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President Obama decided that three pressing issues require attention this year – healthcare, energy and education; curiously, each sector is among the best performers in the current economic climate.

With regard to healthcare, we’re spoon-fed the idea that our healthcare costs are out-of-control, that we have too many uninsured among us, that we spend an astronomical amount compared to other nations ($7,439 per person on average), and that we need to overhaul the entire system to not only deliver healthcare to all but to also reduce costs.

For a while now I’ve been trying my best to fully understand why this is now a centerpiece issue for the new administration. While many are quickly concluding that this is due to Obama looking to socialize medicine in the United States, I think it’s something else.

Something that few are willing to seriously discuss.

Why exactly might the government be pressing so hard to reform healthcare now?

The most compelling reason may be the fact taht while government programs provide coverage to 27.8% of the population, government spending accounts for 45% of all healthcare expenditures in the United States.

Basically the government is in a terrible financial position at the moment, and the situation isn’t getting better, it’s getting worse.

One quick and clever way to fix the problem is to make the issue a crisis for all of us, make it appear we’re all paying too much, getting too little and the government is able to resolve this problem.

And the way they’re going to attempt to resolve this is by sucking healthy people into the government system, to capture dollars that would otherwise be spent in the private sector – where private insurance is held by 67.5% of the population with expenditures toward healthcare costs at about 43% of the total expenditures in the United States and the remaining 12% are out-of-pocket as either co-pays, deductibles and/or those without insurance paying for their medical services.

So here we have:

Government programs – 27.8% of population; 45% of spending
Private insurance – 67.5% of population; 43% of spending
Out-of-pocket – 12% of spending

The government obviously has a problem and despite lowering reimbursements, shifting administration costs to the private sector, increasing compliance requirements for reimbursement and a host of other ways to frustrate the system, it has not, and can not reduce its financial load without healthy individuals contributing toward its ever increasing burden with our aging population.

Some interesting statistics that you won’t find all in one place, but need to go searching to bring the puzzle pieces together for a look at the bigger picture here:

80% of Americans utilize less than $1200 a year in healthcare services
10% of Americans utilize $1200 to $3500 a year in healthcare services
10% of Americans utilize more than $3500 a year in healthcare services

5% of Americans utilize more than 50% of all healthcare costs each year
1% of Americans utilize more than 27% of all healthcare costs each year

In 2007, medicare spent an average $5,694 per beneficiary on healthcare, medicaid spent $6,120 per beneficiary. That’s just “average” though and does not include that medicare spends an average $22,107 per beneficiary in their last year of life or the $14,858 for blind/disabled beneficiaries with medicaid and $14,058 on aged beneficiaries with medicaid in addition to medicare!

Is it any wonder seniors and senior advocacy groups are concerned about how various changes will impact those 65 and older?

As it is right now we have about 40 million seniors in the United States – in ten years it’s projected we’ll have 55 million, and even if we increase the age of eligibility for medicare, the projected 25% increase of eligible seniors is untenable – unless the government can convince us to suck healthy individuals into its system to capture those dollars.

When we begin to look at the even bigger picture – the $5,400 average for an individual health insurance policy and the $12,500 for a family policy, the bucks start to add up very quickly as we realize that if that money is captured by the government, effectively taken out of the private sector, it’ll be a boondoggle for the government financially – especially when you consider that 80% of the population needs less than $1,200 a year in healthcare.

When you do the math, it’s a no-brainer why the government is so hot on reforming healthcare – taking control of the current flow of money that’s within the private health insurance sector, capture those dollars to cover their butts since they’re going to go broke without those dollars and creating a crisis now is an effective way to convince us the entire system is broken and needs fixing.

Could our entire system need some reform? Sure – but it’s certainly not the crisis the government is making it out to be, except for the government programs themselves right now.

In future posts I’ll attempt to tease out changes that can make a difference and delivery better for the American public – and I can say, it’s not through expanding government programs!

And this one is a potential doozy!

As reported in Reuters, some Dems are open to the idea of taxing healthcare insurance benefits, currently paid by employers, as income!

“I think that tax provision should be on the table,” said Senate Finance Committee Chairman Max Baucus, who will play a major role in writing the legislation to revamp the U.S. healthcare system as promised by President Barack Obama.

“It’s too aggressive. It skews the system,” he said of the tax benefit.

Think about that for a moment. 

Then consider your own situation. 

If your employer currently provides your health insurance, even if you currently contribute something toward the policy premiums through payroll deduction, you do not pay taxes on the cost of your health insurance policy total cost.

