The Palmetto Insider

The blog of the South Carolina Policy Council

Archive for the ‘Federalism’ Category

Health Care Law Already Hitting Home for HSA Consumers

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Even as foes of Obamacare celebrate their recent victories at the polls, more and more of the regulations mandated by the federal health care takeover (otherwise known as the Patient Protection and Affordable Care Act) are hitting their start date, and the reality is setting in quickly – we are all going to be affected by this law, and most of us for the worse.

Take HSAs, for example, which we have previously extolled as a tool to bring down health care costs. HSAs provide greater cost-saving incentives to consumers, who may roll over unused health care dollars from year-to-year and even use remaining dollars for retirement. But Health Savings Accounts are being marginalized by the new healthcare law.

The way HSAs work is like this. Imagine if you had insurance with which to buy a new car – much like we have health insurance to cover health-related expenditures. Well, if the new car is covered by insurance – and you pay a hefty premium to have this insurance – you will likely want to maximize the “benefits” you receive. So does everyone else in the insurance program.  Eventually, your choice and the collective choice under this plan will eventually jack up the cost and the price of your “car purchase insurance”. So when the next insurance bill comes in, everyone is complaining that their “car purchase insurance” is ridiculously expensive.

In short, you’ll buy the most expensive new car your plan allows and it is not secret that there is a price hike. But if instead you have a “car HSA” plan, you might think to yourself: “Should I spend all of my allotted car dollars on this one purchase? Or should I save some of that money in case I want to buy a second car later – or if this first car breaks and I need a new one?”

Based on these incentives, consumers with HSAs tend to only use the health care they need. Instead of over-consuming health care (which sometimes happens with regular insurance plans), HSA consumers weigh the costs and benefits of their health care decisions.

Unfortunately, the utility of HSAs is quickly deteriorating. As of January 1, 2011, over-the-counter purchases will no longer be HSA eligible. Consumers who don’t want to pay out-of-pocket for these items (about 15,000 in total, according to Fox News) will need a doctor’s note.

As Max Borders writes in the Washington Examiner, we have lobbyists to thank for this stomach punch to consumers:

First, Big Pharma (drugs) and the AMA (doctors) were both mixed up with writing Obamacare. This was clear from the start, but the progressives looked the other way. So, an army of lobbyists made sure that if a bunch of people were going to be forced by the feds to buy health insurance, they’d want to get some goodies out of all these newly minted HSA holders. How could all those lobbyists find a way to divert all those new customers into more expensive drugs and make them to go to the doctor more? Take them out of the driver’s seat. It has nothing to do with primary care paternalism. This is good old fashioned rent-seeking at its finest.

Additionally, this is another one of the ways the government has proposed paying for Obamacare. Which in essence, makes it a tax increase.

Other mandates are also making HSAs less affordable.

  • Covering children: Several major health insurers have dropped child-only policies because of the intense mandates that have gone into effect.
  • HSAs must cover 60 percent of actuarial benefit: According to the Heritage Foundation, only the Health and Human Services Department Secretary Kathleen Sebelius can know whether HSAs are viable under this plan. Will contributions count? If not, then HSAs will “no longer be viable.” Why is that? Because the HSAs revenue/expense system functions in exactly the opposite manner of traditional health insurance products. In traditional health insurance plans, premiums are the major revenue stream and deductible and co/pay are supplementary to cover the medical expense. In HSAs, contribution from members (function similar as deductible) is the major revenue stream while premium serves as a supplementary to cover the cost.
  • Medical loss ratio (MLR): Obamacare has mandated the health insurance companies spend at least 80 percent (85 for bigger companies) on “your health care.” What this does is limit choice in the market, by forcing some companies out of business who don’t meet this 80 percent level. It will also discourage spending on fraud prevention, because that will not be counted in the 80 percent. So every dollar spent on fraud prevention hurts an insurance company’s ability to hit the 80 percent level. Fewer choices in the market means fewer HSA plans. Fewer HSA plans means more expensive HSA plans. Either way, it’s bad for consumers.

HSAs are still a viable option for state-based reform. The South Carolina General Assembly could create a better tax environment for consumers who choose these health plans.

One example of a bill that was already introduced is S 998 from last session, which never made it out of committee. This bill – sponsored by Sen. Mike Rose and Sen. Shane Martin — would have allowed a 100 percent tax deduction or HSA premiums and created a fast-track approval process for new HSA plans that have already been approved by other states. Both of these items would add up to more choices for consumers.

Another way the state could counteract federal burdens on HSAs would be to create state-level exemptions. For example, the federal government removed tax-exemption from over-the-counter purchases. But there’s nothing stopping the state legislature from enacting a state-level exemption for South Carolinians.

South Carolina has at times been at the forefront of HSA legislation. The damage done to HSA plans by Obamacare opens the door for more state-based reform.

