Fact of the Day: About 8,000 subscribers receive these Health Alerts.
Correction on HSAs: My previous statement that the Senate bill would reduce allowable HSA deposits by two-thirds was incorrect. The Senate bill would limit the deductible in small business plans to $2,000 (individuals) and $4,000 (families), as opposed to the current HSA limits of $5,950 and $11,900. As Ron Bachman explained, this would greatly restrict the types of consumer-directed health plans people have access to. However, as Roy Ramthun explained, the maximum contribution to a Health Savings Account (HSA) is not tied to the deductible. This means (using the above numbers) individuals could contribute $5,950 to an HSA, even though the deductible is only $2,000. Total allowed out-of-pocket exposure, however, (deductibles, coinsurance and copays) would still be limited to $5,950.
Today’s Topic: Barack Obama is taking heat these days for endorsing the same idea he pounded on John McCain for endorsing during the last presidential election: taxing health insurance benefits.
True? Yes and no.
Yes, Obama is being a hypocrite. No, he’s not doing what John McCain proposed to do. Which is too bad.
“Kill [the] Bill”
(requested by Uwe Reinhardt)
The tax on health insurance in the Senate bill really is a tax on insurance. It applies to spending in excess of $8,500 (individuals) and $23,000 (families). But since it’s not indexed to medical prices, eventually it will reach everyone. It’s also very regressive, applying a 40% rate to everyone, regardless of income. Minimum wage workers will be taxed as though they were millionaires.
Defenders say the tax will encourage more economical choices of insurance benefits. Yet the bill has a mandated benefit package that will be more bloated than most people realize. According to Kathleen Sebelius, it’s going to require real mental health parity rather than cosmetic parity and once special interests get geared up, the package will get more bloated over time. Adding to the price tag is a limit on the deductible and out-of-pocket exposure. And let’s not forget guaranteed issue and modified community rating regulations that push up premiums wherever they are implemented.
Bottom line: There is no serious attempt here to keep premiums low or to encourage bare bones health insurance. And as the required health plan becomes more and more expensive over time, the Senate levy that will be imposed on it will look like a tax, act like a tax, walk like a tax…
The McCain health plan, by contrast, would have substituted a new and better tax regime for the current one. People would be able to get all their tax benefits up front, by buying core insurance that everyone should have. Extra benefits would be completely paid for with after-tax dollars. This means that people could switch back and forth between take-home pay and health benefits (substituting one for the other) without tax penalty.
John McCain should never have allowed Barack Obama to characterize his plan as a tax increase. It was instead a tax cut for the vast majority of all workers. And it might have resulted in an increase in take-home pay for almost everyone, once people adjusted to it.
Moreover, the McCain proposal was highly progressive. Much more so than what has been proposed in either the House or Senate versions of ObamaCare.