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Friday, October 30, 2009

House Medical Plan

I had a bunch of stuff to post on, but I am not feeling well at all, probably due to taking off the flat, putting on doughnut, getting tire fixed, and putting on tire in the cold wet. Most of the time I do pretty well, but either the flu blew something loose internally or this is my old trouble back again, because this morning my muscles had stiffened so badly that I was nearly immobile.

So I decided that since I was in pain anyway, I'd do some research on that 1,990 page health care bill. I didn't get too far even with the summary before I cracked up laughing and did myself further damage. I think I tore something loose in my rib cartilage. So be warned - you might want to exit to safety before reading on.

Here is the summary and it is only 11 pages. This has many awesome features worthy of Dilbert, but the one that did me an injury is on top of page 2. The bill contains a mandate to provide coverage for businesses, and if they don't, they have to pay 8% of wages to the exchange. For a lot companies currently, that would be a good deal, so I have always seen this as a severe problem that will shift coverage to the subsidized exchanges.. But this - this takes it a step further:
Small business protections. Small businesses with annual payrolls below $500,000 are exempt from requirements to offer or contribute to coverage, including the 8 percent payroll contribution for failure to provide health benefits to their workers. As a result of this exemption, 86 percent of America’s businesses are exempt from any requirement to provide coverage to their employees. The 8 percent requirement is phased in for small businesses with an annual payroll between $500,000 and $750,000.
Well, there are many ways to structure businesses and employment, and I suspect that within three or four years after passage, it will be more than 86 percent. For example, there is employee leasing - the legal structure of which is that your employees work for another business. It would not be difficult for some large employee leasing firm to set up a franchise system in which most employees worked for small units that basically were shell firms below the 500K which would then contract employees to much larger firms for a percentage cut of payroll - say 2%. How much do these DC bozos think the average employee earns? Since one person can own any number of these luscious little profit centers, I think I'll plan to own about 20. It takes paratisization to a new level, but hey, in the land of the crooked only the honest are slaves.

Needless to say, this is going to be like a dagger to the heart of large businesses in the US, because smaller low wage competitors just got handed an 8% of payroll price advantage. The natural result would be to force all businesses to the lowest level of wages, shift employment structures massively, and throw most employees on the exchange.

Roaring with laughter as the light dawned, I shot over to Coyote, who sees the writing on his wall in the form of "Mene, Mene, Tekel, Upharsin".
The implications for my business is staggering. I have already mentioned in the previous post that it imposes an 8% tax on wages on my business — a business where 50% of revenues go to wages and margins are in the 6-7% range. You do the math.

Worse for us is that nearly all our competitors are ma and pa companies with less than $500,000 in wages a year, meaning that our competitors will be exempt from these taxes, giving them an automatic 4% cost advantage over our company. Great.

Twelve seconds after this thing passes, I will be on my phone to my attorney to figure out if it is possible to break my company into multiple corporations that all fall under the 500,000 wage limit. The paperwork and administration for this would be a huge hassle, but it can’t be as high as 4% of sales.
Well, the other option is employee leasing, Coyote. I may have just found my next million-dollar idea. Because damn straight, it's going to be easier and cheaper for you to lease them from multiple businesses that provide a unified type of service than split up your whole company. Call me. We'll go into business together. We'll make millions the first year. That is, we will if I can keep my rib cartilage whole.

It just goes on and on like this; the incentives in this bill are for all large companies to fire most of their employees and shfit their workforce to part-timers and leased employees. Thus, and I was already in pain from convulsive laughing when I reached the top of page three where what to my wondering eyes appeared but:
Government responsibility. It is the responsibility of the federal government to ensure that essential health coverage is affordable and available to all Americans by establishing consumer protections and insurance reforms, affordability credits and overseeing a fair marketplace for people to choose among options.
Which immediately translated in my mind to:
Government responsibility: It is the responsibility of the federal government to ensure that essential health coverage is affordable and available only to all Americans as wards of the federal government by ensuring that their employment is part-time or temporary, and low-paid, and by destroying all unions. Say goodbye to your way of life! Get used to kissing the ass of your Congress Critter!
I think anyone who knows anything about business will find these 11 pages to be a true eye-opener. Small businesses will be eligible to buy coverage through the exchange after 2013, so that's when you can look to get hired again. You ain't gonna be making much, though, because there is a huge incentive for corporations to lower their costs by ensuring that the government pays a good portion of your benefits:
Affordability credits. Provides financial assistance for premiums and cost sharing for individuals and families with incomes up to 400 percent of the federal poverty level (FPL). Affordability credits are offered on a sliding scale such that premiums range from 1.5 percent of income at the lowest tier to 12 percent at 400 percent FPL. Provides additional assistance for households with incomes up to 400 percent FPL by limiting cost-sharing to 3 percent of plan costs at the lowest tier rising to 30 percent of plan costs at 350-400 percent of FPL. Specific out-of-pocket maximums are added to protect individuals at each income tier.

