H.R. 3590: How to Increase Tax Revenue Without Raising Taxes

Is health insurance reform healthcare reform? Many who join this debate cannot answer this question because they are unable to differentiate between the meanings of insurance and healthcare.

For those that do not know, insurance is shared risk; advantageous because it allows an insured to replace or fund a loss that might otherwise exceed its income or assets. Insureds pay into a pool so that in the event a loss is incurred, the insurer becomes financially responsible for the loss, reducing the risk and financial burden of the insured. Insurance exists because the cost to replace is beyond one’s immediate means.

If healthcare were affordable, health insurance would not be necessary. Health insurance exists because the majority of individuals and families can not afford the cost of catastrophic healthcare. If the ultimate goal of H.R. 3590 is to eliminate health insurers, then healthcare must be made affordable to all. Most routine office visits are not expensive, but when health is complicated or compromised by maternity, heart attack, diabetes, or any other serious ailment, the cost of treating those conditions can be financially devastating for the uninsured, short term and long term.

Helping Insureds or Patients? Health insurance and healthcare costs are related only because insurance alleviates the catastrophic loss. To call H.R. 3590 “Healthcare Reform” is misguided. H.R. 3590, the Patient and Protection and Affordable Care Act, is more about insureds and less about patients, more about insurance control and less about affordable healthcare. In essence, to say that H.R. 3590 will drive down the cost of healthcare is to say that automaker Porsche will begin using Wal-Mart floor mats in order to drive down the cost of its Cayman sports car. Floor mats are nice to have, as is insurance. We only need floor mats to ease car care; we only need health insurance to ease the high cost of healthcare. To reduce the cost of the Cayman, you can’t start with floor mats. Likewise, H.R. 3590 will not drive down the $5,442 price tag of a tonsillectomy. Since the unaffordable cost of healthcare created the need for healthcare insurance, the correct fix should be to reduce healthcare costs. Do that and health insurance disappears.

The US Department of Energy is offering $10 million to the first person/company who can “develop high-quality, high-efficiency solid-state lighting products to replace the common light bulb”. There is also a billion dollar incentive to fix education. Kathleen Sebelius, US Secretary of Health and Human Services should be offering healthcare providers, healthcare manufacturers, and healthcare facilities incentives similar to the US DOE’s incentive to drive down the cost of healthcare.

When the penalty is the better choice. As previously suggested, were healthcare affordable, we would not need health insurance. Just on that premise alone, the attempt to regulate health insurance to make healthcare affordable is misguided. It is also misguided on a deeper level. President Obama touts on his website www.barackobama.com that “5.6 million people with pre-existing conditions will no longer be denied insurance.” This is 1.8% of the US population. In addition to those with pre-existing conditions there are currently 13 million 19 to 29 year olds who do not have health insurance (4.2 % of the US population). However, with the implementation of H.R. 3590 considers that 26 million 19 to 29 year olds (8.4% of the US population) currently have health insurance, but after 2014 may no longer need health insurance. In the quest to insure everyone, many more will choose to be uninsured.

Here’s why: H.R. 3590 restricts age banding to a 1:3 ratio and these 26 million young adults will face premium hikes since those who are 50 years old and over will be required to pay less. However, no thanks to this misguided Act, these young adults do not have to worry about pre-existing conditions, which means that the 26 million who now unnecessarily pay for health insurance can drop their health insurance plans, and carry a less expensive accident insurance policy. If they should suffer a health crisis, they are entitled to and most likely will pick up a health insurance policy. This could be a loss of nearly $44 billion in health insurance premiums. Beginning in September of this year, why would a family continue to provide health insurance for their healthy children? Parents of healthy children may choose to go with an accident plan and if/when their child contracts cancer or diabetes or some other illness they will then purchase health insurance.

