Health insurance penalty escape clause

Liz Fowler headed the private-industry group that wrote ACA, temporarily employing Max Baucus on her staff

Liz Fowler headed the private-industry group that wrote ACA, temporarily employing Max Baucus on her staff

As we sort through the details of Obamacare, or ACA, it is more looking like a sham exercise, a mere cover story for a massive subsidy.

So far, we’ve learned that the minimum coverages are bare-bone – an annual physical and certain lab tests, like mammograms. Beyond that, we know that we are required to buy policies. If we don’t like the so-called “open market” (an oxymoron, like “corporate integrity”), we can go to state insurance exchanges. These will offer four levels of coverage (from the same damned companies!) – bronze, silver, gold and platinum. That coverage is merely 60%, 70%, 80%, 90% of covered medical expenses. Most people will opt for bronze coverage, as it is the cheapest. The monthly premium seems to be the only thing people want to talk about, but it helps to know that coverage is shit.

But what are “covered” expenses? From appearances, it seems that insurers anticipated a huge influx of new patients into the system due to pent-up demand for untreated conditions. So they constructed a huge barrier: physician office visits are not covered. In essence, the policies above are for hospitalization only. That means those with untreated conditions will remain that way.

That has all been covered here before, but yesterday at a tax conference I learned something startling in its implications: Starting in 2014 there are new penalties for failure to buy an insurance policy from the cartel, which we all know. They start out rather modest – as low as $95 with a host of provisions kicking in over time making them more severe.

The penalty is collected under normal procedures except:

1. No taxpayer shall be subject to any criminal prosecution or criminal penalty for failure to timely pay the penalty; and
2. The IRS may not file a notice of lien or levy on any property in connection with the failure to pay the penalty. But it can offset refunds, including those due to refundable credits.

This is deliberate. Why? The Final Nine ruled that it is a tax, so that normal collection procedures would apply unless someone deliberately inserted this escape clause. Someone did. Why?

Mere speculation on my part: To understand why they don’t seem to care much about collection of the penalty, one must look at the overall thrust of the act. The cartel has forced working and poor families to buy insurance, and the government is paying huge subsidies for it to cover these people. The policies are crap – there will be very little cash outlay for the cartel. Premiums will be low due to the 80% medical outlay provisions* (exactly where the cartel was at before the act).

That is the guts of ACA in my view – the subsidy. Everything else is window dressing, including the fines. They don’t really care if people not using the exchanges buy policies. If they did, fines would be collectible by force. They are using the uninsured and working poor as a conduit for taxpayer money.

The easy way to avoid paying the fine is to avoid being in a refund situation – don’t allow yourself to be over-withheld. Instead choose the maximum allowed exemptions on your W-4. (The form has a longer calculation of examptions on the back to allow extras for itemized deductions and credits.) The objective is to reduce your bottom line to the amount of the fine. This leaves the IRS powerless to collect it.

Liz Fowler will be pissed, sorta. She’s returned now to private industry after employing Max Baucus to help pass the bill, and President Obama to implement it. Her work is done now, she gets to sit back and watch the rewards roll in.
____________
*In insurance jargon, when a company has to pay a benefit for a policy holder, it is known as a “medical loss,” and the total of medical loss payout prior to ACA was around 80% of premiums collected. ACA merely codified the existing practice. Note as well that companies self-report medical losses, hire their own auditors as well. Wall Street trackers are diligent and insist that 80% not be exceeded. In the early 90’s, prior to the great enclosure, not-for-profit insurers were paying out in excess of 95% of premiums in benefits, according to Wendell Potter in his book Deadly Spin. (Potter has become a leading proponent of Obamacare, meaning he likely never left insurance cartel pay even as he made a great stink about retiring from CIGNA in disgust. Will he now follow Fowler back to the cartel nest?.)

About Mark Tokarski

Mostly retired CPA living the life here in Colorado. Formerly Montana, 59 years, which is why so much of this blog is devoted to Montana issues.
This entry was posted in Esoterica. Bookmark the permalink.

32 Responses to Health insurance penalty escape clause

  1. rightsaidfred says:

    The IRS may not file a notice of lien or levy on any property in connection with the failure to pay the penalty. But it can offset refunds, including those due to refundable credits.
    This is deliberate. Why? The Final Nine ruled that it is a tax, so that normal collection procedures would apply unless someone deliberately inserted this escape clause. Someone did. Why?

    I wrote that. I put that in there. Why should we convert property to pay insurance premiums? There is quite enough wealth transfer from the people to the permanent bureaucracy. Why add another avenue?

    Like

    • You do realize the wealth transfer is from US citizens to the insurance cartel and its huge bureaucracy, right?

