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January 2012
“They won’t be so opposed to it once they see what’s in it.” That’s the rationalization House leaders have given skittish Democrats to get them to walk the plank on Obamacare Sunday night.
But one of the first things millions of Americans will “see” is an effective 40 percent tax hike on the over-the-counter medicines – from an antihistamine such as Claritin for allergies, pain relief medicine such as Tylenol or Excedrin, Pedialyte to prevent their kids from becoming dehydrated when they are sick, and even prenatal vitamins if they are expecting another one.
All of these items have two things in common. One is that they are classified as “over the counter” (OTC) medicines and available without a doctor’s prescription. The other is that if you pay for any of these items with money in your flexible spending account (FSA) or health savings account (HSA) – and according to this guide from FSA administrator Benesyst , all of these are eligible expenses – you will face an effective tax increase of up to 40 percent on these items in the health care bill that President Obama signed today.
The bill restricts individuals with these pre-tax accounts to buying a “medicine or drug only if such medicine or drug is a prescribed” one. And ironically, this tax that will raise health care costs substantially by creating incentives for the use of more expensive prescription drugs even when OTC drugs are just as safe and effective.
And while the tax on “Cadillac” plans for union members was delayed in the reconciliation bill until 2018, no such luck for HSA and FSA account holders, many of whom are self-employed and entrepreneurs. These heath care consumers and voters – and there are more than 40 million of them according to the Washington Times – will still “see” this tax hike go into effect at the beginning of 2011, the same as when I last reported on this “medicine cabinet tax” in BigGovernment.com and here atOpenMarket.org. And if there were a couple smart politicians, Americans would “see” this tax as soon as this week’s reconciliation debate.
Both FSAs and HSAs allow Americans to pay for medical expenses with pretax dollars. An HSA goes along with a high-deductible insurance policy and gives individuals a tax deduction for money saved that can be used for health care expenses. An FSA has similar tax advantages, but contributions to it are deducted from an employee’s salary, and money in the account must be used by the end of the year.
In 2003, the Treasury Department and the Internal Revenue Service ruled that OTC medicines could be paid for by FSAs and the newly enacted HSAs. In a press release that sounded unusually compassionate for the IRS, the agency stated:
Drugs are increasingly becoming available over-the-counter without prescription. Many health plans no longer cover the cost of these drugs as over-the-counter. While an over-the-counter drug is less expensive than the prescription drug, the cost to many consumers increases because the price paid by the consumer for the over-the-counter drug is greater than the co-payment by the consumer when the drug was covered by insurance. This is especially an issue for individuals who remedy chronic health problems by regularly taking an over-the-counter medicine.
Then-Treasury Secretary John Snow added in the release, “Since many prescription drugs have moved to the over-the-counter market, this action today makes paying for them a little bit easier to swallow.”
Specifically, the government ruled that since the tax code written by Congress did not specifically require that “only medicines or drugs that require a physician’s prescription be taken into account” for health expenses, OTC medicines were eligible. The ruling made clear that although health accounts could not purchase items for general health such as toothpaste, they could be used for medicines that treat specific conditions, such as an “antacid, allergy medicine, pain reliever and cold medicine.” Companies that administer FSAs and HSAs have developed extensive lists of a variety of OTC items that are covered. The Benesyst guide fills two pages with an alphabetical list of eligible expenses that includes everything from analgesics to wound care.
But Section 9004 of the Senate bill the House ratified Sunday night, as well as Section 531 of the House bill that passed in November, changes the tax code so that “distribution for medicine” from HSAs and FSAs are “qualified only if for prescribed drug or insulin.” Yes, the bills are merciful enough to allow diabetics to purchase insulin under these tax plans, but if you or your family members need Pedialyte, prenatal vitamins or numerous other over the counter health items, you will see a tax hike that could be huge.
Since HSAs and FSA contributions are exempt from both income taxes and 15.3 percent payroll tax for Social Security and Medicare, and since these together can reach more than 40 percent of an employee’s salary, the effective tax increase on these medicines could be more than 40 percent.
