Federal Government’s Ability to Provide Health Insurance Subsidies Being Challenged

Starting in 2014, the Affordable Care Act requires most Americans have health insurance and offers subsidies to help people pay for insurance bought through markets known as insurance exchanges.

Critics say the law only provides subsidies for people who obtain their coverage through state-run exchanges but the White House says the law can be read to allow subsidies for people who get coverage in federal exchanges as well.

The law says that “each state shall” set up an exchange but officials in one third to half of the states have either been slow to or flat out refused to set them up. Washington may have to set up federally run exchanges to ensure people are covered.

The Congressional Budget Office predicts that 23 million uninsured people will gain coverage through exchanges and that all but five million of them will qualify for subsidies, averaging more than $6,000 a year per person. Subsidies, in the form of tax credits, will be available to people with incomes from the poverty level up to four times that amount ($23,050 to $92,200 for a family of four).

Some supporters of the law say Congress may have made a mistake in drafting this section. But, they add, the intent of Congress is clear: subsidies should be available in federal as well as state exchanges.

The Obama administration issued a rule that allows tax credits for insurance bought in either a state or a federal exchange.

Representative Phil Roe, (R) Tennessee, said the rule on premium subsidies “contradicts the explicit statutory language” of the Patient Protection and Affordable Care Act. Roe and another Tennessee Republican, Scott DesJarlais, have introduced a bill to nullify the rule, issued by the Internal Revenue Service.

Douglas H. Shulman, the I.R.S. commissioner said “The statute includes language that indicates that individuals are eligible for tax credits whether they are enrolled through a state-based exchange or a federally facilitated exchange.”

However, Senator Orrin G. Hatch, (R) Utah, of the Senate Finance Committee, said the Obama administration was usurping the role of Congress and rewriting the law to provide tax credits through federal exchanges.

James F. Blumstein, a professor of constitutional and health law at Vanderbilt University, said the dispute over subsidies involved a serious legal issue.

“The language of the statute is explicit,” Mr. Blumstein said. “Subsidies accrue to people who obtain coverage through state-run exchanges. The I.R.S. tries to get around that by providing subsidies for all insurance exchanges. That interpretation will almost certainly be challenged by someone.”

The most likely challenger, Mr. Blumstein said, is an employer penalized because one or more of its employees receive subsidies through a federal exchange. Employers may be subject to financial penalties if they offer no coverage or inadequate coverage and at least one of their full-time employees receives subsidies.

Michael F. Cannon, director of health policy studies at the libertarian Cato Institute, said the link between subsidies and penalties was a crucial part of the law.

“Those tax credits trigger the penalties against employers,” Mr. Cannon said. If workers cannot receive subsidies in states with a federal exchange, their employers cannot be penalized, he said. That, in turn, would hobble federal efforts to get employers to offer coverage in those states, Mr. Cannon said.

Prof. Timothy S. Jost, an expert on health law at Washington and Lee University, said Congress had made “a drafting error” that should be obvious to anyone who understands the new health care law.

“There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that end up with a federal exchange,” said Mr. Jost, who supports the law.

7 Tax Hikes That Obamacare Imposes on Those Earning Less Than 250k

President Obama has long pledged that he would not raise taxes on anyone earning less than 250k a year but he abandoned that promise the day he signed the Affordable Care Act into law.

Here’s a list of seven ObamaCare tax hikes that affect the middle class.

1. The Individual Mandate Excise Tax.

Starting in 2014, anyone not buying “qualifying” health insurance must pay an income tax surtax. It goes up each year until 2016 and beyond when a couple would pay a tax of the higher of $1,360 or 2.5% of adjusted gross income.

2. The Over-The-Counter Drugs Trap.

Since Jan. 1, 2011, employees with health savings accounts, flexible spending accounts or health reimbursement accounts have no longer been able to use pre-tax funds stashed in these accounts to buy over-the-counter medicines for allergy relief and the like without a doctor’s prescription (there’s an exception for insulin).

3. The Healthcare Flexible Spending Account Cap.

Starting Jan. 1, 2013, employees will face a $2,500 cap on the amount of pre-tax salary deferrals they can make into a healthcare flexible spending account. There is no cap under current law. In light of the new cap, employee benefits groups are lobbying for Congress to modify the use-it-or-lose-it rule that means employees forfeit unused funds in their accounts at the end of the plan year.

4. The Medical Itemized Deduction Hurdle.

Starting Jan. 1, 2013, taxpayers who face high medical expenses will only be allowed a deduction for expenses to the extent they exceed 10% of adjusted gross income, up from 7.5% now.  Taxpayers 65 and older can still use the old 7.5% threshold through 2016. For how to score the medical expense deduction before 2013, click here.