Written by SCPC

November 24, 2010 at 12:47 pm

1099: The Trojan Horse within Obamacare

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The new federally mandated healthcare experiment continues to be the gift that keeps on giving – only we wish it would just stop rearing its ugly head in our daily lives.

Last week we reported on the regulatory problems facing Medicaid reimbursement – and the coming $1 billion increase in costs for South Carolina.

Now, comes the 1099 fiasco. Earlier this month, the Senate failed to repeal a provision of Obamacare that adds a major compliance burden to small businesses and independent business owners.

Buried within the federal health care mandate is an unnoticed provision that requires all businesses to report to the Internal Revenue Service any purchase from a vendor for goods and services amounting to $600 or more per year.

What does that mean? Well, if you work from home and purchase a computer for more than $600, prepare to send a 1099 tax form to Apple. Did you buy more than $600 worth of office products this year? Better prepare that 1099 for Staples.

This little gimmick is aimed at raising $2 billion in revenue to help pay for the new health care mandate.

But according to the National Small Business Association, the average business will have to file 85 1099s as a result of this new policy – nearly 9 times the current average of around 10 forms.

There were two amendments proposed in the Senate that would’ve changed the 1099 provision. One was an attempt to raise the threshold from $600 to $5,000 and exempt all businesses with less than 25 employees. That amendment failed, as did a separate amendment to repeal the provision entirely.

Sadly, these amendments seemed to fail because the Senators are trying to make up the $2 billion in revenue needed for the health care bill. So in each amendment, they tried to find the money from elsewhere – and those lobbyists were powerful enough to swing the vote in their favor.

Even President Obama has come out in favor of repealing this 1099 provision. This begs the question – did he even read the bill before he signed it? How come he didn’t know about this 1099 provision before he made it law in such ceremonial fashion back in March?

Remember, as Speaker Nancy Pelosi said, “But we have to pass the bill so that you can find out what is in it.”

Perhaps she was right. After all, you have to open your Christmas present before you can find out what it is. Too bad Obamacare continues to be one giant lump of coal after another.

Written by Geoff Pallay

September 21, 2010 at 8:26 am

Texas Refuses to Comply with EPA Greenhouse Gas Rules

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Texas is the first state in the nation to tell the Environmental Protection Agency (EPA) that it will not comply with the agency’s global warming regulations. States are being pressured to comply with new federal rules under the Clean Air Act—even while the EPA, by its own admission, knows the federal requirements should be rewritten.

A letter to the EPA from Texas Attorney General Greg Abbott and Commission on Environmental Quality Chairman Bryan Shaw charges that the federal effort to usurp state regulatory authority is “plainly contrary to United States law,” and gives notice that the state will not comply with the rule change.

As a result of the new federal rules, millions of previously unregulated entities will be classified as “major” sources of carbon dioxide, subject to Clean Air Act requirements. An article in openmarket.org lays out the impact of this massive expansion of federal greenhouse gas regulation. In short, regulatory gridlock and a crushing burden on millions of businesses.

To read more about how the global warming scam will cost South Carolina thousands of jobs, read more here.

Written by Robert Appel

August 17, 2010 at 2:17 pm

Budget Priorities Come into Focus as Session Ends

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The Nerve is running an excellent piece that explains the significance of the governor’s veto of Part IV of the budget – which uses $213.5 million in federal funding to balance the state budget. Except Congress has not – and may not – approve this funding.

Currently, the federal money is only available until the end of calendar year 2010. Absent Congressional approval, the budget will become unbalanced for the second part of the fiscal year – that is, the first six months of 2011.

As the governor’s veto notes, several states have balanced their budgets without using this money. Other states, such as Mississippi, plan to place some of the money (if it materializes) in a reserve fund; or, in the case of Vermont, use it on non-core functions.

Here in South Carolina, lawmakers did the opposite, using the federal (FMAP) dollars to fund health services and agency operating expenses. “It seems this budget’s priorities are reversed,” wrote the governor. “It funds core requirements of government with speculative money, while it funds supplementary or speculative programs with money that is certain.”

Some of the programs the governor might have in mind here are:

The governor has vetoed all three of these items.

The larger problem is that spending is too high in South Carolina.

If we compare the Legislature’s spending habits to the average household, it’s like running through your monthly paycheck to throw a big party for your friends (and the Legislature seems to have a lot of “friends”); and then using your federal tax refund to pay your rent. But suppose the refund is late? Or doesn’t come at all?

We can talk about how the Legislature needs to change its attitude toward budgeting, reset its priorities and be more fiscally disciplined. But, in reality, only one thing is going to cure South Carolina lawmakers from their spend-and-tax (via hidden fines and fees) ways. And that’s an effective spending cap.

Yet, legislation (H 4232) that would limit spending increases to population, plus inflation, died in committee this session.

