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Beware Of The Chameleon

Written by | May 13th, 2009

Pre-election Rhetoric

The top two presidential candidates Barack Obama and John McCain posed differing stances on how to pay for and at what cost we as a nation should investigate a nationalized health care system. McCain proposed something that most agree, flies in the face of many conservatives – taxing heath care benefits. McCain proposed removing the tax break on the first $5000 in benefits paid on behalf of employees. This meant that health coverage costs for most employees would suddenly increase by their marginal tax rate, whether it is 15% or 39%. In an already expensive market, taxing health care benefits would mean that some employees would as a necessity lose their coverage because they could no longer afford it, thus putting an ever increasing burden on the national health care system were one instituted. Obama came out against this proposal pre-election and rightly so. Taxing health care is a politically charged topic with vehement opposition from all sides of the political spectrum. Obama continually beat that mantra into the minds of voters for weeks prior to the election about how terrible it would be to tax these benefits.

Arguments For Taxing Health Care

McCain argued that by taxing health care you could reduce the deficit, fund the failing and near bankrupt Medicare system and fund a multiple payer system whereby the employee would be able to choose health care coverage at a reduced rate. Certainly the IRS and congressional pickpockets would like no more than to dig deeper into your pocket and fund this program. Considering the fact that congress has seldom seen a tax it didn’t like or a bit of pork that they could fatten up for their constituents, so it isn’t hard to imagine then that for the people back home, the recipients of these massive government entitlement programs, there is an argument to be made for them, and thus an argument to be made for taxing health care to provide health care. It seems like the logical next move.

Government Success At Single Payer

Single payer has been around for many years, but it was historically used to fund the health care of aging retirees. Over the years Medicare has grown into a massive government entitlement that will likely be bankrupt by 2017. With the growing cost of health care and the explosion of retired Americans receiving Medicare benefits, it was certainly doomed to fail from the start.

Consider that when Medicare was originally instituted in 1966, the number of recipients of Medicare benefits versus the number of payers was roughly 20:1;  with 74 million Americans paying 0.35% into the system (employee and employer portions). The average wage adjusted for inflation was $32k and the maximum taxable income was $43k. Even in 1966 the average employee could conceivably exceed that limit and pay considerably less in Medicare taxes than in 2008.

Today the average wage is roughly $41k with the Medicare cutoff at nearly $107k, this means there are more people being taxed more on their income just for Medicare, and Medicare is broke. The 2009 rate for Medicare tax is 2.9% (employee plus employer portions), however, considering the number of retirees and disabled Americans (and dare I say illegals) receiving benefits the revenues are falling short of the need. In 2008 the number of Medicare recipients vs employee was reduced to 3.5:1, and that number is likely to continue shrink. By looking at projected aging figures from the National Institute of Health we can see that the number of retirees and disabled Americans is expected to double in 25 years and add to that the waning birth rate in the US and there is considerable cause for alarm. If the US population continues its stagnant growth, and by some estimates turns to a negative grown rate in the next 20 years, we could very well be looking at a single payer system where the worker/payee ratio is closer to 2:1. Since the cost of medical care is certainly not expected to decrease over then next 25 years, it is certain that we will be looking at a combined tax rate of 6% or more or a complete failure of the system and either scenario has a problematic future.

The Obama Plan

Fast forward a few months and the tune has changed. Apparently the reality has hit the fan. It is now painfully obvious that the reduced taxation and the continued bloviating over McCain’s plan to tax medical benefits is suddenly a good idea. Score 1 for McCain. The Obama administration now feels that by taxing health benefits the taxes raised would suddenly and without problem raise a miraculous amount of cash to fund a far reaching nationalized health care system whereby your employer is forced to provide health care and you are required to pay for it, and to make it even better, it would necessarily reduce the amount of money being paid to doctors, thereby making the medical field a less appealing field for young graduates. Considering the only program the government has done even a marginally good job at is taxing citizens, we should have serious reservations about this program as well.

