Tanning Tax and More..How Health Care Reform is Paid For

    As a state-wide health care organizer, PHAN keeps me fairly busy. I'm frequently traveling to some corner of the state for trainings on the weekends, in the office on weekday and in a meeting or work event come evenings. So, I don't find it terribly ludicrous to hold my schedule responsible for my utter ignorance of general pop-culture knowledge. (It was on a road trip over a month ago, for example, that Antoinette told me Miley Cyrus and Hannah Montana are the same person). The point? I only just learned of this whole Jersey Shore phenomenon, Snooki's protest to tanning beds and our President's clever response.

For those of you that also missed the story, she said, "I don't go tanning anymore because [President] Obama put a 10% tax on tanning. [Sen. John] McCain would never put a 10% tax on tanning. Because he's pale and would probably want to be tan."

Snooki's objection is founded and from an organizer's perspective her protest holds some legitimacy as a tactic. She's been effective in her efforts to educate the public about a 10% tax on indoor tanning salons that went into effect recently.

A reform package that expands Medicare to include free preventive services, closes the 'doughnut hole,' sets up a new market place for uninsured and small business owners to purchase insurance with subsidies from the government, expands Medicaid and is touted to actually reduce the deficit by $143 billion over the next ten years...needs to be paid for in some way.

So with a nod to Snooki let's look at other ways the package generates revenue to pay for itself.

Medicare Payroll Tax for Wealthy Americans

The Medicare payroll tax is going to be raised by 0.9% on individuals making more than $200,000/couples making more than $250,000 a year. People in those high income brackets will not need to start paying a Medicare tax on unearned income like dividends, interest and rent (but excluding things like pensions). The tax will be a 3.8% on that unearned income. Together these taxes, that go into effect in 2013, are expected to generate $210 billion over the next ten years, according to the Congressional Budget Office.

There are also measures built into reform to cut down on fraud, waste and abuse when it comes to Medicare billing. The new law fights offenses by increasing penalties for those found guilty and imposing tougher screenings of providers who have abused the system in the past. These proposals could save over a billion dollars in the next ten years.

Fines for Not Having/Offering Health Insurance

Built into reform is the concept of shared responsibility. Everyone must have health insurance by 2014 (although there are some exceptions based on religious objections and income). In 2014 those who chose not to get affordable coverage will pay a penalty of $95 or 1% of income, whichever is greater. This jumps to $325 or 2% of income in 2015 and then $695 or 2.5% in 2016. Remember that Exchanges will be set up so there will be affordable options for everyone. These penalties on people that do not purchase insurance, use hospitals for routine care drive up the care for everyone are expected to generate $17 billion over the next ten years.

Employers with over 50 employees that do not offer coverage and have employees who would qualify for federal subsidies in the Exchanges will be charged a fine of $2,000/employee (first 50 employees exempt). These fines are estimated to generate $52 billion over ten years.

Excise Tax on Cadillac Plans

The new law puts a tax on high-cost medical plans. This excise tax is for the insurers that offer these plans, however they are expected to pass along the costs to policy holders. The 40% excise tax is applied to the cost of the plan, minus the threshold which is set at $10,200 for a single plan and $27,500 for a family plan. This threshold is raised for retirees and employees in high-risk professions. The tax doesn't go into effect until 2018 and by then the threshold may be raised if health care inflation is higher than expected.

Increased Penalties for Non-Health Related HSA Withdrawls

Currently, if you withdraw money from a health savings account for non-medical purposes you pay a 10% tax on that money. From now on you will pay 20% although for Seniors this tax doesn't go into effect until 2013. This is expected to generate $29 billion over the next ten years.

Fees on the Medical Industry

There will also be a tax on medical devices, annual fees for drug companies and new fees on insurers. These are largely in exchange for increased growth in business the medical field will see as a result of the influx of Americans obtaining health coverage and using more medical services thanks to reform. These taxes and fees will generate $107 billion over the next ten years.

Tanning Tax

Finally, remember Snooki's tanning tax. That tax is expected to generate approximately 2.7 billion dollars over 10 years to help pay for the Patient Protection and Affordable Care Act.

    There is a lot of misinformation circulating around the taxes and fees associated with health care reform. Even without the mistruths, taxes and fees have never been a popular topic. Remember, though, unless you make more than $200,000 per year, buy and sell large amounts of medical devices or frequent indoor tanning salons, you're not going to see any additional tax due to health care reform.