Manarin Investment Counsel, Ltd.

The Supreme Court shined a spotlight yesterday on what President Obama tried to hide for the last 3+ years.  The Affordability Care Act is nothing more than new taxes on the middle class and employers, and a new spending measure for the Federal Government aimed at increasing dependence on the government.

According to the Affordability Care Act, American workers who have more than a certain level of income and who do not have health insurance will now pay a new tax along with their regular income taxes.  This is a cloud hanging over middle class families across America in a time when unemployment is still unusually high.  The American economy is already facing “Taxmageddon” ($400 billion in tax increases starting January 1, 2013) when the Bush tax rates expire.  The Affordability Care Act will hit middle income families with another new tax in 2014 and will also place a tax on medical device makers.  This is causing numerous businesses to consider laying off workers or moving their jobs overseas.  Finally, the new law is causing the cost of creating jobs to go up, as businesses are required to provide a certain level of benefits for employees.  All of these issues are negatives for middle class workers in America. 

From a fiscal standpoint, the Affordability Care Act commits the Federal Government to fund an expanded Medicaid Program by 100%.  As the Supreme Court pointed out, “States cover only those unemployed parents who make less than 37% of the federal poverty level, and only those employed parents who make less than 63% of the poverty line” (Page 45).  The Affordability Care Act offers states additional money to cover the cost of expanding eligibility to “all individuals under the age of 65 with incomes below 133% of the federal poverty line.” (Page 45)  Over time, the amount the Federal Government will cover will be reduced to 90% of the cost, with the states (already strapped for cash) required to shoulder more of the burden.  Consequently, the Federal Government is taking on another spending commitment after 4 years of trillion dollar deficits, with $16 trillion in debt, and $60+ trillion in unfunded liabilities for the future.  Furthermore, it commits the states to increased spending as well.

Between the tax increases on job creators and the expanded eligibility of Medicaid, this program will only increase the incentive for workers and their employers to forego the high cost of insurance premiums, and incent workers to sign onto Medicaid dependence.  As employers choose to forego sponsoring health insurance (because the tax is cheaper), millions of Americans will lose their health insurance.  They will then be confronted with a choice:  pay insurance premiums they didn’t have to pay before, pay a tax, or sign onto Medicaid dependence.  By signing on to Medicaid, millions of workers will be able to avoid the tax, avoid the insurance premiums, and still obtain some modicum of health care coverage.  Of course, as more people sign onto Medicaid, the Medicaid budget will only go up, resulting in more spending by Federal and State Governments.  The tax and spend cycle appears to be running full force.