Obamacare Pt. 1: The Individual Mandate – Steal from the Rich, Give to the Poor

OBAMACARE: THE DIRTIEST WORD IN THE ENGLISH LANGUAGE?

Today I embark on a journey into the unknown (and sometimes unseen) land of Obamacare. Do not worry if you have not yet read this policy – Nancy Pelosi is probably still in the same boat. Let’s start with the basics of Obamacare.

Basics of Obamacare

Actual Title: Patient Protection and Affordable Care Act

Aliases: Obamacare (note: this is my personal reference to the law, as Obama himself uses the term), Affordable Care Act (“ACA”), Taxcare

Creation: Signed into law by President Barack Obama on March 23, 2010; upheld by the Supreme Court of the United States in a 5-4 vote on June 28, 2012

Initial Goal: “To give more Americans access to affordable, quality health insurance & reduce growth in health spending in United States.” [note: this was not supposed to override or replace private insurance, Medicaid, or Medicare]

Rollout of Law: Enacted in 2010; starts rollout in 2013-2014 and continues throughout the year of 2022

Actual Document: Obamacare has ten titles spanning over 1,000 pages with most key provisions under Title 1, which is around 140 pages.  Most of the bill encompasses the problems associated with Medicare.  Prior versions of Obamacare as a bill were 2,400 pages. The final document as produced, however, is actually around 1,000 pages (depending on the website or PDF document).

Favorite Lines from Obamacare Deliberations: (1) “We have to pass the bill so that you can find out what is in it.” – then-Speaker Nancy Pelosi (D); (2) “If Obamacare had been fully implemented when I caught cancer, I’d be dead.” – GOP presidential candidate Herman Cain (R); (3) “I have no problem with folks saying, ‘Obama cares.’ I do care. If the other side wants to be the folks that don’t care, that’s fine with me.” – President Obama (D), responding to Republican use of the term “Obamacare”; (4) “He’s the baby daddy of Obamacare.” – Senator Dick Durbin (D-Ill.) referring to GOP presidential nominee Mitt Romney; (5) “If I’m the godfather of this thing, then it gives me the right to kill it.” – GOP presidential nominee Mitt Romney (R); (6) “I just see a huge train wreck coming down.” – Senator Max Baucus (D-Mont.); (7) “I’m a physician. I’m quite worried about the privacy of medical records…I’m quite worried that your medical records now will be evaluated by the IRS.” – Senator Rand Paul (R-Ky.) after IRS scandal

Obamacare: A Big Effing Deal

In the words of Joe Biden, Obamacare is a big effing deal. From additional taxes to unnecessary burdens, you or someone you know will be affected by this law. The next few years of this law’s rollout will not be pretty.  I’m not sure it was the appropriate time to rollout a massive tax on the American people during an economic slump. No matter what statistics the government alleges, everyone is experiencing some sort of decrease in funding or income at this time.  This tax burden hits the younger generation harder than any other generation – as we are left to save the baby boomer generation from themselves. This will be tough considering the job market is tougher to break into than the healthcare market. All in all, I have already come to an educated conclusion that Obamacare is a failure.

During the next four weeks, I will set forth the facts of Obamacare in four different segments. I will not provide my opinion on each of these segments until the end of each. Whether you agree or not, I could care less. I do, however, care that you are educated as to what this law will provide and what it fails to provide.  I care that you understand what we as a country are getting into with Obamacare. Finally, I care that our generation is knowledgeable of this law as it will affect us more than any other generation.

I do not have a list of each of the four segments that I will cover in Obamacare. The available information is never-ending and I am sure that I will not be able to cover everything in these four parts. At this time, however, I am confident in my knowledge of the Individual Mandate (which starts on or around page 143 of Obamacare). I covered this topic somewhat in depth within my tax LL.M. program at University of Denver. Because my background is in tax law, you will have to bear with me if I use terminology that is hard to comprehend. I will try my best to put it in plain English, but if I fail to do so on some of it you will have to give me a break.  If you do not recognize the term, look it up.  It might do you some good to do your own research anyway considering this is a confusing topic as is. I do not want to waste anymore time or space on this blog post with senseless information – let’s begin.