You can access the FPLs for 2009 here; they are adjusted each year and published in the Federal Register. It is a beautiful thing.

Remember that exercise a few posts ago in which we determined that the US median household income for 2008 was $50,303? Take a married couple with one child earning $50,303. That's three persons. The FPL in the 48 states is $18,310, so their income is 2.74 of the FPL. The federal government is going to be subsidizing these folks. Their premium cap is going to be around 5K, and their out of pocket is going to be about 7-8K. If the family had high costs, it would pay them to get less salary; no doubt their employers would be happy to comply. Because if they get their wages down to 250% of FPL - 45,775, their out of pocket cap drops by 4K, which after taxes is going to be net gain in income for them, especially considering their premiums are going to drop more than $1,000 and their copay is going to drop 7%. Since only families and individuals with high medical costs are going to be buying insurance (see the end of this post), that's a massive incentive to fix it up with your employer.

Needless to say, you can count on federal wage tax receipts dropping as this thing goes into effect, which is why CBOs scoring is ludicrous.

Medicaid eligibility goes to 150% of FPL. That's another wage suppressor.

The revenue provisions are impressive:
Revenue. The bill would impose a surcharge on taxpayers with adjusted gross income in excess of $1 million (married filing a joint return) and $500,000 (single) at a rate of 5.4 percent. The bill also: delays implementation of worldwide interest allocation until 2020; limits eligibility for reduced treaty withholding rates; codifies economic substance doctrine; information reporting for payments made to corporations; eliminates nontaxable reimbursements of over the counter medications from HSAs, HRAs, and health FSAs; limits contributions to health FSAs to $2,500; increases the penalty for non-health related distributions from HSAs (from 10 percent to 20 percent); eliminates the tax deduction for employers who receive a government subsidy for providing retiree prescription drug coverage; impose an excise tax of 2.5 percent on medical devices used in the United States; and ensures tax parity for employer-provided coverage for domestic partners and other non-dependents. The bill also clarifies that an employee’s share of premiums for employer-provided coverage offered through the Exchange may be paid on a pre-tax basis through a cafeteria plan, but Exchange coverage that is not employer-offered is not eligible to be offered through a cafeteria plan.
Of course stuff like taxing retiree prescription plan benefits pretty much ensures that employers will cut them, and since many people in their 50s and early 60s rely on this coverage, that's going to be a real privation for them. The HSA and FSA cuts eliminate one way of providing highly economically efficient insurance; I guess Congress doesn't like economic efficiency. Taxing medical devices will directly raise costs paid by insurers and thus insurance, but heck, most people will be receiving their coverage through the government exchange anyway with 8 years. No corporation can survive when it raises its costs above those of its competitors.

It also appears to take an axe to Medicare reimbursements through a bunch of nice-sounding garbage that really gives a bunch of excuses to cut payments and increase harassment of doctors and institutional providers.

You might wonder why, since this thing is supposed to be so wonderful, we would need an extensive program of grants for school-based clinics. I wonder why too, but I assume this is supposed to cover reproductive services.

If this were not in fact serious, it would be wonderfully funny parody. As it is, it qualifies as a Greek-style tragedy.

The taxes suggested are not going to be nearly enough to pay for this. There just aren't that many tax returns at that level; even if this tax were applied to all AGI for tax returns over $250,000 it wouldn't come near to paying for it.

Because premiums are going to go through the roof! The penalty for not buying coverage is 2.5% (That's $250 per $10,000 of AGI) of AGI above the filing threshold. The filing threshold for singles is above 9K for 2009. Nobody can be denied coverage for pre-existing conditions, so many moderate-income individuals will pay the penalty and just buy coverage through the exchange when they really need it.

Suppose you are a young person making $30,000. Your fee for not buying coverage is going to be under $550 annually - thousands less than buying coverage. If you are in good health, you'd be a fool to buy the coverage; it will be there when you need it and you are only disadvantaging yourself.

Altogether the most idiotic piece of legislation in a long time. It will add trillions to the deficit in short order and jack health insurance rates sky-high within a few years of going into full operation. Needless to say it is not sustainable - it is, in fact, designed not to be sustainable for the reason of not offending anyone by forcing them to pay for it, so of course it will be repealed later in sections. At that point it will actually be cheaper for many high-income persons to accept a 17-20% wage tax for universal health. So that's how we'll get there; employers will be forced to drop coverage and exchange premiums for those not subsidized on the exchange will be so massve (20-30K annually?) that the Ann Althouses of the world will sign on to universal as a way of keeping more of their money.

I have never laughed so hard over a piece of legislation, but in the end it will be an expensive bit of comedy. The Medicare provisions are lethal to health care for the elderly, I think.