Today, the average cost of a policy for an individual runs somewhere in the neighborhood of $5000, and for a family policy an average $12,000. 

The majority of this cost is paid by employers so few employees have any idea how much it really costs for their policy, they just know they’re happy they have coverage, even if they have to contribute toward the premium which is in pre-tax dollars.

If all of a sudden the paradigm changed and now you’re on the hook for paying taxes on that policy, as if the premiums are now part of your taxable income, how does that impact your personal finances and tax burden each year?

Each day it’s looking more and more like the policy makers in Washington are playing a big game of sleight-of-hand with the American taxpayers; as in, no we won’t increase your taxes by way of raising marginal rates falling below the current 33% level, so don’t pay attention to the stealth increases we’re going to hit you with, like cap-and-trade and including your health insurance premiums as taxable income!

As I noted in a post yesterday, a couple with an adjust gross income of $150,000 will not see their income taxes increase.  But what happens when their taxable income now includes a family health insurance policy worth $12,000 a year that’s primarily paid for by one of their employers?

Well, for one thing, today their federal income tax is $25,732 with personal and standard deductions only.

If this type of proposal moves forward and becomes the new standard to calculate income, this same couple now faces a tax increase, taxed on an AGI of $162,000, making their federal income taxes rise to $29,092 – an increase of $3,360 in federal income taxes.

But wait you say – they can deduct medical expenses and medical expenses includes insurance premiums.

Well now, let’s do math.

If their taxable income is $162,000, they can deduct medical expenses which exceeds 7.5% of their AGI – so at this new higher taxable income level, they can only deduct medical expenses exceeding $12,150. 

Ooops, they can’t deduct the cost of premiums that are driving up their tax burden – nope they just have to suck it up and pay, it is, afterall, for the greater good, right?

Over the last week or so much has been debated about Obama’s new budget and his plans for the future, especially his plans for those who find themselves in the upper 5% of income earners in the United States.

I’d like to use this post to set the record straight on something first, we keep hearing that the various changes to the tax code will not affect anyone making less than $250,000 a year.  We hear that 95% of workers will not be affected.  We’re told this must be done to equalize the disparity in income and targeting the “rich” to pay more is fair because they can afford to pay more.

First things first – where you fall for taxes depends on your filing status.  We are told that the two upper tax rates are those that will rise – the current 33% will rise to 36% and the current 35% will rise to 39.6%, all other tax rates will remain the same.

While we keep hearing this magical number of $250,000 a year in earnings – think again, it’s really lower than that number if we look at filing status and when each hits the current 33% and 35% tax rates on earnings. 

To be clear too – this isn’t just your paycheck, it’s your earnings and includes interest earned, dividends, previous tax year refunds from your state or local government, alimony received, etc. on this list of income you list on your 1040 to determine your adjusted gross income.

If you’re single, you’ll hit the 33% tax bracket once your income (including all the goodies above to determine your AGI) hits $175,000; married with no kids, you’ll see yourself hit the 33% tax bracket at $220,000 of income; and if you’re married with two kids, you’ll see the 33% tax bracket when you reach $230,000.

Notice, each of the above are UNDER $250,000 – and they’re all going up! 

So don’t believe the media when they keep singing the $250,000 threshold, it’s bogus and a fairy tale.

Interesting finding for me today – I wanted to understand how it is that those in the upper income brackets aren’t paying their fair share, so I crunched some numbers.

I’m still trying to understand how it’s unfair that, say a married couple with two kids, with an income of $150,000 – who to keep this simple only has the standard deduction and personal deduction – pays $23,963 in federal income taxes, but the married couple making twice as much with two kids pays $71,052 in federal income taxes – or to put it bluntly 2.9-times as much tax rather than twice as much for making twice the income!  That’s somehow not quite fair enough yet?  We have to increase how much is taken from the couple earning $300,000, despite their already paying more than twice as much as the couple earning half what they do?

So now, the powers that be have somehow come to the conclusion that $71,052 isn’t enough, that instead they’ll take $82,023 from the couple making $300,000 to be “fair”? 

I don’t know about you, but taking home $914.25 LESS each month will certainly lead the family with the $300,000 income to figure out how to either live on less OR PAY LESS TAXES because I haven’t even touched on the mortgage deduction being reduced, charitable contribution deductions being reduced, capital gains increased, and the potential that the cap on social security taxes may – it’s being discussed right now – be lifted so all income is affected, not just the first $106,800. 

That last one is going to be the thousanth cut for employers, especially the 23-million small business owners out there that employ greater than 116-million Americans!