View: ObamaCare taxes now, services later

April 7, 2010 | By More

by Paul Guppy
Washington Policy Center Vice President for Research

In the days leading up to the dramatic late-night vote on President Obama’s health plan, Speaker Nancy Pelosi said, “We have to pass the bill so that you can find out what is in it…”

Now that ObamaCare has passed, it is slowly dawning on people what the new law means for the country and for Washington state.

ObamaCare sweeps away a host of state regulations and permanently alters our state’s insurance market. From now on, the federal government will manage the health care of all Washingtonians. The 2,700-page law contains a complex web of mandates, directives, price controls, tax increases and subsidies.

Federal officials will now decide what kind of insurance people in Washington must have, what medicines will be covered, what treatments are allowed and which are not.

Early reports indicate, however, that President Obama, Vice-President Biden, the cabinet, senior members of Congress and leadership staff are exempt.

The new law falls well short of universal coverage. ObamaCare will leave about 6% of Washington residents without coverage. The measure is conservatively expected to cost $2.4 trillion in its first full decade.

Thousands of older Washingtonians will lose their Medicare Advantage coverage, and the state’s 120,000 Health Savings Account holders may need to buy new policies or face stiff penalties.

Washington residents will begin paying ObamaCare taxes this year, while most benefits don’t start until 2014. The law includes some 19 new taxes – here’s a rundown of what Washingtonians can expect in the coming years:

Penalties on individuals: Individuals will pay a yearly penalty of $695, or up to 2.5% of their annual income, if they cannot show they have purchased a government-approved health policy.

Penalties on families: Families will pay a yearly penalty of $347 per child, up to $2,250 per family, if parents cannot show they have purchased a government-approved policy.

Penalties on employers: Business owners with more than 50 employees must buy government-acceptable health coverage, or pay a yearly penalty of $2,000 per employee if at least one employee receives a tax credit.

Tax on investment income: ObamaCare imposes a 3.8% annual tax on investment income of individuals making $200,000 or more and on families making $250,000 or more. The new tax is not indexed to inflation, so more people will fall under it each year. Seniors on fixed incomes and people with IRAs and 401(k) plans will be hit particularly hard.

Tax on “Cadillac” health plans: Starting in 2018, imposes a 40% annual tax on health care plans valued at $10,200 for individuals and $27,500 for families.

Medicare tax increase: Requires single people earning $200,000 or more and couples earning $250,000 or more to pay an additional 0.9% in Medicare taxes.

Tax on Home Sales: Imposes a 3.8% tax on home sales and other real estate transactions. Middle-income people must pay the full tax even if they are “rich” for only one day – the day they sell their house and buy a new one, if the profits push their adjusted gross income above the yearly limits.

Tax on medical aid devices: Creates a new 2.9% tax on medical aid devices. Certain items intended for personal use are exempt.

Tax on tanning: Imposes a 10% tax on services at tanning salons. Business owners will collect the tax from customers and send it to the federal government. This appears to be the first federal sales tax in the United States.

ObamaCare will be enforced by the IRS. The tax agency plans to hire 16,500 new auditors, agents and investigators, and to increase enforcement audits.

The IRS can confiscate tax refunds, place liens on property and seek jail time if health-related penalties and taxes are not paid.

President Obama had said people could keep their coverage if they want, yet the Congressional Budget Office estimates that under ObamaCare eight to nine million people will lose their employer-provided coverage.

The ObamaCare law passed over bi-partisan opposition in Congress. Republicans say they will run on a “repeal and replace” platform this fall, and Washington has joined 12 other states in a lawsuit challenging the federal government’s power to force state residents to buy a product – insurance – from private companies.

The long-term prospects of ObamaCare are unclear. In the meantime, Washingtonians should prepare for major changes in their tax burden.

This article first appeared as a column in the Spokesman-Review.

Paul Guppy is Vice President for Research at Washington Policy Center, an independent non-partisan policy research organization in Washington state.

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  1. Don says:
    April 9, 2010 at 12:37 pm

    I am very concerned that we don’t really know what the new obamacare will cost, or what it will actually accomplish, pro & con.

    We know that those of us on Medicare’s Advantage programs will be hurt seriously by it. But just how seriously is yet to be seen.