And this tax change will almost certainly cost the health care system billions more dollars in unnecessary spending both to the government and private insurance plans. The Joint Committee on Taxation estimates that the tax hike will bring in $5 billion in revenues over ten years – itself a drop in the bucket when compared to the bill’s new trillion-dollar entitlement – but that estimate doesn’t take into account behavioral changes as a direct result of this provision.
OTC drugs are much cheaper those available for prescription, but they could now be more expensive to individual consumers given that prescription drugs would still be eligible for favored treatment in the tax plans, and that insurance companies would be mandated to cover many of them. Consequently, any time a consumer has the slightest headache, the financial incentive would often be to see a doctor and get a prescription rather than go to the store and get medicine off the shelf.
This could mean that billions will be wasted on the additional costs for prescription drugs in instances when OTC medicines could be just as safe and effective at treating the illness. A 2005 study in the American Journal of Managed Care found that the Food and Drug Administration’s clearing of antihistamines such as loratadine (Claritin) for over-the-counter sale saves about $4 billion a year in health care costs. Ironically, the liberals and Democrats who normally rail against big pharmaceutical companies are now creating a huge windfall the firms that make expensive prescription drugs by penalizing users of OTC medicines.
The rallying cry for opponents of Obamacare has been “Hands off my health care.” In addition, they now could say, “Hands off my medicine cabinet.” And the fight could begin as soon as reconciliation. A smart politician could introduce an amendment to strike the medicine cabinet tax, arguing that under dynamic scoring which takes into account behavioral changes of taxpayers, the tax would cost the government more. If they need something else to pay for this fix, there is always the House’s costly repairs to certain “Cadillac” that 51 Senators could decide to ditch.
2005< l}}@}e-converted-space”> study in the American Journal of Managed Care found that the Food and Drug Administration’s clearing of antihistamines such as loratadine (Claritin) for over-the-counter sale saves about $4 billion a year in health care costs. Ironically, the liberals and Democrats who normally rail against big pharmaceutical companies are now creating a huge windfall the firms that make expensive prescription drugs by penalizing users of OTC medicines.
The rallying cry for opponents of Obamacare has been “Hands off my health care.” In addition, they now could say, “Hands off my medicine cabinet.” And the fight could begin as soon as reconciliation. A smart politician could introduce an amendment to strike the medicine cabinet tax, arguing that under dynamic scoring which takes into account behavioral changes of taxpayers, the tax would cost the government more. If they need something else to pay for this fix, there is always the House’s costly repairs to certain “Cadillac” that 51 Senators could decide to ditch.
I have repeatedly defended Obama against what I’ve considered unfair attacks from the right. I believe his actions for the most part have not been nearly as “liberal” as some have claimed. It’s wrong to use his middle name of “Hussein” used against him, as if he could have chosen it in any case. And I don’t care for the conspiracy theories such as his alleged foreign birth.
But one of my objections to all this is it weakens legitimate arguments against those actions and words of his that truly threaten our nation.
That includes his utterly outrageous claim following the House vote approving the health care bill.
The vote, he said last night, “proved that this government – a government of the people and by the people – still works for the people.”
Just for using that cliche he merits 20,000 years in purgatory. I trust even my non-Catholic friends will stand by me on that.
But beyond that, we have those pesky surveys that repeatedly showed “the people” opposed the legislation. They include Gallup, Rasmussen, Fox, Pew, NBC/Wall Street Journal, and others. All were released anywhere from days to a week before the vote. All show only about a third of the electorate wanted the legislation to pass.
Then there are the numbers in the House vote itself.
It squeaked by with just seven more yeas than nays, or 50.8 percent of those voting. It got zero votes from opposition party and had 17 defectors from the majority party. That doesn’t invalidate the vote, of course. It legally passed. But is that the kind of victory margin you’d really want for sweeping legislation that will affect all Americans presumably for the rest of our history?
Obviously it’s not what Obama would have wanted. But what he wanted more was a political victory and a massive expansion of government, and now he’s got them. Goody for him. But don’t pretend this is what we wanted.
