I admit I did not get myself emotionally attached to the health care reform one way or the other when it was being debated in Congress. I keep myself loosely informed from reading my friend Austin Frakt’s blog The Incidental Economist. Now that the final legislation is passed, everybody inevitably asks “What’s in it for me?” So do I.
I read the excellent timeline summary from Austin and the tax summary from CCH Group. I’m not too surprised to see that the vast majority of the items have absolutely no direct benefit to me. I have health insurance from an employer, which is not a small business. I do not cover an adult child as a dependent. HIPAA has covered pre-existing conditions for nearly 15 years. I’m not on Medicare, nor its Part D.
Of the few items in the health care reform that do affect me, unfortunately all are negative. If you happen to be in a married two-earner household working in a high cost-of-living area, you have been selected as a potential revenue source for the new law. The $250,000 married-filing-jointly tax threshold is not indexed to inflation. If you haven’t crossed it yet, eventually you will.
|What||When||What to do?|
|0.9% increase in Medicare tax on earned income||2013||Max out all pre-tax savings plans|
|3.8% tax on unearned income (interest, dividends, capital gains)||2013||Move taxable investments to muni bonds|
|Reduce cap on Flexible Spending Account to $2,500 a year. No coverage for OTC drugs except with a prescription.||2013||Schedule elective procedures in January and February.|
|Tax on high value health care plans provided by employer||2018||I’m not sure if my plan counts as a high-value plan. If it does, the employer will likely cheapen the plan to make it not so.|
I’m not saying it’s a bad law because it doesn’t benefit me or because I have to pay more tax for it. If it does great things, I’d be glad to pay more tax and make those great things happen. Whether it will turn out great remains to be seen.
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Does the 3.8% tax on unearned income kick in all at once? You could be looking at an infinity percent marginal rate if you have, say $199,999 in wage income, and $50,000 in capital gains if one extra dollar of income costs $1900 in tax, for example.
Harry Sit says
Chuck – My understanding is that both earned and unearned income count toward the $200k/$250k threshold and the 3.8% surtax is only on the excess and only on unearned income.
Example 1: Single with $199,999 wage income and $50,000 in capital gains. Excess over $200k is $49,999. Extra tax = $49,999 * 3.8% = $1,900.
Example 2: $249,000 wage income and $1,000 in interest. Excess over $200k is $50,000. Extra tax on unearned income = $1,000 * 3.8% = $38.
As a physician, I have a lot of opinions about the healthcare legislation. It is good, it is bad, and it is incomplete – but too much to get into now.
First, if you ask “What’s in it for me?”, then you’ve already decided it is a bad thing. It is to increase coverage for people who don’t have it or can’t get it. Many of these people have health issues and seek care in ER’s which are federally subsidized and end up driving up healthcare costs more than most people realize.
Secondly, HIPAA does nothing for pre-existing conditions. It does insure that if you have insurance currently, you will be able to retain it when unemployed, and even one minor diagnosis can drive the price up dramatically, not to mention multiple major diagnosis. So, by definition, if you have insurance, then nothing is pre-existing, but if you don’t have it, then everything is pre-existing.
Yes, I wish more was indexed to inflation – like Medicare payment rates (which aren’t), or maybe indexed to age expectancy, i.e. when Medicare was enacted life expectancy was less than 65 years of age, so what we should do is increase age of qualification to limit governement exposure to healthcare costs. So is everybody ready to wait until 77.5 years of age to be able to qualify for Medicare?
Enjoying your blog. Thanks, Kelly
Harry Sit says
Kelly – Thank you for your comments. Whenever there’s a major new law, people want to find out how it affects them. I don’t think asking the question “What’s in it for me?” necessarily means they think it’s bad. I specifically said at the end of the post I’m not against it even though there is not much direct benefit to me.
