Worcester County Freedom Trail

As if the Obama administration’s national health care plan wasn’t scary enough on its own, now we find out the Democrats are planning a major tax increase to help fund it. This will affect individuals making $200,000 or more, and couples making $350,000 or more. So much for incentivizing people to reach for the American dream. It just got too expensive.

From CNS News:

Despite a still-lagging U.S. economy and rising unemployment rate, House Democrats announced late yesterday that they will seek a massive increase in federal income taxes to help pay for the national health-care reform proposal that President Obama is urging Congress to enact this summer.

“Ways and Means Committee Chairman Charles Rangel of New York said the tax would raise $540 billion over 10 years” the initial AP story reported.

Democratic sources as saying that the massive new tax increase would come in the form of a “surtax” on people filing taxes in the upper brackets of the income tax code.

The upper tax brackets are already set to increase after next year when the income-tax cuts signed into law by President Bush in 2001 expire. President Obama and the Obama Treasury Department have indicated they intend to let those tax cuts expire for the upper two income brackets—meaning any individual or small business earning more than $200,000.

In 2001, President Bush signed tax reform legislation that cut income tax rates across the board. People who were then paying a 15% federal income tax rate had their rate cut to 10%. The higher income tax rates of 39.6%, 36%, 31%, and 28% were cut to 35%, 33%, 28% and 25%.

President Obama’s Treasury Department has indicated that the administration will seek to increase the current 33% rate to 36% and the current 35% rate to 39.6%.

Under Obama’s tax-increase plan, individuals making $200,000 or more would be subject to the new 36% rate. The income “surtax” House Democrats now plan would come on top of Obama’s tax increases.

We’ve had some time to see how the new Massachusetts health care requirements are working. Not surprisingly, the news isn’t good. I’m not sure why Gov Romney insisted on wrangling with this mess, but it wasn’t a good idea. Here is our first indication of things going awry. (And now I know why my small company’s health insurance premiums are way out of line with other states.)

From the Wall Street Journal:

In a rational world, the prognosis for ObamaCare would wait on the evidence in Massachusetts, given that the commonwealth’s 2006 program closely resembles what Democrats are trying to do in Washington. If the results were widely known, it might be dead on arrival.

The Massachusetts law, which was championed by former GOP Governor Mitt Romney, imposed an individual mandate, requiring nearly all residents to buy health insurance or else pay a penalty. (The exceptions are those who qualify for the state’s public program.) This was supposed to cover everybody and save money too. We’ve written before about how costs have exploded, but it also turns out that consumers have other ideas.

For 15 years Massachusetts has also imposed mandates known as guaranteed issue and community rating — meaning that insurers must cover anyone who applies, regardless of health or pre-existing conditions, and also charge everyone the same premium (or close to it). Yet these mandates allow people to wait until they’re sick, or just before they’re about to incur major medical expenses, to buy insurance. This drives up costs for everyone else, which helps explain why small-group coverage in Massachusetts is so much more expensive than in most of the country. Mr. Romney argued — as Democrats are arguing now — that the individual mandate would make that problem disappear, since everyone is always supposed to be covered.

Well, the returns are rolling in, and a useful case study comes from the community-based health plan Harvard-Pilgrim. CEO Charlie Baker reports that his company has seen an “astonishing” uptick in people buying coverage for a few months at a time, running up high medical bills, and then dumping the policy after treatment is completed and paid for. Harvard-Pilgrim estimates that between April 2008 and March 2009, about 40% of its new enrollees stayed with it for fewer than five months and on average incurred about $2,400 per person in monthly medical expenses. That’s about 600% higher than Harvard-Pilgrim would have otherwise expected.