Indeed, in spite of having apparently made passing a spending cap a top priority for 2010, Senator Glenn McConnell seems unable to persuade his fellow senators to take a concurring vote on S 2 – a much weaker reform that would limit General Fund spending to a 6 percent annual increase. (Recall that General Fund appropriations currently account for less than ¼ of the total budget.)

The bill passed the Senate in March; and then an amended version passed the House in late May.

Only when limiting spending becomes a priority will legislators find the will to actually prioritize their spending.

Written by Jameson Taylor

June 16, 2010 at 8:00 am

South Carolina Home to Nation’s Biggest Stimulus Recipient

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Now and then, it’s illuminating, if not entertaining, to visit recovery.gov and see how the stimulus program is coming along. You can almost smell the aroma of government getting bigger. It smells like barbeque—or some kind of pork.

So here’s something of note for South Carolina. The Palmetto State is home to the single biggest recipient contract awarded thus far under the stimulus program—drum roll, please—from the Department of Energy, in the amount of $1,407,839,884, as of March 24, awarded to our own Savannah River Nuclear Solutions. The Department of Energy owns the Savannah River nuclear site; Savannah River Nuclear Solutions is under contract to run it for the feds.

They’re decommissioning a couple of reactors down on the river—not a cheap project. In addition to shutting down two reactors and other facilities, they have to deal with 474 acres of contaminated soil, remove extremely toxic plutonium-238 and 16,000 drums of depleted uranium oxide, and dispose of nearly 125,000 cubic yards of contaminated soil and other waste material and three million gallons of contaminated water.

Still, the federal stimulus money is supposed to be stimulating the economy, and producing jobs.

So let’s take a look: Total jobs “created or saved” for $1,407,839,884?

800.3, according to recovery.gov.

Talk about your high-paying jobs! Those taxpayer dollars are stimulating our economy down in Aiken at a cost of one million seven hundred fifty nine thousand, one hundred forty dollars and ten cents—per job. Compare this to South Carolina’s per capita income: $18,795.

The folks at Savannah River Nuclear Solutions must be glowing with pride.

Written by Robert Appel

April 5, 2010 at 7:00 am

Best and Worst to Come: Elections

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Elections reform is a commonly studied item at the federal and state level.

What’s on the agenda in Columbia? Check out the Policy Council report released today on elections legislation during the 2009-2010 session.

Written by SC Policy Council

December 28, 2009 at 9:48 am

Killing Jobs: Congress Moves to Extend ‘Death Tax’

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Congress is once again moving to stifle private investment and kill jobs – this time, through the use of the estate tax.

What’s the estate tax? It’s a 45 percent inheritance tax on estates larger than $3.5 million. But small business owners, rather than the uber-wealthy, are most likely to suffer under the tax. Consider that a small business owner who inherits an enterprise worth $5 million will essentially be taxed at $2.25 million – effectively destroying the business he inherited.

With the 2001 tax cuts, the estate tax was supposed to take a 1-year hiatus starting in 2010, but then would increase again in 2011. President Obama, however, has been advocating for a permanent extension of the tax at the current rate of 45 percent on estates over $3.5 million.

Following suit, the House yesterday voted to permanently extend the tax. In defense of the move, Rep. Jared Polis (D-Colo.) declared, “This bill gives our nation’s wealthiest families the ability to know exactly what their obligation to the nation that fostered their wealth will be, and it is fair and it is just.” Added Polis, “In America, it’s not a sin to be rich nor is it a crime to die rich.”

Really? Because when you tax someone 45 percent for dying, sounds like you’re making it a crime. Rep. Louie Gohmert (R-Texas), a former judge, agrees. “After someone dies and someone comes in and steals from them, we consider that in most societies to be reprehensible. I have sentenced people personally to prison for doing that.”

Apparently, as long as the person doing the stealing is wearing a shirt that says “IRS”, it’s legal.

While there are a small percentage of estates directly affected by this tax –  historically about 1 percent – the overall economic impact of this tax – especially on small business – is profound.

Earlier this year, Policy Council analysis showed that 20,326 jobs would be created in South Carolina if the estate tax were repealed.

According to a Cato Institute study, the estate tax also creates a large and wasteful estate planning industry. Needless to say, individuals will do everything in their power to avoid the tax – including not creating more jobs and growing their businesses – when it makes more financial sense to stay in the exemption zone.

Repealing the estate tax would likely have a Laffer-curve type effect on revenue. According to a study by the American Family Business Foundation, eliminating the estate tax would cost the federal government $19.2 billion in revenue – but the improved business climate would then actually raise total government revenue by about $23.3 billion.

The Senate is expected to take up the estate tax after it concludes consideration of proposed federal health care legislation.

Written by Geoff Pallay

December 7, 2009 at 12:29 pm