President Obama on Monday unveiled a new health care proposal that adds spending provisions and raises taxes without making any real concessions to Republicans ahead of this week’s health care summit.
President Obama’s plan (available here), would eliminate the so-called “Cornhusker Kickback” and instead raise the Federal government’s Medicaid subsidies to all states; it would close the so-called “donut hole” on Medicare prescription drug benefits by providing more subsidies to seniors; it would increase subsidies for individuals and small businesses to purchase insurance; and it would hike funding for health clinics. To address the controversy surrounding the so-called “Cadillac Tax” on benefit rich health care plans, it essentially gives everybody the deal that unions cut last month, which would delay enactment of the tax until 2018 and raise the value of the health plans that are affected. All of these provisions will make it more costly than the Senate bill.
To finance the changes, President Obama proposes raising taxes even more than the Senate plan does. Under Obama’s proposal, higher income workers would see their portion of the Medicare payroll rise even higher. The tax would create a marriage penalty by applying to individuals earning over $200,000 and couples earning over $250,000. When the original version of the Senate health care bill was produced, the Medicare tax on those earning over $200,000 was supposed to be 0.5 percent. In the version that passed in December, the tax had been raised to 0.9 percent. And though it hasn’t even been made law yet, Obama is raising the Medicare tax for the third time, by assessing an additional 2.9 percent tax on income “from interest, dividends, annuities, royalties and rents…” This follows the historical pattern of payroll taxes, which have increased 20 times since first introduced in 1935, going from a combined total of 2 percent (including employer/employee contributions) to 12.4 percent today.
The Obama proposal would also raise the proposed tax on drug makers by $10 billion, to a combined $33 billion over 10 years, while delaying enactment by a year. It also delays enactment of the tax on medical devices and health insurers.
The Senate bill’s version of the individual mandate taxes those without health insurance by charging them either a flat dollar amount, or a percentage of income — whichever is higher. The Obama proposal lowers the flat dollar tax slightly (to $695 from $750 when phased in), but raises the percentage of income. This would result in even higher taxes for many individuals for whom the percentage of income is higher. For instance, when fully phased in, somebody earning $40,000 who chooses to go uninsured would be subject to a tax hike of $1,000.
Like the Senate bill, Obama’s proposal doesn’t include a strict employer mandate, but it does penalize businesses who do not offer insurance to workers who then get their insurance through the exchange. The Obama proposal provides more subsidies to small businesses, and helps mid-sized businesses by exempting the first 30 workers when calculating the tax, but large employers who do not offer coverage would face higher penalties under the Obama proposal. In the end, the tax will make it more expensive for large employers to hire lower income workers (who qualify for government subsidies), and thus exacerbate unemployment.
On the regulatory front, Obama proposes a new federal Health Insurance Rate Authority to help police premium hikes, and also requires that “if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable.”
There are some positive measures to combat Medicare and Medicaid fraud in the proposal. For instance, I’m particularly supportive of the idea of giving background checks to providers who have the ability to bill Medicare. But these are things that we should be doing anyway, and don’t justify Obama’s move toward a government takeover of the health care system, with all of the spending, taxes and regulation that goes along with it.
UPDATE: I corrected an earlier version of this post which incorrectly interpreted the new payroll tax provision.