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  • How the Senate Health Bill Creates Inequities Among American Workers

    The closer you look at the 2074 page Senate Health Bill (H.R. 3590), the more and more complicated it becomes. Forget that level playing field.

    As the Congress tries to figure out how to extend health insurance coverage to all Americans (They won’t, of course), Senate Democrats have proposed a federally designed health insurance exchange to operate in the several states through which individuals and small employers can purchase bureaucrat- approved health insurance.

    Embodied in this scheme is the inclusion of generous taxpayer subsidies for Americans whose income falls below 400 percent of the Federal Poverty Level ( Today that would be $88,000 annually for a family of four). These subsidies include a cap on the maximum percentage of a family’s income which can be spent on coverage.

    But there is a catch: the Senate bill also incorporates restrictions on accessing the Exchange. It makes legal distinctions among Americans who can and cannot join. The distinctions are also unfair: Two families with the same income could receive financial help from the government that differs by thousands of dollars. This inequity is entirely based on the structure of the employer mandate, which, though it punishes employers for not offering insurance, makes it vastly more beneficial for employees to join the Exchange than to receive employer-sponsored insurance. Follow this closely.

    Treating People Differently. Consider, for instance, two families of four both receiving an annual income of 200 percent of the federal poverty line in 2016 ($48,000 for a family of four) Calculations by health care economist James Capretta clarifies the differences in official treatment. Family A receives health insurance through the new Exchange, and Family B receives health insurance through their employer. Both families purchase a health plan with a yearly premium of $14,100. In the Exchange, Family A is eligible for a subsidy for all costs above 6.5 percent of the family income. This means that family A only pays $3,120 for their health care, and the government picks up the rest of the tab–$10,980.

    Family B, however, is not so lucky. True, they still get their health insurance through their employer. They are eligible for $3,350 in tax deductions that are part of current law, but they and( technically) their employer are responsible for the rest. ( Of course, as economists know, employer provided health insurance is offset by a decrease in wages and other compensation). The cap on what Family B can pay out-of-pocket still applies, and the rest is “paid for” by the employer. But of course, as noted, the portion the employer pays comes from the total expenditure on that employee, i.e. his or her income. So really, Family B sees $7,630 less in help from the government to purchase health care, even though both families receive the exact same income.

    Erecting a Firewall. Since Family A clearly gets a better deal under the Senate bill, it goes without saying that all workers making under 400 percent of the federal poverty level- and eligible for federal subsidies- would be chomping at the bit to join the federally designed health insurance exchange in their state and get the fat new federal subsidy, courtesy of the taxpayers. But if they all did that, their migration out of employer coverage would blow another big hole in whatever imaginary, “deficit-neutral” health care budget the Senate leadership is contemplating. So, to prevent having to subsidize care for all 127 million of these people, the Senate bill stipulates special conditions for employees making under 400 percent of the federal poverty level. If these employees wish to drop their employer’s coverage, the portion that they pay must be above 9.8 percent of their income. Yes, 9.8 percent, to be precise. This is serious Central Planning here. Of course, for low-income workers, the likelihood of fulfilling this requirement is high; so expect them to try and drop out of employer-based coverage.

    But then it gets even more complicated. Remember that the Senate bill includes an employer mandate to offer an acceptable level of health insurance or pay a tax penalty. Employers who offer the acceptable level of health insurance to their employees that opt out and join the Exchange would face a $3,000 penalty per employee, capped at specified amount based on the total number of employees. According to Heritage Foundation health care economist Robert Book, this is a powerful incentive not to hire poor people in the first place. Moreover, according to Book,

    “…If more than a quarter of the employees qualify for subsidies, the company would be paying the same tax penalty as if it had not offered a health plan in the first place. Faced with paying a hefty tax penalty whether they offer health insurance or not, many companies would drop their health plan.”

    So, in effect, the incentives in the Senate bill are hardwired to encourage employers to drop insurance coverage. So much for the President’s promise of being able to keep the health insurance that you have and that you like.

    For employers, it’s a no brainer. Not offering health insurance at all would result in employers paying a tax penalty of just $750 per employee. While this might be great for those under 400 percent of the federal poverty level, who would then be eligible receive the hefty taxpayer subsidies in the federally designed health insurance exchange available in their state, those above that income level would then have to purchase health insurance completely on their own. This means, of course, they would be paying thousands of dollars more than they would pay if their employer would have continued to provide the coverage. On top of this, they would pay with after-tax dollars. One of the great ironies of this entire House and Senate health care mess: the Congress preserves the gross inequities of the current federal tax treatment of health insurance- roundly condemned by virtually all health care economists- and simply adds more.

    Unintended Consequence? It is hard to tell whether or not this set of incentives in the Senate bill is an unintended consequence or another deliberate effort to destroy existing private health insurance coverage. In either case, however, it will impact the final costs of the Senate bill. The Congressional Budget Office estimates costs based on only 18 million Americans receiving subsidies

    But, if the bill creates powerful incentives for employers to drop the coverage, the federal spending on taxpayer subsidies for health insurance will skyrocket, adding heavily to the cost of health care reform. So much for bending that health care cost curve downward.

    Posted in Obamacare [slideshow_deploy]

    7 Responses to How the Senate Health Bill Creates Inequities Among American Workers

    1. Tony McGess, Tenness says:

      "Forget that level playing field", My wife got laid off 6 months ago ,she pays for her health insurance ( private plan $600 a month) no way she can get subsidy like millions of other Americans with Cobra employer plan,"Forget that level playing field", she also has to pay taxes on the money she spends on her insurance , people on employer plans don't, all I can say is the playing field has never been level , about time things swing this way for a change , where were you for the last 30 years , while people who buy private plans have been being raked over the coals, and generous tax breaks have been afforded only those fortunate enough to have employer sponsored health insurance?