      Like

    • rightsaidfred says:

      Apparently 20% of my health insurance premium goes to the insurance cartel and its huge bureaucracy, and 80% pays for doctors, hospitals, technicians, and supplies.

      Like

      • That’s the law in a nutshell, apparently 85% for large group policies, as insurance companies don’t have to employ the sales force and advertising to recruit profitable clients.

        Another 11% level of bureaucracy exists outside the insurance companies in hospitals and doctors’s offices – people and computers whose sole jobs are to deal with the insurance companies. That’s where the 31% number that originated in a Harvard study came from.

        Other countries with their inefficient government-run systems don’t come close to our top-heaviness. Even Canada, one of the less efficient systems, is only at 16%. Medicare is 3-5%.

        Nice to debate numbers like this, but the whole concept of “for-profit” health care is an absurdity! You cannot run an efficient system when the incentives are perverse. Everyone in our system is running around trying to dump their costs on someone else. usually government, and avoid people who actually need health care. That costs money.

        It is insane. Remove the profit motive, it fixes itself.

        Like

  2. rightsaidfred says:

    Remove the profit motive, it fixes itself.

    See above picture.

    You are railing against the 20%, the 31%, of administrative costs. How much of this can you really get rid of? Medicare touts 5%, but how much of this is from cooking the books?

    And you act like Wall Street takes its 15% and then burns it. What if they are doing something else, like doing hookers and blow. After watching The Wire, you usually claim that such is a legitimate activity. What are hookers and drug dealers going to do after you take power? They need to unionize and protect their jobs via the ACA.

    Like

  3. Medicare touts 5%, but how much of this is from cooking the books?

    That’s why we have Office of Government Accountability.

    Here’s where the 31% goes, though I might be wrong in order of placement:

    1. Selling expenses.
    2. Computer programming for processing of claims.
    3. Claim examination and settlement. After selling a policy, the objective shifts, and is now to avoid paying claims. That takes personnel whose only job is to look for legal ways to not pay, or to shift the bill to someone else.
    4. Executive salaries (rent seekers).
    5. Legal fees to write policies and defend against lawsuits for nonpayment of claims.
    6. Advertising.
    [Jesus! Dope slap. Forgot corporate profits, payments to investors. It is in there, up high, and Medicare is exempt.]

    The reason that Medicare can avoid most of this is that they do not have to deal with 1,4 and 5 and 6. In addition, #3 is much cheaper because there is no hassle about what can be paid. Most expenses are covered for seniors.

    Have you ever seen an insurance settlement for a medical expense? Do you notice that say, the bill is $100, and the insurance company “allows” $60, you pay $12 and the company $48? The other $40 is “eaten’ by the doctor or hospital, supposedly, but truth is more basic: It never existed. It was put ether by the doctor or hospital knowing that the insurance company would underpay them if they charged real costs. That is a major driver behind medical cost inflation – the mythical markup. People without insurance really have to pay the entire $100.

    We’re out of control, of course – our costs are double or triple per capital what it costs elsewhere. Eliminate the profit motive, it heals itself.

    Like

    • Big Johansson says:

      Like the post office vs UPS?

      Like

      • Precisely. You know nothing of that matter either.

        Like

        • Big Johansson says:

          I know that ups made 40B in the last 6 yrs. and the postal service lost 40B.

          Like

          • Here we go – Whack-A-Mole. I don’t care how much money UPS made. They are not the Post Office and I don’t want them doing my mail, as they would fuck it up and make it horribly expensive.

            I don’t know how much money the Post Office makes, and it doesn’t matter as it is a public utility with synergistic value – it enables the conduct of business and commerce. It only needs to break even.

            It is not losing money right now other than due to the requirement that it fully fund 75 years of retiree health benefits over ten years, something UPS does not have to worry about.

            Be honest – you hate the Post Office because it is unionized, efficient, people make a nice living and have retirement benefits. You want them brought down to industry standards – no union, no benefits, so that private industry doesn’t look like the pikers they are. The very fact that it works, has worked for centuries, drives you buggy, doesn’t it, Homer.

            Like

    • rightsaidfred says:

      From what I hear, Medicare drafts off the overhead already in place for current insurance claims. The hospital administrators I know tell me they lose money on Medicare patients, and that is one reason for the markup on other patients.

      So you think a Medicare wide system won’t have the same or more selling expenses, legal fees, executive salaries, advertising expense; and their claim settlement costs won’t be equal or more? From what recent experience can we draw that conclusion? You are the one who usually tells us that our government as presently constituted is vastly corrupt and spends its time on secret programs that kill vast numbers of people. From where are we to draw the angels that will cut healthcare administrative costs? Are they in cold storage somewhere?

      Like

      • Big Johansson says:

        “Where are these angels?” Famous Friedman quote.

