• Very rich people already get subsidies for their health insurance

    A commenter (and some e-mailers) noted that they thought it was “astonishing” that someone making more $90,000 a year will get a subsidy of $2200 to buy insurance on the exchanges. This is probably a good time to remind all of you that tons and tons of people get subsidies already to buy insurance. They get them through tax deductions for health insurance when it’s purchased through their jobs.

    Look at it this way. Let’s say your plan (like the exchange example) costs about $11,000. Let’s say you make a comparable living, such that you are in the 25% tax bracket. That means you’re getting a $2750 “subsidy” when you use pre-tax dollars to buy your insurance. You’re getting a bigger subsidy than the guy who makes $90,000 and buys his insurance through the exchange.

    Moreover, the more you make, the bigger your “subsidy”. If you’re in the 35% bracket, your subsidy is $3850.

    No one ever seems to complain about these people getting thousands of dollars back in their taxes for their insurance. But offer a family of four who make far less $2200, and it’s “welfare”.


    • Urgh. You were doing fine until the last paragraph. Senator McCain did make such a complaint in 2008 and was excoriated for it. But that doesn’t fit the narrative, I guess.

      • Stop. I’m referring to actual emails I’m getting. People are calling the subsidies in the exchanges middle-class welfare. But they don’t say that about the employer-based health insurance tax deduction.

        • Should pipster have to defend the unknown people emailing you? Should he not push back against the claim that no one criticizes the employer tax subsidy with high profile and public counter-examples, especially one that was central to the big public debate about health reform? I agree with you that it is oft-overlooked, but it doesn’t seem fair to reply to him/her that way

          • This is the last I’m going to say about this. There are almost no politicians willing to talk about ending the tax deductibility of employer-sponsored health insurance. There are almost no advocacy groups arguing against it. Almost no grass roots organizations are against it. But there are lots and lots of people who think that the subsidies are too generous. If it makes you feel good to quibble about my use of “no one” as a literal issue because the number of people is greater than one, so be it.

            And, if you’re asking, yeah I’d rather pipster engage in the main issue instead of trying to score a point by citing one person who said something four years ago in order to rail against the straw man of a literally-taken “no one”.

            • Aaron,
              I agree that there are more people talking about the generosity of the subsidies than the tax deductibility of employer-sponsored plans. But I disagree with your assertion that almost no one is talking about it. Two quick points:

              * By coincidence, the House GOP today published a list of health care bills that have been introduced by the 112th Congress, 219 in total. It’s hard to tell by the brief descriptions, but at least a half dozen deal with the issue of tax deductibility. But this doesn’t fit with the narrative of an obstructionist GOP majority bereft of ideas, so it gets ignored. And you’re guilty of this as well. In other words, you can’t ignore somebody and then complain that they aren’t saying anything.

              * Second, people are understandably timid about advocating for such changes due to the way that McCain’s plan was treated in 2008. He offered a relatively specific plan that, by your own math above, would have been a tax increase on the rich. And he was demonized for it by his political opponents. Why would anybody else want to step on that same land mine again?

            • A half dozen out of 219? How many votes did they get? Did they eliminate the tax deductibility?

              There are no serious proposals by anyone from either party to eliminate this for the middle and upper-class. There are lots of proposals with lots of votes to eliminate the ACA and it’s exchanges.

              I spend just as much time higlighting those few proposals as I do ones from the Socialist party. I’m ignoring nothing.

          • Well sure, if we’re limiting it to politicians, there are almost no politicians that have anything useful to say about health policy, it’s not at all limited to tax deductibility of employer insurance.

            But on the other hand, it is an issue widely discussed by people knowledgable of health policy, with near universal agreement on it being a driver of more health spending.

            I think most of us would agree that many/most politicians are not all that well informed on health policy, so I read pipster’s comment as saying even John McCain, who is not exactly a health policy wonk, understood the problem and wanted to address it, not as simply one counter-example.