In an editorial today, the Washington Post attacks U.S. sugar policy, with its price supports and import restrictions that raise the cost of sugar in the U.S. about 15 cents per pound higher than the world price.
Though the sugar program is mandated by farm bills – the latest in 2008 — the Post rightly points out that the Administration can take a small step to allow more market-priced sugar to come into the country. The Secretary of Agriculture can increase or reallocate the sugar quotas that are allocated to 40 countries, some of which, such as Haiti and Jamaica, that haven’t exported sugar to the U.S. in years. Under those quotas, which haven’t been changed for years, quota-holding countries can export sugar to the U.S. at low or no tariffs. Amounts above those tariff rate quotas face high duties.
For CEI background on the sugar issue and proposals for reform and CEI support for increasing the quotas, see CEI’s website and here and here and here.
The American health care system is in crisis. And the Obama administration and Democratic congressional leaders appear determined to make it worse. How else to explain the backroom deals, midnight votes, and procedural legerdemain which senior Democrats have undertaken in order to enact a health care bill that no one—not even its most ardent supporters—seems to like very much, and which large swaths of the American public viscerally oppose?
Nevertheless, in just a few hours, the House of Representatives will vote on the $940 billion Senate health care bill, followed by a reconciliation package of “fixes” that were needed to attract the support of enough congressional Democrats.
Set aside, for a moment, the procedural shenanigans and cost-shifting gimmicks involved in gaming the bill’s CBO score. These sorry episodes will soon be forgotten by the American public even as today’s new low in American governance seems destined to become tomorrow’s standard operating procedure—there to be abused by both parties. This is to be lamented. But, today, our far bigger concern is for the future of American medical care.
Much has been written about this bill’s “takeover” of American health care. But, the sad truth of the matter is that, for the past few decades, the federal and state governments have been in control of close to half of all health care resources, with Medicare, Medicaid, SCHIP, and other government health programs accounting for some 48 percent of all health care dollars spent in 2007. In addition, private health insurance is already heavily regulated by state and federal laws governing who must be covered and how. In a very meaningful sense, government took over health care long ago.
Still, despite copious amounts of government control, what kept American health care alive was the residue of market processes that enabled some semblance of choice, price signals, adaptability, and—perhaps most important—physician responsiveness to patients’ needs. The great tragedy of today’s health care legislation is not simply that it seeks to exert more control over the provision of health insurance and medical services per se, but that by doing so, it takes us farther and farther into a future in which the relationship between physician and patient will be irreparably severed.
Most of the problems in America’s health care system—high and rising prices, lack of consistent and reliable access for millions, rampant cost shifting, and an inability to distinguish between effective and ineffective services or between high and low quality, to name just a few—stem not from some supposed market failure, but primarily from existing government interventions in the market for health care and health insurance.
Some people have had difficulty affording health care. But, because the public opposed the huge cost of directly subsidizing health care purchases, government regulations were implemented that hid most of the costs of those subsidies within the system—what my former colleague Tom Miller described as trying to have socialism’s benefits without socialism’s (overt) costs. But each new round of regulatory fixes forced costs higher, leading to yet another round of regulations. Thus, there’s nothing particularly new in today’s legislation. And, as with all previous government interventions, this new regulatory regime will make the major problems in America’s health care system still worse.
Why? Because the vast majority of Americans—those enrolled in government health programs and those who receive health insurance as an employment benefit—see no clear relationship between the services they receive and the cost of that care. Therefore, they have no incentive to make rational, cost-conscious decisions about what health services they consume, driving up expenses and straining budgets. This new legislation will further shield patients from the true cost of their health care choices.
Over time, the need to restrain costs has made the third party in the doctor-patient-payer relationship increasingly more important than the second. The present health care legislation seeks to cut hundreds of billions of dollars out of Medicare, while spending those “savings” and hundreds of billions more in new tax revenue to subsidize private sector health insurance coverage. The inevitable end result will be less and less decision-making power in the hands of American health care consumers.
