This site uses cookies to provide you with a more responsive and personalized service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print this page

Health Care Reform Memo:
April 15, 2013

Deloitte Center for Health Solutions publication


The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take: Health care and taxes: a public priority 

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

Death and taxes, so it’s said, are life’s unavoidable realities…but taxes happen every year. Today’s the day of reckoning for most of us.

It’s an annual ritual dating to the Civil War era in the U.S. but its roots are much older. Historians chronicle its origin to the Zin Dynasty in China in 10 A.D. that imposed a 10 percent personal income tax on its citizens to finance emperor Wang’s priorities. In the U.S., it was first imposed as part of the Revenue Act of 1861 to fund the war between the states—3 percent of all incomes over U.S. $800 (or the equivalent of $20,441 in 2013 dollars). Then, in 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed our first peacetime income tax—2 percent on income over $4,000 ($106,138.46 in 2013 dollars). And in 1913, the Sixteenth Amendment to the U.S. Constitution made the income tax a permanent fixture in the U.S. tax system and, against challenges, it has been upheld by Supreme Court decisions since.

Per the National Taxpayers Union, Americans will spend 6.7 billion hours filing their taxes. It estimates the tax filing industry at $241 billion accounting for hours spent collecting documentation, tax software, and professional services. Not a surprise: our tax code is 3,951,104 words long—twice the King James Bible.

Our income tax system is complicated. And it’s always changing. Consider: the Affordable Care Act (ACA) by itself added 21 new “taxes” (see Fact File) including a couple on individuals and families—and that’s just one law.

The bottom line is this: taxes are the means by which government at any level gets paid. Government by the people and for the people must have funds, and government must be judicious in use of its resources.

As a nation, we’re in a healthy debate about our financial system, how it prioritizes its investments, and how it funds its programs. It comes at a pivotal moment in our history when…

  • Compelling demographics are changing the face of our population…older, with increased numbers of poor and sick, but also the young and restless, and a mosaic of ethnicities and experiences.
  • Tough questions about priorities are forcing trade-offs and tough debate…defense, education, public services, infrastructure, and health care compete for the same dollars. What’s the right balance between spending cuts and increased revenues, and what’s the role of government and taxes in an economy seeking recovery?
  • The “United States” is not always united in opinion…Congress is a reflection of who we are as a nation: wide ranging views that are strongly held, and states handling complicated policy issues in their own ways.

Paying taxes is never pleasant. But it beats the alternative of being without resources at all. And with or without the ACA, the costs associated with health care services for the “haves” and “have nots” is a public priority. For many, there are two systems: a health care “system” that’s complicated and fragmented, and a human services “system” that’s a patchwork for public programs where getting lost is easy and the safety net unraveling.

Seems to me our tax dollars may be better spent building a system of health in the U.S.—where value for the dollar spent is evident, health and human services programs are synchronous, individuals take responsibility for their health, providers are paid for results rather than volume, preventive health is balanced with sick care, and technologies that enhance outcomes and reduce administrative waste are required.

That’s probably a health system that we’d value more as we pay our taxes today.

Paul Keckely

Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions

return to top


Final guidance for health insurance plans offering coverage through federal and federal partnership HIX 

Last week, the Centers for Medicare & Medicaid Services (CMS) provided final guidance to health insurance issuers interested in offering “qualified health plans” (QHPs) on the federally-facilitated or partnership health insurance exchanges (HIXs). Highlights:

  • Health plans may still qualify as a QHP even if they do not meet the essential community provider (ECP) requirements in the ACA. Background: the ACA requires ECPs to be included in provider networks, but establishes an alternate standard for certain health plan issuers.
  • CMS clarified how reviews will be conducted to determine whether health plans are “meaningfully different;” if health plans are determined to be identical based on CMS’ identified criteria, the health plans will be flagged and CMS will provide issuers the opportunity to revise or justify plan design.
  • “Annual limitation on cost sharing for the 2014 plan year will be approximately $6,400 for self-only coverage and $12,800 for family coverage.” Background: Section 1302 of the ACA sets out-of-pocket limits as part of the essential health benefit (EHB) package applicable to certain policies in the individual and small group markets.

