Obamacare: New Taxes, but No New Ideas
Come hell or high-water, President Obama and Congressional Democrats are determined to pass a healthcare bill no matter what the long-term costs or damage to the country. The stunning price tag of the various plans tops $1 trillion over ten years and still won’t cover the estimated 46 million uninsured Americans.
But never fear, tax man Rep. Charlie Rangel is here with a master plan from the House Ways and Means Committee. Like Robin to President Obama’s Batman, the caped crusader, Rangel’s plan would slap a huge tax increase on upper-income families which will yield $540 billion toward public health insurance. This makes no sense to have the very few 1% of the population pay for a health insurance plan for the many. If everyone can get the coverage, EVERYONE, all taxpayers, no matter what their income should pay for this healthcare overhaul.
What’s more eye-popping is the audacity of the increase the House proposes to levy on the backs of what politicians have broadly labeled as “wealthy” Americans. First, his definition can be widely disputed. A married couple with two children, earning $350,000 and living in a city like Washington, DC, New York, San Francisco, Honolulu, or Los Angeles isn’t wealthy. As a point of context, the House Ways & Means writes the country’s tax laws.
Currently, the tax rate for filers making $357,700 or more is 35% and will rise to 39.6% in 2011 when the Bush tax cuts expire. To pay for the hefty House health plan, Robin Hood Rangel proposes hitting married couples making $350,000 with a 1% surtax; couples making more than $500,000 receive a 2% surtax; and couples making $1 million or more receive a 3% surtax. By 2013, these rates would increase to 2%, 3% and 5% respectively.
I find it very amusing that Mr. Rangel wants to tax people more when he himself works to avoid paying taxes. From 1988-2007, Congressman Rangel neglected to pay $75,000 in back taxes owed on a rental property he owns in the Dominican Republic. But what’s really audacious about this tax and spend scheme is it comes at a time when everyone, across income brackets, is feeling the burden of the recession, particularly small business owners. Small business owners typically file their business with their personal taxes. A class tax like this will only force small business owners to cut more jobs, further crippling an already hobbled economy.
Relying on the tax base of the few, whose income can fluctuate just like everyone else’s, to support the many is bad math. Even the liberal state of California is realizing this the hard way and considering moving to a flat tax. California’s State Assembly Speaker Karen Bass sits on a commission created to devise ways to reduce its $41.6 billion two-year deficit. In a July 11th Wall Street Journal article, Bass called it “crazy” for California to force a puny 144,000 upper-income residents to pay half of all income taxes for a state with 38 million people. Another reason it’s crazy for states is people can always move to another state, like Maryland residents are doing right now because of higher taxes.
A flat tax is a better model to explore to fund a public health plan because all taxpayers would have to pay their “fair share,” as the president so often reminds us. When people don’t pay something, they gorge on it without regard to cost. One need look no further than Medicaid to see this in action. Medicaid is administered by states and federal funds. According to Kaiser Family Foundation, Medicaid costs are expected to reach $1.2 trillion by 2012. There is over-use of medical services and over-prescribing of drugs because recipients don’t have to pay for services or drugs. Most states have co-payment policies for services and drugs but if a patient says they cannot afford it, a provider cannot deny service or goods.
When I worked at the National Association of Chain Drug Stores, a frustration with pharmacists was that many state Medicaid programs established patient co-pays of $1.00 for a generic prescription and $2.00 for branded prescriptions but the provider couldn’t demand payment even if he knew the patient could afford it. These uncollected co-pays are lost revenue to providers for services rendered.
Fear of losing coverage also deters beneficiaries from working hard to get off Medicaid. Many states have also raised income levels, expanding state Medicaid rolls thus creating a disincentive for people to work harder to exit the program. Even before the recession, every year governors complained that burgeoning Medicaid programs strained their state budgets. (The Senate Health, Education, Labor and Pensions Committee’s health plan proposes expanding Medicaid to cover even more people.)
President Obama keeps telling Americans we “need to get it done,” and pass a healthcare reform bill. What needs to get done is the task of fixing the health mess we’re in, not adding more government mess to it. If Democrats and the administration are serious about bringing down the costs of health in this country, why not do a phased in approach to healthcare reform instead of trying to force a triangle into a circle. Start with Medicaid and mandate that states shift more responsibility to patients and get serious about the billions of dollars lost to fraud each year.
For those uninsured Americans who can afford health insurance but choose not to pay for it, pass legislation mandating they purchase coverage. Prevention is another concept I haven’t heard used in any discussion on healthcare reform. How about mandating insurers reward good health behavior with lower premiums and other incentives. When individuals are held accountable for their actions, they act more responsibly. Safeway has kept its healthcare costs flat over the past four years with a new model that discounts premiums for healthy employees.
That’s a way to reduce runaway healthcare costs that are “crushing us,” as Vice-President Biden recently exclaimed. The majority of healthcare expenditures in this country each year are due to heart disease, cancer, diabetes and obesity, which are mostly preventable. In an op-ed published in the Wall Street Journal, Steven Burd, CEO of Safeway wrote:
If the nation had adopted our approach in 2005, the nation’s direct health-care bill would be $550 billion less than it is today. This is almost four times the $150 billion that most experts estimate to be the costs of covering today’s 47 million uninsured.
Interestingly enough, Mr. Burd’s estimated savings attributed to healthier behavior turns out to be almost the exact same amount as Mr. Rangel’s class tax. Perhaps the lesson to be learned here for the president and his friends in Congress is that the nation’s healthcare overhaul needs to be taken in a different, more realistic direction.