If President Obama is interested in lowering inequality, he has a funny way of showing it. In a speech last December, the President claimed that income inequality is “the defining challenge of our time,” and pledged new government action to reduce the gap between rich and poor.
Ironically enough, one of the policies the President claimed will “solve” inequality—the massive health care legislation he signed into law—will result in the health insurers who provide care to the lowest-income Americans getting taxed.
You read that right: Obamacare taxes health insurers who provide care through Medicaid, the state-federal partnership providing care to low-income families and individuals with disabilities. The law raises $8 billion in taxes on insurers this year, rising to over $14 billion annually by 2018.
Under the law, most managed care plans that provide treatment to vulnerable populations in Medicaid will be subject to the tax. Likewise, most Medicare Advantage plans chosen by seniors will be forced to pay this new Obamacare surcharge.
Because of the way the law was written and applied, the health insurer tax will have some truly perverse effects. In Louisiana, we will have to pay our Medicaid plans more to offset the cost of the health insurer tax. But in doing so, we will claim federal matching funds on those higher Medicaid payments. Imagine that: The federal government is paying states to fund the taxes Washington itself imposed!
Democrats like to claim that these taxes will be borne by “greedy” insurance companies, and that ordinary Americans won’t suffer. But non-partisan experts have said insurers’ cost of the tax will be passed on to insurers’ customers, which is consistent with economic theory—and basic common sense.
Both the Congressional Budget Office and the Joint Committee on Taxation agree that these taxes will ultimately be paid by consumers, in the form of higher premiums. The Joint Committee on Taxation said that repealing the insurer tax would reduce premiums by 2-2.5 percent. That means the insurer tax raises premiums by $350-400 per year for the average family health insurance plan.
Remember that Obamacare’s individual mandate was ruled a tax by the Supreme Court two years ago. So Obamacare taxes you if you don’t buy health insurance, and taxes most people who do buy insurance. Businesses face the same dilemma: Large firms are taxed if they don’t provide their workers with insurance, but if they offer their employees coverage, the law’s health insurance tax could raise their premiums even higher.
And all these taxes—enforced by your helpful friends at the IRS—are harming American families, and our economy. The Congressional Budget Office recently concluded that Obamacare raises effective marginal tax rates, discouraging millions of Americans from working. CBO also concluded that the law will reduce aggregate labor compensation, and result in lower demand for lower-wage workers.
To end where we began: A law that taxes those providing care to the most vulnerable, raises insurance premiums on struggling families, and reduces the American workforce and compensation is exactly the wrong way to address income inequality. In fact, it epitomizes Ronald Reagan’s famous quip that the nine most terrifying words are “I’m from the government and I’m here to help.” President Obama should go back to the drawing board on his agenda, and Congress should repeal Obamacare and focus on enacting true health reform—changes that will lower costs, not raise them.
This post was originally published at Townhall.