On Takers and Payers
Remember the big flap about the Supreme Court ruling on the Affordable Healthcare Act (AKA – Obamacare – ACA)? The issue that made the headlines was that the Supremes ruled that ACA was legal, provided that the penalty for not having health insurance was collected as a tax.
This is a big deal as the penalty ($700 a year per person) was supposed to be the discipline that forced people to go out and buy their own insurance. One either acquires health insurance, or they pay a price.
The CBO took a look at this last week (link). The results surprised me. The reality is that few people will end up paying the penalties. So the basic premises of ACA is actually a fraud.
CBO estimated that there will be 30Mn uninsured in 2016 when ACA goes into effect. Of that 30Mn, the following groups will be excluded from paying the penalty:
1) Undocumented workers.
Really? But that is 10Mn people; a third of the problem!
2) Religious Beliefs
Huh! What religion is that? If it gets you out of paying taxes, I want to join!
3) Native Americans
Okay, after all, it is their land.
4) Individuals and families with low incomes.
I can live with this. But isn’t this where we are today? Poor people don’t have health insurance today, and they don’t have to pay any fines. In 2016 they will still have no insurance, and they won’t have to pay any fines. What has been accomplished?
5) Anyone who does not file federal income taxes.
This is directed to those with income of less than $10k per year (same as #4), but there are an awful lot of people who don’t file taxes who are making much more than the minimum amounts. Most waiters and bartenders would fall into this group.
6) Individuals who can’t afford the cost of health insurance.
The annual cost of health insurance must be less than 8% of an individual’s income for the penalties to apply. What is this new insurance policy going to cost? If the answer is $250 per month (too low in my opinion) it means that anyone with an income less than $37,500 is excluded. If the cost of that Ins. policy is $500 a month (a more reasonable estimate), then anyone who has annual income of less than $75,000 would be excluded.
With these carve outs the number of individuals who would be subject to the penalty falls to 6Mn (80% drop). But it gets worse:
Among the uninsured individuals subject to the penalty tax, many are expected to voluntarily report on their tax returns that they are uninsured and pay the amount owed. However, other individuals will try to avoid payments.
Oh boy! How many of the remaining 6Mn will “voluntarily” pay the penalty, and how many will seek to “avoid” it? At least half will avoid it. There is not much risk of getting hit by the IRS if one’s income is < $75,000. The IRS does not have the manpower to chase after those who “avoided” the penalty. The CBO recognizes that the actual amount of fees collected is subject to:
the ability of the Internal Revenue Service (IRS) to administer and collect the penalty.
The only people who are going to end up paying are those who have something to fear from an audit.
Households with income that exceeds $60k are estimated to constitute about one-third of people paying penalties and to account for about two-thirds of the receipts from those penalties.
The CBO reckons that Uncle Sam will collect about $8Bn a year in fees. This money will be used to offset some of the costs of the uninsured. The Penalty is also the “stick” of ACA that forces people to get insurance by one means or another. I see it differently:
- Post the introduction of ACA there will still be 30Mn people without insurance. These people will still get sick or injured; they will continue to be a drag on everyone else.
- The fees/taxes that are supposed to provide discipline and revenue for ACA will accomplish very little. I will be amazed if the penalties total more than $2Bn a year (peanuts). There will still be 30Mn people without insurance, and they will get sick (not peanuts).
- The Administration and Congress have cooked up a deal that got amended by the Supremes that will result in a great new opportunity for people to cheat on their taxes. Millions will take advantage.
- ACA is a wealth redistribution program. ACA will create more TAKERS; the PAYERS will foot the bill.
Mitt probably lost any chance he had with the election with is words about the “other” 47%. But the fact is the country is divided between Takers and Payers. The CBO head, Doug Elmendorf had this to say about the dilemma the country faces:
Formidable? I would say impossible.
Four years from today the Taker - Payer ratio will exceed 50%. The argument then will be the same as it is today. In order to pay for the cost of government, taxes will have to be much higher than the historical norm. But the necessary higher taxes will drag on the economy, and growth will be far less than potential. Sub-par growth means high unemployment and low tax receipts. The vicious debt spiral will continue.
Where does this lead us? Elmendorf's thoughts:
The conclusion is that we are headed into a crisis, and when it happens we will not have the resources available to fight that crisis off. What kind of plan is that?
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