Wednesday, September 16, 2009
Who’s Really Paying for Obamacare?
The health-care debate is finally turning to the core issue: who is really paying for Obamacare?
Here’s a hint: it’s not the rich.
The House bill and the proposal unveiled this week by Senate Finance Committee Chairman Max Baucus are built on three key provisions: a requirement that individuals secure “qualified coverage” or pay a hefty tax to the federal government (the so-called “individual mandate”); a requirement on most employers to offer “qualified coverage” to their full-time workers; and a “firewall” that requires most working Americans to sign up with insurance offered on the job without any additional governmental assistance.
In recent days, there have been a number of stories reporting on Democrats who are fretting that the subsidies for insurance under consideration in the Finance Committee are too meager (see this story in today’s Wall Street Journal and this column by Ruth Marcus in the Washington Post). These pieces focus on the provision in the Baucus plan that would limit the total premium a low-income household must pay — if they get their insurance through the “exchanges” — to a fixed percentage of their income. So, for instance, a family at 200 percent of the federal poverty line — $44,100 for a family of four in 2009 — would be required to sign up with insurance costing about $13,375 (the average cost for employer-sponsored family coverage in 2009). Under the Baucus plan, the family’s premium would be capped at about 8 percent of their income, or $3,538. The rest of the cost — nearly $10,000 — would be paid by the federal government (with perhaps a $400 per worker offset from some firms). House and Senate liberals are complaining that these caps on premiums in the exchanges should be lower — and thus the governmental subsidies higher. Of course, liberalizing those subsidies in the Baucus plan would push the price tag higher too, probably well above the president’s stated commitment to keep it to no more than $900 billion over ten years.
But there’s an even bigger issue here which is not yet getting the attention it deserves. Yes, the individual mandate would be a heavy burden for those low-income households getting their insurance through the exchanges. But it will be much, much worse for the far greater number of working Americans who will have no choice but to sign up with their job-based plans. The whole point of the so-called “firewall” is to prevent these workers from accessing the additional federal assistance for premiums that are only available for coverage offered in the exchanges. That’s how Senator Baucus and other Democrats jam their $2 trillion schemes into $900 billion sacks. Full-time workers have to have insurance, and they really have no choice but to take what’s offered at work. Period. The Baucus plan says these workers will get a ceiling on their premiums too — set at 13 percent of their income. But where would the rest come from? Not from the federal government. Employers would be paying these premiums on behalf of their workers, but, in competitive labor markets, employer-paid premiums also get paid by workers in the form of lower cash wages, as the Congressional Budget Office (CBO) has confirmed.
So, for low-wage, full-time workers who are offered qualified coverage on the job, the hidden and implicit taxes of Obamacare are truly stunning. A worker with an annual income at 200 percent of the federal poverty line — again, $44,100 if the worker is married with two children — could be required to sign up with insurance costing $13,375 per year. The employee portion of the premium would be notionally capped at 13 percent of annual income, or $5,720. The employer would pay the other $7,655 — but the employer portion too would come out of the worker’s take-home pay (possibly after some period of adjustment). Employer-paid premiums are tax-subsidized, but this existing federal tax subsidy is worth much less for low-wage workers than their higher-salaried colleagues and it’s certainly worth much less than the subsidies being proposed for insurance secured through the exchanges. At 200 percent of the federal poverty line, the foregone tax liability on an average employer-sponsored plan is likely to be about $4,000 (including payroll taxes). The other $9,000-plus in health insurance premiums — regardless of how it is split between worker and firm — would be shouldered by the worker himself. At $44,100, a $9,000 health insurance premium amounts to 20 percent of income.
The president and his allies in Congress are trying to convince Americans that they have found a painless way to achieve “universal coverage” that will involve no sacrifice from anyone. But the truth is that the Democratic plans all depend on coercion and hidden and regressive taxes. Low- and moderate-wage workers are the ones who will pay the bulk of the costs. Indeed, last week, the Lewin Group found that the House bill would increase costs for households with at least one uninsured member by $1,400 per year, on average. The same is almost certainly true of the Baucus plan. “Taxing the uninsured” is not likely to be a winning slogan for Obamacare. But it’s an accurate description.