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  • Obamacare Subsidies Are Not a Free Lunch

    Families USA is out with a new report, Lower Taxes, Lower Premiums: The New Health Insurance Tax Credit, which lauds the health insurance tax credits (subsidies) in Obamacare. But the report tells only half of the story.

    It is true that the tax credits will reduce the effective premium that many households will face for health insurance coverage. However, the key question from a policy perspective is whether the benefits of the Obamacare tax credits outweigh their costs. Since the Families USA report failed to list any of the costs or concerns of the Obamacare tax credits, Heritage will fill the void.

    First, the tax credits are going to be enormously expensive. The Congressional Budget Office (CBO) estimated that the average subsidy per subsidized enrollee will be between $5,200 and $6,000. Subsidies have to be paid for with revenue generated through taxes. So the gross benefit is exactly offset by the gross cost of the tax credit paid by federal taxpayers (all else being equal). According to the Families USA report, the total cost of the tax credits will be $110 billion in 2014 alone. All else is not equal, however. The tax credits will be financed not only by higher taxes paid by many millions of households but also through substantial Medicare cuts and net revenue from the CLASS Act scheme.

    Second, the tax credits can be used only to purchase government-approved health plans. Since the insurance packages offered through the state exchanges have significant limits on cost-sharing, the demand for health care services will increase. The increased demand will put upward pressure on prices, and as a result health insurance premiums will probably rise.

    Third, the tax credits produce enormous inequities in compensation depending on whether the worker has employer-sponsored insurance (ESI). Former CBO Director Douglas Holtz-Eakin has shown that individuals under 250 percent of the federal poverty level (FPL) who receive health insurance through work are at a substantial disadvantage relative to otherwise identical individuals who would qualify for subsidies through the exchange. This is because an employer who does not offer health coverage will be able to increase the wages of his workforce with his employees receiving favorable tax treatment to purchase insurance in the exchanges. On net, therefore, individuals below 250 percent of FPL will receive greater net compensation if not offered ESI and instead purchase heavily subsidized coverage in the exchange.

    Fourth, the tax credits create an enormous “cliff” effect at 400 percent of FPL. Once a household earns above 400 percent FPL, it becomes ineligible for any subsidies. The high marginal tax rate at 400 percent of FPL will discourage work as income approaches the upper limit as one grows older, incentivizing individuals to retire early or to change the way they report income. This particular subsidy structure further penalizes upward income mobility for middle-class individuals.

    The tax treatment of health care and health insurance is complicated, but the new law does not get it right. The Obamacare subsidies increase taxes for those not receiving the subsidies, require the purchase of government-approved plans, create new inequities in the tax code, and penalize work.

    Posted in Obamacare [slideshow_deploy]

    3 Responses to Obamacare Subsidies Are Not a Free Lunch

    1. W,P,Koch, San Luis O says:

      WHAT SHOULD HAPPEN

      Congress and the White House should stop squandering the people’s money and use savings to improve quality of basic invested entitlements. Preserve the 2010 tax schedule. Congress should improve basic Medicare. Vote opponents to this “out”. Citizens come first.

      It is time the U.S. reduces its human rites and police activities for the World by lobbying the United Nations, NATO and Interpol to “take on more”. 800 bases in 63 countries across the world should be reduced. Starting with Iraq, continue training for self reliance. After a surge in Afghanistan repeat above and remove corruption starting with monitoring accounts, substituting minerals mining and food crops for drugs. Decrease forces in selected areas such as Germany, Bosnia and Okinawa.

      Cut bloated federal bureaucracy. Combine CDC, EPA and FDA. Combine the FAA, NHTSA and Transportation Department. Combine GAO and CBO. Phase in outsourcing. Departments should eliminate “must spend all”. Return “unused” yearly budget to the treasury.

      Eliminate all 32 CZARS Mr. president. Reduce your 469 member staff which makes nearly 39 million per year! Halt first lady $180,000 air force one vacation trips. Cancel $ 20,000,000 executive order (HB 1388) to relocate key Hamas members to U.S. Stop use of “40 aircraft family” foreign trips.

      Contribute to only one of: The World Bank or International Monetary Fund or U.S. Agency for International Development.

      Reduce foreign aid bribery. For example, no aid to oil rich -Iraq. $37 billion and increasing with $8.7 billion of Iraq development funds not accounted for.

      Charge bailed companies (TARP) for their huge executive bonuses at taxpayer expense. Government should sell its shares to recoup for taxpayer. About $154 billion owed.

      Congress should reduce the “stimulus” and monetary expenditures by halting: over budget projects, non relevant earmarks and vote bribery. Do not pay student loans for congressional staff. Please- no private or military jets for congress including Pelosi’s family at taxpayer expense. $2.1 million for Pelosi over 2 years. Congress should set commercial travel cost standards and controls.

      Reduce medical cost by: allowing purchasing anywhere in U.S., “tort reform”, and reducing “red tape”. Trace funds from corporations to local medical groups for expediting billing cost speed, doctor/patient verification and fraud reduction.

      Federal government should enforce existing immigration laws. Complete the improved fence. Entitlements or benefits should be for only citizens. Deport criminal “illegals”. Only workers on a Visa Program qualify for needed medical benefits

      Improve medical expense tax deduction for citizens reaching age 65. Provide corporations tax reduction incentives for hiring with healthcare.

      The savings will improve funding for:” Medicare”, “Medicaid, and “Veteran’s Affairs”.

      Healthcare quality should be at least that for Congress or the Federal Employee Health Benefits Program (FEHBP). Additional benefits are: dental coverage, improved visual coverage, no drug “donut hole”, no deductibles and co-pays except for extended skilled level nursing.

      These actions will allow aid for unemployment compensation and Social Security with reinstated cost of living increases.

    2. Craig Casey says:

      $1 in $4 federal dollars now goes to health care. That will go up to $1.20 by 2016! http://www.cobrahealth.com/exempt-from-Obamacare….

    3. Craig Casey says:

      Also Brian Blase did not cover another important point. Employees stay with their employer because of hte group benefits. In fact, they have loyalty and a good health plan can improve productivity. With the creation of exchanges, employees will lose their sense of loyalty to their company. And since they don;t want raises that would ruin their subsidies, it should have been called the anti productivity bill!

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