            • On your point, i will never forget this quote (link takes you to speaker):

              “f you really want to be honest about it, eight to 10 percent of the members of Congress understand health care. At maximum. I chaired the intelligence committee, and health care makes it look like riding on a tricycle it’s so complicated. So what you have is lobbyists picking on congressmen who don’t know health-care reform, and they say, you know what, you could get a lot more jobs in your state if you only put more money into oxygen or a certain medical device. If you’re going to do Medicare right, understanding that the trust fund is going to go downhill in 2016, you can’t have Congress making these decisions. You need professionals.”


    • if your paying 100% of the premium your not getting your insurance through work. The Average employee contribution is a little under 30%. Meaning they are saving 25% of $3,300 which is $825.00.

      You could argue employer paid premiums are conpensation but then the person is making $101,000 not $90,000.

      Personally the more troubling aspect to me is what you refer to as a subsidy in the later example is actually allowing me to keep more of the money I earned. Unlike the person in the exchange who is getting $2,200 of someone else’s money. Letting me keep my money is not the same as giving me someone else’s money.

      • Fine. Call it compensation, and increase their “salary”. Then they’re getting a bigger subsidy!

    • The tax-deductibility of employer-sponsored healthcare is a well-discussed topic among health economists, and there is near-universal agreement (among economists, not voters or elected officials) that this should be discontinued. But as you so clearly demonstrate, the ACA effectively extends this practice to people purchasing insurance on the exchanges. So, just to be clear, I am ASTONISHED that the ACA provides a subsidy of $2,200 to someone making over $90k a year, and I am ASTONISHED that we continue the policy of giving people a tax break on their employer-provided health insurance, so I’m quite consistent in my position, thank you. Are we all good now?

    • This is a classic example of people not seeing a hidden subsidy. However, if a subsidy is made explicit, all sorts of objections come out.

    • So you wish to eliminate both the employer and employee tax deductiblity of insurance?

      What is the thinking behind this or the assumed benefit to increasing taxes on workers? Are we trying to increase the number of uninsured or just raise more income for the government to blow?

      Theodore do you not see any difference between someone keeping the money they go to work and earn and someone getting a check from the tax payors?

    • Nate…

      You are hung up on a distinction that is not a difference when all is said and done…

      Since the start of the Obama push for healthcare I have supported – and have the emails to my congressmen and Senators to prove it – elimination of…

      1. All subsidies and tax preference/deductions for health insurance.

      2. The absurd mandated things that go way beyond basic healthcare.

      But would couple this with free…

      Basic, generic medication for hypertension diabetes and in-clinic dialysis.

      Along with reinstatement of HSA [yes that is a subsidy – but one that is fully controlled by the patient].

      And a market based catastrophic insurance program that pays all medical expensed above say $5,000 [but with finer limits on what is a medical expense than we currently have].

      • Lonely Libertarian, Do you see any role for government in making the catastrophic insurance you propose more affordable?

        • George,

          My preference would be to see a robust market for Catastrophic Insurance Coverage. I might concede some Federal role to help the unemployed/low income with obtaining coverage.

    • The tax preference on health coverage generally does provide a higher nominal dollar amount of preference to higher income wage earners because they have higher marginal federal (and many state) income tax rates. However, once adjusted for employment taxes, the difference is substantially less.

      My 30+ years of employee benefits experience confirms that employer-sponsored insurance (ESI) has a redistributive effect that far exceeds the tax preference cost to Treasury – something I though most of those who follow TIE would support. If family coverage costs $20,000+ (as suggested by Milliman’s 2012 report), and the employee contribution is say 25% or $5,000 annually, pre-tax, and the worker has wages of $40,000 a year, the various government entities lose, maybe $6,100 in FICA and FICA-Med, and maybe another $1,000 in federal, state and local income taxes – in exchange for employer’s who raise wages (or wage-equivalents) by $15,000 or so. (Workers lose little in Social Security benefits and no Medicare coverage – as the only thing more regressive than employment taxes are the benefits they fund)

      It still leaves major cost and perception issues.

