While campaigning last year, President Obama made a promise that he would not raise taxes on anyone making less than $250,000. If he signs into law the health care reform bill passed by the House, he will be breaking that promise.
The largest tax increase in the bill is the actual insurance premiums. According to this chart from the Congressional Budget Office, under the House bill, insurance premiums will be established based on income. The range in premium cost is huge. A family of 4 making $30,000 will pay a total of 4% of their income for premiums and “cost-sharing”. The same family making $66,000 will pay 15% of their income, and families making over $102,100 will pay 20%. These premiums will not be paid on a pre-tax basis, which will also result in additional tax liabilities for those who currently pay their premiums on a pre-tax basis.
These premiums are for the basic plan, which covers only 70% of medical costs, but more expensive plans will be available. Cost-sharing (similar to a copayment or deductible) is also based on income, so that the family making $30,000 will be expected to pay a maximum of $500 per year out of pocket, but the family making $66,000 will be expected to pay $3,700. The family making $102,100 will pay up to $5,500. These amounts are included in the percentages above, but are further indication that higher income Americans will be expected to pay more for the same coverage.
The only other payment that is determined by income and MUST be made annually by law is the income tax. Can the disparity in premiums based on income be viewed as anything other than a tax?
There are several other ways that H.R. 3962 is a tax hike on the middle class. The most basic is the tax that is charged on those who do not have health insurance or have insurance that has been deemed not “acceptable” by the legislation. This tax is 2.5% of adjusted gross income, capped at the amount of the national average insurance premium.
Employers who offer no insurance coverage for their employees or whose plans are not “qualified” will be subject to a penalty of up to 8%. As specified in the bill, this amount will NOT be used to offset the employees’ premiums. The employer will pay the penalty and the employees will still have to pay the full premium for coverage. This amounts to a tax on the employees since the employer will be paying the 8% tax in lieu of coverage, leaving the employees to pay the entire premium.
A hidden tax increase results from changes made to Flexible Spending Accounts. Under the House plan, the maximum annual contribution will be reduced to $2,500. Currently, FSAs allow employees to set aside up to $5,000 in pre-tax earnings to reimburse themselves for medical expenses such as deductibles, co-pays, prescription and over-the-counter (OTC) medicines, etc. Additionally, under the House bill OTC medicines will no longer be reimbursable. The reduction in the amount of allowable pre-tax contributions is a tax increase on families who are currently contributing more than $2,500, since purchases above that limit will now be made with taxable wages.
The impact of the House bill is tremendous. This is just one of many issues surrounding H.R. 3962. There is hope that the Senate plan will honor the President's promise of no tax increases on the middle class, but a phone call or e-mail to remind them of our feelings about health care reform is definitely in order.