Obamacare

ObamaCare's Unequal Subsidies

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ObamaCare's middle class insurance subsidies are one of the law's most popular features for obvious reasons. But the existence of the subsidies sets up a serious potential problem: What happens politically when it's discovered that between two families making roughly the same amount of money, only one has access to a subsidy?

Starting in 2014, that's a distinct possibility under the new system: A family whose employer offers health coverage will get no subsidy. A family whose employer does not offer health coverage as part of their compensation package gets access to a subsidy worth several thousand dollars (the exact amount depends on the family's exact income level, but the Congressional Budget Office estimates the average benefit per subsidized enrollee will be between $5,200-$6,000).

Now, it's true that the employer-sponsored insurance of the first employee is subject to a tax break. But I'm not sure that will matter to much of the public. If the law stands through 2014, when the subsidies are introduced, it's likely that many people will perceive the difference as manifestly unfair.

That's where the potential political problem arises. When former CBO director Douglas Holtz-Eakin explains the subsidy dilemma, as he did at a Cato Institute forum on ObamaCare today, he warns that the end result will likely be pressure on Congress to erase the perceived inequity by extending the subsidy to everyone. Doing so, however, would be enormously expensive: The cost of giving subsides to just 16 million individuals was projected to be about $466 billion over the first ten years.

Now it's at least possible that even under pressure, Congress wouldn't give in, or would, say, only extend the subsidy to a small class of individuals. But even starting with a small group would lend itself to a slow-moving expansion over time. Anyone who has watched the creeping expansion of Medicaid (which was expanded widely at the state level prior to a massive federal expansion in ObamaCare) and S-CHIP (Obama signed an expansion shortly after taking office) over the years knows how these things go: Pressure to expand benefits builds, and eventually Congress relents. Obviously it's diffcult to predict how these things will play out years in advance, but at the least it's a plausible scenario that would result in the law costing far more than initially assumed.

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  1. If you squint hard and try to think positively, could this be viewed as a step toward cutting the link between your employer and your health insurance?

    1. Well I believe the design is to create pressure for a single payer system. So in a way yes but not in the way you think.

      1. You believe? You mean you know. Glenn Beck has video evidence of Obama saying the ultimate goal is single-payer.

        WHY YOU CAN’T TRUST THE UN.
        http://libertarians4freedom.bl…..tions.html

        1. Hey Grego, do you feel that Fraggle Rock went downhill in its last season?

        2. You believe everything Obama says?

      2. Pretty clear that that’s the end goal. In fact, I believe some of the leadership have said so in public.

      3. So if they fucked up, it might turn out to be a feature instead of a bug.

        So there is Hope!

        1. So there is Hope!

          And all we’ll be left with is Change… pocket change, that is!

          1. No, you will not be left with that either.

            The only thing that will be allowed in your pocket is lint.

            1. But lint will be worth more than a US dollar soon anyway, so you’ll be fine.

  2. I assume that being able to offer subsidies to politically connected businesses who “happen” to meet the requirements is a feature, not a bug.

    1. Exactly what I was thinking.

  3. There are all kinds of tax deductions and credits that apply to some people and not others even though the two have roughly the same income. I’m not sure why this one would be much different.

    1. Why should that disparity exist at all? Isn’t that unequal treatment under the law?

      1. No doubt it’s unfair. But Suderman’s point is that this is going to create some political backlash because it’s unequal. That doesn’t seem likely given the huge number of unequal tax breaks we already have.

        1. I don’t know…most of those unequal tax breaks are esoteric…e.g. special depreciation rules for railroad rolling stock. But when unequal treatment is nominally easy to understand (the marriage penalty), people don’t like it. And it’s not like ObamaCare isn’t on people’s radar. Or that the opposition won’t be pointing out the inequities. So this issue may have more traction than you think.

          1. Some are esoteric, some not.
            – Married v. not married- you get a different tax table (this actually gets some play due to the ‘marriage penalty’)
            – all income from one earner, versus from two, you get socked for less FICA if it’s all from one
            – mortgage interest deduction- don’t get it if you’re a renter
            – exclusion of employer provided health insurance premiums- don’t get it if your employer doesn’t provide it
            – EITC- severely cut back if you don’t have kids
            – child tax credits- don’t get them if you don’t have kids
            – state income tax deduction- don’t get it if your state has no income tax or you don’t itemize (you do get a little set-off for sales taxes though)
            there are tons of examples.

            1. Those are not subsidies. A SUBSIDY is a transfer. I get may “credits” which only serve to lessen my tax burden, but that cannot be construed as “free money” from the goverment. It ain’t welfare, dude.

              1. Ummmm….some of these are refundable credits (like the PPACA health insurance tax credits) and can result in a net receipt of money from the government. The EITC, energy efficiency credits, child tax credit, tuition credits and a bunch of others are all refundable. So, again, what’s your point?

                1. Re: adam,
                  “A SUBSIDY is a transfer.”

                  I made the point several times. You’re just trying to drive your point that all tax credits are, somehow, the same as a healthcare subsidy – they are NOT, not all of them at least.

                  1. Your point makes no sense. How is the energy efficiency credit different from the health insurance credit?

                    1. Re: adam,

                      How is the energy efficiency credit different from the health insurance credit?

                      How is the married vs unmarried tax bracket the same as the health insurance credit? Two can play this little game, adam.

                      I am counterarguing from your original post:

                      “There are all kinds of tax deductions and credits that apply to some people and not others even though the two have roughly the same income. I’m not sure why this one [the HC credit] would be much different.”

