Economics, Entitlements

Will Obamacare crush middle-income Americans?

More and more, Obamacare is looking like the ultimate case study in unexpected consequences. AEI’s Scott Gottlieb:

A family of four with an aggregate income of more than $88,000 annually or an individual earning around $44,000 could find themselves badly strained by healthcare costs under the Obama plan.

Many of these folks currently get their health coverage from work. They benefit from an implicit subsidy built into that workplace coverage that lets them spend pre-tax dollars through their employer to purchase health insurance.

Under the Obama plan, 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.

Only their incomes will make them ineligible for the “premium assistance credits” that are meant to offset some of the cost of buying the pricey comprehensive coverage that the Obama plan mandates. These families will also no longer have the benefit of being able to defray some of these costs by spending pre-tax dollars.

People aren’t forced to carry health coverage on the exchanges if the cost of these policies exceeds 8 percent of their pre-tax income. But many families may find that the exchanges crowd out other low cost insurance options. Even if these families aren’t forced to buy one of these exchange policies, they may find few alternatives.

Do the math: A family of four earning $90,000 annually takes home about $60,000 after local, state, and federal taxes. If they lose workplace coverage, and move onto the exchanges, they could find themselves spending as much as 25 percent of the family’s take home pay for an average policy ($15,000 for the “silver” plan).

That’s just on premiums. If they get sick, they could be stuck with another $11,500 more in deductibles and cost sharing, and this doesn’t include co-pays on drugs. The upshot is that the exchange-based insurance is broad but not very deep. While full coverage for a lot of routine care is mandated under these plans – raising the cost of the insurance policies – the overall co-pays on other stuff can still be steep.

1. We don’t know how many people will be ejected into the exchanges as employers choose to accept the $2,000 per worker penalty for dropping coverage. At least at larger companies, health benefits are certainly a way of attracting talent. But the number could be sizable.

2. Employers could raise salaries as a form of compensation for dropping coverage.

3.  Government could raise the subsidy levels for insurance purchased within the exchanges. But it would take more than the Buffett rule to fund that.

So we may be looking at a scenario where individuals have to pay a lot more for health insurance or perhaps pay higher taxes to fund Obamacare—or both.

3 thoughts on “Will Obamacare crush middle-income Americans?

  1. Company Paid Health Insurance is Part of Your Salary

    Many people misunderstand who pays for health insurance. It is convenient to think that “good” employers provide health insurance, but “mean and stingy” employers leave their employees to scrounge for themselves. They complain that everything would be fine if we forced all employers to be “good”.

    This is part of the myth that we can increase prosperity by raising the minimum wage. We (supposedly) just have to force the “mean” employers to become “good” and pay more.

    In reality, an employee’s health insurance and all other benefits are part of his earnings, part of the total payment he gets for doing his job. The tax law encourages an employee to receive some of his earnings in tax-free health insurance outside of his paystub, with all other earnings reported on his paystub. It is all payment to the employee, from the view of the employer.

    An employee with low productivity can’t afford expensive health insurance, and this is true regardless of who writes the check, he or his employer. If we force employers to provide more insurance, there are two possible outcomes: The employee’s cash wage goes down; or the employee is fired or not hired. If enough employees must be fired, then the company goes out of business.

    People are already personally paying for their “employer-paid” insurance. They don’t buy it directly so (1) it doesn’t attach to them when they change jobs, (2) and they can’t shop for the insurance they might want. The employer writes the check with part of the money earned by the employee.

    Untangle the tax mess, remove employers from the middle, and salaries would go up in the amount of the “free” healthcare benefit through employers. Then most people would have enough take-home pay to buy their own health insurance. Doctor’s and insurance companies would compete for their business, pressing prices down. That is what healthcare reform should be about, along with removing anti-competitive rules and interest group mandates from the insurance market.

    The $2,000 penalty per employee is a cost of employment. It is a tax on the employee. The employee will then have to find health insurance from the exchanges, one size fits all, one large cost for all, with no implied tax deduction. Cash salaires will go up in the amount of (current insurance costs) – ($2,000), but will not be enough to buy ObamaCare insurance at the higher rates and after-tax.

  2. No matter how many employers chose to drop their health insurance under ObamaCare, it will never be as many as will drop it under the GOP alternatives where they eliminate the employer health insurance tax deduction altogether. ObamaCare’s $2000 penalty if they drop vs a tax deduction + maybe even a tax HUUUUUUUUUUUGE tax credit for small business owners if they keep insurance, gives the greatest&clearest incentive ever for employers to offer health insurance. THE ****FACTS**** are that IT’S ALMOST A CERTAINTY that more employers will offer health insurance under ObamaCare than ever before. Yet CONS lie and say the opposite. Contrast that with the GOP plans which give the opposite incentive. They drop any incentive for employers to offer health insurance since it will no longer be tax deductible. Sure, they could keep it out of kindness or loyalty, but this is business not beanbag. Kindness doesn’t pay the bills. I find it hard to believe that almost all employers won’t drop all health insurance if they lose their deductions. This means 300 million Americans will get a $2300 refundable tax credit=$690 billion/year, far more expensive than ObamaCare.

  3. Companies don’t hire anymore. They hire temps, they don’t pay for insurance, and they certainly will drop our hours before they’ll pay for either insurance OR a penalty. Get out into the real world of work.

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