Taking a Hatchet to healthcare (Pt. 3)

The first two parts of this series have looked at the private market for health insurance and the government programs.  Medicare is essentially unchecked while Medicaid gets a whole lot stingier.  The private market is allowed to exclude and underwrite in some circumstances while the federal government backs away from a lot of regulation. 

The most fascinating part is the financing mechanism.  Obamacare expanded coverage through a combination of generous tax credits and Medicaid expansion.  The CBO scored that this expansion was paid for by a combination of cutting down on Medicare Advantage payments and a wide variety of taxes such as the medical device excise tax, the Cadillac plan tax, sun tanning tax, the reinsurance tax and income tax surcharges on high income individuals and families.  The Hatch plan repealed Obamacare and all the taxes (interestingly, it also repeals a major student loan reform package, no mention of what is supposed to replace that system) but it claims to be deficit neutral so it has to pay for its limited subsidies somehow.

And the way it does is a doozy that immediately shows how politically not viable this proposal is:

Section 601: Capping the Exclusion of An Employee’s Employer-Provided Health Coverage

our proposal caps the tax exclusion for employee’s health coverage at 65 percent of an average plan’s costs. The value of employer-sponsored health insurance would be capped and indexed to grow at an annual rate of CPI +1.

So what does that mean? 

My health insurance just got a whole lot more expensive for me.  That is the short story.  My health insurance according to box 12DD cost $13,000 last year to cover my entire family.  That is 100% pre-tax dollars.  This proposal would make some of that post-tax dollars.  If average means average family plan, the average was $16,351 in 2013.  65% of that means $10,600 would be tax deductible.  The remaining $5,800 for the average person in an average family plan would be taxable.   Personally, I would be paying taxes on an additional $2,400 worth of compensation.  Some people with expensive plans would be paying taxes on a new $7,000 or $10,000 compensation that they don’t see in cash.  Most people would be paying taxes on significantly larger chunks of previously untaxed compensation. 

Furthermore, in the out years, the value of the exclusion gets weaker as either the health plan stays within the budget constraint of CPI+1 by significantly paring back coverage, or the average health plan costs increase and all of those increases shift to taxed compensation.   Again, this fits with the basic Republcian diagnosis of the “problem” that Americans have it too easy and too good and don’t have to worry about bankruptcy every time they blow out their knee while looking for their cat. 

From a build the system from scratch perspective, this is not a bad idea.  However, we aren’t building a system from scratch.  We’re tweaking a legacy system.  And given previous decisions, this translates into a massive tax increase for anyone who gets decent coverage through work and in the long run much lower acturial value of work provided coverage.

41 replies
  1. 1
    Baud says:

    65 percent of an average plan’s costs

    TPM is reporting that they’re backing off of this proposal because it would result in a huge tax increase. Not sure how the new proposal would raise enough money, however.

  2. 2
    Jay says:

    So, the Republican plan can be summed up as the “TOTALLY Not a Death Panel for John Cole of W Va.” bill?

  3. 3
    cmorenc says:

    Also note that according to the Hatch Plan, you’re only grandfathered in on pre-existing conditions etc. when switching to another insurer IF you had continuous coverage under your prior plan. You’ll quickly be screwed by any significant period of unemployment that disrupts your previous coverage, while unable to afford (yet) any new coverage.

  4. 4
    Lee says:

    These are really fascinating. Thank you very much for taking the time to write them out.

    I do have a request. At the end would it be possible for you to put them all up in a single post or entry in the Balloon-Juice Lexion.

    I realize I could also do it myself by just copy/paste into a word or pdf doc but I think others might benefit from them being in all one spot as well.

  5. 5
    Mudge says:

    every time they blow out their knee while looking for their cat

    Fitting example.

  6. 6
    MomSense says:

    @cmorenc:

    It really is a crappy proposal.

    So my son came home from work last night saying that a conservative co-worker was very angry about the president cutting veterans’ pensions to pay for ObamaCare.