Note: this letter was preceded by draft guidance issued in March 2013. CMS indicated that they will issue guidance to health plans operating on HIX annually.

return to top

Out-of-pocket expenses for health care may exceed $6,250 annually for some consumers 

Last week, AARP, the American Diabetes Association, and other consumer advocate organizations, sent a letter to the U.S. Department of Labor (DOL) citing concerns about proposed out-of-pocket limit requirements that might go into effect January 1, 2014. The original DOL proposal released in February 2013 required that health insurers using more than one plan administrator for various types of coverage may “impose different levels of out-of-pocket limitations and may utilize different methods for crediting participants’ expenses against any out-of-pocket maximums” in 2014. According to the consumer advocate organizations, allowing health insurers to impose different levels of out-of-pocket limitations may result in individuals paying more than $6,250 annually, which is the out-of-pocket spending limit set by Section 1302 of the ACA.

return to top

Most (90 percent) consumers are unaware of the start date for HIX open enrollment 

According to a survey published by

  • 90 percent of consumers are unaware of the start date for HIX open enrollment, which is October 1, 2013
  • 10 percent of those surveyed reported being “very knowledgeable” about the ACA
  • 21 percent reported not being knowledgeable at all about upcoming ACA implementation activities
  • Most consumers believed that the health reform laws will impact them—40 percent believe there will be a major effect; 39 percent believe there will be a minor effect

(Source:, “ survey: Many Americans fail to grasp health care reform,” April 2013)

return to top

Navigator program gets funding from CMS 

Last week, the CMS announced $54 million for the Navigator program. Self-employed individuals and organizations interested wishing to serve as Navigators must submit an application to CMS by June 7, 2013.

Background: per Section 1311 of the ACA, Navigator programs are intended to provide “fair and impartial information to consumers about health insurance, the Exchange, qualified health plans, and insurance affordability programs including premium tax credits, Medicaid and the Children’s Health Insurance Program (CHIP); and will provide referrals to consumer assistance programs (CAP) and health insurance ombudsmen for enrollees with grievances, complaints, or questions about their health plan or coverage.” Last week CMS released guidance on the Navigator program. For more information, see the April 8 Monday Memo on Health Care Reform.

Related: CEOs from leading health insurance companies and America’s Health Insurance Plans’ CEO Karen Ignagni met with President Obama and White House officials late Friday afternoon to discuss the October 1 enrollment deadline for HIXs and related elements of the ACA, including education efforts targeted to boost enrollment among “young invincibles.” The administration had previously announced it would spend $304 million in promotion in advance of the enrollment period this fall.

return to top

House Health Subcommittee recommends amendments to ACA 

Representatives Joe Pitts (R-PA) and Michael Burgess (R-TX), Chairman and Vice Chairman of the Health Subcommittee, released a list of proposed changes to the ACA. Highlights:

  • Give state residents the opportunity to purchase state-approved health insurance plans “free of onerous Washington mandates"
  • Promote state coverage compacts
  • Have the Federal Employee Health Benefit Program as the quintessential cornerstone for health insurance coverage in the U.S.
  • Allow individual and small group market plans that existed prior to the ACA to be available without change
  • Substitute guaranteed issue of health insurance and community rating of premiums with resources that assist sick individuals (e.g., state-based high-risk pools)

return to top

Legislative update 

White House releases budget for FY2014 

Last Wednesday, the White House released its 2,500-page budget for fiscal year (FY) 2014:


  • Revenues forecast for FY2014 of $3.03 trillion vs. $2.45 actual in FY2012
  • Spending of $3.788 trillion vs. $3.54 actual in FY2012
  • Deficit of $744 billion for FY2014 vs. $973 billion anticipated for FY2013 per the Congressional Budget Office (CBO)

It anticipates a ten-year deficit reduction of $1.8 trillion while cutting entitlement programs: Medicare ($400 billion) and Social Security ($130 billion), which are major drivers of federal spending growth. Over the next decade, enrollment in these programs will increase 40 percent from 46 million today. And, in the case of Medicare, additional costs will arise for dual-eligibles: poor individuals who qualify for both Medicaid and Medicare benefits.

