Unintended Consequences or Political Pandering in an Election Year?

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The recent $1.4 Trillion spending package signed by the President includes some important actions regarding the Affordable Care Act (ACA, also known as Obamacare).

The President and Republicans campaigned on repeal and replacement of the ACA, but to date have produced only a 114 page document that, according to Kaiser Health News, includes “more than two dozen recommendations that broadly focus on loosening federal and state regulations, limiting hospital and insurer market power and prompting patients to be more price-conscious shoppers.”

Essentially, most of these are old ideas that are repackaged, but don’t really do much to alter the delivery or financing systems factors that actually contribute to the high costs of health care.

The administration has been successful in slowly dismembering the ACA and these most recent cuts are most intriguing. Included in the budget bill is the repeal of three taxes. Readers of this column will remember that the ACA provides subsidies to middle income Americans to help pay their insurance premiums. Those subsidies were funded by a series of taxes.

The following three taxes are eliminated: The Cadillac Tax on “overly” generous employer health plans, the Health Insurer Tax and the Medical Device Tax. The elimination of the last two taxes are big wins for the insurance industry and Medical Device Manufacturers. Eliminating the “Cadillac tax” will benefit employers who have expensive or very generous health plans.

It can be argued that the latter two taxes were simply passed on to consumers in the form of increased charges that found their way into our health insurance premiums. The proof will be in the pudding. Will our rates be reduced next year due to the elimination of the taxes? Will medical device manufacturers reduce the cost of their devices? Highly unlikely. But we will be told that the premium rate increase we are receiving is less than it would have been, due to the elimination of those taxes and the additional administrative burden that went along with accounting for them.

The bigger issue is how do we continue to pay for the subsidies that are being collected by insureds? If the taxes are not there to fund the subsidies, yet the subsidies continue, then we are paying for those with our ever-ballooning deficit.

Eliminating these taxes will contribute $373 billion to the deficit, according to an estimate from Congress’ Joint Committee on Taxation. But what the heck, against a current deficit of over $22 Trillion, does it really matter? Our children and grandchildren will bear the greatest burden anyway, right?

Administrations have a habit of implementing new programs and not paying for them. When Medicare Part D was implemented in 2006 without any additional funding, it was expected that it too would raise the deficit. This is the legislation that provides Rx benefits for seniors.

Prior to the implementation of Part D, there was no prescription drug coverage for Medicare Beneficiaries. Drugs were “pay as you go”. According to the Kaiser Family Foundation Medicare Part D benefits cost the federal government $95 Billion or 13% of the Medicare spend in 2018. That was up from $49 Billion or 11% in 2008.

The ACA certainly has its detractors, and the additional taxes imposed were not popular. But one could not accuse the administration of passing a benefit bill and not paying for it.

With high medical costs being one of the leading causes of personal bankruptcy in the US, I find taking away the funding for the subsidies to be the height of hypocrisy.

Margaret R. Beck
Margaret Beck  CLU, ChFC, CEBS started her insurance practice in Redding in 1978. As an insurance broker/consultant,  she represents businesses and individuals as their advocate.  She assists in choosing proper products, compliance with complex benefit laws and claims issues once coverage is placed. All information in her column is provided to the best of her knowledge, subject to final regulation by the respective agencies. Questions to be answered in this column can be submitted to info@insuranceredding.com. Beck's column is also published in the Redding Record Searchlight.
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5 Responses

  1. Avatar Richard Christoph says:

    Thank you for this timely information and the ramifications that will follow. I recently discovered in a closet the April, 25, 2016 issue of TIME magazine with a cover story by James Grant, a frequent guest on Louis Rukeyser’s “Wall Street Week” years ago. He points out the $13.9 trillion U.S. debt, and the calculation that each American man, woman, and child would need to pay $42,998.12 to erase that debt. That was a sobering wake-up call, but less than 4 years later, the debt is now $9.1 trillion (65.4%) greater. So much for fiscal responsibility.

    • Avatar Doug Cook says:

      The reality Richard, is that nobody cares about the debt or deficit. The GOP used to care, but no longer. The Democrats really never cared about controlling spending, and most American voters don’t care. We have all fallen in love with entitlement spending. More than half of all US citizens take advantage of some sort of entitlement benefit. If any politician even dates to suggest that we merely stop the rate of growth of a program…not cut it, just slow the rate of growth. They get beat up about slashing important programs. SNAP, the food stamp program is a good example. The budget for food stamps grew from $17 billion a year before the recession to $84 billion by 2015. Now that the economy is recovered, unemployment is at near record lows, it makes sense that we can reduce the budget to near 2009 levels, right? No….of course not. We can never reduce budgets. So yes.. so much for fiscal responsibility. Congress doesn’t care, Trump doesn’t care, Obama didn’t care, Bush didn’t care, the American voter doesn’t care. Out of all the Democrat debates so far. How much time have they spent on fiscal responsibility? None is the answer. But they sure have focused on spending even more money.

      • Avatar Randy says:

        “The Democrats really never cared about controlling spending”?

        Under Clinton.

        Deficits and debt[edit]

        Four CBO charts with revenue, spending, deficit and debt information. The budget was in surplus from fiscal years 1998-2001, the only such years between 1970 and 2018. The debt to GDP ratio also improved.
        Below are the budgetary results for President Clinton’s two terms in office:

        He had budget surpluses for fiscal years 1998-2001, the only such years from 1970-2018. Clinton’s final four budgets were balanced budgets with surpluses, beginning with the 1997 budget.
        The ratio of debt held by the public to GDP, a primary measure of U.S. federal debt, fell from 47.8% in 1993 to 33.6% by 2000. Debt held by the public was actually paid down by $453 billion over the 1998-2001 periods, the only time this happened between 1970 and 2018.
        Federal spending fell from 20.7% GDP in 1993 to 17.6% GDP in 2000, below the historical average (1966 to 2015) of 20.2% GDP.
        Tax revenues rose steadily from 17.0% GDP in 1993 to 20.0% GDP in 2000, well above the historical average of 17.4% GDP.
        Defense spending fell from 4.3% GDP in 1993 to 2.9% GDP by 2000, as the U.S. enjoyed a “peace dividend” in the wake of the fall of the Soviet Union. In dollar terms, defense spending fell from $292B in 1993 to $266B by 1996, then slowly rose to $295 billion by 2000.
        Non-defense discretionary spending fell from 3.6% GDP in 1993 to 3.2% GDP by 2000. In dollar terms, it grew from $248B in 1993 to $343B in 2000; robust economic growth still enabled the ratio to fall relative to GDP.[1]

        • Avatar Doug Cook says:

          Sorry Randy…you got it wrong. It wasn’t Clinton that was concerned about the debt. Speaker Gingrich and his Contract with America drug Clinton kicking and screaming over to the Fiscal conservative side. It was the losses that the Democrats found themselves in that forced Clinton to cooperate with the GOP. That was the last time the GOP was concerned about the debt. Note that the majority of the savings happened in his 2nd term after the Contract with America. Do tell me Randy. What programs would you like to see cut to balance the budget? What favorite program of yours care you willing to cut?

  2. Avatar Bruce Vojtecky says:

    As my Anthem health plan, fully paid by me(not an entitlement) is considered a Cadillac plan I am glad the Cadillac Tax is never going to be implemented.
    Medicare is not an entitlement, it is paid for health insurance that I still pay into.