In the weeks since the Supreme Court ruled on the constitutionality of the Patient Protection and Affordable Care Act, aka "Obamacare," debates have raged over what the law will mean and how it will affect the average American. Last week, I explored several myths about the health care reform law. Generally, they were based on mischaracterizations that opponents of the law used in their attempts to discredit it.
But some of the rumors about the PPACA contain at least a grain of truth -- and some of the law's requirements may have unintended consequences. With that in mind, here's a look at five Obamacare rumors that are at least partly true -- and some of the ways that those may affect you.
5 Obamacare 'Myths' That Are (at Least Partly) True
Sadly for users of acupuncture, massage, chiropractic adjustment, herbalism and other medical treatments outside the mainstream, the Affordable Care Act will only cover "essential health benefits" -- an umbrella that, many analysts argue, does not include "alternative" or "complimentary" medicine. Some critics of the Affordable Care Act argue that this will, effectively, kill alternative medicine in America.
On the other hand, most insurers offer policies covering some form of alternative medicine, and they've done so without a federal mandate. Further, some states have required that insurance plans cover certain alternative treatments -- for example, in California, insurers must cover acupuncture and chiropractic. It remains to be seen if these individual states will keep their alternative medicine requirements.
There is some truth to this rumor, although it isn't nearly as comprehensive as Obamacare critics are arguing. In reality, the new tax, which goes into effect in 2013, would only apply to households making more than $200,000 per year, and would only be levied on extremely profitable capital gains. To be specific, you will have to pay this tax if you:
- Make more than $200,000 per year ($250,000, if you're married);
- Sell your home;
- And make more than $250,000 in profit on the sale ($500,000, if you're married).
Then you would have to pay a 3.8% tax on any profits above $250,000 ($500,000, if you're married). So, for example, if you and your wife earn $260,000 a year, and your sell your house for $510,000 more than you paid for it, then you would have to pay 3.8% tax on $10,000 ... or $380.
A grain of truth, yes -- but not quite as daunting home sales tax as the critics are arguing.
Under the requirements of the PPACA, companies with more than 50 "full time equivalent" employees have to offer a health care package that doesn't cost more than 9.5% of a given worker's salary. If enough workers don't opt into the employer-sponsored health care program, the company can face steep fines.
But there's a loophole: Companies don't have to offer health insurance to part-time employees. Consequently, conservative pundits have argued that many companies will shift to hiring only part-timers as a means of lowering their health care costs.
There may be some truth to this -- after all, the recession brought with it a 20% increase in part-time employees, as companies cautious about expanding their payrolls avoided full-time hires. Given that fact, it seems odd that the PPACA would offer yet another impetus for companies to avoid creating full-time jobs.
On the other hand, as Sarah Kliff recently noted in The Washington Post, when Romneycare passed in Massachusetts, there wasn't a mass shift toward part-time employees. Part of that can be credited to the fact that providing health insurance actually has some benefits for employers: In addition to encouraging employee retention, health insurance costs are paid for out of pre-tax dollars. In other words, a dollar paid into health insurance is worth more than a dollar paid into salary, an equation that benefits employers.
This is not just semi-true; it's plain ordinary true.
The requirements for employer-backed health insurance plans are that they have to cost less than 9.5% of an employee's salary. If an unmarried worker making more than 133% of the poverty line refuses to get this employer-sponsored (and, often, subsidized) insurance, he or she will have to pay a minimum penalty of $695 and a maximum of slightly less than 2.5% of yearly income. In other words, a single filer can choose to pay 9.5% of his or her income ... or a penalty of less than 2.5%.
As for employers with 50 or more employees, they will eventually be forced to pay a penalty of $2,000 for every full-time employee who opts out of their plan. Given that, in 2011, the average employer health insurance contribution for a single employee was $4,508, the average employer would save $2,508 per single worker by refusing to offer competitive insurance.
To further sweeten the pot, employers are not required to insure part-time workers, and can deduct their first 30 full time employees.
So, to take as an example a scenario inspired by the Congressional Research Service, consider a firm with 35 full-time employees, and 20 part-timers who each work 24 hours a week (equivalent to 16 full-time employees). The company would have 51 full-time equivalent workers. When the penalties finally go into effect, if the owner of that company chooses not to offer insurance, he will only have to pay $10,000 in penalties -- as opposed to $157,780 in health care contributions.
This is also true, to a point. In addition to the 3.8% tax on some capital gains, the PPACA contains several other taxes, including:
- A 10% tax on indoor tanning booths.
- A 0.9% tax on filers making more than $200,000 per year
- A new tax levied on insurers who market luxury-level health care plans whose premiums cost more than $10,200 for individuals or $27,500 for families.
- A 2.3% tax on sales of medical machinery
- A tax on pharmaceutical manufacturers
- A new tax on insurers, scaled to their market share
In addition to new taxes, the PPACA will also place limitations on some previous tax breaks:
- People will only be able to put $2,500 of pre-tax income into their flexible spending accounts. (This isn't really a new tax, so much as a limit on an earlier tax break).
- A reduced deduction for healthcare expenses
So yes, the PPACA will actually create a bunch of new taxes -- very few of which will directly impact middle class families. Critics argue that many of these taxes will trickle their way down onto the middle class through increased premiums, higher prices for health care, or other charges. Another argument would be that the PPACA will also pour billions of dollars into the health care system, more than balancing out the increased tax levies.