Health care highlights: spending cuts/reduced payments…

Medicare spending cuts: reduces payments $5.63 billion in FY2014 and $370 billion over 10 years in several areas:

  • $3.1 billion from extension of Medicaid drug rebate program to dual-eligibles (-$142 billion/10 years)
  • $830 million reduced payments to post-acute providers (-$79 billion/10 years)
  • $780 million cuts to indirect costs of graduate medical education (-$11 billion/10 years)
  • Cuts to Medicare Advantage (MA) plans via changes in coding intensity to begin in FY2015 (-$15 billion/10 years)
  • $200 million for cuts to hospital “bad debt” payments (reducing bad debt payments for all eligible providers over three years starting in 2014) (-$25.4 billion/10 years)
  • $740 million for cessation of drug company “pay to delay” business practice involving some Medicare drugs
  • $190 million cuts to inpatient rehabilitation hospitals
  • $90 million cuts to critical access hospitals (CAHs)
  • Lab fee schedule reductions by 1.75 percent from 2016 to 2023 (-$9.46 billion/10 years)
  • Acceleration of manufacturer rebates for Medicare beneficiaries in the Part D coverage gap—or “donut hole”—to be closed by 2015 rather than 2020 (-$11.2 billion/10 years)

Medicaid cuts: cuts of $22 billion/10 years:

  • Prescription drugs savings by excluding authorized generics from average manufacturer rate calculations for determining rebates for brand drugs, and calculating Medicaid federal upper limits based only on generics (-$8.8 billion/10 years)
  • Expansion of competitive bidding program for Medicaid durable medical equipment (DME) purchases (-$4.5 billion/10 years)
  • Rebasing of disproportionate share payments (DSH) funding (-$3.6 billion/10 years)

Highlights: additional funding requested:
Medicare premium increases: reduced spending $350 million in FY2014 ($68 billion/10 years)

  • Increased Part B (physicians) and Part D (prescription drug discounts) premiums for enrollees above $85,000 in annual income ($50 billion/10 years)
  • Increased rebates from prescription drugs (dual-eligible, increased discounts)

Medicaid drug rebate expansion: ($8.8 billion/10 years)

Sustainable growth rate (SGR) fix: eliminates SGR (one-time cost of $138 billion); replaces with phased-in plan to pay clinicians based on performance; similar to House version offered by Representatives Allyson Schwartz (D-PA) and Joe Heck (R-NV)

Delayed cuts to DSH payments: delays for one-year cuts ($500 million) to the DSH funds used by states to fund costs for underserved populations

Increased U.S. Department of Health and Human Services (HHS) discretionary budget: $80.1 billion in 2014, $3.9 billion more than in 2012; includes 280 additional full-time employees to manage new Medicare enrollees, $3.8 billion for community health centers that serve 23 million users and 40 new centers

National Institutes of Health (NIH) discretionary budget: requests $31 billion and an increase of $800 million for the U.S. Food and Drug Administration (FDA); the administration also asks for $30 million for the Centers for Disease Control and Prevention (CDC)
Internal Revenue Service (IRS): $350 million in additional funding for 1,000 new workers, including $44.4 million and 283 full-time workers dedicated to educating taxpayers about the ACA

Health information technology (HIT): $305 million for IT to administer the tax credits which will help eligible people pay for coverage in the exchanges—$35 million more than last year’s request

HIXs: requests $5.7 billon including additional $800 million (note: 2012-2013 HIX spending was $4.4 billion)

Looking ahead, the budgeting process:

The FY2014 budget process will use three budget proposals as a start: the White House proposed last week and the budgets passed in the Senate and House last month. The process will continue into the summer, while simultaneously addressing the federal the debt ceiling of $16.4 trillion. Thus, budget negotiations will likely be framed in broader context of deficit reduction, with the themes of entitlement reforms (Medicaid, Medicaid, Social Security) to get intense focus. The three proposals below are the starting point for budget discussions:

