Obamacare

Why ObamaCare's Unequal Subsidy Structure Will Make the Law Far More Expensive Than Projected

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James Capretta, a former Bush administration health and budgeting official, explains how ObamaCare's health insurance subsidies will create massive new inequality between working class families:

[A Congressional Budget Office] analysis confirms a crucial point about ObamaCare which remains poorly understood, which is that the law creates a massive inequity in insurance subsidies for working families with low wages.

Under the new law, workers with incomes below 400 percent of the federal poverty line but above the level for Medicaid eligibility who get their coverage through the new state exchanges can get federally financed "premium subsidies." These subsidies will be phased down as incomes rise but are quite substantial for persons at about twice the poverty rate or just above that level. At the same time, workers who get their insurance from their place of work also get an indirect federal subsidy because employer-paid premiums are excluded from workers' taxable income.

The problem is that the subsidies inside the exchanges will far exceed the tax subsidy for employer-paid premiums at the lower end of the wage scale. How big is the gap? CBO quantified it for us in its recent analysis. For a family of four at twice the poverty rate ($50,000 in annual income in 2016), the cost of health insurance would be $11,300 less in the health exchanges than in employment-based coverage, largely because the federal subsidies in the exchanges far exceed the tax benefit for health insurance for families in low marginal tax brackets. For a family of four at three times the poverty rate, the cost of health insurance would be $3,000 less in the exchanges than in employment-based insurance, again largely due to the fact that the government would be paying a larger share of the costs for them in the exchanges.

This disparity between workers with employer-sponsored insurance and those who buy subsidized insurance through the law's health exchanges is going to create tremendous pressure on employers to drop health benefits for lower paid employees. CBO thinks that existing labor laws are going to make it difficult enough for employers to drop insurance only for lower paid employees. But employers will almost certainly start looking for ways to exploit legal loopholes that allow them to dump certain employees into the exchanges.

And, as Capretta notes, there will also be significant political pressure on legislators to rewrite laws in a way that ensures more equal treatment, which probably means allowing employers to send their lower-income employees to the exchanges. That could have serious fiscal consequences: The vast majority of the cost of ObamaCare is paying to expand insurance coverage, and if the law's insurance subsidies are suddenly available to a lot more people than estimated, then the overall cost will be far higher than projected. Capretta and former Congressional Budget Office director Douglas Holtz-Eakin have estimated that if employers shift more employees than expected into exchanges, the expense of the additional subsidies could add $1 trillion to the law's total cost

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  1. Just the existence of the exchanges and the ever-increasing cost of premiums, together with the “insufficient” penalties on employers who drop coverage, creates a huge incentive to drop coverage.

    The additional tax incentive may just be just icing on the cake.

    The trick is that, right now, the employees know nothing about the true cost of their premium, just the part that the employer passes on to them, and less than nothing about the tax benefit of having that employer portion of the premium not count as income.

    Something that you don’t know or care about can’t really act as much of an incentive to anyone.

    1. That’s a feature, not a bug.

    2. PPACA was designed to fail and, thereby, create a new health care funding crisis that would usher in either a single payer or socialized scheme.

    3. My workplace at least sends out a letter every year showing what the company cost of all the benefits are. I doubt more then 5% of the workforce reads it.

      Some of the same people are talking about pulling out their 401k money, since the market is down. Ignoring the company match side of the equation.

  2. If the gov’t doesn’t create inequality, how else can they crusade for Fairness?

  3. Something that you don’t know or care about can’t really act as much of an incentive to anyone.

    So you think employers who can profit by dropping coverage don’t know about this and therefore have no incentive to explain it to their employees?

    This was news a year ago, but not now. You can find tons of articles from last year saying pretty much the same thing – that the CBO estimates on how many low-wage insured-at-work people would be joining the exchanges was off by a factor of 4 or more.

    1. I think the problem with looking at the tax subsidy for employee health coverage is that it is invisible to employees.

      They are going to compare (a) out-of-pocket for the employer plan that just disappeared v (b) out-of-pocket for the HIE plan. If (b) exceeds (a), then many aren’t gonna buy.

      That tax that they never paid because the employer subsidy of their premium isn’t counted as income? Doesn’t matter at all to them.

