About that tax promise…

Matthew Hoy
By Matthew Hoy on July 15, 2009

You know the one, about no person making less than $250,000 having any of their taxes raised. Well, forget about it. The Senate Health, Labor and Pensions committee unveiled its plan today – and it should come as little surprise that this plan would break Obama’s tax promise.  (The Senate did unveil that plan, but it’s unclear if what this post is about is in that plan.) The House came out with its plan  [PDF format] today that would break Obama’s tax promise. That is, unless the new spin is that “fines” for those who don’t, won’t or, more importantly, can’t buy health insurance is not considered a tax hike.

Keith Hennessey outlines a couple of plausible scenarios.

Bob is single and earns $50K per year.  He earns more than four times the federal poverty level, so he does not qualify for subsidies under the House bill.

Bob works for a five-person small business that does not provide him with health insurance.  His $50K wage is average for this company, which therefore does not qualify for the new small business tax credits.

This company is small enough that they do not have to pay the IRS any fee for not providing Bob with health insurance.  (See the table on page 184.)

With only $50K of income, Bob cannot afford to buy health insurance.  Under the House bill, he would then have to pay about $1,150 per year in higher taxes to the government.  That’s 2.5% of (his income minus a $3,650 personal exemption).

I went shopping for Bob on eHealthInsurance.com.  He is 50 years old and a non-smoker, living where I do in Virginia.  The cheapest bare bones policy he can get is $1,620 per year.  Most plans are in the $3K – $5K range.  That $470 difference between the tax and the cheapest premium is more than Bob can afford on a $50K pre-tax annual wage.

To summarize, under the House bill:

  • Bob is a single 50-year old non-smoking small business employee who makes $50K per year before taxes and does not have health insurance.
  • Bob cannot afford a $1,600 bare bones health insurance policy, much less a $3K — $5K policy.
  • Bob would get no subsidies under this bill, and his employer would face no penalty for not providing him with health insurance.
  • Bob would end up without health insurance and would have to pay $1,150 more in taxes.

The second scenario involves a family of four making $90,000 a year. The kicker, of course, is that this is something that President Obama argued against during the campaign – specifically attacking Sen. Hillary Clinton for suggesting such a fine. That promise apparently came with an expiration date too.

Finally, I want to touch on a related issue: the idea that preventative care can reduce overall costs in the healthcare system. President Obama has been peddling this idea for awhile, but even a rudimentary analysis proves that it is bogus.

Pick a cancer, any cancer. Let’s say that it will afflict 9 out of every 1,000 people in the population over their lifetimes. Let’s also say that preventative screening will catch all nine cases, with no false positives, etc. Let’s also assume that three of these people, for some reason or the other, won’t survive no matter how early the cancer is caught or how good the treatment they receive is. The remaining six are treated, survive and live out their natural lives (to cost even more money in healthcare costs in their old age).

This is a great outcome for the vast majority of people – only three died.

But it’s an expensive outcome. All 1,000 people were tested – some of them were probably unlikely to get whatever cancer this was from the beginning for a variety of reasons (family history, age, etc.). The treatment itself isn’t cheap – and you treated all nine with the cancer (you can’t know from the start which three won’t respond to the treatment).

I’m not saying that we shouldn’t do cancer screenings or treatments, etc. – far from it. What I am saying is that preventative medicine isn’t going to result in lower costs. It hasn’t in the past, it won’t in the future. Don’t let President Obama tell you any different.


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July 2009



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