Thousands of middle-class, working families can expect to get billions in tax breaks in Tennessee and Georgia under health care reform, though some other - mainly more affluent - people will face higher taxes under the sweeping law.
In Tennessee, 664,100 people will be eligible for new federal tax cuts in 2014 that aim to reduce the cost of private health insurance, according to a report from Families USA, a Washington, D.C.-based consumer group that supported health care reform.
The cuts will reduce Tennesseans' taxes by $2.7 billion that year, and 94 percent of the cuts will go to working families, the report said. Families USA commissioned The Lewin Group to estimate, based on its own economic models, how many people in each state would benefit from premium tax credits included in health reform.
HOW IT WORKSMost of the families eligible for the tax credits will be working, many for small businesses, and will have incomes between two and four times the poverty level. That's between $44,100 and $88,200 for a family of four. The size of the tax credits will be determined on a sliding scale, based on income.Dollars from the credit go directly to their health insurance plan at the time they enroll, offsetting the premium cost. Tax credits will be refundable, meaning low-income families who don't owe taxes will still be eligible for the credits. However, families eligible for Medicaid won't get the tax credits.Source: Families USATAX CREDITSTax credits included in health reform are provided on a sliding scale and are targeted to families with incomes between $29,327 and $88,200, for families of four.Tennessee:* 664,100 people eligible* $2.7 billion in cuts in 2014Georgia:* 933,900 people eligible* $3.6 billion in cuts in 2014Nationwide:* $110 billion reduction in income taxes in 2014Source: Families USA reportPDF: Health Insurance Tax Credit - GeorgiaPDF: Health Insurance Tax Credit - Tennessee
In Georgia, 933,900 people will get the tax cuts, valued at $3.6 billion. About 96 percent of those eligible for the cut will be working families, according to the report.
Critics argue that at least in the short term, Americans will see a rise in health care costs, both in some taxes and health care premiums, under reform measures.
The vast majority of uninsured people in Tennessee want but simply can't afford health care coverage, said Tony Garr, president of the Tennessee Health Care Campaign, a nonprofit consumer advocacy group that supported reform.
Garr said the tax breaks provided both to individuals, and other credits for small businesses, will provide an important bridge to care.
"By and large most of (the uninsured) are working with a small employer and their employer can't afford to provide health insurance. There needs to be a subsidy to make that happen," he said.
The tax relief aims to help people comply with a mandate requiring everyone to buy health insurance, beginning in 2014.
Tennessee's uninsured rate averaged 14.9 percent between 2007 and 2009. In Georgia the rate was 18.6 percent, eclipsing the national rate of 16.7 percent, according to recent U.S. Census data.
CONTROLLING SPENDING?
Reform supporters say the law will help control the skyrocketing costs of health insurance for both group and individual plans, while opponents argue that its provisions will actually end up increasing costs.
The average cost of group health care plans is projected to grow 8.8 percent between 2010 and 2011. That's the biggest increase in five years, according to a separate report by Hewitt Associates, a Lincolnshire, Ill.-based human resources consulting firm. The data was drawn from a survey of 350 large U.S. employers, representing 14.4 million people.
Large companies' annual health care costs per employee grew from $6,059 in 2004 to $9,028 in 2010, and are expected to reach $9,821 in 2011, the report said.
And employees' share of health care costs, including employee premium contributions and out-of-pocket costs, rose from $2,119 in 2004 to $3,900 in 2011, and will likely hit $4,386 in 2011.
But that study also attributes 1 to 2 percent of the premium increase this year to reform provisions, such as extending dependent coverage up to age 26 and limiting annual and lifetime caps on benefits.
"Reform creates opportunities for meaningful change in how health care is delivered in the U.S., but most of these positive effects won't be felt for a few years," Ken Sperling, Hewitt's health care practice leader, said in a release announcing the premium rate report. "While health care reform cannot be blamed entirely for employers' increasing cost, the incremental expense of complying with the new law adds fuel to the fire, at least for the short term."
BlueCross BlueShield of Tennessee estimates that the reforms that go into effect immediately will push up group premium rates by 1.5 percent, and individual rates by 5 percent this year. BlueCross officials have voiced concerns about health reform provisions, but CEO Vicky Gregg has expressed optimism that reform could improve the system.
Those already implemented reforms include a guarantee of health care policies for children with pre-existing medical conditions; preventive services with no cost-sharing for patients and banning insurers from canceling insurance policies after a patient gets sick.
Although tax credits are a boon to individuals trying to afford health plans, they don't address the underlying causes of rising medical costs, including high utilization of costly medical services, new expensive technologies and an aging and less healthy population, said Roy Vaughn, spokesman for BlueCross.
"We don't think tax credits are a bad idea at all," Vaughn said. "But it really doesn't do anything to affect cost in the system, other than to shift it to a subsidy from the federal government."
Kathleen Stoll, director of health policy for Families USA, said reform addresses waste and inefficiency in the current health care system and ultimately will save consumers' money.
Covering millions more Americans will end the cost-shifting that occurs when hospitals are forced to absorb enormous losses from treating uninsured patients who can't pay for their care, she said.
"If we can get everyone in the system we have enormous efficiencies and enormous savings potential," she said.
TAX INCREASES
Reform increases taxes for some people, mainly the wealthy. The Medicare Part A tax rate on wages will rise from 1.45 percent to 2.35 percent for earnings greater than $200,000 for individuals and $250,000 for married couples filing jointly, according to a summary from Washington, D.C.-based Kaiser Family Foundation, a nonprofit, nonpartisan organization focused on health care.
Reform also imposes a new 3.8 percent tax on unearned income, such as dividends and interest, for higher-income taxpayers, according to the foundation.
And beginning in 2014, those who don't purchase health insurance will face an annual tax penalty. Starting out, the penalty will be the greater of either $95 or 1 percent of taxable income. By 2016, it will go up to $695 or 2.5 percent of income.
The so-called "Cadillac tax" on higher-cost health plans goes into effect in 2018. The tax affects plans costing more than $10,200 for individual coverage and $27,500 for family coverage annually. Insurers - or in the case of a self-insured plan, the administrator of the plan - would be taxed 40 percent on the amount of premiums above the thresholds.
Despite tax increases for some, over time reform will bring about savings by creating a more efficient system and developing new and better ways to provide care, Garr said.
"As a country the experts know we're spending way too much for what we're getting," he said. "There are lots of efforts that will go on and test what is the best method to deliver high-quality services at an affordable cost."