5. The Health Savings Account Withdrawal Penalty.

Since Jan. 1, 2011, taxpayers who withdraw money from health savings accounts for non-medical expenses before age 65 face a 20% penalty, up from 10% before.

6. The Indoor Tanning Services Tax.

Since July 1, 2010, folks using indoor tanning salons face a new 10% excise tax. This one hasn’t been bringing in as much revenue as anticipated.

7. The Cadillac Health Insurance Plan Tax.

Starting in 2018, there will be a new 40% excise tax on taxpayers who are covered by high-cost health insurance plans (with premiums at or above $10,200 for a single or $27,500 for a family). Insurers or employers who are self-insured will pay the tax, but it is expected to trickle down to mean higher costs for consumers.

Americans For Tax Reform has a full list of ObamaCare’s 20 new or higher taxes on American families and small businesses.

Study Says Health Care Costs To Exceed A Record $20,000 Per Year For Families With Insurance

According to a new study, health care costs for a family of four covered by workplace health insurance will exceed $20,000 for the first time ever this year.

A family of four will pay $5,114 in premiums for a preferred provider organization plan in addition to $3,470 in out-of-pocket costs like co-payments for doctor visits and prescription drugs, according to the report issued by Milliman, a firm that consults with companies on employee benefits. The remainder of the expenses will be paid by employers leaving less money to be spent on higher wages.

Almost 50 million Americans had no health insurance as of the 2010 census, more people are going without medical care they need because of cost, while employees are being asked to pay a larger share of  health care costs at the same time benefits are being scaled back. More and more employers are dropping coverage for workers, while the United States has fallen behind other industrialized nations on measures of health care quality.

Family health care costs grew by 6.9 percent between 2011 and 2012, slower than in previous years, but Milliman suggests there’s little comfort in that.

“The rate of increase is not as high as in the past but total dollar increase was still a record,” the report says. “The dollar amount of the increase overshadows any relief consumers might derive from the slowing percentage increase.”

According to the report, the health care reform law signed by President Barack Obama in 2010 “has had only a limited effect” on health care costs.

Spending on physician services will reach $6,647 and spending on hospital stays will rise to $6,531, making them the two biggest components of a typical family’s annual health care expenses, the report adds.

Health care costs varied among the 14 metropolitan areas that Milliman analyzed. Miami and New York City are the most expensive, with costs about 20 percent higher than the national average. The report says that Phoenix, Atlanta and Seattle were the only three cities where annual costs are projected to be less than $20,000 this year.

Study: Health Insurance Premiums Will Equal 50% of Household Income by 2021

According to a new study, if current trends continue, the cost of health insurance for a typical American household will devour all of its paycheck(s) by 2033.

Doctors Richard A. Young and Jennifer E. DeVoe, whose study was featured in ‘Annals of Family Medicine’, reached this conclusion by comparing recent increases in health insurance costs with the considerably lower increases in family income:

“From 2000 to 2009, the average annual increase in insurance premiums was 8.0%; household incomes rose an average of 2.1%.

If health insurance premiums and national wages continue to grow at recent rates and the US health system makes no major structural changes, the average cost of a family health insurance premium will equal 50% of the household income by the year 2021, and surpass the average household income by the year 2033.”

Even worse:

“If out-of-pocket costs are added to the premium costs, the 50% threshold is crossed by 2018 and exceeds household income by 2030.”

The Affordable Care Act, also known as “Obamacare”, has been repeatedly touted by the president as a means to make healthcare affordable, hence the name. But even if Obamacare delivers on those promised savings we don’t have much relief to look forward to.

Young and DeVoe calculate that under the president’s healthcare law the cost of health insurance will top median family incomes in 2037 instead of 2033.

There are others who are more optimistic.

Noelia de la Cruz, writing for Business Insider, notes that a recent study published in Health Affairs suggests that the Affordable Care Act could bring about bigger cost savings than most experts, including Young and DeVoe, are anticipating:

“Researchers equipped 26,000 previously uninsured Richmond, Va. residents with health care plans and tracked them between 2006 and 2007.

In the end, they found the participants cut health care costs by 50 percent with fewer emergency room visits and more access to preventative health care.”

In the Washington Post’s Wonkblog, Sarah Kliff offers another possible reason for optimism:

“Young and DeVoe’s projections do not take into account the most recent year of health spending data, which showed health-care costs growing at the same pace as the rest of the economy, not faster. There’s a lot of debate over whether that slowdown is the start of a long-term trend, or a short-term side effect of the recession.”

Followed by a cold dose of reality:

“But even if overall health-care costs are growing slower, that doesn’t necessarily translate to lower insurance premiums: In recent years, employers have shifted an increasing chunk of health insurance bills to their employees.”