      Which $40,000 a year worker would actually continue their $20,000 family coverage with the $5,000 pre-tax contributions price-tag if given a choice to take the net value of coverage into income? (Note: While the contributions are tax preferred, it is important to remember that very, very few workers actually understand the tax preferences – to almost everyone, it still looks like a $5,000 reduction in net pay, as reflected on their pay advice). If this worker had a choice of taking say $12,000 of taxable income (adjusted for employer-paid FICA and FICA-Med), while dropping their coverage and the $5,000 pre-tax contribution, would they keep the coverage or take the combination of $12,000 of taxable wages and avoiding $5,000 of pre-tax contributions? Of course, no one offers that choice because employers don’t and won’t offer the equivalent value in wages – even if adjusted for taxes.

      Interestingly, many expect workers will increasingly approach their employer and ask them to drop coverage so that they can obtain taxpayer-subsidized coverage in the exchange – as occurred with the introduction of Medicare Advantage options for those who had access to employer-sponsored retiree medical coverage. The worker will ask for the equivalent company financial support in wages. So, even if the tax preference continues, as suggested by recent testimony to Congress, if state-based exchange coverage is viable, why wouldn’t the employer drop coverage, let the workers buy it in the exchange (where contributions are pay-limited), where the employer pays the $2,000 excise tax – which would allow taxpayer’s to pick up that portion of the worker’s current “wages” or “wage-equivalents”?

      Or, if the tax preference were removed or curtailed by coming tax reforms/revenue/deficit challenges, would the employer continue the coverage (imputing the $20,000 as income to the worker, raising employer-paid FICA and FICA-Med by $3,000+, while reducing worker take home pay by the added taxes) so, the worker has a total reduction in take-home pay that is equivalent to an ~$10,000 a year salary reduction? All of a suddent, the taxpayer credits in the exchange (which are not imputed as income) look pretty good to any who qualify.

      PPACA’s incentives are perverse. While most surveys suggest that most employers who currently offer coverage will continue to do so in 2014, the issue is not what employer’s do in 2014, it is where they will be in 2019. The erosion reflected in the nearly 20% drop in the percentage of employers who offer coverage (2000 – 2010) is expected to continue, if not accelerate, due to the next layer of cost shifting to employer-sponsored coverage (from the doubling of enrollment in price-limited Medicaid, higher Medicare enrollment (aging-in and disability), price-limits on exchange coverage, new taxes on insurers, drug manufacturers, and medical device manufacturers, etc.). When all of those take full effect, and are reflected in 2015 or 2016 employer-sponsored coverage rates, what do you think will happen where there is a viable, reasonably priced taxpayer-subsidized alternative?

      Need an example, a pre-cursor … look no further than the erosion in employer-sponsored retiree medical coverage.

      So, the state-based exchanges may be one of the best options to erode the tax preferences accorded to employer-sponsored insurance. Was that an intended or unintended consequence?

    • Benefit Jack:
      You obviously have given this issue a lot of thought.
      To me, the subsidies on the exchange help make up for the skewed benefits for the higher-income people due to the tax preference.
      The tax preference for health insurance is the largest “consumption” of taxes, than for any other preference – including home mortgage interest and retirement plan contributions. In fact, retirement plan contributions are generally half of the employer contributions for health insurance.
      The fact that people need subsidies confirms the fact that if health insurance is considered a necessity, it is priced as a luxury.
      The subsidies will effect the premiums as the ease of college loans has effected college tuition. Of course, an outright subsidy should have an even higher impact on premiums than if the subsidies were loans which had to be paid back.
      Don Levit

    • I think you have to consider the payroll tax in your calculations too. Makes it worse.

      There is no real constituency for repealing it, but I think that is, in part, because you can only couple repeal with something that replaces it, like an advanceable credit.

    • That does not make it any less absurd.

      You cannot subsidize median income or above because you get the money from them and there is always some inefficiency (dead weight losses at least). Politicians though love to do this because people do not understand this.