    You state that the health care reform will create a new federal sales tax on real estate sales. It doesn’t surprise me that something like that might be slipped into the bill under the radar. However, I have found no other reference about it. Where did you get this information? How can I confirm it for myself?

    Has the new law been published on line for the public to learn what we have actually swallowed?

    Don

    • Michael McCarthy/LocalHealthGuide Editor says:
      April 9, 2010 at 3:25 pm

      Hi Don,

      I’ll forward your query to Mr. Guppy.

      However, the Kaiser Family Foundation, a usually reliable source, has posted material explaining the new law.

      Here’s the link to the site: http://healthreform.kff.org/

      Here’s a link to a PDF one summary: http://www.kff.org/healthreform/upload/8061.pdf, which includes a section on the law’s impact on Medicare beneficiaries.

      My understanding is that while the law does do away with the Medicare Advantage program, it also closes the prescription drug “donut hole” and puts the whole program on sounder financial footing. (Though I’m sure there are those who will debate that last claim.)

      Here’s a link to the full text of the act (if you really want to read the whole thing!): http://dpc.senate.gov/dpcdoc-sen_health_care_bill.cfm

      (The text of the law was available online in its various forms throughout the recent debates, belying claims by some that we didn’t know what was in the bill.)

      Hope this helps.

      Best,

      Michael McCarthy/Editor

    • Michael McCarthy/LocalHealthGuide Editor says:
      April 13, 2010 at 8:28 am

      Hi Don,

      We’ve posted a “Consumers Guide to Healthcare Reform” by Kaiser Health News’ reporter Phil Galewitz. In his article he touches on some of the questions you raised in you comment:

      Q: I’m over 65. How will the legislation affect seniors?

      A: The Medicare prescription-drug benefit will be improved substantially. This year, seniors who enter the Part D coverage gap, known as the “doughnut hole,” will get $250 to help pay for their medications.

      Beyond that, drug company discounts on brand-name drugs and federal subsidies and discounts for all drugs will gradually reduce the gap, eliminating it by 2020. ‘

      That means that seniors, who now pay 100 percent of their drug costs once they hit the doughnut hole, will pay 25 percent. Beginning in 2011, drug companies will be required to give a 50 percent discount on brand-name drugs for prescriptions filled in the doughnut hole.

      And, as under current law, once seniors spend a certain amount on medications, they will get “catastrophic” coverage and pay only 5 percent of the cost of their medications.

      Meanwhile, government payments to Medicare Advantage, the private-plan part of Medicare, will be frozen starting in 2011, and cut in the following years.

      If you’re one of the 10 million enrollees, you could lose extra benefits that many of the plans offer, such as free eyeglasses, hearing aids and gym memberships.

      To cushion the blow to beneficiaries, the cuts to health plans in high-cost areas of the country such as New York City and South Florida — where seniors have enjoyed the richest benefits — will be phased in over as many as seven years.

      Beginning this year, the law will make all Medicare preventive services, such as screenings for colon, prostate and breast cancer, free to beneficiaries.

      Q: How much is all this going to cost? Will it increase my taxes?

      A: The package is estimated to cost $938 billion over a decade. But because of higher taxes and fees and billions of dollars in Medicare payment cuts to providers, the package will narrow the federal budget deficit by $143 billion over 10 years, according to the Congressional Budget Office.

      If you have a high income, you will face higher taxes. Starting in 2013, individuals with earnings over $200,000 and married couples earning more than $250,000 will pay a Medicare payroll tax of 2.35 percent, up from the current 1.45 percent. In addition, high-income taxpayers will face a 3.8 percent tax on unearned income such as dividends and interest over the threshold.

      Starting in 2018, the law will also impose a 40 percent excise tax on the portion of most employer-sponsored health coverage (excluding dental and vision) that exceeds $10,200 a year for individuals and $27,500 for families. The tax is often referred to as a “Cadillac” tax.

      The law also will raise the threshold for deducting unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent.

      The law also will limit the amount of money you can put in a flexible spending account to pay medical expenses to $2,500 starting in 2013. Those using an indoor tanning salon will pay a 10 percent tax starting this year.

      Galewitz’s full article is posted on LocalHealthGuide’s home page.

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