To see why the Patient Protection and Affordable Care Act will raise the costs of health insurance for Americans, look no further than Missouri, where U.S. District Judge Audrey Fleissig struck down a state law exempting moral objectors from purchasing birth control coverage. Judge Fleissig wrote on Thursday that this Missouri law contradicted federal law, which requires insurers to offer free contraceptive coverage, and that federal law pre-empts state law.
This is a small example of how one-size-fits-all health insurance requires Americans to buy broader policies than they need. This raises the cost of health insurance premiums under the Affordable Care Act.
Judge Fleissig's hands were tied by federal law. To prevent skyrocketing costs, the law needs to be changed, not only for contraception but also for other required elements of the qualified benefit plan that Americans will be buying on the exchanges come 2014. Under the Affordable Care Act, health insurance policies offered under the exchanges will have to include not only birth control but also mental health and drug abuse coverage, unlimited lifetime maximum coverage and free annual physicals.
What if you want to buy a less robust plan, where you pay routine health costs out of pocket but you're insured against major expenses -- falling off your bike in traffic, suffering a heart attack or being diagnosed with cancer? Such a plan, called a catastrophic health plan, would have lower premiums, but it's no longer allowed for anyone over age 29.
Americans can pay lower premiums for auto and home insurance policies with high deductibles, but when it comes to health insurance, Uncle Sam says no. The broad, mandatory scope of the new health plans is one reason why the Internal Revenue Service estimated a family plan would cost $20,000 a year in 2016.
Another reason for the increase in cost is that people will be allowed to sign up for health insurance during any open enrollment period. Coupled with the low taxes for not purchasing insurance, many will choose to wait until they get sick to pay premiums.
Hence, the pool of all insured will get sicker on aggregate, and premiums will rise. As premiums rise, more will decide to pay the tax instead of the premium, leading to a cycle of declining enrollment and rising premiums. The uninsured will end up in emergency rooms and community centers for their care. The Congressional Budget Office estimates that in 2014 there will be 44 million uninsured. Even when the law is fully phased in, in 2023, there will still be 30 million people uninsured.
Individual taxes for not buying insurance are $95 in 2014, $325 in 2015, and $695 in 2016 and thereafter -- quite low relative to the cost of premiums. Internal Revenue Service regulations issued on Feb. 1 set the maximum tax in 2016 at 2.5 percent of taxable income, or $2,085.00 per family -- far less than $20,000.
The federal government will subsidize health insurance purchases on the exchanges for families making up to 400 percent of the poverty line -- about $94,000 for a family of four. But a family of four earning $100,000 would not qualify for subsidized health insurance. Premiums would swallow 20 percent of income. Taxes for not enrolling would be $2,500, 2.5 percent of income. Many would be tempted to skip the insurance.
Plus, the IRS is limited in how it can collect health care taxes. If people overpay on tax withholding, it can take the money from their refunds, but using traditional methods of collection, such as liens on property, will be forbidden.
Obamacare is structured to fail. Requiring people to buy a costly package of services that they don't want or need is ultimately futile.