Well, since we’re all here, and celebrating, we might as well have a PPACA party!
Wether by the interwebs, the television or that metal filling in your molar that picks up AM radio stations, you’ve probably heard today’s big news: The Supreme Court has upheld the the Patient Protection and Affordable Care Act, or PPACA (ACA if you are into the whole brevity thing).
Historic? Yes. Important to many? Yes. Most politically charged news since the Revolutionary War? Quite possibly.
It’s important for me, as a
sophisticated healthcare innovation writer with some repute guy on the internet with a blog, to chronicle this in some, hopefully apolitical, way. The crucial vote seems to have come from Justice John Roberts who writes for the Court:
The most straightforward reading of the individual mandate is that it commands individuals to purchase insurance. But, for the reasons explained, the Commerce Clause does not give Congress that power. It is therefore necessary to turn to the Government’s alternative argument: that the mandate may be upheld as within Congress’s power to “lay and collect Taxes.”
The reaction to the news was predictably split down party lines. Supporters of the ACA rejoiced, many in earnest surprise. Naysayers voiced their disappointment. While droves of the disappointed took to political rhetoric, I’ve seen many posts in which people lament what they interpret as a new tax.
Here’s the truth, along with my opining contribution to today’s news, most of us already pay that tax. Only, we don’t call it a tax. We call it insurance, or a premium. Those with private insurance coverage pay more for healthcare in order to cover those without. It has been that way since the mid 1900s. If that’s not a welfare tax, I don’t know what is.
We don’t consider it a tax because we aren’t even aware of it. It’s an artifact deeply embedded in our third-party payor system.
Under the Act, those who can afford health insurance and chose not to purchase it will face a financial penalty, beginning in 2014. Why? Because we have a health system where those with coverage pay for those without. So, under the Act, if you can afford coverage and chose not to purchase it, you would be unfairly drawing on the system. It would be like refusing to pay tax on gasoline and still driving on the roads.
But wait, there’s more. Most people are already exempt from the PPACA’s individual mandate penalty anyway.
Here’s a primer via a 2011 report from the US Census Bureau:
- 64% of people have private health coverage
- 55% of people get their private coverage through their employer
- 31% of people are covered by existing government programs
- 16% of people, or nearly 50 million, are uninsured
(I know what you are thinking: 64+31+16 = 111, the uninsured numbers include non-citizens).
Let’s focus on that 55% of us who get health insurance through our employers. How does that work? Well, we get a little bit taken out of our paychecks. If we need health services, we show our insurance card, pay a little bit and that’s that. Traditionally, employers picked up most of the rest of the bill. Increasingly, they are pushing more and more of the remaining balance onto employees.
Meanwhile, behind the scenes, Acme Employer has contracted with Big Insurance Co to manage this all for them. That’s good, because Big Insurance Co has gone to the area hospitals and negotiated a deal. Rather than pay $150 for an MRI, they are going to pay the hospital $120. Who doesn’t love a deal? Acme Employer and their employees win.
At the hospital, everyone is happy. It only costs them $100 to preform an MRI, so hey, that $20 is pure profit. Or is it?
What happens when one of those 16% without insurance comes in needing an MRI? The hospital preforms the MRI, because it’s the right thing to do (hey, I can show some bias here!). So, in our very simplified example, if 16% of the hospital’s patients do not pay for those MRIs, do they really make $20 from the private insurance companies who pay $120?
Simple version: those with insurance pay a hidden tax for those without insurance.
I’m not going to get into the debate about if that is right or wrong (it’s the right thing to do). I’m not going to argue if healthcare is a right or purchased good (it’s a right). But I will point out, if there is a tax, we already pay it.
And here’s the kicker:
Most people won’t pay the tax.
If any of the following (and more) is true, you won’t be taxed: * You get insurance through your employer (like 64% of us do) * You make so little you don’t file a tax return (hint: most uninsured fit this category) * You pay more than 8% of your income for health coverage (which your purchase on the open market) or you have a bronze level or above plan. * You have: Medicare, Medicaid, Tricare, or other VA program (like 31% of Americans) * You have any insurance plan which was in place before the PPACA (grandfathered in) * You are a member of a religion opposed to health benefits * You are an illegal immigrant * You are in jail
If you do not satisfy one of those criteria, then you can probably afford health insurance. And if that’s the case, and you still chose not to buy it, then you will pay $95 in 2014.
Want to know more? The Kaiser foundation has a great flow chart on their site.
Most people will never face the financial penalty from the Individual Mandate. This is not a new tax we will all pay- we’ve been paying it. Our taxes did not go up. If anything, the current hidden tax will go down…but that’s for another post.
Whew, I told you it was party time!
*I’ve been liberally borrowing that Alpaca/PPACA joke for two years from a former co-worker. It hasn’t gotten a laugh yet. I’m a slow learner.