We hear plenty about how the White House and Congress have insisted that a health-care overhaul will get paid by either the rich or the insurers and pharmaceutical companies with massive new fees. But will they pay the costs of these fees, or will those fees get spread to consumers? It hardly comes as a shock that an industry with an average 3.3% profit margin won’t be able to sustain an excise fee of 35% without either rapidly downsizing or hiking insurance premiums, or going out of business altogether. A new analysis by the Joint Committee on Taxation and former CBO director Douglas Holtz-Eakin shows that the distribution of the excise tax and other fees on the health insurers will mean higher costs borne primarily by the middle class.
First, let’s look at the distribution of the excise tax impact. Excise taxes get imposed on insurance companies that sell so-called “Cadillac plans” that cost more than $8K per individual or $21K per family on an annual basis. Assuming that insurers don’t simply drop these plans and offer less expensive — and less robust — alternatives, the costs will not get passed along only to the people with the Cadillac plans, as the excise tax applies to their entire income. Holtz-Eakin shows how insurers would have to hike premiums in order to remain profitable, by income levels:
Those making between $40K and $200K would get hit with 72.6% of the costs of the excise tax in higher premiums in the first year of the program, 2013. That number goes up to over 77% in 2019.
The next government bite come from something called the Chairman’s Mark, a $6 billion excise “fee” applied to health insurers, apportioned by market share. As Holtz-Eakin explains, this is another tax; it gets applied by the government, and as an insurance company sells more policies, it rises with their market share. It essentially penalizes success. And again, this “fee” or “mark” would get passed along to the consumer, along with other such “fees”, with the middle class getting the brunt of the premium hikes:
In this case, 65.6% of all 2013 costs get passed to taxpayers in the $40K-$200K band. Because the fees stay relatively stable, that percentage remains the same in 2019.
Combining the two, Holtz-Eakin shows that 76.8% of the costs of these fees and excise taxes get passed to middle-class taxpayers making between $40K-$200K in 2013, and 74.7% of all costs in 2019:
Furthermore, the exchange credits — by which taxpayers get subsidized for purchasing health insurance — become a problem in themselves. As Thomas Barthold explains in a letter on the subject to the committee, 72% of the refundables will exceed the total tax liability of the recipients. That means only $130 billion of the $463 billion lowers taxes — and $330 billion gets spent by Treasury as an outlay.
Who will pay for that outlay? Everyone who doesn’t qualify for the subsidy, which gets scaled up to 400% of the poverty level. That means everyone who makes more than $88,000 will have to pay higher taxes as well as the higher premiums to fund this monstrosity.
Remember when Barack Obama said that taxpayers below $250,000 wouldn’t see one dime of tax increases?