The Cost of Health Care Reform and Who will be Paying for it?

by admin on July 23, 2009

One of the big questions is who and how are we going to pay for this big Health Care Reform Obama keeps talking about? The more I read, the more I see millions of different answers to this question.


Taxes will be raised, and some insurance premiums will be increased. Doctors, hospitals and pharmacies may want to charge some patients more, and insurance companies may cover less — forcing your out-of-pocket costs higher.

Businesses will want to pass on higher health costs and taxes to consumers, while workers will ask for bigger raises to cover costs.

Raising the price you pay for health care isn’t the idea, of course. President Obama insists a major overhaul eventually will mean less money out of your pocket through lower-cost, higher-quality care.

In the short term, though, even the most optimistic assumptions suggest $100 billion a year will be necessary over 10 years to expand coverage and services — on top of the $2.4 trillion we already spend annually.

That money has to come from somewhere.

“That’s the challenge, actually paying for it,” said Igor Volsky, health-care researcher at the Center for American Progress, a liberal think tank.

That challenge grew last week. The head of the Congressional Budget Office (CBO) said health plans on the table will add to the federal deficit, not reduce it.

A key group of moderate Democrats known as the Blue Dogs said it wouldn’t support any plan that increases the deficit: Revenue must go up, or spending elsewhere must go down.

Meanwhile, Obama said in his weekly address Saturday that he “will not sign on to any health plan that adds to our deficits over the next decade.”

So the search for money is on.

House Democrats last week floated a plan that would raise taxes on the wealthy, which Republicans said would devastate small businesses and consumers. The White House has suggested limiting deductions for wealthy taxpayers, while some senators favor taxing health-care benefits.

Paying an additional $100 billion for health care may look difficult. In a $3 trillion to $4 trillion federal budget, though, negotiators think savings could cover at least part of that cost.

About $50 billion annually could come from easing the growth in Medicare and Medicaid spending. That won’t be painless: Doctors and hospitals certainly would see reductions in reimbursements, so they will try to pass those reductions on to patients, who then would pay higher bills, higher insurance premiums, or both.

Doctors and hospitals also may decide to stop taking poor or elderly patients.

Even so, such a reduction might be easier than the other piece: $50 billion a year in higher taxes.

“Tax increases are unfortunately going to be needed,” said Marcia Nielsen, former executive director of the Kansas Health Policy Authority. “Sometimes you’ve got to spend a little to get a little.”

Who pays those taxes, though, may be the key hurdle in passing any plan.

Republicans howled last week after Democrats suggested a graduated surtax that kicks in for couples with an adjusted gross income (AGI) of $350,000 or more, jumping to a 5.4 percent surtax on those with an AGI of more than $1 million.

Sen. Pat Roberts, R-Kan., said higher income taxes “would be a devastating hit on our nation’s small businesses — the same small businesses that create roughly 70 percent of jobs in this country.”

“We should not be raising taxes on these job creators.”

House Democrats said surcharges were the best way to raise enough money: Smaller tax increases on soft drinks, for example, or tobacco (again) wouldn’t yield enough and would hurt poorer taxpayers.

And they insist that the taxes won’t hit small businesses.

“By some estimates, health-care reform could save small businesses as much as $855 billion over the next 10 years and prevent the loss of 128,000 jobs,” the Democratic National Committee said.

Other Democrats are more cautious.

“There are a number of proposals out there to pay for health care, and several have merit,” said Missouri Sen. Claire McCaskill, including limiting deductions for the wealthy and raising Medicare taxes for those with high levels of investment income.

Some senators, including Finance Committee Chairman Sen. Max Baucus, a Montana Democrat, are exploring another approach. They like taxing health-care benefits, perhaps only for generous packages exceeding a certain cost.

But Obama specifically rejected that approach during the campaign, and many Democrats oppose the step because it might be seen as a middle-class tax increase.

CBO Director Douglas Elmendorf said the tax break is a “subsidy” that encourages workers — many in labor unions — to transfer taxable income into nontaxable health packages, a further cost to the Treasury.

But increased direct taxes aren’t the only way you may end up paying for an overhaul.

Mandated coverage

The House proposal, along with virtually every other plan on the table, would require some businesses to provide health coverage for workers or pay a penalty. Those same plans also would require almost everyone to carry insurance (with subsidies for the poor).

Without that mandate, it would cost the government too much to fully cover 40 million to 50 million uninsured people. And, insurance companies say, they can’t cover everyone — including those with pre-existing conditions — unless healthier workers pay their share.

“We’ve said we’ll take on all comers … and move away from charging people based on their health status,” said Tom Bowser of Blue Cross and Blue Shield of Kansas City. “But in order for that to work … there needs to be a meaningful mandate that everyone have insurance.”

Employer mandates have some support. In a recent USA Today/Gallup poll, six of every 10 people surveyed supported an employer mandate, while 58 percent supported an upper-income tax increase.

Business leaders, though, say costs of any mandate will be passed on to consumers through higher prices or will cause layoffs and more unemployment.

“Why are small businesses being asked to pay for the tab on health care?” Rep. Sam Graves, R-Mo., asked. “Reforming health care does not mean we have to penalize businesses with more taxes.”

Younger workers

And many younger workers will face paying health-insurance premiums for the first time, further denting their pocketbooks.

Want good news?

If health care is overhauled, and if it works — two huge “ifs” — the nation’s overall $2.4 trillion health-care bill should go down, ultimately saving you money.

That is: You might pay higher taxes, or higher prices for some consumer goods, but you’d pay less for a doctor’s visit, or an operation, or medicine. You’d have better health care earlier, further saving cash. More people carrying insurance, in theory, should reduce premiums.


Why should we have to pay for all the Americans who do not have Health Insurance? I feel very strongly that is not our responsibility and should not be taxed to pay for others. This does not and don’t think it will ever be the answer in my eyes.


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