At the end of this year, the coverage provisions of the Affordable Care Act will take effect. Regardless of what a person thinks about the massive changes the law will make to America's health care system, it's important to understand the economic impact of the health care law's regulatory burden and 23 tax increases.
The reality is that the Affordable Care Act creates multiple levels of new government regulation and the cost of the law is covered with taxes and penalties on businesses and consumers who already pay for their insurance. Health insurance premiums are expected to jump significantly as insurers shift costs to comply with mandated health care benefits.
The law also continues to cause great uncertainty among employers. The employer mandate requires companies with at least 50 workers to provide health insurance to those who work at least 30 hours. In anticipation, some employers have cut back hours or added part-time staff instead of full-time positions. The Bureau of Labor Statistics' recent employment report shows that of the 162,000 jobs added in July, a disproportionate share is skewed towards lower-wage, part-time work. The ranks of part-timers being hired are swelling due to the uncertainty created by the employer insurance mandate. The White House in July unilaterally decided to postpone the employer mandate, but the one-year delay does not remove the future burden on employers. The delay also opens up insurance subsidies to fraud, as the IRS likely will not be able to certify if those who apply legally qualify.
The tax increases prescribed in the Affordable Care Act to raise $1 trillion over a decade include:
a 2.3 percent excise tax on the sale of medical devices effective January 1, 2013, increasing the cost of hip and knee replacements and other medical innovations that our aging society has come to depend on to extend quality of life;
a tax penalty on individuals for not buying qualifying coverage effective January 1, 2014, that gradually increases over the next three years. In 2014 the penalty tax is limited to $95 or 1 percent of taxable income, whichever is greater, but by 2016 the tax grows to $695, or 2.5 percent of taxable income. In the years following, the penalty will increase by a cost-of-living adjustment;
a payroll tax hike on higher-income taxpayers, lifting Medicare Part A's tax bite to 2.35 percent from those workers' paychecks;
a 3.8 percent surtax on investment income for higher-income taxpayers;
a tax increase that limits contributions to Flexible Savings Accounts (FSAs) to $2,500 and eliminates tax-free reimbursements for over-the-counter medicine for both FSAs and Health Savings Accounts;
limits on medical itemized deductions;
an excise tax on insurers of employer-sponsored, high-end health plans, effective in 2018; this change places a punitive tax on those who have health coverage to help pay for those who do not;
annual fees on prescription drug manufacturing and health insurers; and,
a 10 percent tax on indoor tanning services.
Expanding access to health care coverage for the uninsured has broad support and steps need to be taken to increase access to coverage, especially for individuals, and to increase transparency and competitiveness in the cost of health care services. But the new federal taxes, excises, penalties, mandates and fees in the Affordable Care Act come with tremendous economic costs. What's more, the health care law won't bend the spending curve on exploding health care costs or encourage medical innovation.
All things considered, just as Washington can't tax our way to prosperity, the federal government can't tax its way to universal health care coverage without inflicting more harm than good.