        Like

        • It’s odd to say of a Nobel Prize winner, but Friedman might actually have been kinda dense. The neoclassical model didn’t fit the real world very well, he seemed to know it, but preached away anyway as if it did. I think you ought to deep-six him beside Ayn. Both have exceeded shelf life by decades.

          Like

          • So you’re saying that our government-insured health care system for caring for the elderly, Medicaid, is better than theirs? Or you’re noticing that they publicize their problems when they surface and deal with them as best they can in a limited budget situation? What are you saying? That they should convert to a for-profit nursing home system? Yeah. That’ll work. (And, they’d be the first system outside our country to adopt our system. I’m not counting Iraq, as they were at gunpoint, the American way.) The profit motive will make them want to spend more money on patients who are past their earning years. You make sense.

            Next annoying link please, different subject, of course, as your ADHD doesn’t allow you to focus.

            Like

            • Big Johansson says:

              Your mother resides (did reside?) in a private nursing home operating on a “for profit” basis.

              Like

              • Correct – Billings Health and Rehab. We spent down her estate to nothing except a funeral trust, and now send them her monthly Social Security check. Medicaid picks up the rest.

                There are not-for-profit nursing home systems operated by churches and local governments. BH&R is I think owned by a British company. They are very good, I am very pleased – kind and caring staff, very good care.

                Health insurance, though never actually measuring up to world standards, used to be much better before it was enclosed by the private insurers, United, CIGNA and Wellpoint leading the way. That’s when it got really bad. I fear nursing homes are targeted for enclosure as well. The same people who sell shitty health insurance now sell nursing home policies. You can bet they are shit too, but who will know until it is too late?

                Like

      • Let’s see … Where to go for examples … Have we covered this before? Let’s check. Oh yeah. Here it is, right here ….. EVERY OTHER FRICKING INDUSTRIALIZED COUNTRY!!!

        There I go using caps. Pretty soon I’ll be making up stupid nicknames. I’m Kraljing, I tell ya – Kraljng! Fred, you’re driving me to Kraljism. Is there a 12-step way out of it?

        Like

        • rightsaidfred says:

          Yeah, just like every other country has a better model of military spending than the US. As soon as we adopt Andorran levels of military spending, you will have lots of money for even more leisure activities.

          In all your blathering about administrative costs, you don’t deal with the fact that the main driver here is the number and costs of procedures. If 5% of people account for 50% of medical costs (or whatever. I think once you noted that 1% account for 22% of costs), how does cutting administration help this? Are administrators currently piling on the 5% to pad their salaries? You are taking an easy route here: cutting “fat” and rooting out evil money wasters, when the hard choices are in reducing our efforts in catastrophic cases and end life scenarios. Other countries haven’t gone the road of extreme efforts, but once you go there, it is hard to dial it back.

          Like

          • You don’t seem to comprehend the cause of the overhead burden here that they don’t deal with elsewhere – cost avoidance, cost shifting, rent seeking.

            You presume that people seek out unneeded care. Evidence says no. They don’t behave that way. People seek care when they need it. Usually it’s just knowledge about a condition, but often enough it is an advance warning of a condition that can be avoided with treatment. Because we avoid costs and cost shift here, we discourage this reasonable behavior by patients. Insureres refusing to cover office visits is insanity.

            You may think it expensive merely to allow people to seek care when they need it, but our system is evident of the opposite – by seeking to avoid costs and dump them on others, we allow minor conditions to become severe before treatment, and have to pile on a layer of bureacrats to guard the doors of the profit centers.

            Eliminate the profit motive, the bureaucrats have to do something else, the rent seekers prey on other sectors, conditions receive treatment as warranted. It heals itself.

            Like

          • rightsaidfred says:

            I understand the overhead burden, and there is room for improvement, but that is not the big driver of our higher costs relative to Singapore, France, etc. It is the cost and amount of procedures. You either tell us 1) cutting administration will bring these down to world levels; or 2) we will figure this out later.

            Also here, you are telling us that cost cutting by insurers discourages people from seeking care at early stages of disease, and thus pushes treatment to later, more expensive stages. This is kind of a white whale, one of those things you hear about but no one can find to any extensive amount. No doubt this goes on, and I know of some anecdotes, but such cases would occur after the Tomato Man singularity in health care ’cause such people and their cases tend to be marginal under any system.

            Like

  4. steve kelly says:

    As long as AMA “committee volunteers” set Medicare reimbursement rates, perverse incentives corrupt our public insurance system too. It’s a little-known crime that Medicare doesn’t calculate its rates in the public interest.

    Like

    • Medicare has a large problem in that it is woven into the private system, and so must play by its rules. In addition, the amount of fraud that goes on is staggering – they might want to up that 3% to 5% just to tear down some of the scamming. Even so, it’s a better system than the private one in terms of delivering product to patient at a reasonable cost.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s