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Obamacare predictions/ “The Secretary shall decide”

There are some changes coming to Obamacare. We won’t hear much about them, but shortly after the midterm elections these three changes will take place. I guarantee it.

The penalty for failing to obtain health insurance from the exchanges will be increased dramatically. There is evidence to support this is in Massachusetts where the penalties for non-compliance with the individual  mandate increased from $219 in 2007 to $1068 in 2009.

Why would this happen, you ask? The financing for universal coverage requires healthy young people to buy insurance, not coverage tailored to their individual needs, but comprehensive coverage. The young are generally less financially secure than their older counterparts, have not reached their peak earning capability and have little home equity, savings or investment income to draw on. Obamacare will offer subsidies to many of these folks and those who can’t afford coverage, even with the subsidies, retain the option to decline it and pay a penalty ($695 or 2.5 of adjusted gross income in 2016).

The irony is that this reform will probably create two new classes of dependents. The first is a group of insureds who will likely need subsidies in perpetuity and the second, the aggrieved individuals who will remain uninsured but now pay a minimum of $695 for the privilege; $695 that will purchase nothing. (In the Midwest $695 still buys up to 4 visits with a general practitioner.)  The aggrieved may seek routine care right back in the emergency room.

The second change involves the $2000 penalty imposed on employers who do not offer insurance coverage (to workforces that number over 50). The penalty currently does not apply to the first 30 employees. This exclusion will be repealed. The penalty will be applied to each and every employee and subsequent increases will be adjusted upward annually.

The third and most perplexing change will involve the 40 percent excise tax on Cadillac plans. This probably the most distressing of the three. While the first two reforms at least purport to address some structural problem, this reform will penalize employers for providing nearly  ideal coverage and will do so for revenue alone. Many of these Cadillac plans are the product of negotiated agreements between employers and unions. I expect that through a process of waivers, certain agreements will be exempted from the penalty by something akin to a grandfather clause. The “Secretary shall decide” covers a multitude of sins in the Affordable Care Act. The Secretary will be sinning with abandon in the aftermath of the midterm elections.

It stands to reason that an employer should pay an insurer an additional dollar of premium for an additional dollar’s of coverage. It isn’t reasonable that the employer should pay 40 cents to the government for the privilege. What harm are they trying to alleviate?

The employer has three options.  The employer can give an employee extra coverage, $1 of value for $1 of expense. He/she could pay the dollar in wages. That dollar is reduced in value by the employees tax obligation and the employer’s contribution is increased by additional withholding taxes, unemployment taxes and workers compensation. It costs more than a dollar and nets less.  The third option, the excise tax, requires the employer to lay out $1.40 to purchase that same $1 of value or reduce the value of the insurance coverage to escape the tax. It is patently unfair to the employee (but good for the government).

For political reasons, the 2.3 percent medical device tax will surely be repealed before the mid-terms. It will cripple the revenue side and it will be bipartisan. Many  more changes will be necessary to meet the revenue shortfalls. These three changes are coming and they won’t be well publicized. And there will be more.

 

 

 

 

 

 

 

 

 

 

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