Individual Mandate: A (Large) Tax on American Citizens

The Basics

Starting in 2014, individuals are required under Obamacare to either obtain health insurance, get an exemption from obtaining health insurance, or pay a “per-month fee.”  The health insurance obtained must be the “minimum essential coverage” that complies with the rules set forth under Obamacare.  “Minimum essential coverage” includes most employer-based coverage, Medicare, Medicaid, CHIP program funds, private insurance (unless your insurance does not comply with Obamacare rules, hence all of the talk of rejection letters from private insurance companies), and all insurance within your State’s healthcare marketplace.

If an individual fails to meet the requirements of obtaining health insurance or an exemption the individual is then hit with a “shared responsibility fee,” also called the Individual Mandate (or “IM” as I will refer to it from now on to save space).  The IM is just one of around 20 new taxes created under Obamacare and goes toward funding Obamacare and subsidizing hospitals that will have unpaid hospital emergency room costs.  The IM also provides as a “downpayment” into the healthcare system that you will eventually have to pay into in the future.

Although the IM goes into effect on January 1, 2014, a 3-month continuous grace period provides relief to most Americans searching for health insurance on the marketplace.  Thus, if you fail to obtain health insurance by March 31, 2014, you will have a penalty applied to your taxable income for each month that you do not have health insurance. This is considered the “per-month fee” paid into the system.  However, there is a catch: you must obtain this health insurance by March 15, 2014.  If you obtain this insurance by that date you will be covered starting April 1, 2014. If you obtain your insurance after March 15, 2014, your coverage actually begins on May 1, 2014, and you will be susceptible to the “per-month fee” as you are not covered by April 1, 2014. Instead of a 3-month continuous grace period, this should have been labeled a 2.5-month grace period to avoid confusion.  Let me inform you again – make sure to get covered by March 15, 2014. If you do not, you will be charged for a portion of the IM. I guarantee this will cause confusion, and I guarantee the IRS will collect a ton of penalties during this time.

In order to collect this fee, the IRS will withhold the money from your income tax return refund. There is no other way for the IRS to enforce this provision.  The IRS cannot enforce jail time, liens or any other means of collection.  You must have a refund in order for the IRS to collect the IM.

The IM was meant to be a “trade-off” between the American people and government. The requirement to obtain healthcare is considered the people’s trade-off for the new benefits, rights, and protections including the requirement for those to obtain insurance that could not afford it otherwise.  Proponents of the IM were met with backlash from 26 different states, several individuals and the National Federal of Independent Business.  All combined sued over the unconstitutionality of Obamacare and more specifically the IM. On one side the government claimed that the law was regulating an area that everyone was already in (as purchasing healthcare was already inevitable).  On the other side those against the law claimed that the law forced Americans to enter a market and purchase something against one’s own will. Both sides clashed in the Supreme Court case of National Federation of Independent Business Et. Al. v. Sebelius, Secretary of Health and Human Services, Et. Al., 567 U.S. ___ (2012).

The Court Case of the Century

National Federation hinges on two key parts of Obamacare – Medicaid expansion and the IM. I do not wish to talk about Medicaid right now as I’m sure that will be a topic for a later post. I will be focusing on the IM. This case is around 200 pages long and includes opinions from each of the Supreme Court Justices. I actually read this opinion after it was produced for the American public to read. I will not go into too much detail about this case so as to not bore you.  I will, however, give you a brief synopsis of why the Supreme Court voted to uphold the IM and thereby uphold Obamacare.

The first holding in the case involved the Anti-Injunction Act. The Anti-Injunction Act provides that “no suit for purpose of retaining the assessment or collection of any tax shall be maintained in any court by any person.” 26 U.S.C. § 7421(a). The government used a tactic to reply to the suit basically implying that those suing must pay for the alleged tax before suing for a refund. The government lost on this notion.  Chief Justice John Roberts, writing the majority opinion for the Court, stated that the government never intended this law to be a tax but instead labeled it a “penalty.” Thus, the Anti-Injunction Act did not apply to the instant case.  However, for purposes of the Constitution, the labeling of “penalty” does not control the Court’s ruling as to whether this is a “tax” from a constitutional standpoint.