    2. Frank Nolan, Smyrna, says:

      1.Abolish all employer paid health insurance, or employee funded spending accounts and the associated benefit of paying for it with pre tax dollars.

      This makes all pre tax benefit dollars exactly what they are; income. What employers paid for benefits would be paid directly to employees as income. Let's face the fact that employer paid benefits are a relic of a long ago era when it was needed to compensate workers when wage controls were in effect.

      Why in the world should 75% of workers subsidize the lavish benefits of Microsoft, Google, Public and Private Unions, and worst of all the United States Congress with tax dollars. Especially when the vast majority of those workers struggle to put together any kind of health benefit.

      2.The tax windfall from all this benefit income now being taxed should be allocated to the states strictly and only for their Medicaid programs. In addition no state, nor the Federal Government, may lower their existing Medicaid funding.

      The method for my madness will become apparent as we proceed.

      3.Doctors, testing facilities, and other health care providers may only accept payment from the recipient and not a third party, with the exception of Medicaid and Medicare.

      Do you want to see costs come down? Just watch Doctors fees come down when they don't have to deal with insurance companies to get paid or when they charge 3 times what they would have in order to get the 1/3 that they know they can collect.

      Watch testing fees drop when testing facilities must compete for your dollars and no longer have the guaranteed payment from insurance companies.

      Watch consumers become much more discerning in their use of doctors instead of running to one with every sniffle and a $10 copay and when they shop for care. Do you really need a doctor or will that nurse practitioner at the drug store do?

      4.Doctors should be prohibited from owning any interest in a hospital, testing facility, or entity associated with decisions in their practice.

      Pretty obvious conflict of interest, don't you think?

      5.Insurance can only be used to provide protection from hospitalization including day procedures.

      We need to get back to insurance for truly catastrophic events.

      6.All out of pocket health care costs should be, not deductible, but a direct tax credit.

      Too much out of pocket to carry you say? Those below a decided income would be able to apply for the tax credit during the year, not just at the annual filing.

      7.Employee and other groups could still negotiate for their insurance coverage to be deducted from payroll.

      They should be able to negotiate with any insurance company in the country and state rules blocking that should be changed.

      8.Insurance companies would be prohibited from charging any group more than the average of the top ten groups they insure in the state, based on reports filed with the state. They would also be prohibited from denying insurance to any person in the group or raising rates due to subsequent illness.

      Why should any group get excessive savings based on the good fortune of working for a large group. Let's level the playing field.

      9.The indigent and the unemployed would be eligible for Medicaid assistance. Anyone else preferring insurance from the state would be allowed to purchase it on a sliding scale based on income.

      Thus the reason for the tax funding to the Medicaid program.

      10.Any cost incurred by a hospital for a patient not insured will be paid by Medicaid. The state would then have the authority to attach any wages, assets, or other means to recover those costs and an amount equal to what that person should have been paying for insurance.

      There is no free lunch. It's about time we start charging for it.

    3. Pingback: Headlines Exposed 12.08.2009 — ExposeTheMedia.com

    4. Roger S., Ma. says:

      Great analysis, Kathryn!

      "Forget that level playing field"? — Better do so darned quick! Even without your detailed analysis, in general the following must be said and held universally true:

      Not for the last time: Human nature and diversity is such that if 1) all begin equal, differing talents, industry, and choices will soon result in great inequality; or, if 2) all begin at different levels, then the computation which will channel all into an "equal" outcome has not yet been invented, and can never be. Either way, the Progressive/Leftist myth of the "level playing field" remains just that: a myth. There is no such thing in reality, not even in Baseball!

      This bill or any other of the sort, was never designed to level anything –except the government "gun" at the chest (pun intended) of each and every citizen-subject!

      (The "level playing field" phrase is there mostly for the unthinking "loser" with nothing to lose except the "chip on his shoulder" — which he/she is generally unwilling to lose on account of imagining the "government" will forever honor that chip by providing the expected unearned benefits. This it will do, however, only if 1) that continues to bring in the vote and 2) until it runs out of other people's money –which it's already doing. Either way, the "gun" can be its only (remaining) "argument".)

      Thus were lost "the glory of Spain", and of Rome, of Austria, of Britain –as will be ours, if we continue with this madness!

    5. Eric, LA says:

      The math behind this argument is flawed. The $3,000 penalty is only charged on employees that leave for the exchange, but the $750 penalty is on all employees for dropping coverage. The company will need to have more than 1/4 of its employees leave before theres a cost savings by dropping insurance for all ($3000/$750).

      Take a 100 employee company for example:

      Cost to drop all $100 employees = $75,000 ($750×100)

      # of opt outs available at $75,000 = 25 ($75,000/$3,000)

      So this company will not drop insurance coverage unless 25 of its 100 employees are at 400% poverty level and are likely to opt out of coverage.

      Besides this, companies still have other reasons to offer insurance coverage to employees (competetive pay package, employee morale, good will, etc.).

    6. Bill, AZ says:

      In response to Eric, you forgot to factor in the actual premium costs to the employer for maintaining a health plan for those remaining on the plan. Paying the penalty is cheaper routh with no overhead or staff to administer the plan. Getting American businesses out of the health insurance business might make us more competitive. A positive unintended consequence. Someone stop this job killing train wreck!

    7. Croton Carbon Fiber says:

      To be a adroit human being is to be enduring a make of openness to the world, an skill to guardianship uncertain things beyond your own pilot, that can take you to be shattered in unequivocally extreme circumstances as which you were not to blame. That says something exceedingly weighty relating to the fettle of the principled passion: that it is based on a trust in the uncertain and on a willingness to be exposed; it's based on being more like a shop than like a prize, something somewhat feeble, but whose acutely special attraction is inseparable from that fragility.

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