NCPA - National Center for Policy Analysis

Obama Health Plan Will Squeeze the Middle Class

May 15, 2012

Many people currently get their health coverage from work, and they benefit from an implicit subsidy built into that workplace coverage that lets them spend pretax dollars through their employer to purchase health insurance.  Depending on their tax rate, that subsidy helps offset some of the premium costs, says Scott Gottlieb, a resident scholar at the American Enterprise Institute.

Under the Obama plan, however, many of these families could instead find themselves buying their health insurance on the new state-based exchanges that get started in January 2014.

  • For a family of four, premiums on even one of the lower priced "silver" options could still cost more than $15,000 annually on the exchanges.
  • Even those with only modest incomes could find they make too much money to be eligible for premium assistance tax credits -- the tool the Obama administration created to defray the costs of the expensive exchanges.
  • Additionally, even though people aren't forced to carry health coverage on the exchanges if the cost of these policies exceeds 8 percent of their pretax income, the point may be moot: the exchanges will crowd out other low cost insurance options.

The end result of giving the middle class the runaround is that they'll be paying higher premiums for the same coverage (or broader coverage that they didn't want in the first place).

And this only hints at the eventual pervasiveness of the exchanges: because of their government support, it is almost certain that they will eventually dominate the market.

  • It's widely accepted that the individual and small group insurance markets will quickly move onto the exchanges.
  • This would leave two sources of health insurance: exchanges, or through large employers that continue to self-insure and offer group coverage at the workplace.
  • But there's now an emerging consensus that many large employers will choose to drop workplace coverage, and instead pay the $2,000-per-employee penalty that the Obama plan levies on them.

This will funnel middle class workers into exchanges where they make too little to be able to pay the total cost of the premiums, but make too much to be eligible for assistance.

Source: Scott Gottlieb, "The Obama Health Plan Will Squeeze the Middle Class," Real Clear Markets, May 9, 2012.

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