On HIPAA, is it possible you confused it with COBRA? From Wikipedia link for HIPAA, “Title I also limits restrictions that a group health plan can place on benefits for preexisting conditions.” Under HIPAA, when someone changes jobs, the new employer’s plan can’t exclude a pre-existing condition when he/she had coverage from the previous employer. HIPAA makes pre-existing condition a non-issue as long as there is no big gap in employment. Together with COBRA, that gap in employment can be as long as 18 months.
I understand the pre-existing condition problem arises when someone moves from a job with insurance to a job without insurance or when someone becomes unemployed for a long time or when someone chooses not to pay for COBRA. For people who change jobs and both jobs have insurance, which seems “normal” for me, HIPAA has covered pre-existing conditions for nearly 15 years.
Yes, I was referring to COBRA with the reponse about insurance in-between jobs, and HIPPA would apply in cases you suggested, but I’m wondering how “normal” is that? Most low-wage earners or the chronically unemployed or under-employed are making up a larger and larger percent of the US population, and the chronically un- or under-insured patient makes up an even larger percent of US population that either needs or seeks healthcare, espcially if you factor in the elderly and Medicare.
Federal and State governments are the payer source for over 50% of healthcare delivered in the US through Medicare, VA, Medicaid, and hospital tax districts, so in the end we all will pay more in taxes to cover these costs unless we do something either control costs or expand personal or work health insurance. Hopefully this bill will do just, but a lot more will need to be done…
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It is really shady that 200k/250k is NOT indexed to inflation while the penalty for not having insurance IS indexed for inflation. It’s like “heads you win, tails I lose”.
Anyway, technically the 3.8% additional tax is applicable to my current income situation but I am not sure if it will affect me if I take AMT into account. Have you checked if AMT payers would “shield” current AMT payers from this new tax?
Harry Sit says
indexfundfan – Ah, the AMT. I have not checked. Nor would it be a slam dunk to find out if I do check. It’s conceivable that the 3.8% extra tax will just increase your regular income tax and if your AMT is still higher, your tax won’t change. Right now I don’t see any reason for this new tax to also increase your AMT. If I have to guess, I would say yes – you will be “shielded” if you pay AMT. It’s not going in effect until 2013. Taxpayers have the next 2-1/2 years to find out.
This discussion is not allowed here. I’m locking this thread.
What’s with the previous comment “This discussion is not allowed here. I’m locking this thread.” ??
I didn’t know the moderation power of Bogleheads extends to TFB’s blog!
Harry Sit says
Apparently it was someone mocking Mel about locking threads. It’s nice to have your own blog and write about anything you want, isn’t it?
TFB rules here. This thread is not locked.
TFB, you mean the 10% tax on using tanning salons doesn’t apply to you!? =)
Harry Sit says
simplesimon – Seriously, no. I would be affected if the tax is on sunblocks.
“HIPAA has covered pre-existing conditions for nearly 15 years.” This is quite a broad overstatement. Coverage of pre-existing conditions only applies to group insurance. For some reason HIPAA does not apply to private insurance for pre-existing conditions. This is a huge regulatory gap. Even if you maintain coverage, without a break, from group insurance to private insurance your pre-existing condition does not have to be covered. As I personally found out, private insurance companies generally deny coverage for pre-existing conditions as a rule.
Currently I am lucky enough to have group insurance coverage again. However, needing to keep group insurance coverage has severally limited my career choices for the past few years. Overall I think the newly passed law will prove to be a boon to small businesses as the regulations become effective.
I can confirm what Chuck said about pre-existing conditions. The old law was horribly unfair. I changed jobs a few years ago and the new one job was a very small business which did not offer coverage to my family.
I bought a private plan and my wife and kids got a laundry list of things that were not covered. If I had got them covered by a group policy, they would have been 100% covered.
Also it was terribly unfair (and non-competitory) that private insurance plans were not tax deductable when a group (employer) plan was tax deductible.
I at least hope they fixed thse problems in the new law.
Can’t wait to find out all the easter eggs in the new law. /sarcasm