Redistribution as part of health care reform: The significance of a recent recess appointment

Douglas W. Jackson

President Obama’s recess appointment of Donald Berwick, MD, as administrator of the Centers for Medicare & Medicaid Services (CMS) was an obvious political ploy to avoid the public debate and scrutiny that would have occurred had the appointment taken place just prior to elections.

Berwick, a Harvard-trained pediatrician, will oversee a budget larger than that of the Department of Defense. His appointment highlights controversial topics related to implementation of the new health care legislation; redistribution of wealth to fund health care, governmental rationing of care, and wage and price controls. During his career, Berwick has made many public comments on these subjects that appear to prophesize White House positions and the administration’s approach to future health care reform.

Redistribution

An open public debate of his nomination would have fulfilled a pre-election promise of our president for governmental transparency. An example of Berkowitz’s statements that would fuel that debate is this quote which he said during a speech in 2008 at an event to celebrate the 60th anniversary of the U.K.’s National Health Service, “Any health-care funding plan that is just, equitable, civilized and humane must, must, redistribute wealth from the richer among us to the poorer and less fortunate. Excellent health care is by definition redistributional.”

His supporters note that the current Medicare and Medicaid plans are, by definition, a redistribution of wealth since they are funded by taxpayer money to fund programs that those taxpayers would not qualify for.

In economics, progressive redistribution is simply the transfer of wealth from some individuals to others, usually the wealthy to the poor. The administration has placed a monetary figure to quantify the income an individual must earn to be defined as “wealthy” and those individuals will be taxed at a higher rate to pay for the new government programs and entitlements.

Justification

Our country is facing a record $12 trillion plus deficit. We know politicians are notoriously weak in reducing costs, cutting back spending and/or eliminating existing programs. It has been, and still is, much easier for politicians to run up the debt by postponing payment for programs to the future. When “the future” arrives and there is an obvious and emergent revenue shortfall to pay for these programs — which by this time have become engrained into the electorate — politicians will choose to increase taxes rather than stop a popular program. It does not take much foresight to understand our country will need more revenue and we will see increases in income, estate and health care taxes. Some of these increases are already scheduled.

Increasing Medicare taxation

I would like to focus on the new Medicare-related taxes and the taxes to assist funding health care (expansion) reform. These new health care taxes will be added to the Obama Administration’s proposal for the two highest tax brackets to expire from the 2001 and 2003 Bush tax cuts. If allowed to expire, the top bracket would go from 36% to 39.6% for the federal tax rate. In addition, a possible increase to 20% on dividends and capital gains is being proposed which would increase to 23.8% in 2013. Future changes in estate taxes are beyond the scope of this editorial.

The new Medicare taxes target high income families and/or individuals. To understand the impact of this tax, look closely at your paycheck breakdown under the column that lists FICA (Federal Insurance Contribution Act). This employment tax has two components the OASDI (Old Age, Survivors, and Disability Insurance), which takes 6.2% of your wages up to $106,800, and the HI (hospital insurance) takes 1.45% of covered wages. The employers are responsible for collecting and submitting this money and their contributions.

Specific health care taxes beginning 2013

Beginning 2013 the HI tax rises to 2.35% for high income earners who are married and filing jointly, the additional tax will apply to combined income exceeding $250,000 per year. Also, a 3.8% Medicare tax will be imposed on unearned income. At this point, still excluded from the additional Medicare contribution will be the interest from tax-exempt bonds, veteran’s benefits, gains from selling principal residence and IRA and qualified plan distributions.

Those two Medicare-related taxes to help pay for reform are projected to exceed $210 billion by 2019, according to the Joint Commission on Taxation in March 20, 2010. In addition, as you enter the Medicare-beneficiary age group, you will learn that means testing for your premiums has already started based on your income tax returns. This is another form of taxation and redistribution and is potentially an area for increased revenue with more means- testing guidelines in the future by the government.

A recess appointment?

As I have stated, I believe that Berwick’s appointment during a recess was done to not only avoid public debate before elections but to install an individual that would most likely not have been confirmed after a divisive hearing. I am disappointed that our medical associations have not made this a greater issue and educated their members and the public as to the ramifications.

As much as health care reform will impact our lives and our patients, we were entitled to, and should have demanded, a public hearing. Whether you agree with Berwick’s individual thinking for health care reform, his new position running Medicare would not be easy for anyone. After the method of appointment, I feel his future interactions with Congress will tend to be quite confrontational.

White House Press Secretary Robert Gibbs tried to justify Berwick’s appointment by stating, “It’s the type of politics that demonstrates just how badly broken the appointments process is.” He went on to say, “the president is going to install people that need to be installed for this government to run … efficiently.”

For all of our sakes, I hope the current health care legislation and its implementation and costs will be more widely embraced by those funding it in the future. Our government is far from efficient in running large programs and the public’s confidence in either party is extremely low. We all support helping the poor and realize our current and future debt consequences will result in us all giving more financial support from our incomes in the form of higher taxes. However, there are many concepts and implementations to work through to make those being taxed more to feel support for the redistribution to be extracted.

I agree with Gibbs’ opinion that our system of appointments is “broken.” I would add that health care reform has displayed a more dysfunctional government on both sides of the aisle then I can support. Something as important as health care reform to our economy, citizens, patients and physicians deserves a more deliberative process involving outside opinions and consensus-based reasoning.

Our current legislative process and political system need reform, which will be more difficult then reforming health care. We are all prepared to pay more for programs we can support that help control escalating health care costs, does not contain more wasteful spending and improves quality and outcomes.

Douglas W. Jackson, MD, is Chief Medical Editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Road, Thorofare, NJ 08086; e-mail: OT@slackinc.com.

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