How misguided? Employers pay, on average, $777 per month per employee for health insurance premiums. Beginning in 2014, if a qualifying employer does not provide health insurance, they will pay a penalty of $167 per month per employee. An employer can save $610 per month per employee by no longer providing health insurance and by simply paying the penalty. Most employers provide health insurance today as a way of attracting and retaining employees and talent. If health insurance is mandatory, and employees are no longer lured by the perk of employer provided health insurance and benefits, then the culture of employer sponsored benefits will disappear. AT&T recently stated they would save $4.1 billion in health insurance premiums per year. More so, how many individuals and families will choose to pay the more affordable penalty, buy an accident policy, and then wait to buy a health insurance policy when a health related illness occurs? Millions? Probably. There is no good scenario in losing billions of dollars in insurance premiums.

Your new pay cut. The current administration does not seem to balk at this AT&T scenario. Why? Because today millions of Americans pay for their premiums before they pay their taxes, but in 2014, when employee sponsored benefits disappear, millions of Americans will be paying taxes on their full wage. Tax revenues will increase. This is how you increase tax revenue without “raising taxes”. One can almost hear the justification echo from within the beltway, “This, of course, was one of many unforeseen setbacks of healthcare reform, but it is one we must take to move forward. It is not a popular path, but it is the right one.” The other side of the aisle will probably propose a bill allowing individual health insurance premium payments to be paid pre-tax. And so, a new battle begins. Health insurance reform will stay. The left side wins because an industry is regulated or eliminated. The right side wins because tax payments are lowered. And none of us win because H.R. 3590 has nothing to do with healthcare costs.

Who Pays for Health Insurance Reform? Who is left paying health insurance premiums? The sick. Will their premiums increase? Yes. Logic says that without shared risk, payments coming from the healthy will be grossly reduced and payments by the sick must necessarily increase to balance the budget. And when claims exceed premiums, we will then pay for healthcare via taxes.
Healthcare reform vs. Health insurance reform. When states made auto insurance mandatory, the cost of manufacturing automobiles did not decrease. H.R. 3590 is more about political grandstanding than understanding the issue and serving the people. The Patient and Protection and Affordable Care Act is not about patients, it does not protect us from rocketing healthcare costs and does not do anything to reverse those rocketing costs and make healthcare affordable. The only people who may, short term, benefit from this act are healthy people who get to skip out on health insurance premiums until they need health insurance. Those who have health issues will be left with an enormous bill. And since employee sponsored benefits will see its demise, those with health issues will be left paying outrageous premiums on individual policies without the luxury of having their claims offset by healthy people who paid into the same pool. Health insurance reform is not healthcare reform.

Fix the Fix. The significant error with H.R. 3590 is that it forces health insurers to insure those who never paid into the insurance pool. How great would that principle be if it applied to auto insurance? As a consequence of this error, how many young pregnant mothers will choose not to carry health insurance until the end of the pregnancy? This probable decision will lead to many undiagnosed illnesses which if had been detected early in the pregnancy may have prevented unneeded costs at birth. How many children and young adults will no longer have health insurance since they can jump on a health insurance plan when needed? H.R. 3590 is a broken law that was supposed to fix a broken system.

The above scenarios can be eliminated if we change H.R. 3590 to allow for a pre-existing condition clause. Currently, most health insurance policies will cover pre-existing conditions after 12 months. If health insurance is mandatory and most of us choose to carry health insurance, then in 12 months there may not remain many with uninsured pre-existing conditions. Adding in the pre-existing condition clause will eliminate the foreseeable scenario of those paying the penalty hoping for good health.

The intent of healthcare reform was to fix the broken system of the out-of-control costs of healthcare. Instead, congressional leaders created H.R. 3590 to fix the “broken” health insurance system and left healthcare and healthcare costs abandoned on the doorstep. What remains is that the “fix” needs to be fixed. The “fix” does not address or fix healthcare costs, and the “fix” which was suppose to get the uninsured insured will create a culture of many, many more uninsured.

About the Author

Byron is the principal of APG Insurance and partners with Insurers of Idaho to provide a full suite of insurance products for businesses and individuals. APG Insurance provides a single brokerage service for businesses with a multi-state presence. You can reach Byron at 208-350-7294 or byron@apgins.com. For more information visit www.apgins.com and www.insurersofidaho.com.