For low- and middle-income individuals and families electing to go through government insurance exchanges for coverage, a sliding subsidy scale will be used to limit the amount they will pay for insurance coverage. The result is that individuals will pay from about 2% to 3% to about 10% of their income. But whether paying the penalties or for the insurance coverage itself, this will impose further financial burdens on individuals and families, particularly younger and healthier Americans who often have high debts they are trying to pay down and less of a need for health insurance.
These new regulations also impact Flexible Spending Accounts, which many employees use to pay for common health expenses. Starting in January 2013, contributions to these accounts will be capped at $2,500. While this may seem adequate for most employees, many employees with high healthcare costs direct large amounts of their salary to their FSAs. Many of these employees will pay much higher taxes as a result of these changes. A related change with PPACA is that FSAs will not cover non-prescription medicine (except insulin). This will penalize and tax those individuals relying on these accounts to fund their over-the-counter medical expenses.
It will also be more difficult to deduct health expenses from income taxes. Currently the law allows any health care expenses that exceed 7.5% of an individual's income ("adjusted gross income") to be deductable on his or her income tax return. While this already created a very high hurdle than most taxpayers were not able to take advantage of, this hurdle will now increase to 10% of an individual's income. This change, due to take effect in January 2013, will especially hurt those with high health care expenses and modest incomes.
There are many other planned tax increases with this bill, that will affect both poor and wealthy, but one result will decrease the usefulness, and the use, of Flexible Spending Accounts. Employer-provided healthcare insurance as a whole will also become less prevalent as a result of the bill. It is clear that many employers will drop healthcare coverage altogether for many or all of its employees. Since the cost to provide healthcare coverage for employees is much greater than the penalties for not providing insurance to employees, many employers will choose not to offer healthcare insurance to its employees and let them handle their insurance on their own. This law will give disincentive to employers to hire new employees. One estimate is that 20 million Americans will lose their employer health insurance coverage. I suspect that this law will lead to a sharp increase in employers hiring individuals not as employees, but as independent contractors or part-time employees, with fewer benefits and responsibilities.
Of course, wealthier individuals, those making over $250,000 will also see higher taxes with this bill: Higher income taxes, capital gains taxes, dividend taxes and Medicare taxes, among others. Other taxes will be imposed on the medical and health care industry, along with substantial regulations, that will further impede the access to low cost and quality healthcare. The increased regulations and taxes imposed all along the healthcare delivery food chain by this act will be passed along to consumers and patients, which will likely result in the even greater taxes than the more obvious ones imposed.
Nearly all Americans want individuals to have access to quality medical care. And no one wishes the onerous financial burdens that many Americans with large medical expenses have suffered. However, it is difficult to see where the benefits from the act will accrue. A few will see benefits, but it appears that the vast majority of individuals, businesses and healthcare providers themselves will suffer and not receive the "benefits" that were sold to them. I hope I am wrong.