Under the Obama plan, your employer provided benefits would be taxed at your marginal tax rate, that being 15% for most taxpayers, but increasing to 39% for those in the top income brackets. The program would initially cover only those who did not have an employer sponsored health care program or were unemployed and did not qualify for other programs such as Medicare and Medicaid. However a flaw recently pointed out was that as the cost of medical benefits increase due to the taxation, many employers would simply drop coverage to allow their employees to seek coverage under the government program. To fix this obvious flaw, the plan would necessarily require that employers provide health care coverage, and thus employees would thus be required to take it or have no coverage. People who work in entry level positions, such as retail clerks and fast food employees, would still be unable to afford to have insurance, even if it were employer subsidized. To combat this flaw, another exception would be required to allow for low wage and under employed people to qualify for coverage. Suddenly the number of people paying for the system is significantly fewer than those using the system and therein is the recipe for failure.

To be fair, I didn’t support the McCain plan nor do I support the Obama plan, in fact, I think the government’s role in health care is non-existent. It has proven beyond a doubt that it cannot administer any program effectively, that it lacks the fortitude to cut such programs when it is no longer economically viable and the people most often in need of such a program are the ones who are most frequently disqualified by bureaucratic red tape. Obama should abandon this plan as being failed before it even begins. It is fraught with problems and will quickly become unwieldy. If the government wants to help millions of Americans with health care, then perhaps they should look instead at reducing the federal debt, balancing the budget, tightening border security and by getting dis involved from peoples’ lives. It would surely reduce the number of Americans on anti-depressants and allow those with ulcers to heal … well, at least it would for me.

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3 thoughts on “Beware Of The Chameleon

  1. markross

    In fact, to even better state this case, I found the link to The John Stossle report on Medicare that I had watched, on this very subject. This program is where I got the 34 trillion dollar figure from.

    It is a must watch for anyone who is concerned about the future of Medicare (and likely Social Security as well).

    These government managed programs have proven to be mammoth failures, and have caused millions of people to become “too” reliant on them.

    John Stossle refers to Medicare as a possible Ponzi scheme, by the government; I have heard that attributed to Social Security as well.

    Also see…

    I’m sure The Ponzi analogy could also apply to many of the federal income taxes that we pay as well.

    For anyone with much faith that government can manage programs such as national health care, and make them “viable”, and “sustainable”, over the long term, it is reports like the above video that “may” help open our eyes to the true, and sad reality.


  2. markross

    I agree with you, the end result with these big government programs is failure.
    And the working people in this country are still paying into programs which are destined for bankruptcy. Therefore, many that are paying for these programs, will likely never partake of them.

    These are great examples of where the government came up with some ideas (eg. Medicare and Social Security) that they thought would help (perhaps with good intentions, perhaps not) the citizens,  however, in the end, they are simply unsustainable, and perhaps have caused more (economically speaking) overall harm then good for our country.

    I just saw a recent report that said, we would need 34 trillion (yes, with a “T”) dollars, to make Medicare a viable program again; this is evidence of how big of a failure it was and is.

    I have often wondered if people that believe in these big government programs, just see it from one dimension; that is, “everyone will have health care, we will all be taken care of” etc. etc. I do not know one compassionate person that would not like to see everyone (legally) in this country, have health care, but “every” single advocate of these programs seriously needs to stop, and look at the economic ramifications, and level of long term stability before we institute anything like this in the future. It is simply not enough to say, that sounds great, and just do it; we need rational and reasonable people to truly do the research, and put the thoughtful time necessary; and it is no longer acceptable for the government to say, “oh, we’ll just raise taxes, in times of shortfall”, because we are going bankrupt, partially as a result of their negligence. We simply can not go on robbing Peter to pay Paul.

    Without elaborating too much, I am for taking health care out of the hands of employers, and government, if the government and the private sector can work out a feasible plan “together”; then the employer could contribute (tax free) to our “individual” health savings accounts, as incentive to bring a person aboard. Hell, the government could even lower taxes to make such a program affordable, without forcing more taxes on us, and bankrupting us anymore then they already have.

    Also, I would love to ask people, “how much does your doctor charge for that shot”?
    How many people could answer that? Case and point…If health care could be moved into the private sector, “competition” among health care providers would likely help to see health care costs “drop”.

    Simple answer..government stay out, and work with the private sector to make these programs work. It seems to be the only sustainable and realistic way forward. People in the private sector will assume the risk, if the government does the right things, and gives incentive for people to do so.

    Really, the bottom line is that programs such as Medicare and Social Security “must” somehow (responsibility) be cut off. If they are not cut voluntarily, then they will be cut, involuntarily. I have always thought it best to be proactive, rather then reactive.



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