Moving forward, the second holding in the case involved whether the IM was a valid use of Congress’s powers under the Commerce Clause and the Necessary and Proper Clause. The Constitution grants Congress the power to “regulate commerce.” Art. I, §8, cl. 3. In order to regulate commerce, there must be something actually in commerce to regulate. According to the Court, most cases involve the regulation of commerce to reach an “activity.” E.g., United States v. Lopez, 514 U.S. 549, 560. The IM does not regulate an activity.  Instead, the IM creates an activity by requiring Americans to purchase into a marketplace for healthcare.  Congress already has a pass to regulate what people do; Congress should not have a pass to also regulate what people do not do. If the Court were to uphold the IM under the Commerce Clause, it would give powers to Congress to regulate and compel commerce. That is too far outreaching and the Court could not foresee that being in and of itself constitutional.

Furthermore, the Necessary and Proper Clause argument does not hold muster in this case. Each of the prior cases decided by the Court upholding laws under this Clause involved “exercise of authority derivative of, and in service to, a granted power.” The IM allows Congress to step outside of its bounds and create the power to regulate the healthcare marketplace. According to the Court, even if the IM is a “necessary” means to carry out the healthcare plan, such expansion of Congress’s power is not “proper” way to go about doing so.

The third holding involves the taxing power of Congress and whether or not the IM should be considered a tax on the American people. According to supporters of Obamacare and Obama himself, this IM has never been a tax on the American people.  However, if the Commerce Clause and Necessary and Proper Clause did not stand (which as I previously explained, both did not stand), the government would have to take the alternative stance that the IM was a tax after all. The government cites the Constitution in claiming that the IM may be upheld within Congress’s power to “lay and collect Taxes.” Art. I, §8, cl. 1. Taking this argument, the Court had to decide whether the IM was a tax on those people refusing to purchase healthcare.

The Court first comments on the labeling issue – penalty v. tax. The use of “penalty” disallowed the government’s argument under the Anti-Injunction Act. On the other hand, the use of “penalty” would not disallow the government’s further argument that the IM was in fact a tax. Next, the Court starts to delve into the main issue – whether this penalty could be an undercover tax. In order to support this stance, the Court claims that the penalty does not punish unlawful conduct. The penalty is not too high, the payment is not limited to willful violations, and the payment is collected solely by the IRS through normal means of taxation. Finally, the Court ends with explaining why the Direct Tax Clause does not apply. Basically, the tax is on health insurance and is not like the type of taxes covered under the Court’s previous cases.  Thus, the Court agreed that the IM could be construed to be a tax and the government won the battle for Obamacare on this notion.

The rest of the case involves Medicaid and I am not open for discussion on this just yet. In the end, the government both won and lost it’s case. The government won the case in court on a 5-4 vote (5 for: Roberts, Ginsburg, Breyer, Sotomayor, Kagan; 4 against: Scalia, Kennedy, Thomas, Alito), but the government lost the case with a majority of the American people by handing the citizens the nation’s largest tax in history.

So, what does all of this actually mean?

This means that if you do not have health insurance then you will be taxed for not having health insurance. There are, however, exceptions to this rule. Here is a list of those that are exempt from the penalty enforced by the IRS:

(1) Unaffordable coverage options exemption: If you are paying more than 8% of your household income for health insurance, you are exempt from taking part in the healthcare purchase altogether.

(2) No filing requirement: If your income is below the threshold for filing taxes (i.e., $10,000 for singles in 2013 and $27,800 for married filing jointly with two children in 2013). Thus, if you are under these amounts, you will not have to “obtain minimum essential coverage” as you will technically have no income tax return to file.

(3) Hardship: If the Affordable Insurance Exchange finds you to have suffered a hardship making you unable to obtain coverage then you are exempt from coverage.

(4) Short Coverage Gap Exemption (i.e., 3-month Continuous Gap): Remember that this is actually a 2.5-month rule – not a 3-month as the government would like for you to believe.

(5) Religious Conscience: These are administered by the Social Security Administration.

