Brownback, health reform and taxes

Health reform will mean some tax increases, mostly for the well-to-do

By Mike Shields, KHI News Service, October 21, 2010

State/Local Issues | Home Page

TOPEKA — GOP gubernatorial candidate Sam Brownback has pledged, if elected, to fight the federal health reform law.

In statements earlier this month he spelled out some of the reasons why. This is the fourth story in a series of five examining those reasons.

Brownback's claim: "Approximately 1 million Kansas households making less than $200,000 a year will pay higher taxes."

While the health reform law will require some Kansans to pay higher taxes, an examination of the campaign's source document, the tax components of the bill and Kansas Department of Revenue data indicate the campaign's claim was significantly overstated.

Joint Committee on Taxation

The Brownback campaign allowed for 1.1 million taxpaying Kansas households and claimed that 97 percent of them will pay higher taxes because of health reform.

The Brownback campaign footnoted this claim by citing a report from Congress' Joint Committee on Taxation.

The report, however, does not support the claim. Instead, it lists total projected revenue to the federal treasury resulting from reform law taxes.

Nothing in the report, or apparently others produced by the Joint Committee, show how the taxes would be distributed across income levels or states.

"We do not have a published distribution table; some members received distribution tables, but nothing public," said Frank Shima, administrative specialist for the non-partisan committee. "All of our correspondence (to members) is confidential. No Joint Tax (Committee) distribution table (public or not) breaks the distribution out by state. Any such claim based on our work would be by inference to how the state compares to the U.S. population at large."

Asked later for more particulars, Sherriene Jones-Sontag, a Brownback spokesperson, said the campaign's tax-impact claim for households also included the law's increased fees and taxes for pharmaceutical and insurance companies, which she said would be “passed on to consumers” in the form of higher prices for drugs, medical equipment and insurance premiums.

She also cited a provision in the reform law that raises the income tax deduction threshold for medical expenses to those in excess of 10 percent of adjusted gross income. Currently, annual medical expenses in excess of 7.5 percent can be written off.

According to the Kansas Department of Revenue, of the 1.37 million Kansas returns filed last year, 936,000 had income tax liabilities. Of those, fewer than half -about 400,000 – were itemized returns. Among those 400,000, about 84,000 claimed deductions for medical expenses. Numbers weren't available for how many of those 84,000 claimed expenses between 7.5 percent and 10 percent.

There will be more taxes

It is a fact, supported by dozens of reports and analyses, that the reform law will increase taxes for some Kansans, but that will fall mostly on well-to-do Kansans, not those earning less than $200,000:

The tax change with potentially the broadest reach in households is an increase in the Medicare tax to 2.35 percent from 1.45 percent for individuals earning more than $200,000 a year or couples earning more than $250,000. Kansans in those income brackets also will face a new 3.8 percent "unearned income" or capital gains tax.

Those with so-called "Cadillac" health insurance (plans with aggregate value in excess of $10,200 for individuals or $27,500 for families) beginning in 2018 will face a 40 percent excise tax on the value of the plan exceeding the threshold. Relatively few Kansas households earning less than $200,000 a year have Cadillac plans, though some union workers with generous health benefits will fall in the category.

There are other tax increases in the law that are likely to affect households.

Those who do not have health insurance will pay a tax penalty up to 2.5 percent of annual income beginning in 2014. More than 87 percent of Kansans have health coverage. Most of the more than 12 percent without coverage will qualify for Medicaid or federal subsidies to help purchase private insurance as a result of the reform.

Consumers of indoor tanning services will pay a 10 percent federal excise tax.

There will be a 2.3 percent excise tax on the sale of taxable medical devices beginning in 2013. That tax will not apply to eyeglasses, contact lenses, hearing aids and other devices that are "generally purchased by the general public at retail for individual use."

Effective Jan. 1, distributions from health savings accounts not used for qualified medical expenses will be taxed at 20 percent instead of the current 10 percent. Distributions to cover medical expenses would remain untaxed. Likewise, those with HSAs would continue to enjoy the advantage of being able to deduct HSA contributions from their taxable income. About 82,000 Kansans have HSAs, acccording to America's Health Insurance Plans.

Contributions to flexible spending accounts for medical services will be limited to $2,500 a year, beginning Jan. 1, 2013, which could increase the tax liability for Kansans accustomed to putting more than that each year in so-called flex-med accounts.

And tax credits

The reform law also includes tax credits and various tax-free benefits.

Starting in 2013, Kansas households earning between 133 percent and 400 percent of federal poverty guidelines will be eligible for tax credits and subsidies to be applied toward the cost of private health insurance. Those earning less than 133 percent of poverty may enroll in Medicaid.

According to an analysis by Families USA, a consumer group that has been a strong supporter of the law, more than 260,000 Kansans will likely benefit from the new tax credits for a total of more than $1 billion in tax breaks in 2014.

Among the tax-free benefits for all Kansans:

Insurance companies will no longer be allowed to deny coverage for pre-existing medical conditions.

Insurance companies will no longer be allowed to impose annual or lifetime limits on benefits.

Go to State/Local Issues

Go to Home Page

Go to Top of Page