Hidden Healthcare Taxes

Americans already pay hidden healthcare taxes and the Baucus plan would worsen the burden through additional hidden taxes. The most obvious Medicare tax is that which is withheld from our paychecks, but there currently exists a hidden Medicare tax. Physician practices depend on higher reimbursement from private insurance to make up for anemic Medicare reimbursement. In other words, your private insurance premiums allow physicians to absorb the loss from seeing Medicare patients. This is indirect and very inefficient subsidy amounts to a tax paid by private insurance subscribers so that providers can continue to see Medicare patients.

Despite this indirect subsidy, a story in the New York Times in April of this year revealed a concerning trend of physicians opting out of Medicare, exacerbating a shortage of internists. No mystery here: physicians are opting out of Medicare because they cannot cover their costs with what the government pays them. Even worse, Max Baucus’s current healthcare reform bill calls for the elimination of the Medicare Advantage programs that pay slightly higher than traditional Medicare. This will cut reimbursement for physicians enrolled in these programs further, increasing the incentive to opt out of Medicare. The inferior reimbursement schedule notwithstanding, Medicare is still anticipated to run out of money in 2017 as Treasury Secretary Timothy Geithner testified in May.

If paying a hidden tax to subsidize Medicare weren’t bad enough, Senator Baucus, in the latest version of his “Rube Goldberg contraption” of a bill, has proposed placing a 35% excise tax on healthcare plans for individuals with a value in excess of $8,000 and $23,000 for families (these numbers change with the wind). Revenue from this tax would support healthcare reform, including bolstering Medicare, but would disproportionately hit younger professionals, especially single ones.

A further provision of the Baucus plan represents yet another tax and should be cause for alarm: the change in the maximum differential. The maximum differential is the disparity in premiums insurance companies charge based on age difference. Typically, insurance companies charge more for older participants, because they are likelier to get sick. The ratio can be as high as 5:1 when comparing the policy cost for a young, healthy 20-something to someone 55-64 years old. This is normal practice for the insurance industry regardless of the type of insurance. Under the Baucus plan this could be reduced to 4:1 and in the House version 2:1. What would be the consequence of this marketplace interference? The cost of private policies for younger people would necessarily sky rocket to subsidize the older members within the same plan. In other words, younger, less financially-established plan participants would be saddled with an additional indirect tax to fund older participants, which tend to be more financially secure. Small businesses, traditionally responsible for most new jobs, would be unable to afford mandatory healthcare insurance and job growth would be stifled.

The current healthcare reform legislation in its various forms is a recipe for higher taxes and a detriment to America’s economic recovery.