In yesterday’s Wall Street Journal, Tennessee Governor Philip Bredesen explained how Obamacare has created a situation where the state government and many of its employees will find it mutually advantageous to the get rid of the employer-sponsored insurance program the state currently offers. As we have noted, Bredesen correctly acknowledges that it will be better for all parties if the state of Tennessee pays the fines involved with not offering an insurance program and subsequently dumps many of its employees onto the federally subsidized insurance exchange.
Here’s how the Governor’s insightful logic works: Beginning in 2014, state exchanges will offer large subsidies to individuals and their families who don’t receive health insurance through their workplace. Former Congressional Budget Office (CBO) Director Douglas Holtz-Eakin and Cameron Smith have brought attention to generosity of these subsidies, noting that “a family earning about $59,000 a year would receive a premium subsidy of about $7,200” beginning in 2014,” whereas “even a family earning about $95,000 would receive a subsidy of almost $3,000.” As Heritage analysts have suggested, employers and employees alike benefit from an employer dropping employer-sponsored health insurance and simply assisting employees in attaining health insurance (with the help of the subsidies) in the exchanges.
Bredesen’s analysis has started to attract attacks from Obamacare’s advocates. Jonathan Gruber, a professor of economics at MIT, claims that “Tennessee state employees generally make too much money to get big subsidies.” However, nearly a third of all Tennessee state and local employees would qualify for a generous subsidy if they were to purchase insurance through the exchanges (for a family of four, the average subsidy would be over $9,000) and over 9 percent would stand to gain considerably (for a family of four, the average subsidy would be over $11,500) through the subsidy structure. This 9 percent of Tennessee state and local employees is about 40,000 workers, which is exactly how many state workers Governor Bredesen estimated would be better off on the subsidized exchanges.
In the end, of course, it’s the taxpayer who picks up the check for the perverse incentives set up in Obamacare. The CBO has conservatively estimated that 8–9 percent of companies will drop health insurance, while the total price tag for the subsidies will be about $450 billion of a bill that will total nearly $940 billion over the first 10 years. However, if our analysis holds up, the price tag of the subsidies could easily triple. And at such a high price, nobody wins.
Alyssa Esquibel is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm.