In a previous blog I discussed the cost over-runs associated with previous government programs. I’ve also discussed the state healthcare exchanges that are being created and the expansion of Medicaid (all archived under health care category on my blog). Over the next ten years, close to one trillion dollars is expected to be spent on the new healthcare reform as follows:
1) $464 billion to subsidize the health care exchanges that are being created.
The individual states have 3 options:
A. Build their own exchanges.
B. Partner with the federal government.
C. Let the federal government do it.
Due to the many uncertainties surrounding the cost of these exchanges, many state leaders have opted to let the Federal government run the exchange and assume the risk.
Other state leaders have relied on government promises to fund their individual state exchanges through 2015. They figure this option will give them the time necessary to estimate costs and charge a fee sufficient to profitably operate their own exchange. This way the state will have more control over benefits and costs. Because each state has different demographics concerning health care utilization, a state exchange appeals to those states who want local control. All state leaders are finding this to be a very difficult decision to make in a very tight timeframe. We could easily see the cost of establishing the exchanges exceed $500 billion.
2) $434 billion to expand Medicaid and the Childrens Health Insurance Program (CHIP) (see previous blogs)
3) $40 billion for small employer tax credits
Tax credits will be available for small employers to buy group coverage via the health exchange. To qualify, the employer must pay at least 50 percent of the premium. The size of the credit will vary based on the number of workers in the company and their average annual pay. Through 2013 the tax credit will be as much as 35% of the premium paid by the employer and in 2014 the credits will be as much as 50% of premium paid by employer. In 2014 and beyond, employers can receive the credits for only two years.
There are 20 new taxes proposed to pay for the above costs. They are listed below in order of expected revenue to be raised by each tax:
$123 Billion raised from Surtax on Investment Income (Takes effect Jan. 2013): A new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single).
$86 Billion: Hike in Medicare Payroll Tax (Takes effect Jan. 2013
$65 Billion: Individual and Employer Mandate Tax Penalty(Both taxes take effect Jan. 2014):
Individual: Anyone not buying “qualifying” health insurance must pay an income surtax.
Employer: If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees.
$60.1 Billion: Tax on Health Insurers (Takes effect Jan. 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. Phases in gradually until 2018.
$32 Billion: Excise Tax on Comprehensive Health Insurance Plans (Takes effect Jan. 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans (discussed in previous blog)
$23.6 Billion: “Black liquor” tax hike This is a tax increase on a type of bio-fuel.
$22.2 Billion: Tax on Innovator Drug Companies (Took effect in 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.
$20 Billion: Tax on Medical Device Manufacturers (Takes effect Jan. 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax.
$15.2 Billion: High Medical Bills Tax (Takes effect Jan 1. 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI. Waived for 65+ taxpayers in 2013-2016 only.
$13.2 Billion: Flexible Spending Account Cap – (Takes effect Jan. 2013): Imposes cap on FSAs of $2500 (now unlimited). Indexed to inflation after 2013.
$5 Billion: Medicine Cabinet Tax (Took effect Jan. 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines
$4.5 Billion: Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D (Takes effect Jan. 2013)
$4.5 Billion: Codification of the “economic substance doctrine” (Took effect in 2010): This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance”
$2.7 Billion: Tax on Indoor Tanning Services (Took effect July 1, 2010): New 10 percent excise tax on Americans using indoor tanning salons.
$1.4 Billion: HSA Withdrawal Tax Hike (Took effect Jan. 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
$0.6 Billion: $500,000 Annual Executive Compensation Limit for Health Insurance Executives (Takes effect Jan. 2013):
$0.4 Billion: Blue Cross/Blue Shield Tax Hike (Took effect in 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services.
$ Negligible: Excise Tax on Charitable Hospitals (Took effect in 2010): $50,000 per hospital if they fail to meet new “community health assessment needs,” “financial assistance,” and “billing and collection” rules set by HHS.
$ Negligible: Employer Reporting of Insurance on W-2 (Took effect in Jan. 2012): Preamble to taxing health benefits on individual tax returns.