NCPA - National Center for Policy Analysis

PAINFUL HEALTH CARE LESSONS FROM MASSACHUSETTS: HEALTH CARE EXCHANGES

June 21, 2010

How did health care costs in Massachusetts get so big?  A major reason is that health care exchanges reward people for working less and earning less, says Shawn Tully, a senior editor-at-large with CNN.money. 

Data is lacking on how damaging these perverse incentives are in practice.  But it's clear in Massachusetts that low-to medium-earning families often suffer financially if they get a raise, work overtime, move to a higher paying job -- or if a spouse rejoins the workforce, says Tully. 

For example: 

  • A family earning $33,000 pays no premium at all under Commonwealth Care.
  • But if their pay goes to $46,000, they're obligated to contribute about $2,400.
  • That's an effective tax rate of 18.5 percent on that $13,000 raise.
  • A pay increase of $44,000 to $46,000 is mostly erased by higher premiums alone. 

The federal bill is plagued by the same weakness.  For example: 

  • A $55,000 earner contributes $4,400 a year towards insurance.
  • At $65,000, the bill is $6,300; so the family is paying a "tax" of $1,900 or 19 percent on that $10,000 raise.  

After payroll taxes, those Americans would face a marginal rate of around 35 percent, a number that's heretofore been the territory strictly for high-earners, says Tully. 

Source: Shawn Tully, "Five painful health care lessons from Massachusetts," Fortune, June 15, 2010. 

For text:

http://money.cnn.com/2010/06/15/news/economy/massachusetts_healthcare_reform.fortune/ 

 

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