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Taxes on Consumers and Employers Will Determine the Fate of Obamacare


The taxes, which are penalties for not buying insurance, would cut costs significantly and make Obamacare's benefits possible. However, they face a tough political road ahead.

Much of Obamacare's success hinges on whether a pair of new taxes can compel more Americans to have health insurance.

For all the carrots in the 2010 law such as tax credits and subsidies, there are two big sticks that are meant to change the behavior of a projected 58 million uninsured. There are other taxes on medical devices and gold-plated insurance plans that all told will raise $1 trillion over the next decade.

The two big ones are taxes that will hit employers and consumers directly-a critical element of a law that remains a political hot button. House Republicans are banking on its unpopularity, putting forward a budget that strips away all of the spending attached to Obamacare while some GOP lawmakers demand it be defunded as a condition for raising the government's borrowing authority in May.

The most recent Congressional Budget Office projections estimate that 14 million Americans will opt to become insured next year rather than pay a penalty, which starts as low as $95 for individuals. Companies that decline to provide coverage would pay a $40,000 fee.

By the time the penalties are fully ramped up in 2017, 27 million uninsured Americans would receive health coverage, but 29 million would still go without. The combined taxes, designed to raise $202 billion through 2023, were designed to cover the cost of insuring 90% of the US nonelderly population. But that intention may be undermined by what could be a growing swarm of insurance dropouts.

The CBO has all but acknowledged that the economic impact of the law is a crapshoot. The nonpartisan agency adjusted its forecast this year, under the assumption that state-run exchanges providing subsidized health coverage will be slow to get off the ground, meaning that more Americans will initially have to rely on private insurers.

Organizations such as the International Franchise Association-which represents the owners of hotel, fast food, and moving company chains among others-also see the affects of the taxes as somewhat unpredictable. Too high a penalty creates a new financial burden, while one that's too low likely preserves the status quo.

"No one really knows how an employer or employee is going to react until the law gets implemented," said Judith Thorman, senior vice president for government relations and public policy at the International Franchise Association.

So, how would these taxes work?

For individuals without health insurance, the penalty would start next year at $95 per person, $285 for a family of three or more, or 1% of their income-whichever is largest. The size of the penalties would increase through 2016 to $695 per person, $2,085 for a family, or 2.5% of income. The tax would raise $52 billion through 2023, the CBO forecasted.

The US Supreme Court ruled last year that this individual mandate made Obamacare constitutional. President Obama reacted to the ruling in a speech where he said the tax would hold down the costs of medical treatment.

"First, when uninsured people who can afford coverage get sick, and show up at the emergency room for care, the rest of us end up paying for their care in the form of higher premiums," Obama said. "And second, if you ask insurance companies to cover people with preexisting conditions, but don't require people who can afford it to buy their own insurance, some folks might wait until they're sick to buy the care they need, which would also drive up everybody else's premiums."

But the concern among insurers is that the penalty fee might be too low for the first two years.
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