Source: Deloitte Center for Health Solutions analysis of budget proposals:
1 Office of Management and Budget (OMB), “Fiscal Year 2014 Budget of the U.S. Government, April 10, 2013
2 House Budget Committee, “The Path to Prosperity: A Responsible, Balanced Budget,” March 2013
3 Senate Budget Committee, “Foundation for Growth: Restoring the Promise of American Opportunity,” March 13, 2013
4 Kaiser Family Foundation, “Medicare and the Federal Budget: Comparison of Medicare Provisions in Recent Debt and Deficit Reduction Proposals,” April 2013

return to top

HHS to extend safe harbors for EHR donations 

The HHS Office of the Inspector General (OIG) released a proposed rule to extend physician referral safe harbors for donated EHR equipment from December 2013 to 2016 or 2021. Once these safe harbors expire, hospital systems will no longer be able to provide a subsidy to physicians for EHR equipment if the hospital has a direct or indirect financial relationship with the provider. For hospitals that are already in subsidy agreements, all donations of items and services must occur on or before December 31, 2013. For more information, see the April 8 Monday Memo on Health Care Reform.

return to top

Tavenner testifies before Senate Finance Committee 

Last Tuesday, Acting CMS Administrator Marilyn Tavenner testified before the Senate Finance Committee after which she was endorsed for the permanent post by the Committee’s Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT). CMS has a $1 trillion budget, employs 5,800, and provides coverage to 116 million through its Medicare, Medicaid, and CHIP ($901 billion in the FY2014 budget). Tavenner has been at CMS for three years, the last 18 months in the Interim role.

return to top

State update 

State round-up: HIX 

Seventeen states—12 led by Democratic Governors, four led by Republicans, and one Independent—and the Democratic mayor of D.C. have announced plans to operate state-based exchanges. Seven states—four led by Democratic Governors and three led by Republicans—will participate in state-partnership exchanges with HHS. The remaining 26 states will default to a federally-facilitated exchange.

State-based exchange State-partnership exchange Federally-facilitated exchange

Democratic  ■ Republican ■ Independent
Source: HHS, State Health Insurance Marketplaces, as of April 7, 2013

Recent HIX announcements:

  • Last week, HHS announced $275.6 million in HIX implementation grants to five states: Hawaii: $128.1 million; Illinois: $115.8 million; Arkansas: $16.5 million; New Hampshire: $5.4 million; and Rhode Island: $9.8 million. (Source:

return to top

Medicaid expansion update 

Twenty-five states and D.C. have said they will, or are in support of expanding, their Medicaid programs in 2014; 16 states have indicated they are highly unlikely to expand their program:

Announced or Governor in support of expansion Not participating or highly unlikely to participate Undecided or undeclared

Democratic  ■ Republican ■ Independent
Source: Kaiser Family Foundation, as of April 7, 2013

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time. This chart was compiled using publicly available information (as of March 30, 2013) and is subject to change.

Recent Medicaid announcements:

  • Last week, legislation was introduced in the Iowa state House of Representatives to expand Medicaid through the Healthy Iowa Plan, currently available to low-income individuals ineligible for Medicaid. The expansion would require a monthly payment from enrollees of at least $10 for health services and would aim to ensure providers are within 30 miles or 30 minutes of beneficiaries. Note: CMS will need to approve the final proposal before the state can move forward with expansion.
  • CMS will hold a hearing on May 23, 2013 to re-evaluate Maine's proposed Medicaid state plan amendment (SPA), which would change eligibility for parents and caretakers with incomes at or below 133 percent of the federal poverty level (FPL). CMS denied the SPA in January 2013 finding it violated the maintenance of effort mandate in the ACA, which requires states to maintain eligibility standards that were in place on March 23, 2010 (the day the ACA was enacted).
  • Arkansas House passed (62-37) legislation approving the use of federal Medicaid expansion dollars to subsidize the purchase of health insurance coverage on the HIX. Another vote will take place on April 12 as a “broader appropriations debate.” Note: CMS officials have indicated they have not yet approved the proposal.
  • A new RAND Health study sponsored by the Hospital Association of Pennsylvania concluded the state’s Medicaid expansion would cost $1.64 billion offset in part by $1.46 billion in additional gross receipts taxes and $270 million from personal income taxes on jobs supported by the expansion. (Source: RAND, “The Economic Impact of Medicaid Expansion on Pennsylvania,” March 29, 3013) A second study by the Senate Democratic caucus concluded that the expansion of Medicaid would give 650,000 Pennsylvanians access to health insurance, generate $670 million in new revenues, and leverage $4 billion in federal monies.