      Or to the employer, who will be balancing (a) the amount they save by dropping coverage (net of taxes, of course) against (b) the fine plus whatever difficulties they see in recruiting/retaining if they don’t offer coverage.

      And, as more employers drop coverage, the recruiting/retaining problems will shrink.

      I just don’t see how hidden tax subsidy on the employee side comes into either party’s calculations, at all.

    2. You can find tons of articles from last year saying pretty much the same thing – that the CBO estimates on how many low-wage insured-at-work people would be joining the exchanges was off by a factor of 4 or more.

      ObamneyCare was never about providing medical care for this demographic. They (the crafters of this clusterfuck) realized insurance coverage for this group was ancillary. It’s about herding the middle class into state exchanges, whether set up by ObamneyCare or by 50 RomneyCares.

      1. I think you are right in that the real object of Obamacare is nationalizing healthcare. It is horribly complicated because they had to cobble together whatever would get through the political process, which includes insurance company lobbyists. Cutting the insurance companies out of the equation will be the next step on the way to simply having everybody on Medicare/Medicaid/Medihealth, a single government healthcare system. That’s when the broccoli mandate comes into play.

  4. In addition, if I have to buy health insurance and my income just crosses the 1x, 2x, 3x, or 4x threshold, then I have to cough up a lot more for health insurance because I lose some subsidy. This will discourage me from increasing my income unless I can increase it a lot.

    > This disparity between workers with
    > employer-sponsored insurance and
    > those who buy subsidized insurance
    > through the law’s health exchanges
    > is going to create tremendous
    > pressure on employers to drop
    > health benefits for lower paid
    > employees.

    I thought the law does not allow them to drop health insurance coverage, unless they get a waiver.

    1. They can, but they have to pay a fine. The calculation is, of course, crazy complicated, but it caps out at $3,000/year per FTE at the absolute max.

      Which is far less than what they are paying now for premiums.

  5. How awful. Everything’s so much cleaner the way Ron Paul and the debate audience suggested: let poor, sick people die in the streets.

    I realize it’s difficult having to trash the pro-market universal healthcare program we got, since the only logical alternative is universal single-payer. But not if we just let people die! Correct me if I’ve neglected to appreciate the real libertarian solution.

    1. Consider yourself corrected.

      Lack of coverage =/= lack of medical care, especially for conditions that are serious enough to kill you.

      1. Right, but who pays–and whether the system is efficient–is the essential question.

        1. Define “efficient”.

          Gabby Giffords.

          You are the ER physician.

          Does she live or die?

          1. Unless we live in some libertarian hellhole, as many people live as doctors can possibly save. That is an ethical norm, yes, but it’s basically an accepted one in modern civilization. That makes it different from a run-of-the-mill market, and means it won’t operate according to basic market rules. It’s a social understanding that has to be paid for. If you’re rational, you want to pay for it in the most efficient way possible.

            We can debate what way that should be, and at this point we should be dealing with numbers and evidence.

            So the only question is whether libertarians accept the social norm. The far right that responds favorably to Ron Paul, and perhaps the Republican party, seem to have rejected it. They didn’t always. That’s why they invented what is now called Obamacare. If you ask me the liberals have the better system and it would have been nice if Obama had the votes for such.

            1. You seem to be the king of false assumptions. Let’s look at each one.

              1. “That makes it different from a run-of-the-mill market” Every industry is unique but other markets such as food, clothing and housing provide even more basic necessities to sustain life.

              2. “you want to pay for it in the most efficient way possible” I suppose this assumes that government-run health care is more efficient. Without exception, private enterprise is infinitely more efficient than government. If you don’t understand this (and why it is so), you should probably brush up on your economics.

              3. “We should be dealing with numbers and evidence” All the evidence and numbers support free market reforms rather than a bureaucratic nightmare like Obamacare.

              4. “Whether libertarians accept the social norm” Libertarians accept “social norms” but believe that “social norms” are secondary to the rights of individuals. The real question is whether Obamacare stands and individual rights are sacrificed for the “greater good.” If we stay on the current path, goverment-mandated euthanasia becomes the “social norm.”

            2. T o n y|4.18.12 @ 6:50PM|#
              …”So the only question is whether libertarians accept the social norm.”
              Shithead, why don’t you try a post once that even approaches an honest statement?

