HEALTH INSURANCE EXCHANGE SUBSIDIES CREATE INEQUITIES
March 4, 2010
Both the House and Senate versions of the health care bill, as well as the Obama Administration's "compromise" proposal, offer large subsidies to encourage low- and middle-income individuals and households to purchase health insurance from private insurers through a government-supervised health insurance exchange, says Stephen J. Entin is, president and executive director of the Institute for Research on the Economics of Taxation (IRET).
According to the Congressional Budget Office (CBO):
- About 127 million people potentially qualify for subsidies through the exchange on the basis of their income and family status, but many of them are covered at work or through Medicaid.
- Therefore, the CBO estimated that only 18 million will participate.
- However, if the number of people who purchase the subsidized insurance is higher than projected, taxpayer costs will be higher and fewer people will be covered by private employer-sponsored health plans.
Because employer-based health insurance is a tax-favored benefit, those who are covered by their company plans will generally be ineligible to buy the exchange-based plans. Premium payments by the employer are not counted as taxable income to the employee and payroll taxes are not imposed on the value. Thus, the employee receives an implicit tax subsidy equal to his or her marginal income tax rate plus the payroll tax rate, says Entin.
All three versions of the health bill will hold down taxpayer costs for the new program by disqualifying those with employment-based coverage. However, that means two otherwise identical households with the same total income, number of adults and number of children will face sharply different costs for insurance and health care, says Entin.
Low- and middle-income people who buy health exchange policies will receive much larger subsidies than the tax breaks they would receive with employer-provided health insurance. Therefore, people are likely to find ways to qualify for an exchange plan -- even if it means leaving a job that provides health insurance. As a result, government cost projections, which do not take into account things such as people intentionally changing jobs, are probably unrealistically low, says Entin.
Source: Stephen J. Entin, "Health Insurance Exchange Subsidies Create Inequities," National Center for Policy Analysis, Brief Analysis No. 696, March 4, 2010.
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