(6) Healthcare Sharing Ministry

(7) Not Lawfully Present in the United States: You are an undocumented immigrant or are not a U.S. citizen, nation or alien lawfully present in the United States

(8) Incarceration

(9) Indian Tribes: Members of federally recognized Indian tribes 

The above nine exemptions are not required to get healthcare from the market exchange. If you are required to have healthcare and refuse to do so, here are the taxes that will be imposed on your income tax return refund:

2014: $95/person/year or 1% of your Modified Adjusted Gross Income (MAGI), whichever is greater

2015: $325/person/year or 2% of your MAGI, whichever is greater

2016: $695/person/year or 2.5% of your MAGI, whichever is greater

2017: Increases by rate of inflation/person/year or 2.5% of your MAGI, whichever is greater

By 2017, the amounts should eventually level off. The government, however, could amend the percentage attributable to your MAGI.  The word “amended” is used over 100 times in the Obamacare law. It is possible that this legislation is never exempted from further amendments. Here are a few additional random facts regarding the tax:

(1) The total penalty can never exceed the national average of the annual premiums of a bronze-level insurance plan offered through the healthcare marketplace.

(2) The maximum penalty per family is no more than 300% of the minimum penalty amount (using 2016’s numbers – $695 x 300% = $2,085). [as an aside, children under the age of 18 are assessed at 50% of the minimum penalty]

(3) The penalty is also prorated for every month you do not have coverage, though there is no penalty for the 3-month continuous gap rule.  As an example, if you are not covered for six months out of the year you are responsible for half of the penalty.

(4) If you are under the age of 26 you are still allowed to piggy-back off of your parent’s insurance plan.  Remember that if your parent is over the age of 65 and receiving Medicare, you are no longer eligible to be covered under their plan.

(5) If you make less than $45,960 (individual) or $94,200 (family of four) [both of these are considered to be up to 400% of the federal poverty level for 2014 and you must file an income tax return to qualify] you may be eligible for free or low-cost health insurance due to cost assistance subsidies like Tax Credits. These Credits reduce premium costs and cost-sharing subsidies that lower cost-sharing on copays, coinsurance, and deductibles. Subsidies are not available to employees or their dependents if an employer offers “affordable” coverage to meet the “minimum essential coverage” standards under Obamacare. The average marketplace subsidy per subsidized enrollee is said to start at $5,290 in 2014. These subsidies offset your premium costs and lower out-of-pocket expenses. However, as a reminder, these subsidies are considered to be picked up through taxing the American people. Think about this – who is paying for these taxes?

My Thoughts on Obamacare’s Individual Mandate

I believe the smartest person during the deliberations and implementation of Obamacare was Chief Justice Roberts. This is not to say that I agree with what he put forth in the National Federation case, as I am not sure he completely agreed with his own argument. It was an extremely smart move on his part to join the four liberal Justices and justify the IM as a tax on the American people. By implementing the IM as a tax, the Court provided the fatal blow to Obama’s credibility as the leader of this country. Obama ran his campaign on a string of lies, starting and ending with Obamacare. This just shows what kind of person, and what kind of Congressional leaders, we have running our country today.

Moving forward with the case, it is apparent that the IM is unconstitutional.  Anyone who can read our Constitution knows this to be true. It forces the American people to pay into a healthcare system that was created in order for Obamacare to be carried out. Anyone who knows me knows that I am a fan of originalism and finding the original intent behind the Constitution. Another fan of this theory is Supreme Court Justice Antonin Scalia.  In case you did not know this by now, or you could not realize this by my Second Amendment arguments in one of my previous posts, I am also one of Justice Scalia’s biggest fans. Though some of his theories might be outrageously concocted, I believe that his examples are sound and actually make good points. Let me put forth one of his arguments during deliberations in the National Federation case: “Could you define the market – everybody has to buy food sooner or later, so you define the market as food, therefore, everybody is in the market; therefore you can make people buy broccoli.” In his argument, Justice Scalia is trying to determine why the administration defines the healthcare market so broadly in Obamacare. Just because the government believes that the failure to purchase healthcare is included in the unenumerated problems the Constitution authorizes Congress to solve does not mean that this is essentially an activity that Congress can regulate. If it is determined later on down the road that broccoli provides essential vitamins and nutrients that prevent cancer, can Congress through the ruling under National Federation consider this an “unenumerated problem” that can be solved through a new law? I’m not sure I can answer that. I’m not sure I would want to answer that.