            3. This question is Socratic as possible. Answer the question, Tony:

              Gabby Giffords.

              You are the ER physician.

              Does she live or die?

    2. But, by an inference as false as it is unjust, do you know what the economists are now accused of? When we oppose subsidies, we are charged with opposing the very thing that it was proposed to subsidize and of being the enemies of all kinds of activity, because we want these activities to be voluntary and to seek their proper reward in themselves. Thus, if we ask that the state not intervene, by taxation, in religious matters, we are atheists. If we ask that the state not intervene, by taxation, in education, then we hate enlightenment. If we say that the state should not give, by taxation, an artificial value to land or to some branch of industry, then we are the enemies of property and of labor. If we think that the state should not subsidize artists, we are barbarians who judge the arts useless.

      – Bastiat

      1. Well as long as you aren’t philosophically opposed to poor people getting medical care, that’s all that matters.

        1. If you care so much, why aren’t you doing something about it? The money you spent on the computer you’re using could’ve saved a life, but you used it to argue with people on the internet. You could get by with a less expensive car, but you don’t. You could survive on food 1/10 as expensive as what you eat; billions do so every day. Somebody in your family needs your help, and you doing nothing about it.

          So go and peddle your faux concern someplace where people don’t know your game. And yes, I am aware that you will intentionally miss the point and protest that you don’t own a car, or engage in some other such facile misdirection. Save it.

          1. No, here’s my misdirection: isn’t the more important question, why don’t you care?

            Anyway, by my figuring the most I can accomplish, being a humble worker with a humble income, is to engage in political discourse and encourage people to make intelligent political decisions. Maybe I’m wrong. Oh well. How dare you use the Internet the government invented? See how fruitful this is?

            1. T o n y|4.18.12 @ 6:53PM|#
              “No, here’s my misdirection: isn’t the more important question, why don’t you care?”
              Shithead, why don’t you try a post once that even approaches an honest statement?

            2. Whether I care or not is immaterial. If you can figure out why, and why the same does not hold for you, I’ll be impressed.

            3. T o n y|4.18.12 @ 6:53PM|#
              …”How dare you use the Internet the government invented?”
              Lie, shithead.

    3. One of the most basic tenets of libertarianism is that there are no “solutions”, there are only more or less desirable outcomes. Libertarians don’t offer solutions for the ills humanity is subject to – poverty, war, sickness, hunger, disease, all the troubles in the world are the natural order of things. Wealth – the thing that ameliorates all the troubles in the world – is the aberration in the history of Mankind.

      As cold as it sounds – we simply do not have enough money to allow everybody to die in a hospital after a long, healthy, happy life the way some do now. We are just now seeing the tip of the iceberg in Baby Boomers needing hip replacements and bypass surgery and chemotherapy and stroke rehabilitation therapy while living on Social Security.

      Even at 100% tax rates right across the board, there isn’t enough money in the world to meet all the “needs” of everybody when you consider that the “needs” are only affordable for about 10% of the population. We can’t all just wish ourselves into the top 10%, math doesn’t work that way.

      Difficult as it may be to accept, human beings are not gods that can simply legislate paradise. It’s just that some of us know this to be true, some of us don’t. And politicians know they aren’t going to get elected by educating the latter.

  6. “Why ObamaCare’s Unequal Subsidy Structure Will Make the Law Far More Expensive Than Projected”

    When it comes to Obama’s people and their money claims, they are not to be trusted.

  7. OK, let’s see if this is “invalid”:

    (link)

    Current TV has hired Gavin Newsom, the former hair-gel king (mayor) and now Lt. Guv. of CA to host an interview program.
    According to the writer of the article (an obvious twit with an inability to write a sentence), “…But now, looks like Current is on offense with a plan to make news and making ratings.”

    Yup; the viewership is gonna double once his ex-wife tunes in.

    1. OK, the link causes “invalid”. Hey, squirrels, how about being able to post a link?

      1. <a href=”link-here”>text here</a>

        testing…

  8. Current TV’s newest star
    Yeah, it works, but what are the squirrels paid for?
    […]
    And when I tried to point out the difficulties involved, *that* comment was “invalid”.
    Obviously, the squirrels are *not* paid to make rational decisions.

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