Obamacare: All Pain, No Gain

Published May 31, 2016

Arguably the most important issue in the health-care reform debate on Capitol Hill relates to the budget: How much will this reform cost? Will it add to the deficit? Or reduce it? Americans were also told “If you like the plan you are in, you can keep it.” But that is a promise politicians cannot keep, and poll after poll has shown the public is not buying the official estimates—nor should they.

Historically, medical prices have risen at three times the rate of inflation. Obamacare will require just about every nonelderly person in America to buy health insurance. The cost of this coverage is going to rise at twice the rate of growth of families’ incomes.

At the same time, the legislation will prevent people from all of the natural adjustments you would expect in the face of rising premiums. For example, they will not be allowed to scale back insurance or choose more limited coverage. They won’t be allowed to shift to catastrophic-only plans or rely more on cost-saving self-insurance through Health Savings Accounts.

Tax Pain Starts Now

There are really only two options to alleviate this problem. The government can either insulate people from rising health insurance costs by providing them with ever-increasing subsidies, or the government can allow the cost of mandated health insurance to consume an ever-increasing share of the family budget.

We won’t have to wait years to begin feeling the pain of Obamacare. The 10 percent tax on tanning salons starts this year. Beginning in 2011 our drug bills will rise because of a $2.5 billion tax on name-brand drugs and removal of the tax exemption for over-the-counter drugs purchased using a Flexible Spending Account. The penalty for nonmedical Health Savings Account (HSA) distributions will also double.

Seniors will begin losing benefits as a result of cuts in the Medicare program. The average Medicare Advantage Plan enrollee will lose nearly $200 in benefits in 2011—rising by a dozen times that amount ($2,437) by 2019. Seniors in traditional Medicare plans will lose only $22 in 2011, but this will rise to $1,137 by 2019.

New Fines Pending

By 2013, Medicare taxes on investment income (3.8 percent) will hit affluent families earning more than $250,000. A new 2.9 percent tax on wheelchairs and other medical devices will also take effect. People with high medical spending will also find the amount they can take off their taxes declines when the floor for deductible medical expenses increases from 7.5 percent to 10 percent of adjusted gross income.

Beginning in 2014, employers failing to offer health plans could be fined $2,000 per worker, which they would pass on to workers in the form of lower pay. Insurers will face $6 billion in new taxes (much of which they will pass on to consumers in the form of higher premiums). Individuals failing to enroll in coverage will initially face a fine of $95, and by 2016 that penalty will quickly rise to $695 or 2.5 percent of wages, whichever is higher.

Policymakers need to accept the fact that we are on an unsustainable spending path. Creating these new implicit entitlements for non-seniors and pretending they are paid for by unserious budget gimmicks will only make our problems worse.

John C. Goodman ([email protected]) is president, CEO, and Kellye Wright Fellow of the National Center for Policy Analysis.


[BOX] Obamacare by the numbers:

$11,543 Employer incentive to drop coverage for a $30,000 a year worker with family [Tax subsidy in the exchange minus tax subsidy at work minus $2,000 fine] (IRET)

8 to 9 million Number of people who will lose their employer plan (CBO).

19 million Number of people likely to lose their employer plan (Lewin Group).

33 million Number of seniors in traditional Medicare at risk of losing access to care because of $523 billion in cuts in Medicare spending.

8.5 million Number of seniors at risk of losing their Medicare Advantage plan

3 million Number of additional seniors who will likely lose Medicare Advantage plan benefits

73 million Number of people who earn less than $200,000 who will see their tax bill rise

20 percent Fraction of hospitals that would become unprofitable after Medicare spending cuts.