return to top

State round-up 

  • Alabama legislators authorized the state to forego enforcement of consumer protection provisions in the ACA. CMS will be responsible for monitoring health insurers and policies in the state. Note: the state will not operate its HIX and will not expand Medicaid in 2014.
  • Friday, the Virginia Board of Health gave final approval to regulations requiring all of the state’s 20 abortion clinics that do more than five procedures monthly be regulated as a hospital in terms of certain physical structure requirements, similar to requirements in Utah and Kansas.

return to top

Industry news 

Employer-sponsored insurance decreased 10.1 percent between 1999 and 2011 

Last week, the Robert Wood Johnson Foundation and State Health Access Data Assistance Center published a report on national and state-level changes in employer-sponsored insurance (ESI). Between 1999/2000 and 2010/2011:

  • Overall ESI coverage: decreased 10.1 percent; from 69.7 percent to 59.5 percent. Note: during this time, the uninsured rate increased from 14.7 percent to 17.8 percent.
  • State variation: 47 states and D.C. reported a statistically significant decrease in the percentage of nonelderly individuals with ESI coverage, with 22 states showing a decrease of 10 percent or more. Only Alaska, Massachusetts, and North Dakota showed stable rates. There were no states with an increase in coverage. Michigan had the largest coverage decrease of 15.2 percent; Nebraska had the smallest with 4.3 percent. The nonelderly population with ESI coverage ranged from 73.8 percent in New Hampshire to 48 percent in New Mexico.
  • Average annual premiums for single coverage: increased two-fold—$2,490 to $5,081.
  • Average total premium for family coverage: increased 125 percent—$6,415 to $14,447.
  • Average employee contribution to premium: increased from $435 to $1,056 for single coverage; $1,526 to $3,842 for family coverage.

(Source: Robert Wood Johnson Foundation and State Health Access Data Assistance Center, “State-level trends in employer-sponsored health insurance,” April 2013)

return to top

ACA implementation: 90 percent of employers have “moved beyond wait-and-see mode” but understanding is low 

The International Foundation of Employee Benefit Plans’ fourth annual survey of 966 plan administrators found…

  • 90 percent of organizations have “moved beyond wait-and-see mode” and more than 50 percent are coming up with methods to handle reform implications.
  • The majority of organizations believe they have a good, but not great, understanding of the ACA.
  • A large number of employers are “increasing or considering increasing emphasis on high-deductible health plans, particularly with health savings accounts (HSAs) attached.
  • 10 percent of plans have changed their approach to funding; usually introducing stop-loss coverage.
  • 25 percent of organizations are still grandfathered; less than half expect to maintain their status after the next two years.
  • One in five organizations have noticed an increase in contacts made to their HR/benefits staff from participants regarding ACA.
  • 17 percent of organizations are redesigning plans to avoid being charged the 2018 excise tax.
  • Few are changing hiring or workforce reduction practices, however 16 percent have or will change hours so that fewer employees can be considered full-time.