Economically speaking, it would appear that the individuals who drafted this bill have not a clue about business in America. This does not surprise me, but is forcing destructuring on American business truly a good idea at an economic time of such diifficulty? One would suspect not.

But then, those who have brought us fake jobs for $160,000 a job probably think this is cost-effective. I don't know. Businesses have to be alert to this type of thing; I don't think the feedback will be good, and one wonders what type of cynical promises have been made in back rooms.

If you are interested in simulating what this will cost over time, most of the data you need can be found on page 7, Table 1 of the 2007 IRS tax return summary and in the ensuing pages. You won't get much more than 80 billion from the surcharge, if that.

...the Ann Althouses of the world will sign on to universal as a way of keeping more of their money.

I wonder. The best-and-brightest are claiming this bill will fix everything. If it all turns to scat within 5 years, will anyone trust them with universal government health care?

Attitudes have changed, and they've changed on both sides. In the 1930s, the government was regarded as a tool for making things right for the common man. In 2009, both the common man and the elites seem to regard the government as a tool for enriching the elites at the expense of the common man. I don't think this is sustainable.
I think you changing a tire or cutting the grass is the equivalent of the Chief eating Fried Chicken.

Take care of yourself and feel better soon.
I don't see how we can set up the necessary government bureaucracies, and divest companies into one-man agencies, for less than around 1% of GDP. That's on the near order of what the oil price bubble of 2008 cost us, and that was responsible for the deepest recession since the Great D of the 1930s. Therefore if this passes, we start the next leg down on what will become known as Great Depression II.

And it will be a lot worse than the percentage of GDP numbers show. The only reason we are not already in a depression is that 2008 energy payments at least turned the crank on the economy. I predict that most folks will reserve like mad (hoard cash and cancel expansion) to deal with the uncertainties of BlueLoss BlueFed, which will murder the money velocity multiplier.

And let's just not think about what happens if Obama's energy plans get approved.

P.S. It seems like single-employee labor agencies might be good for harassment and hostile workplace risks. But what about bribery and kickback laws? Inside a single corporation, bribery is just company politics, but what happens with a corporate wall around every desk? What about "ethics" institutional review boards? It will be a tar pit.
CF - there are limits, but in general it will get worse if I don't move.
Daniel - well, of course it will be a net negative. But I guess the theory is that hey, the economy is reeling under the impact of an energy shock and a credit shock, so why waste a crisis? Let's add more shocks!
Neil - At some point people will just be beaten down. If you destabilize the private insurance industry, people will lose all faith in that too. To a large extent, that is what has already happened with so much health care being delivered under government plans that have stopped paying for it. And anyone who has dealt with private insurance companies much knows just how weird and draining the interaction has become.
MoM I suspect these are considered Features,not bugs,at least by some.And You must be VERY ill because you misspelled a word.God bless,Tom
MOM - Yes, but I'm not sure people will look to yet another all-encompassing gubmint program to solve the problem when the current one breaks the budget. It seems equally likely that they'll look back on today's "private" health-insurance with rose-colored glasses and want more of it.
Neil - but the only way to "fix" private insurance is to either throw considerable numbers of people off public insurance, or raise taxes to support real public insurance (insurance that actually pays for the services rendered), or to cut benefits offered in public insurance plus increase reimbursements for covered services.

Given the number of people due to go on these programs, it seems clear that there will not be the votes to end them.
Given the number of people due to go on these programs, it seems clear that there will not be the votes to end them.

That right there is the idea I disagree with. I suspect that by the time anything takes effect, the budget situation will be such that either the number of beneficiaries or the benefits themselves will have been cut to the point where nobody really benefits anymore.

In the last year, the government has overtly shifted from a stance of more or less equitable taxation for the purpose of solving problems to one of taking what they can get in order to increase their own power and pay off cronies. The difference from the past is one of both scale an atmospherics--they're barely even trying to keep it hidden now. It's no accident that the proposed health care plans are very expensive and won't actually deliver any greater benefits to anyone.

This will be obvious to all Americans shortly, and they'll be pi***d.

"If this were not in fact serious, it would be wonderfully funny parody. As it is, it qualifies as a Greek-style tragedy."

"But I guess the theory is that hey, the economy is reeling under the impact of an energy shock and a credit shock, so why waste a crisis? Let's add more shocks!"

Well said!
Well, it's going to be hard for them to point a finger at the GOP for this one when it fails. And I guess it means that it will be easier to convince hospitals and care facilities to send you home, when the coverage runs out. The boyfriend will be out of the rehab facility next week as Medicare only covers 20 days at full rate. I am going to look seriously into the long term care insurance from AARP. It's starting to look like a smart idea.
Teri - how is he doing? I know it is a long recuperation period.

That's one surgery I would really fear.
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