I highly recommend you either take the time to read this case or read a summary of this case. It is actually a good read and gives you the background to many of our country’s cases surrounding the Commerce Clause and Congress’s taxing power. Plus, why would you want to take anything I am saying as fact? Educate yourself and make your own decision on this matter.

So far, I am also convinced this legislation has a Robin Hood complex (“steal from the rich, give to the poor”). Or in other terms, an approach that “steals from those that do and gives to those that don’t.” I asked you to think about who will pay for those subsidies given to those that cannot afford the healthcare policies provided under Obamacare. The answer is those that can afford it – the “rich.” So, if you are receiving a tax credit from the federal government to support your healthcare you can thank those that are “well off” in our society for making that happen. As a possible preview into a future post, the IM also targets the younger generation. Young, healthy people subsidize older, sicker people. Most experts explain that younger people will eventually expect and receive the same treatment later on down the road.  I beg to disagree with those experts, but I will save that for a later segment.

I am not completely sure what next week’s post will have to do with as I am still making my way through Obamacare. You can be sure, however, that I will have an opinion and I will make you think twice about this law. Let me know if you have any questions or suggestions for next week’s post. Thanks for reading!

Advertisements

Hiking the Federal Minimum Wage…is a BAD Idea: A “Hot Topic” Issue Among All Americans Today

This is by far one of my favorite “hot topic” issues occurring in the United States right now: hiking the federal minimum wage from $7.25 to $15.00.  Let’s not waste time and start from the beginning.

What is the Federal Minimum Wage?

The federal minimum wage is contained under the Fair Labor Standards Act (or the FLSA for those of you who like acronyms). If you would like to read more on how the FLSA was created, here is the link to the Department of Labor’s website explaining it’s creation – http://www.dol.gov/dol/aboutdol/history/flsa1938.htm. If not, continue reading. The FLSA is subsidized by the Fair Minimum Wage Act (sorry, no need for acronym here) which phases in an increase to the standard federal minimum wage set in the FLSA.  The Fair Minimum Wage Act, signed into law by President George W. Bush, was created as an addition (or a “rider”) onto the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, & Iraq Accountability Appropriations Act of 2007.  This act implemented three increases in specific years through the year of 2009. Here is a chart taken from the Department of Labor as to how the increase has gone in the past few years:

Prior to 7/24/2007: $5.15

7/24/2007 to 7/23/2008: $5.85

7/24/2008 to 7/23/2009: $6.55

7/24/2009 to Present Day: $7.25

There are numerous exceptions to this law, including state minimum wage laws that superseded the hourly wage above if higher than the federal minimum wage. Those exceptions, however, are not of importance in this blog post.  It is important to remember that each year the federal minimum wage increased by $.70 each year in between 2007 to 2009.  If this increase were to continue up until today’s time, the federal minimum wage would currently be $10.05 (7/24/2013 to 7/24/2014).

Political Campaign Leverage – Is it the Elephant in the Room?

All math set aside, raising the federal minimum wage has been a large part of both the Democrat and Republican future political campaigns. Democrats are pushing for a larger wage in order to make amends for the backfire that happened with Obamacare (don’t worry, I will cover that one day when I can figure out what the hell these idiots passed; Nancy Pelosi still has no clue).  Republicans are skeptical of raising the minimum wage because it has a cause-and-effect reaction by the businesses to either (a) fire a number of employees to make up for that amount expended, or (b) raise the prices of products and charge the consumer with the increase in the federal minimum wage standards.  Either way, this is not going to be a pretty political campaign for either side.  The Democrats will probably never get past the healthcare issues to move onto this topic and, even if they did, their reasoning behind increasing wages is useless. The Republicans will look like jackasses trying to defend why the federal minimum wage shouldn’t be increased for the other 99%. So, who’s right? If you do your own research and educate yourself, you will come to a conclusion. Your conclusion might differ from mine, which I will set out below. If so, I would love to hear your take on the federal minimum wage and why it SHOULD be increased.  However, here is why I believe it should not be increased for now.

