The House Health Care Bill: New Taxpayer Subsidies
Posted October 29th, 2009 at 5:30pm in Health Care 
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The President promised that health care “reform” would expand coverage and choices for American families. Unfortunately, after a preliminary review of the “affordability credits” in the newly unveiled House bill (HR 3962), the opposite will occur. These credits limit access, limit choice and are administratively bound to fail.
Limits Access. The House bill would limit who is eligible for the “affordability credit.” First, all people below 400% FPL are technically eligible for the credit, but the bill also expands Medicaid eligibility to 150% FPL and appears to deny access to the credit to those who are “eligible” for Medicaid. This simply gives the false impression that poor people will get a choice of better care under this bill. The reality is all they get is a chance to join the substandard government-run Medicaid plan. Second, while there are some minor exceptions for those whose employer coverage exceeds 12 percent of income (an increase from the earlier bill), individuals with an offer of employer-based coverage would not be eligible. As more and more employers dump coverage (“not offering”), the price tag of the credit will skyrocket as more workers would qualify for the credit.
Fewer Choices. The House bill would only allow individuals to use these “affordability credits” to purchase coverage through the Health Insurance Exchange, including the new public plan option. Moreover, individuals could only enroll in the cheapest (“basic”) plans for the first two years. This results in the government manipulating behavior and further distorting the marketplace.
Administrative Nightmare. The credit itself is complex and filled with unintended consequences. The credit is designed to limit the annual premium, but also cost sharing and annual out of pocket costs. The administrative bureaucracy needed to implement and such a credit is mind numbing. Determining and calculating premiums, cost sharing and total out of pocket will undoubtedly lead to inefficiencies and costly mistakes.
A Better Approach
No doubt the health care system puts some individuals and families at a financial disadvantage. Specifically, the current tax treatment of health insurance only benefits those individuals who get their health insurance from the place of work. So, if you’re a worker without employer-based coverage you’re out of luck.
If Congress is serious about extending assistance to those who need it, they should start by fixing the inequities of the tax code by replacing the employee tax exclusion with a universal system of tax credits. Short of that, Congress should extend tax relief to those taxpayers who don’t get it today and offer direct and transparent assistance to others by offsetting other welfare payments. Second, consumers should be able to shop for coverage of their choice, not the coverage designed, selected, or sold by the government. Finally, the credits themselves should be simple and transparent, not hidden in a maze of complex rules and behind the scene negotiations between insurers and the government.
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4 Responses to “The House Health Care Bill: New Taxpayer Subsidies”
DavidE on October 29th, 2009 at 5:30pm said:
A problem in the Senate bill was that FPL was defined in terms of adjusted gross income (AGI) as calculated for tax purposes.
A lot of people who shouldn’t qualify for subsidies, e.g., graduate students, property rich/income poor, could qualify for subsidies under this definition. Normally the poverty line figures are intended to include all types of income including gifts and nontaxable income.
I am not sure how this has been dealt with in the latest version of the bill.
lance sjogren on October 29th, 2009 at 5:30pm said:
“A lot of people who shouldn’t qualify for subsidies, e.g., graduate students, property rich/income poor, could qualify for subsidies under this definition.”
I disagree. If there are to be subsidies it seems fairest to base it strictly on income.
Consider my case as an example. I am an early retiree and I have insurance with my former employer, although I pay the lion’s share of the premium, unlike when I was working and the employer paid most of the premium.
I own some real estate and stocks. Those are my retirement assets that should allow me to be financially secure through old age, but will not allow me a life of luxury. As an example, I no longer own a car, I use transit.
Those assets serve exactly the same role for me as a pension plan does for those who have one.
They constitute “wealth”, but I am not rich, that “wealth” simply provides me with the means to pay for food and rent, etc. as a retiree.
Now suppose those assets appreciate greatly in value. If they grew to millions of dollars then I would certainly not be deserving of a government subsidy on health care based on need.
But the point is, those assets are for the purpose of income. If they grew large, then my income from those assets would become large also, and a health care subsidy strictly based on income would do exactly what it was supposed to do, screen out people like me under that scenario, that shouldn’t get a subsidy.
So my argument is that income is, in fact, the proper criterion to determine who gets a subsidy and how much they get.
Garth on October 29th, 2009 at 5:30pm said:
This is great. I can now retire and never have to work again. Hey, socialism is cool.
Chris, Cincinnati on October 29th, 2009 at 5:30pm said:
The second paragraph contains a major inaccuracy: “The reality is all they get is a chance to join the substandard government-run Medicaid plan. ”
The majority of people covered by Medicaid in the US are covered under “Medicaid Managed Care” (MMO), which is neither ’substandard’ nor ‘government-run’.
Outcome studies have consistently found that MMO outcomes are equal to (or in some cases better) than HMO outcomes for similar patients. Typically, MMOs have lower administrative overhead (since most are non-profit, altho that is not a requirement), and often provide long-term services that serve to decrease the cost of care over time, by increasing the general level of health among members.
These entities are also stand-alone entities, run either as non-profits, cooperatives, or for-profit organizations…the states do not ‘run’ them (as the article erroneuously suggests). The majority are operated on a ‘capitated’ basis where the state pays the provider a set amount per member per month to provide contracted services. The negotation of provider networks, payment, and management is entirely independent of the ‘government’.
I agree there are many flaws with the ‘reform’ plan, but raising the Medicaid-qualification ceiling to 150% of the FPL is a relatively inexpensive way to offer healthcare services to an underserved group, in a proven and efficient manner.