    Where did this one come from??

  7. 7
    Cacti says:

    I know this will shock everyone here, but the Cathy McMorris Rodgers anecdote about Bette from Spokane was a bunch of crap.

    Obamacare raised her premiums as much as Samuel Wurzelbacher was actually a plumber called Joe.

  8. 8
    Redshift says:

    @Baud:

    TPM is reporting that they’re backing off of this proposal because it would result in a huge tax increase. Not sure how the new proposal would raise enough money, however.

    Republicans have this problem with everything, because they are still managing to string along the Beltway media and totebaggers on the idea that they’re “fiscally conservative”, but since the base is just anti-tax, the term now means “in favor of cutting taxes and having someone else cut spending if possible.”

    I personally hope the continue pursuing the impossible task of coming up with a plan that is fiscally neutral and doesn’t raise any taxes. If they’re busy doing that, they’ll have less time to do more harmful things.

  9. 9
    Richard Mayhew says:

    @MomSense: who the hell knows

  10. 10
    Omnes Omnibus says:

    @MomSense: The new budget has decreases the COLA for vet’s pensions. How people get from that to the rest is beyond me.

  11. 11
    MomSense says:

    @Richard Mayhew: @Omnes Omnibus:

    They never stop inventing new things for which ObamaCare is to blame.

  12. 12
    NorthLeft12 says:

    Pardon my ignorance, but are Americans allowed to deduct the cost of their Health Insurance payments from their income? Or did I get that wrong?

    I am a Canadian, and we are only allowed to deduct out of pocket medical expenses if they are above a certain threshold, which is based on your income level. I have never claimed these expenses as they have always been well below that threshold……for which I am very grateful!

  13. 13
    Cacti says:

    @NorthLeft12:

    Pardon my ignorance, but are Americans allowed to deduct the cost of their Health Insurance payments from their income? Or did I get that wrong?

    Yes.

    Speaking for myself, my employer takes my health insurance premiums out of my pre-tax income.

  14. 14
    Redshift says:

    @MomSense: From wingnut media, I expect, same as everything. Last November, I had a conservative-leaning acquaintance smugly announce that Obama was cutting Section 8 housing and replacing it with nothing. (I presume he was smug instead of angry because it didn’t affect him, just the poors.) I called bullshit, since I serve on a volunteer board overseeing low-income housing in my county, and such a thing would have been top of the agenda (and since it was obvious bullshit.) The only cuts were because of the sequester. He insisted he had been told this by someone who works on that, but maybe it was only in his area and not mine. (Yeah, sure, Obama is cutting low-income housing, but only in Massachusetts. That’s plausible…)

    It rankled enough that I looked it up when I got home, and sure enough, the only cuts were from the sequester. Which anyone with half a brain could have guessed (which leaves out most conservatives.)

  15. 15
    Redshift says:

    @NorthLeft12: We’re also allowed to deduct medical expenses above 7.5% of income.

  16. 16
    Cervantes says:

    Richard, regarding 601, see this:

    Institute a modest cap on the exclusion for the most generous high-cost plans; specifically, cap it at 65 percent of the average market price for an expensive high-option plan.

    Coburn is feeling the heat.

  17. 17
    mtiffany says:

    Whenever one hears or reads the phrase “legacy system,” the only verb which ever really applies is ‘salvage,’ not ‘leverage,’ ‘tweak,’ ‘repair,’ ‘update,’ or anything else.

  18. 18
    Omnes Omnibus says:

    @NorthLeft12: Generally speaking, a person with ACA-compliant health insurance through work can only deduct out of pocket medical expenses that exceed 7.5% of their adjusted gross income. There are some wrinkles and such. Self-employed folks can deduct the cost of health insurance as a business expense.

  19. 19
    Ash Can says:

    So the Republicans basically want to tax the middle class more, and give that money to the upper class? Wow, that’s a new one.

  20. 20
    NorthLeft12 says:

    Thanks for the responses to my question. You know, it would save a lot of headaches [and money] if you folks just went to a single payer system.

