Issue 110 State's ripping off our healthcare July 1 2013

Did you know that the State and local governments in the United States are reaping the benefits of our high priced health care and are in fact making it more expensive? Well, that is exactly what they are doing according to the Forbs article "How State Governments Raise Costs and Rip hundreds of Billions off the Federal Government using Health Insurance Premium Taxes" by Avik Roy (posted 5/25/2013.

How they rip us off: The article used Ohio as an example to demonstrate how States raise costs on health care. Ohio charges a 5.5% sales tax on Insurance premiums with an additional 1% state health insurance tax. In 2011, the average employer based plan for a single person is $5,025 which resulted in the average Ohioan spending an extra $327 a year just in taxes alone. Yup, that’s our money that we thought was going to health care that isn’t.

It gets worse: The Federal Government spends $300 billion a year (approx) through the tax code to subsidize employer sponsored health insurance. With Ohio being 3.7% of the U.S. population that means $11.1 Billion of that subsidy flows through Ohio and then gets taxed as part of a person’s individual insurance tax. This results in Ohio collecting an extra $721.5 million a year in tax revenue just from the federal money going to subsidize these plans.

Yup it gets even worse: Medicare and Medicaid are also affected. $50 billion is spent on Medicare part D and another $200 billion on Medicare advantage. Over half of Medicare enrollees are in private managed care plans accounting for around $150 billion a year. Using the same math the federal government spends $400 billion on privately managed Medicare and Medicaid plans with $40 billion a year that States collect in tax revenue by taxing those premiums. Altogether that is about $75 billion a year to State governments due to an accounting trick.

Yea, we dug our own grave: These costs and the amount of money that States are going to rip us off in taxes are only going to increase and that is partly due to subsidies in Obama care (the affordable care act). This accounting trick was used to justify Medicaid’s expansion. As a result, with the overall Expansion State revenues will increase by 1.6 to 1.7 billion over 10 years. Ohio Medicaid expansion is an additional 2.5 billion, but 1.7 billion will be paid in taxes with possibly the whole amount offloaded onto tax payers through the same accounting gimmick.

The States are not alone: Counties, cities and towns may also tax premiums and services. In 2012, the total combined State and local sales tax rate in the U.S. was 9.61% leading to an extra 29 billion (approx) being spent by the federal government to make up the costs. If you add taxes specific to health care premiums and that number is raised to 30 to 35 billion in spending. Let’s face it, we are being ripped off.

Hospitals are not immune: Provider taxes are paid at the hospital and are passed onto consumers by charging higher prices. These same taxes are used to rip off Medicaid subsidies because States set their own reimbursement rates for Medicaid and thus States increase the rates equal to the increase in taxation allowing for the hospitals to come out revenue neutral at the end with the federal government paying the costs in taxation through the reimbursement from the federal government.

Conclusion: So what is the answer to this major spending increase that is ripping off taxpayers and increasing our health care costs? Simple, we have to stop taxing health care premiums, services and hospitals. Apparently these taxes alone increase the health care costs on over 180 billion Americans with private coverage and make it costlier to subsidize the coverage for the poor. That is over half the U.S. population being affected by higher health care costs and it is time we eliminate this extra expense that harms the poor, the elderly, the uninsured and the average American who just wants to get and stay healthy. This is why certain taxes should not exist.