Obamacare Implementation Begins

By Paul Guppy, Vice President for Research
January, 2013

Although it was intended to reduce health care costs, the federal Obamacare law contains a broad series of new taxes now taking effect in advance of full implementation of the mandatory program in January 2014. For example, a new 2.3 percent tax on medical devices started this month, which will raise the price of all medical supplies, from thermometers to pacemakers, used by doctors and nurses. Medical suppliers must pay the tax even if they don’t make a profit.

In addition to the federal levies, state officials are working on imposing their own health care taxes. A new report from the Washington State Health Care Exchange lays out a series of “revenue options” for financing the state’s Exchange program once federal subsidies stop after 2014.

Washington is an early adopter of Obamacare, being one of the first states to create a state exchange. Leaders in 21 states have declined to set up an exchange, citing the cost and complexity Obamacare’s federal requirements would impose on their citizens’ health care. People in those states will not have to shoulder the cost of a new program.

In Washington, planners are proposing three ways to collect tax money for the Exchange.

Tax Option A – An Added Tax. Starting January 1, 2015, the legislature would impose an added tax of 1 percent on every person in Washington who has health insurance, based on the value of monthly premiums. This would be on top of the current premium tax of 2 percent. To prepare the way, the legislature would impose an added tax of one-half percent on insurance premiums in 2014, as an early one-year tax boost before the full increase kicks in.

Tax Option B – The Double Dip: Exchange Tax Plus Diversion. The legislature would divert revenue from the existing 2 percent tax on health insurance premiums from the insurance commissioner’s office to the Exchange, and would impose a new tax on people covered through the Exchange up to the funding level requested by Exchange managers.

Tax Option C – Tax People in the Exchange. The legislature would impose a tax on every person who purchases health coverage through the Exchange. For many families, participation in the Exchange would be legally required under Obamacare’s Individual Mandate rule.

Officials say the Exchange will cost $51 million the first year, and more each following year. Lifting the ban on shopping for health insurance in other states would cost nothing, and would give Washingtonians access to hundreds of affordable health care options.

Obamacare, however, maintains the federal prohibition on buying out-of-state health insurance (the ban does not apply to other types of insurance), and many employers say Obamacare is leading them to drop their current health coverage. That means thousands of Washington workers will be pushed into the costly in-state Exchange or, because of the Individual Mandate, be forced to pay a penalty every year.

If workers do not pay the penalty, the IRS is authorized to withhold their federal tax refunds. With less than a year to full implementation, people across the country are finding out that this is what Obamacare looks like.

As the law kicks in there are signs that, in their hurry to pass the bill, lawmakers did not understand everything it contained. Obamacare remains unpopular and, given its flaws, Congress may consider repealing the law at some point in the future. Until then, Washington’s families and businesses face more taxes and fewer health care choices.