    But then, I think most of you on here know that. Rest of the US? Not so much.

  21. 21
    MomSense says:

    @Redshift:

    It’s so frustrating. We have to spend so much time just debunking lies and distortions. It seems like the Republican proposals can’t compete unless they lie about Democratic proposals.

  22. 22
    Cervantes says:

    @NorthLeft12:

    You know, it would save a lot of headaches [and money] if you folks just went to a single payer system.

    I have a list of about 61,000,000 people you should please inform — but don’t tell them you’re Canadian!

  23. 23
    another Holocene human says:

    @Omnes Omnibus: Duh, Obama is president and controls everything, just like the emoprogs told us. And everything you hate is connected.

    Gop Wurlitzer loves the faux populist blame the other side for the negative externalities of what u did.

    Also, spite on part of gop legislators. You wouldn’t kill the bill or vote Romney, now u can’t have nice things.

    They picked that up in management union busting class. Rube born every minute.

  24. 24

    More tax cuts for the rich, more taxes for the remaining middle class. Those bastards won’t stop until we’re starving in the streets.

  25. 25
    Yatsuno says:

    @NorthLeft12: Well at least Vermont started it. And hey single payer came one province at a time, though once California switches a bunch of blue states will follow rapidly.

  26. 26
    PurpleGirl says:

    @Redshift: Besides Section 8 hasn’t gotten any new money in years. I know that in NYC they are not adding anyone to the application list and haven’t in years. Indeed, IIRC, in 2008 some 400 people/families who had just been notified that they were approved for vouches received letters telling them that the program having no new money would not be giving them vouches.

  27. 27
    FlipYrWhig says:

    @NorthLeft12: but you’d have to have something like single-payer that also was aggressively controlling costs — single-payer as blank check would just put the government on the hook for all the wildly inflated medical costs our stupid system currently generates.

    Also, single-payer invites all kinds of political interference: how well would abortion services be handled in a single-payer system with a lot of pro-lifers at the controls? There’s currently a law about how taxpayer money can’t fund abortions. Insurance companies are money-grubbing and all that, but at least they know that no baby is cheaper than baby, and they’re prepared to help you get from the latter to the former. A Republican government, not so much.

  28. 28
    Yatsuno says:

    My health insurance according to box 12DD cost $13,000 last year to cover my entire family. That is 100% pre-tax dollars. This proposal would make some of that post-tax dollars.

    Nice little bump in AGI as well. That could push folks into higher tax brackets.

  29. 29
    retr2327 says:

    “The remaining $5,800 would be taxable. I would be paying taxes on an additional $2,400 worth of compensation.”

    This sounds wrong. Don’t you really mean: “The remaining $5,800 would be taxable. I would be paying an additional $2,400 in taxes”?

  30. 30
    rikyrah says:

    once again,

    THANK YOU of this information.

    And, I co-sign with the above poster that somehow, at the end of this series, it goes up in the sidebar as a permanent link of information so that we can always have it as a reference.

  31. 31
    Richard Mayhew says:

    @Yatsuno: Given that they’ve not fleshed out the tax treatment or even what would be taxable, I would hold off on that — decent chance they could say “the health insurance component is taxable at your current AGI marginal rate but is not added to AGI…”

  32. 32
    Richard Mayhew says:

    @retr2327: my situation would have $2,400 above the 65% of average health plan costs that is taxable. The average person with the average family health plan would have $5,800 that they would pay taxes against.

  33. 33
    Richard Mayhew says:

    Updated for clarity

  34. 34
    Richard Mayhew says:

    @rikyrah: I don’t see a ton of value of this long term as the P-CARE is not going to be implemented in the next 5 years. It is an illustration of what the GOP thinks a “plausible” sounding reform plan looks like, and it illustrates what they identify as the primary problem (too much regulation, and Americans having too much good insurance), but it is not a serious piece of policy that will be enacted.

