The closer you look at the 2074 page Senate Health Bill (H.R. 3590), the more and more complicated it becomes. Forget that level playing field.
As the Congress tries to figure out how to extend health insurance coverage to all Americans (They won’t, of course), Senate Democrats have proposed a federally designed health insurance exchange to operate in the several states through which individuals and small employers can purchase bureaucrat- approved health insurance.
Embodied in this scheme is the inclusion of generous taxpayer subsidies for Americans whose income falls below 400 percent of the Federal Poverty Level ( Today that would be $88,000 annually for a family of four). These subsidies include a cap on the maximum percentage of a family’s income which can be spent on coverage.
But there is a catch: the Senate bill also incorporates restrictions on accessing the Exchange. It makes legal distinctions among Americans who can and cannot join. The distinctions are also unfair: Two families with the same income could receive financial help from the government that differs by thousands of dollars. This inequity is entirely based on the structure of the employer mandate, which, though it punishes employers for not offering insurance, makes it vastly more beneficial for employees to join the Exchange than to receive employer-sponsored insurance. Follow this closely.
Treating People Differently. Consider, for instance, two families of four both receiving an annual income of 200 percent of the federal poverty line in 2016 ($48,000 for a family of four) Calculations by health care economist James Capretta clarifies the differences in official treatment. Family A receives health insurance through the new Exchange, and Family B receives health insurance through their employer. Both families purchase a health plan with a yearly premium of $14,100. In the Exchange, Family A is eligible for a subsidy for all costs above 6.5 percent of the family income. This means that family A only pays $3,120 for their health care, and the government picks up the rest of the tab–$10,980.
Family B, however, is not so lucky. True, they still get their health insurance through their employer. They are eligible for $3,350 in tax deductions that are part of current law, but they and( technically) their employer are responsible for the rest. ( Of course, as economists know, employer provided health insurance is offset by a decrease in wages and other compensation). The cap on what Family B can pay out-of-pocket still applies, and the rest is “paid for” by the employer. But of course, as noted, the portion the employer pays comes from the total expenditure on that employee, i.e. his or her income. So really, Family B sees $7,630 less in help from the government to purchase health care, even though both families receive the exact same income.
Erecting a Firewall. Since Family A clearly gets a better deal under the Senate bill, it goes without saying that all workers making under 400 percent of the federal poverty level- and eligible for federal subsidies- would be chomping at the bit to join the federally designed health insurance exchange in their state and get the fat new federal subsidy, courtesy of the taxpayers. But if they all did that, their migration out of employer coverage would blow another big hole in whatever imaginary, “deficit-neutral” health care budget the Senate leadership is contemplating. So, to prevent having to subsidize care for all 127 million of these people, the Senate bill stipulates special conditions for employees making under 400 percent of the federal poverty level. If these employees wish to drop their employer’s coverage, the portion that they pay must be above 9.8 percent of their income. Yes, 9.8 percent, to be precise. This is serious Central Planning here. Of course, for low-income workers, the likelihood of fulfilling this requirement is high; so expect them to try and drop out of employer-based coverage.
But then it gets even more complicated. Remember that the Senate bill includes an employer mandate to offer an acceptable level of health insurance or pay a tax penalty. Employers who offer the acceptable level of health insurance to their employees that opt out and join the Exchange would face a $3,000 penalty per employee, capped at specified amount based on the total number of employees. According to Heritage Foundation health care economist Robert Book, this is a powerful incentive not to hire poor people in the first place. Moreover, according to Book,
“…If more than a quarter of the employees qualify for subsidies, the company would be paying the same tax penalty as if it had not offered a health plan in the first place. Faced with paying a hefty tax penalty whether they offer health insurance or not, many companies would drop their health plan.”
So, in effect, the incentives in the Senate bill are hardwired to encourage employers to drop insurance coverage. So much for the President’s promise of being able to keep the health insurance that you have and that you like.
For employers, it’s a no brainer. Not offering health insurance at all would result in employers paying a tax penalty of just $750 per employee. While this might be great for those under 400 percent of the federal poverty level, who would then be eligible receive the hefty taxpayer subsidies in the federally designed health insurance exchange available in their state, those above that income level would then have to purchase health insurance completely on their own. This means, of course, they would be paying thousands of dollars more than they would pay if their employer would have continued to provide the coverage. On top of this, they would pay with after-tax dollars. One of the great ironies of this entire House and Senate health care mess: the Congress preserves the gross inequities of the current federal tax treatment of health insurance- roundly condemned by virtually all health care economists- and simply adds more.
Unintended Consequence? It is hard to tell whether or not this set of incentives in the Senate bill is an unintended consequence or another deliberate effort to destroy existing private health insurance coverage. In either case, however, it will impact the final costs of the Senate bill. The Congressional Budget Office estimates costs based on only 18 million Americans receiving subsidies.
But, if the bill creates powerful incentives for employers to drop the coverage, the federal spending on taxpayer subsidies for health insurance will skyrocket, adding heavily to the cost of health care reform. So much for bending that health care cost curve downward.