(Source: International Foundation of Employee Benefit Plans, “ACA 2013 Preliminary Survey Results,” April 2, 2013)

return to top

Big data: insurer and health system team up to analyze implantable devices 

Last week, United Healthcare and several health care providers launched a new program, SharedClarity, which will study the effectiveness of implantable medical devices in 30 categories (e.g., stents, defibrillators, pacemakers, heart valves, etc.). Seven additional health systems may be added over the next few months. SharedClarity hopes to facilitate hospital system efforts to negotiate better prices from device manufacturers.

return to top

Employers challenge unhealthy employees’ health with sticks and carrots 

Large employers, such as Mohawk Industries, are among those implementing new policies that require employees that do not meet certain health criteria to pay more for ESI. According to The Wall Street Journal (WSJ), employees face penalties ranging from $100 a month for failing to complete health assessments to an additional $1,000 for annual insurance premiums for individuals with high blood pressure.

Background: employers estimate they spent $521 per employee on wellness-based incentive programs in 2012—a 13 percent increase from 2011; 86 percent offer wellness-based incentives, up from 73 percent in 2011 and 57 percent from 2009. Popular wellness-based incentives include decreased premiums (61 percent), cash or gift cards (55 percent), and an employer-sponsored contribution to a HSA (27 percent). For more information on wellness incentives see the Deloitte Center for Health Solutions’ study, “Breaking constraints: Can incentives change consumer health choices?” Deloitte University Press, March 2013.

(Sources: Leslie Kwoh, “When Your Boss Makes You Pay for Being Fat,” WSJ, April 5, 2013 and National Business Group on Health and Fidelity Investments, “New Health Care Survey Finds Spending on Wellness Incentives has Doubled in the Last Four Year,” February 2013)

return to top

Survey: small business execs expect higher health costs, but most will keep coverage rather than pay a penalty 

According to a WSJ small business survey of companies with more than 50 full-time employees, 77 percent anticipate their health care coverage for employees to cost more next year under the ACA. Notable findings:

  • Employer shared responsibility penalty: 77 percent of respondents with 50 or more full-time-equivalent (FTE) employees plan to offer adequate health insurance coverage; 2 percent plan to pay the penalty for not offering health insurance; and 21 percent are undecided
  • Employer penalty cost: 46 percent of respondents don't know if providing health insurance will be more or less costly than facing penalties
  • 2014 health plans: 37 percent have begun to shop for health insurance to offer employees in 2014
  • Future employment: 52 percent expect their total number of employees to increase in the next year

Background: beginning in 2014, employers with 50 or more FTE employees that do not provide affordable health insurance coverage for 95 percent of employees will be subject to a penalty (the Employer Shared Responsibility Payment) under ACA Section 1513. The maximum annual penalty is $2,000 for each employee minus the first 30 employees.

(Source: WSJ/Vistage, Small Business CEO Survey of 889 employers with revenues between $1 and $20 million, March 2013)

return to top

Survey: industry preparedness for ICD-10 lagging 

Results of the 7th annual ICD-10 preparedness survey indicate half of responding payers expect to begin external testing by the end of 2013 vs. 2012 results when all expected to begin testing in 2013. Two-thirds of vendors plan to begin beta testing by the end of 2013, which is similar to the percentage that last year expected to start testing by the end of 2012. Half of responding providers did not know when they would complete an impact assessment and make business changes, or when they would start to test. (Source: Workgroup for Electronic Data Interchange [WEDI] 7th annual survey of 974 industry participants about their IDC-10 Preparedness, February 2013)

return to top

Moody’s: sequestration impact on not-for-profit hospitals 

Due to sequestration, the 2 percent cut from reimbursements paid by Medicare starting April 1 will likely lower the revenues of hospitals, physicians, and other health care providers by $11 billion in 2013, the rating agency said in a special report last Monday. This is the fifth year Moody's has issued a negative outlook for not-for-profit hospitals.

return to top

Study: sedentary lifestyle costly to employers 

According to a new study, 26.2 percent of all U.S. adults are sedentary (not doing any physical activity outside of work for 30 days), and the same percentage are obese. Additionally, 9 percent of U.S. adults have diabetes and 31 percent have high blood pressure. The MetLife study also found that between 1999 and 2005, the average employer cost for health insurance increased from $1.60 to $2.59 per employee per hour. (Source: MetLife Mature Market Institute study, April 9, 2013)

return to top

Physicians urged to be cautious in using social media 

Physician use of social media for patient communications is increasing, but in some cases is misused or is exposing physicians to unnecessary risks. This article, published in Thursday’s Annals of Internal Medicine, provides a useful framework for evaluating appropriate use of social media in practices.