Why the US Government Should NOT Increase the Federal Minimum Wage

(1) The retail and fast food industry were not meant to provide longstanding jobs for the American people. These jobs are not meant to be careers. These jobs are for 16-year-olds wanting to support their movie and shopping habits. These jobs are not for 25-year-olds with 4 kids, a mortgage, and an SUV. This is just not the job for you. There are other options out there to support these expenses. You did not choose to do so and the government should not have to pick up your slack. Hurtful as it may be, someone had to say it. Additionally, the government’s increase of the federal minimum wage is keeping the man down.  The government is saying “You will never do better, you can never dream bigger.” You will always be what you never truly wanted to be. Congratulations.

(2) There are other more deserving industries that should be eligible for a pay raise. By raising the federal minimum wage, the government is essentially taking away the minimal, yet larger, amount of money that other industry’s employees are making.  Some industries, such as paralegals, nurses, etc., that have to provide certification to work will be making less than the everyday retail and fast food worker. Let me repeat: the certified workers that provide vital healthcare and legal document work will be making LESS money than those that flip burgers and stock shelves. If that doesn’t peak your interest and change your mind I don’t know what will.

(3) Increasing the federal minimum wage will decrease the amount of help those get from necessary government benefits.  You might think that this sounds great. Keep reading.  Government assistance for housing, food and healthcare would be reduced overall if the federal minimum wage increased, and would result in a significant benefit taxpayers and states’ budgets.  I love this statement and it sounds wonderful for the Democratic party’s campaign – look for it in 2014. I don’t particularly like that the people are using these benefits and a significant tax break sounds wonderful. However, I would rather these workers use the government benefits now rather than accompanied with unemployment benefits.  Big businesses have already cited that an increase of almost double the federal minimum wage (or even anything over $10.00/hour) would result in decreasing jobs across the board.  Unemployment will rise and with unemployment comes a number of other necessary government benefits.  This will be an extremely large tax burden resting in the taxpayers’ pockets.

(4) Raising the federal minimum wage kills jobs. Raising the minimum wage kills jobs for the younger generation and for those that are not as skilled in a certain area. Most employers are not going to be willing to hire those from either of those categories because it will be too expensive a task to train the employee. Like you read in my first blog post (wishful thinking), I am currently an unemployed attorney. I do not have a position because I am either overqualified for certain positions because of my Masters of Law in Taxation or underqualified for other positions in my tax field because I do not have enough experience. I know the feeling of not being “skilled” in a certain area. Most firms are not willing to train someone like me let alone take me in as a new hire. Most firms want lateral attorneys that know the bulk of what they are doing. Either way, I am willing to bet more than 75% of college graduates have been through or are going through this today. It is already happening, and it will get worse if the government raises the federal minimum wage. The result will be drastic.  Taking away jobs from the younger generation and the not-so skilled workers will result in a massive caving in of what is left of the middle class.

(5) And finally, raising the federal minimum wage kills jobs. This reason is SO CRUCIAL that I stated it twice. The higher the federal minimum wage, the higher the unemployment rate. Increasing the federal minimum wage by almost double will increase the big businesses’ expenses by just as much. Increasing business expenses will result in decreasing the employees of the company.  If the government increases the federal minimum wage, the business will resort to finding ways to use less employees in order to maintain their budget. So, here is the information I believe to be true in the end:

Increase federal minimum wage –> Increase business expenses

Increase business expenses –> Decrease employees of company

Decrease employees of company –> Higher unemployment rate

What the US Government SHOULD Do instead of Increasing the Federal Minimum Wage

The US Government SHOULD focus on job creation. The job market is ugly. Work on creating jobs and prepare to be amazed at what our country’s citizens can do with a paycheck.

***Sorry for this post being a day late… I was busy celebrating my NFC North Championship win with the Green Bay Packers (Go Pack Go)! Leave me a comment if you even make it to the end of this blog post. Thanks!