cadillac tax hit in 2018 are already changing their coverage to avoid it. Conversely, only 2.5 percent of companies say they will pay it. How do you avoid it? Change to higher deductible plans, reduce benefits, shift more costs to employees, or even drop high-cost plans altogether. 
The tax is increasingly under fire from Congress, and this marketplace reaction is fueling the bonfire. If no one pays it, how else will we pay for Obamacare? The Supreme Court upheld Obamacare as a tax law, and it contains many taxes. One tax that hasn’t yet kicked in is the Cadillac tax. In enacting the law in 2010, the Cadillac tax was buried, not applying until 2018. 
As the IRS gets ready for 2018, it released guidance setting out approaches to the excise tax. Like all of Obamacare, the Cadillac tax is enormously complex and nuanced. Of all the taxes in the ironically named Affordable Care Act, none is more onerous than the Cadillac tax. It is a big tax too, a whopping 40% on top of all other federal taxes. What’s more, it is an excise tax, one of the most dreaded kinds of taxes there is. It is a rifle shot tax that is supposed to discourage something very specific. ... 
... The Affordable Care Act included the Cadillac tax as a tool to cut health care costs. It puts direct and forceful pressure on employers to offer less-generous health insurance plans. Starting in 2018, Obamacare imposes a 40% tax on the cost of individual health plans above $10,200 for individuals and $27,500 for family coverage. 
In evaluating these dreaded thresholds, both employer and worker contributions are included. The tax is decidedly punitive. The tax applies to every dollar above those thresholds. Like a cliff, the dollars are taxed at a 40% rate. What’s more, the tax is not deductible by the employer. ...