(Source: “Online Medical Professionalism: Patient and Public Relationships: Policy Statement From the American College of Physicians and the Federation of State Medical Boards,” Annals of Internal Medicine, April 11, 2013)

return to top


“We (CMS) have an $820 billion dollar business to run that a large amount of this country has a stake in, from beneficiaries to providers to hospitals to insurance companies to Congress to the administration to our CMS employees and contractors…We need to operate CMS as a business and act like business partners.”

Marilyn Tavenner, Senate Finance Committee testimony, April 9, 2013

“We find ourselves still having sort of state-by-state political battles which is creating confusion about what benefits people can access and how, particularly in states where governors have been vocal about not participating in the law. So getting that word out and setting up the infrastructure has been more complicated…Probably no one fully anticipated when you have a law that phases in over time, how much confusion that creates for a lot of people. So that has been difficult. When the law was signed and people immediately did not get affordable health insurance, they were surprised and a lot were disappointed but now understand that this was a gradual phase-in.”

HHS Secretary Kathleen Sebelius at Harvard School of Public Health, April 8, 2013

“Layoffs of pharmaceutical sales representatives and patent expirations for big selling drugs have resulted in fewer sales calls on doctors, and fewer free lunches provided to physicians’ offices. …By early next year, most drug companies and medical device makers will be required to report doctor payments to the federal government.”

— Peter Loftu, “For Doctors, Fewer Perks, Free Lunches,” WSJ, April 12, 2013

return to top

Fact file 

  • Federal revenues FY2012

    (Source: CBO, “The Budget and Economic Outlook: Fiscal Years 2013 to 2023,” February 2013)
  • U.S. health system funding vs. comparable developed systems
      U.S. France Switzerland Canada Germany UK
    Household out-of-pocket payments as a percent of total expenditures on health1 11.8% 7.3% 25.1% 14.2% 13.2% 8.9%
    Out-of-pocket payments (households), /capita, US$ purchasing power parity1 969.7 289.8 1,325.2 630.8 571.1 305.7
    Total tax revenue as percent of GDP2 24.1% 42.4% 29.7% 32.0% 37.3% 34.3%
    Taxes on income and profits as percent of GDP3 9.8% 8.8% 14.0% 15.2% 10.8% 13.2%

1 Organisation for Economic Co-operation and Development (OECD) Health Data 2012
2 OECD, Tax revenues as percentage of Gross Domestic Product (GDP), 2009
3 OECD, Taxes on incomes, profits and capital gains as percentage of GDP, 2009)

  • Funding of the ACA

  • New taxes in the ACA

    *Note: provision of the original ACA legislation, unless otherwise noted.

    (Sources: Deloitte, “Prescription for change ‘filled’ Tax provisions in the Patient Protection and Affordable Care Act,” March 2010; Patient Protection and Affordable Care Act; CBO, Joint Committee on Taxation, “Estimated Revenue Effects Of The Amendment in the Nature of a Substitute to H.R. 4872, `The Reconciliation Act Of 2010,’ As Amended, In Combination With The Revenue Effects Of H.R. 3590, The `Patient Protection And Affordable Care Act,’ March 2010)
  • State spending on health care: 35 percent

