Insights & Advice


Are You Ready for Mandated Health Care?

President Obama is on track to fulfill one of his main campaign promises: guaranteed healthcare for the majority of Americans. How and who will pay for it is still up in the air but this week it appeared that most of the burden will land on the shoulders of America’s rich as well as the nation’s small businesses.

A first swipe at the cost of the House’s version of the health bill by the Congressional Budget Office indicates that it will cost $1.3 trillion over ten years. There are approximately 46 million uninsured people in this country. Given the trillions we’ve spent on bailing out banks, insurance companies and auto companies, not to mention waging two wars, the price tag does not seem that high to me. Of course, on top of all the debt we have accumulated over the last two years another trillion doesn’t sit well with any of us. But unlike the bail-outs and the wars, most Americans (97% of non-elderly citizens) will definitely see a benefit from this not -quite universal healthcare.

The House bill would expand Medicaid, offer subsidiaries for purchasing health insurance, mandate individuals to purchase insurance or face penalties and likewise require employers with payrolls exceeding $400,000/year to offer insurance or pay as much as 8% of payroll in tax penalties. Finally, the bill would offer a public plan whose rates would be lower than those of many private plans. It is believed that the public plan would pay providers at levels similar to those in Medicare and it is estimated that between 11 to 12 million Americans would join by 2019.

Now whenever the government mandates such a sweeping change in the fabric of the country, there are always segments of society which appear to lose by the change. Clearly, anyone earning $350,000-$500,000 will get hit with a 1% surtax and if you earn more than $1 million the bite could be as much as 5.4% but these are marginal tax rates which would mean that the millionaire might end up paying only $9,000 a year in extra taxes. All in all, the surtax would affect 1.2% of American households.

In addition to taxing the rich, small businesses will also be required to insure their employees or pay penalties. Those with payrolls under $250,000 would be exempt but above that the penalties would increase depending on the amount of your company’s payroll. According to the National Federation of Independent Business, firms with between five and nine employees represents about a million small companies with an average payroll of $375,000 and only half of them offered health insurance to their employees. Small business groups (which employ a sizable portion of all Americans) warn that if this bill is enacted it will mean lay-offs and a wholesale switch to hiring part-time employees. Owners are usually not required to offer benefits to part timers.

Whether business owners would deliberately reduce payrolls below the exemption level to avoid offering benefits is hard to believe. Most small business owners I have talked to believe that it is the market and not taxes or health benefits that drive their hiring decisions. Unfortunately, many successful entrepreneurs in America today are both rich and small business owners so this bill really hits them hard. I think that is unfair. Not only will this health-care bill make it even more difficult for these creative, hard-working citizens to turn a profit, but if they do, the payback will be even less than it is today.

I know many readers will roll their eyes at a household making $1 million in a single year having to pay an additional $9,000 more a year to support universal health care but there is a limit to how much we can tax the rich. I estimate it could push the total tax burden for the wealthy to almost 55%, which is still less than in Europe or even historically here in America. Some critics will argue that the wealthy have been getting all the breaks in this country since the Reagan Revolution so a little leveling of income is called for. In my opinion, I would rather see all of us pay a little more for health care rather than put it on the shoulders of jut two segments of society. After all, if I contribute to universal health care then I feel I have a stake in its success. That’s never a bad thing.

Posted in Macroeconomics, The Retired Advisor