                      Because the healthcare credit is NOT a “tax deduction,” it’s a subsidy, a transfer. My argument is that you’re conflating tax deductions with actual subsidies. Maybe a tax credit or two may mean, for some, a net gain instead of a tax burden, but the HC subsidy is a net TRANSFER of money.

                    2. And I was responding to Suderman’s post.

                      Many recipients of the health insurance credit will still be net payers to the federal government in any given year. So, as I understand your definition, they won’t be getting a subsidy.

              2. EITC is welfare.

    2. Re: Adam,

      There are all kinds of tax deductions and credits that apply to some people and not others even though the two have roughly the same income. I’m not sure why this one would be much different.

      Being robbed less than your neighbor cannot be construed as a “subsidy” from the robber to you.

      Instead, a subsidy is giving you part of the loot – a transfer payment. The inherent immorality of the subsidy (robbing A to give to B) becomes obvious.

      1. I’m not sure what your point is. Many of the existing unequal credits are refundable too.

        1. Re: adam,

          I’m not sure what your point is. Many of the existing unequal credits are refundable too.

          If your net tax burden is zero or more than zero but less than your neighbor’s, then you are not receiving a subsidy. That’s the point.

          1. When liberals claim somebody is getting a “subsidy” becuase of some particular tax break, what it really means is that the person is not beign forced to subsidize somebody else to the extent that the liberals want him to be forced to.

      2. Only if the portion of the loot puts you in the black, taxwise, by your logic.

  4. Another week, another problem with ObamaCare. It has more holes in than swiss cheese. I can’t see how this clusterf**k will hold up until 2014 without the people demanding major changes.

  5. “ObamaCare’s middle class insurance subsidies are one of the law’s most popular features for obvious reasons.”

    The obvious reasons include economic ignorance on the part of people na?ve enough to think that “free money” comes from the Fed’s magic wand and no one is harmed by this good spell. Also, some people don’t mind stealing from others as long as it is legal to do so (or they won’t get caught.)

    1. “Also, some people don’t mind stealing from others as long as it is legal to do so ”

      ^^This . I can tell you how many people I’ve talked to who honestly believe that “we want it” is moral justification for every kind of economic depredation.

      Witness the net neutrality freakout. OH MY GOD someone is offering a deal I don’t like so I’m going to seize their stuff and offer myself the deal I want. Actually with net neutrality it’s “someone MIGHT in the future offer me a deal don’t like as much as my current deal” which is even flimsier justification yet the level of self-righteousness around net neutrality is astonishing.

      Now multiply that times a million when it comes to healthcare.

  6. If the law stands through 2014, when the subsidies are introduced, it’s likely that many people will perceive the difference as manifestly unfair.

    But it’s infinitely more likely that no one will notice or care.

  7. There are all kinds of tax deductions and credits that apply to some people and not others even though the two have roughly the same income. I’m not sure why this one would be much different.

    Those other deductions and credits are available depending on whether you are engaged in a certain activity. Having kids. Having a mortgage. Buying a green refrigerator (barf). As long as you engage in the favored activity, you get the same tax bennie as your neighbor who has the same income and the same activity.

    Here, the thinking is that the activity will be “have health insurance.” But look! Depending on how you get your insurance, you may get a big old federal check.

    And, it may be a double hit. An employer who dumps health coverage and throws their employees into the insurance exchange may give them a little bump in pay out of the savings.

    So they’ll get a pay raise and a big ol’ check from the government. While you, with your stodgy company health insurance, get neither.

    1. Re: R C Dean,

      So they’ll get a pay raise and a big ol’ check from the government. While you, with your stodgy company health insurance, get neither.

      http://www.youtube.com/watch?v…..re=related

    2. So you’ve just explained how this will drive everyone to single payer. Unintended consequence ?

      1. So you’ve just explained how this will drive everyone to single payer. Unintended consequence?

        I will save RC the trouble.

        Consequences that are foreseeable are not unintended

    3. Well the activity will actually be “have health insurance and not be employed by an employer that provides it.” Existing tax credits have convoluted rules and conditions too. For example, for the (refunable) energy efficiency credits, the activity was not just “buy a door,” or even “buy a door the improves home’s energy efficiency”– it was, “buy a door that is certified to xxx standard (often energy star didn’t count for some reason), install in your house (not a commercial building or rental),” and then you could 30% of the cost, but only up to $1500.

      1. I bought a new door this year. On the ticket from when I picked it up, the type of glass used was described as “stimulus glass”. I thought that was pretty funny.

    4. Buying a green refrigerator (barf).

      So all those avocado 1970s refrigerators got tax credits? No wonder there were so many of them.

      (In the house of my 1970s childhood, it was the toilet that was avocado. The refrigerator was sunflower.)

  8. The cost of giving subsides to just 16 million individuals was projected to be about $466 billion over the first ten years.

    Chickenfeed.

    1. And the chickens are coming home to roost.

  9. “What happens politically when it’s discovered that between two families making roughly the same amount of money, only one has access to a subsidy?”

    Pelosi sees that as a feature, not a bug.

    1. In her defense, she did say we needed to pass it to find out what’s in it.

      She forgot that what’s in it is a big ole bowl of crap soup with a side of fuck you taxpayer biscuits, but I doubt she knows what day it is half the time with all that botox clogging her brain.

      1. Re: Tman,

        In her defense, she did say we needed to pass it to find out what’s in it.

        Like opening a basket in “Chopped.”

        1. Exactly! But instead of one decent ingredient out of three or four, it’s just a big basket of suck.

        2. Or opening a box…

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