  35. 35
    burnspbesq says:

    The walk back that you’re about to see is a special case of the general rule that fundamental tax reform is virtually impossible.

    The reason: (1) there are always winners and losers; (2) the losers squeal like stuck pigs; (3) the winners keep a low profile because they don’t want to queer the deal; and therefore (4) supporters of the proposal lose their nerve for fear of electoral consequences.

    If you were designing a progressive income tax from scratch, with efficient collection of revenue as the primary goal and avoiding perverse incentives as a secondary goal, you almost certainly wouldn’t exclude the value of employer-provided health insurance from income. It is, after all, thinly-disguised non-cash compensation. But once something like that gets into the Code, it’s almost impossible to get it out, as the Republicans are about to find out.

  36. 36
    Stella B. says:

    @NorthLeft12: if insurance is provided through an employer, they pay for it with pre-tax dollars. If you buy insurance on the individual market, you pay for it with post-tax dollars. That obviously is unfair, but government subsidies for health insurance are not a tax break and would clearly be soshulism and very, very baaaaad.

    If you have continuous insurance and a pre-existing condition, but you move to a different state, then bye-bye to your insurance.

  37. 37
    Ruckus says:

    So if I’m reading this right, the “new” gop plan reverts to pre ACA and makes it worse for everyone except the insurance companies?

  38. 38
    NonyNony says:

    @Richard Mayhew:

    I don’t see a ton of value of this long term as the P-CARE is not going to be implemented in the next 5 years. It is an illustration of what the GOP thinks a “plausible” sounding reform plan looks like, and it illustrates what they identify as the primary problem (too much regulation, and Americans having too much good insurance), but it is not a serious piece of policy that will be enacted.

    It’ll be worth it for the compare and contrast with what they propose in the run up to the 2016 election wrt health care/health insurance reform, I think.

  39. 39
    DBaker says:

    I finally got around to reading your entire series, which is excellent, as usual.

    Apologies for going back to a separate topic, HSA and High Deductible plans (see this post: “http://www.balloon-juice.com/2014/01/30/problems-with-high-deductible-health-plans”) my company offers a United Health (scam) Care “regular” and “high deductible” plan, which are honestly the choice between something bad and something worse.

    The reason for this, specifically, is that, in my state (Maryland) UHC is unable to obtain the “Blue Cross/Blue Shield” discount for provided services, that is BC/BS pays/bills at approximately 50 percent, while UHC obtains little to no discount for anything, albeit medical care or drugs, meaning that while I might not hit the deductible (which still makes me pay 20% of the bill), I still have to lay out a lot of cash as stated in your post over time.

    Also, a health care provider can still charge me $240 just to step in the door of an urgent care center, while they charge a person that is insured by Medicaid or Blue Cross a fraction of this cost.

    What I would like to do, and what the PPCA does not allow me to do, is opt out of my employer plan and get a subsidized BC/BS plan on the exchange since they are able to obtain much better discounts. Those dollars in my HSA are still real dollars after all and not monopoly money as I feel that some of these GOP politicians think when they make these Ryan type proposals, that is they are a scam, but they allow a GOP politician to say that they have a “serious” alternative, even though they really don’t.

    My question is 2 fold: Is there something that can be done with this difference in pricing, that is if you have no insurance or a shit insurance company you get one high rate and if you have someone else you get a low price and 2) is there a policy solution that is politically feasible (i.e. single payer is of course the solution to all of this) such as a regulatory change via executive order to allow this to be fixed.

  40. 40
    Glocksman says:

    My box 12dd is: $5723 (single coverage)

    According to this chart, average single coverage is $5615.

    Under the Republican plan, only $3650 of that $5723 is tax exempt, thus resulting in a $2000 hike in taxable income.

    Nice to know.

  41. 41
    Richard Mayhew says:

    @Ruckus: Not quite that bad — there are some consumer protections and some subsidies, but it is far closer to 2009 coverage than 2014 coverage

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