There is no sustainable way for government to subsidize more and more of our health care spending without also controlling how much is spent or where that spending goes. Government will shift ever more of our health care dollars away from those services we as consumers value to those government bureaucrats value. As in Canada, the United Kingdom, and countless other countries with health care central planning, high minded panels and commissions and bureaus will be established to determine which services are worth paying for and which are not. Health decision making will no longer lie with the patient and his doctor, but in a committee of bureaucrats in Washington.
Ultimately, central planning in health care is no more effective than central planning in any other economic activity. Markets need a critical mass of individuals spending their own dollars in order to allocate resources efficiently. That’s because only free individuals making their own spending decisions can reveal the aggregate value they place on various goods and services. When government decides what to buy and at what price, the absence of aggregated individual price signals means that the central planner cannot know what consumers—or in the case of health care, patients—value most.
The fatal conceit of health care central planners is their belief that they can use cost-benefit or comparative effectiveness analysis to determine, with precision, which patients ought to receive which treatments. Is $50,000 too much to pay for a cancer drug that may cure just a small fraction of the patients who take it, or which, on average, will extend patients’ lives by less than a year? There is no one “right” answer for every patient. But, as in any kind of economic transaction, someone needs to determine what’s worth paying for. When government picks up most of the tab, giving every patient every treatment that might possibly provide some benefit is a surefire way to bankrupt the public fisc.
The Obama administration and its allies in Congress seem to know this, but their method of addressing this problem is so clumsy it would be laughable if the consequences weren’t so serious. To keep costs low, today’s health care legislation will create a Patient-Centered Outcomes Research Institute and a Medicare Committee founded on the untenable premise that every patient is exactly average. The clinical research on which these bodies will make their payment decisions is conducted on groups of patients who are as much alike as possible. Such an approach is absurd on its face. In the real world, patients respond differently to different treatments, so basing payment decisions on what’s best for the average patient would be a recipe for disaster.
In the near term this means that, in order to cut costs, countless patients are likely to receive inappropriate treatments. In the long run, this will put a drag on medical innovation, as R&D expenditures will shift to respond to the price signals sent by government. We won’t have the treatment innovations that patients want and need, but those that government bureaucrats find most appropriate for the median voter. Everybody else will be out of luck.
As the House gets ready to pass the health care bill today, I’m reminded of one of the first lessons in economics I ever learned. Milton Friedman put it best:
There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.
The biggest problem with health care today is that patients only pay 12 percent of costs out of pocket. As far as each individual is concerned, it’s basically on sale for 88 percent off! No wonder we spend so much on health care.
Today’s bill consists almost entirely of spending other peoples’ money on other people. If it becomes law, that 12 percent figure will fall even further. This is no way to keep costs under control. However noble Congress’ intentions may be, its bill will not work as advertised. Human nature won’t allow it.
Over a week after I exposed the “Toyota Hybrid Horror Hoax” at Forbes. com, the press (as opposed to some TV networks, talk radio, and bloggers) just won’t throw in the towel.
“A California Highway Patrol report released on Wednesday in a sensational ‘runaway’ Toyota Prius incident appears to support the version of events given by the driver, which the automaker has called into question,” reports Reuters.
Really? Here’s the report. It’s just a few pages; read it for yourself. But it’s interesting to note what Reuters plucked that it believes to be so compelling.
• “‘I could see the driver sat up off his seat indicating that he was possibly applying the brake pedal with his body weight,” CHP Officer Todd Neibert wrote in his investigative report.” Sorry, but being up off your seat doesn’t mean you’re standing on the brakes. Try it for yourself in your own car.
• “‘I was able to view his actions through the lowered right rear window,” Neibert said in the seven-page written narrative. ‘His back was arched and both hands were pulling on the steering wheel. I noticed that the Prius slowed slightly, down to approximately 85 to 90 miles per hour.” As with the earlier comment, by definition this occurred after the officer arrived on the scene. It doesn’t tell us what Sikes was doing in the previous 25 minutes. And it’s very important that somehow when the officer showed up the Prius was slowing down at least slightly, thereby contradicting Sikes’s claim on the 911 tape and later that it wasn’t slowing at all.