  • Employer health benefits tax exclusion: if the federal government eliminated the exclusion, it would have increased tax collections by:
    • $117.3 billion in 2012
    • $131.7 billion in 2013
    • $760.4 billion 2013-2017
      (Source: Joint Committee on Taxation)
  • Hidden health tax pre-ACA: in 2008, $42.7 billion (37 percent) of the $116 billion spent on costs for care for the uninsured were passed through in increased premiums for those covered: $1,017 additional for family coverage, $368 for individual coverage. (Source: Milliman analysis of 2008 Medical Expenditure Panel Survey [MEPS] data, “Hidden Health Tax: Americans Pay a Premium,” Families USA, May 2009)
  • 2013 vs. 2012 taxes: the Tax Policy Center estimates all workers will see lower wages after taxes for 2012 as a result of the 2012 payroll tax cut expiration, the Social Security tax cap on earnings adjustment for inflation, and the additional Medicare tax for high-income individuals per Section 1411 of the ACA:
      2012 2013
    Social Security
    Maximum earnings subject to tax $110,100 $113,700
    Employee rate 4.2% 6.2%
    Employer rate 6.2% 6.2%
    Maximum earnings subject to tax No maximum No maximum
    Employee rate 1.45% 1.45%
    Employer rate 1.45% 1.45%
    Additional Medicare Tax
    Threshold amount for taxation
    Single or head of household No tax $200,000
    Married filing jointly No tax $250,000
    Married filing separately No tax $125,000
    Tax rate No tax 0.9%
    (Source: Tax Policy Center, Payroll Tax Calculator 2013)
  • Medicaid and tax revenue: since 2007, Medicaid enrollment expanded 10 million while state tax revenues declined. (Source: Healthcare IT News, “States Medicaid systems in modern mode,” April 8, 2013)
  • Health insurance premium cost differential for domestic partners: an employee who purchases health insurance for a same-sex domestic partner will pay $1,069 more, on average, per year in federal taxes than a worker in a heterosexual marriage for the same coverage (because the domestic partner’s coverage is taxed as income to the employee). (Source: Kaiser Health News, “Same-Sex Spouses Can Face Barriers on Health Care under Federal Law,” April 9, 2013)
  • Federal tax gap (the difference between taxes owed and taxes paid): 17 percent of total federal revenues—$385 billion; 83 percent are voluntarily paid on a timely basis. (Source: IRS)
    White House FY2014 Budget Proposal Description Revenue Estimate (2014-2023) in billions
    Expand and simplify the tax credit provided to qualified small employers for non-elective contributions to employee health insurance Expand tax credit to employers with fewer than 50 employees and an average wage less than $50,000. ($10.50)
    Disallow the deduction for non-taxed reinsurance premiums paid to affiliates Remove insurance company deductions for premiums and other amounts paid to affiliated foreign companies with respect to reinsurance and would exclude insurer income and return premiums, ceding commissions, reinsurance recovered, or other amounts received with respect to reinsurance policies for which a premium deduction is wholly or partially denied. $6.21
    Subtotal, other revenue changes and loophole closers Repeal the section 5010 credit for distilled spirits and tax all distilled spirit beverages at the $13.50 per proof-gallon rate. Effective for all spirits produces in or imported into the United States. $103.34
    Provide student loan forgiveness exclusion for participants in the Indian Health Service Health Professions Programs Exclude from gross income amounts forgiven at the end of the repayment period using the income-contingent repayment option or the income-based repayment option. ($0.16)
    Clarify GST tax treatment of Health and Education Exclusion Trusts Exclusion from the definition of a GST applies only to a payment by a donor directly to the provider of medical care or to the school in payment of tuition and not to trust distributions, even if for those same purposes. ($0.17)
    Increase tobacco taxes and index for inflation Increase tax on cigarettes from just under $1.01 per pack to $1.95 per pack and increase all other excise taxes on tobacco products and cigarette papers and tubes by roughly the same proportion beginning in 2014. Rate would be increased for inflation annually. $78.09
    Increase levy authority for delinquent Medicare tax debt Allows Treasury to levy up to 100% of a payment to a Medicare provider to collect unpaid taxes $0.71

return to top

Subscribe to the health care reform memo 

Health care reform memo — The weekly health care reform memo is available for subscription. Please visit /healthmemos/subscibe.

  • Step 1, confirm your sector(s) of interest. 
  • Step 2, select the health care reform memo as one of your subscriptions.

return to top

Related links

Share this page

Email this Send to LinkedIn Send to Facebook Tweet this More sharing options

Stay connected