• “Neibert wrote that Sikes ‘looked over at me briefly and appeared to be in a panicked state’ . . . . the brake lights on the blue Prius were lit as it ascended a long uphill grade at about 85 miles an hour.” Again, this was after the officer arrived on the scene that the brake lights were lit. As to appearing to be in a panicked state, that’s how Sikes would want to look isn’t it?
• “He said that Sikes complained of tightness in his chest, ‘appeared to be extremely stressed from the incident’ and was reluctant to get out of an ambulance when he learned that reporters were waiting to speak with him.” If you were the person pulling off a hoax, isn’t that what you would say and do? Absolutely you would not want to speak to reporters. You’d want to work on your story and address them later.
• “Neibert said in his account that he discovered a large amount of brake dust and brake pad material in and around the wheels. The accelerator and brake pedals in a normal resting position and that the floor mat did not appear to be interfering with them.” RIGHT! The accelerator was in an upright position, and yet Sikes claimed while the vehicle was moving it was so jammed that he leaned forward to grip it and couldn’t pull it up. Why, upon coming to a rest, did the accelerator suddenly pop up? As to the brake pad material, as the Wall Street Journal reported:
A federal safety investigation of the Toyota Prius that was involved in a dramatic incident on a California highway last week found a particular pattern of wear on the car’s brakes that raises questions about the driver’s version of the event, three people familiar with the investigation said.
During and after the incident, Mr. Sikes said he was using heavy pressure on his brake pedal at high speeds.
But the investigation of the vehicle, carried out jointly by safety officials from the National Highway Traffic Safety Administration and Toyota engineers, didn’t find signs the brakes had been applied at full force at high speeds over a sustained period of time, the three people familiar with the investigation said.
The brakes were discolored and showed wear, but the pattern of friction suggested the driver had intermittently applied moderate pressure on the brakes, these people said, adding the investigation didn’t find indicators of the heavy pressure described by Mr. Sikes.
Now let’s recap just one of my findings in the Forbes.com piece that the CHP report doesn’t deal with because it concerns later events.
The 911 dispatcher, as you can hear on the Web, repeatedly begs Sikes to either stop the engine with the ignition button or put the gear into neutral. Sikes refused to do either, later giving various bizarre reasons. “I was afraid to try to [reach] over there and put it in neutral, he told CNN. “I was holding onto the steering wheel with both hands – 94 miles an hour in a Toyota Prius is fast.”
Yet:
• We know Sikes spent most of the ride with a cell phone in one hand.
• Sikes claimed at a press conference that he reached under the dash and yanked on the floored accelerator. I’m thin with arms the average American length, but fell three inches short. Sikes almost certainly can’t do what he claims, but nobody’s asked him to repeat the motion. In any event, it can hardly be done with both hands on the wheel.
• Finally in the 2008 Prius the shift knob is mounted on the dash expressly to allow shifting by merely reaching out with a finger. (See inset.)
Just what exactly does it take to convince the press?
It’s interesting that most people think Bogie said “Play it again, Sam!” in one film, while in another Bogart movie banditos said “We don’t need no steenking badges!” Yet all you have to do is pop in the DVD to see that neither quotation is correct. Likewise, we have a media that by and large has refused to make an effort little more than that to verify Sikes’s outrageous claims or point them out as such. The Washington Post, as I’ve noted, claims Sikes never said whether he put the car in neutral. Never mind that he told press conference and CNN that he didn’t and these are both on the Web.
If the media don’t see it in their interest, they won’t investigate – even to the point of half a minute of Googling. Remember that the next time you hear a Toyota horror story.
The new tax on investors in the health care bill has been increased from 2.9 percent to 3.8 percent, but only a few media outlets like Bloomberg and Business Week are reporting it.
As the Washington Times earlier noted, Obamacare discriminates against married people, containing massive marriage penalties. If you get married, your income will be hit by Obamacare’s increased tax rates a lot faster than if you just live together without getting married. Under the bill, you will give up your right to federal health care subsidies at a lower income level if you are married than if you are an unmarried couple. For many “low-income and middle-income couples, it could mean a hike of $2,000 or more in annual insurance premiums the moment they say ‘I do.’” (While Obama won the 2008 election, he narrowly lost among married people.) The new tax on investors is a classic example of the marriage penalty, since it kicks in at $200,000 if you are single — that is, $400,000 for an unmarried couple — but only $250,000 for a married couple.
Obamacare would also impose many middle-class tax increases, such as taxes on uninsured individuals, on cosmetic surgery, on medical devices, and on certain health-care plans.
Governors of both political parties assail the health care bill as a job-killer that will drive up state deficits, increase taxes, and harm the economy. The governors of New York and California warned that “their states will be crushed by billions in new costs.”
Tax experts say it would dangerously expand the power and responsibilities of the IRS.
The Washington Post falsely claims that the CBO says the health care bill will save $1.2 trillion over its second decade, but the CBO says the figure is not from it (it’s from Congressional Democrats). Amazingly, the CBO, under orders from Democratic leaders, has understated the bill’s cost for the first decade by including the present fiscal year — in which Obamacare is not yet law and thus has no costs — while excluding its last year from cost calculations. The result was to reduce the projected price tag for the bill from $1.2 trillion to $940 billion.
While the CBO has scored the health care bill as not increasing the federal deficit, thanks to the many tax increases in the bill, it has done so only by accepting many accounting gimmicks that even pro-Obama journalists have admitted conceal the bill’s enormous cost and the fact that it will massively increase the deficit. The New York Times‘ David Brooks, once a staunch Obama supporter, now says the bill’s drafters were “corrupted by power” and calls arguments for the bill “unbelievable” and “insane.” The Atlantic‘s Megan McArdle, who also voted for Obama, says that the bill “is a fiscal disaster waiting to happen.”
The Congressional Budget Office, which would not question Obama’s gimmicks to lowball the cost of his health care plan, nevertheless admits that “President Obama’s policies would add more than $9.7 trillion to the national debt over the next decade.”
There are $3,000,000,000,000 in tax increases in Obama’s budget. But he’s spending money at such a furious pace that the deficit will skyrocket anyway: “The president’s budget would borrow 42 cents for each dollar spent in 2010,” and “double the national debt over the next decade.” Obama recently ran up the largest budget deficit in history, by a huge margin.
ObamcCare would reduce medical innovation, raise taxes, drive up insurance premiums, and break campaign promises. It would cut the quality of care, while imposing restrictions that failed when tried at the state level. It ignores advice from experts about how to cut costs.
A retired federal judge says that the tactic congressional leaders are using to rush Obamacare into law violates Supreme Court rulings and the Constitution.
Washington, DC city law states that “No loose herd or flock shall be driven or conducted in the District, except with a permit issued by the Chief of Police.” (See District of Columbia Municipal Regulations, Title 24, Chapter 9, Sec. 906.10.)
Many, many years ago, Washington was a pretty rural place. There were even farms in the Northwest and Southeast quadrants of the city. This was before the automobile, and well before the federal workforce climbed into the millions. But a lot of these old laws are still on the books. Nobody seems to have thought to get rid of them.
Other animal herding laws in DC include:
-No droves of mules or horses larger than six animals are allowed. (906.6)
-However, “Horned cattle may be led singly by a rope or halter through any of the streets in the District.” (906.8). That includes K Street, Constitution Avenue, and every other street in the District, great or small (Note to self: this might be worth trying someday).
-As with cars, the driving age for herds is 16. (906.12)
-A drove of sheep crossing a bridge must have at least six drovers. (906.4)
-It is illegal to “water, feed, or clean any horse, mule, cow, or other animal” within 15 feet of a fire hydrant. The same rule apples to cars.(906.13)
(Hat tip: Marc Scribner)
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