Pay or Play – Unequal Treatment
By Frank Hagan | Related entries in health care reformOne of the proposed changes in the health care insurance reform bills is the “employer mandate”, a requirement that employers of a certain size either provide health insurance to their employees or pay a fine. If the employer provides insurance, it can be provided before taxes in most cases, providing a tax benefit (or, subsidy) to help the employee afford the share of premium. If the employer doesn’t provide the insurance and pays the fine, the employees can then use the “insurance exchange” to buy their own coverage. To help people afford it, subsidies would be given to the employee based on their income.
Either way, the employee is being subsidized for his health insurance premium, either by his employer or by the rest of us.
In an examination of this scheme in the New England Journal of Medicine, the point is made that the House legislation penalizes people based not on their individual income level, but on the average wages at their company.
The graph shows the pattern of subsidies under the Affordable Health Care for America Act passed by the House of Representatives in November. We consider a hypothetical low-wage company that chooses the “pay” option and is subject to the 2% payroll assessment applicable to companies with a payroll of $500,000 to $585,000 (e.g., a 20-person company with average wages of $27,500). An 8% assessment would be applied to companies with a payroll of more than $750,000. The “pay” option’s pattern of subsidies, which decrease with income, would be similar under the Senate’s Patient Protection and Affordable Care Act, although the Senate bill uses a $750 penalty per worker on companies with more than 50 workers, rather than a percentage of total payroll. We also consider a hypothetical high-wage company that chooses the “play” option.
A low wage earner would be treated differently, and receive different subsidies, based on what his employer did and where he worked. High wage companies would probably provide health insurance, netting the $22,000 per year employee a tax benefit of about $1,887 a year. The same wage earner in a company with total payroll under $585,000 would probably see the company cancel its group plan and pay the small fine. In that case, the low wage earner would go to the insurance exchange and receive a subsidy of $3,574. The low wage worker in a company that provides health insurance is out of luck, receiving less of a benefit than a comparable paying job at a smaller company:
The $1,687 difference represents about 32% of the premium and 8% of the worker’s income. For low-wage workers who are currently uninsured, such a difference might have a substantial effect on compliance with a mandate to obtain insurance.
Well, we can always throw the bums in jail if they don’t buy insurance. The IRS is good at dealing with those who flout the rules.
The authors don’t simply point out the problems and walk away. They propose a solution that, if you are going to subsidize health insurance, seems to avoid the (possibly) unconstitutional unequal treatment:
Ideally, the subsidy for private insurance should depend explicitly on total family income. Such a program would be described as one in which workers (not employers) pay for coverage, but the employer might arrange for group insurance and collect wage-related taxes and premiums. The current inequitable tax subsidy would be replaced, and the concept of a penalty for companies not offering coverage would be abandoned. The proposed subsidy would instead be inversely related to income, and people would receive the same size subsidy for the same coverage regardless of whether they obtained their insurance through an exchange or their employer. For people with employment-arranged insurance, the premium’s value would become taxable income, but the additional tax cost borne by workers would be offset by a progressive income-related subsidy toward the premium, administered as a tax credit either directly to employees or indirectly through employers and exchanges.
Or, we could call the whole massive-all-in-one Frankenbill off, start over with some realistic goals that would actually solve the problems, and pass some bi-partisan solutions to improve the system.
Cross posted to FrankHagan.com
This entry was posted on Friday, January 1st, 2010 and is filed under health care reform. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
January 1st, 2010 at 4:27 am
[...] This post was mentioned on Twitter by Justin Gardner and Todays Politics, Donklephant. Donklephant said: DONKLEPHANT: Pay or Play – Unequal Treatment http://ow.ly/16fsTc [...]
January 1st, 2010 at 8:21 am
I’m still waiting to hear of any “solution” from the republicans.
January 1st, 2010 at 9:33 am
This bill is still a huge failure. Its a disaster and we can do better.
Equal treatment for all which would then be constitutional as to this bill which is MANDATING certain wage earners to pay for something they most likely cant afford and then saying to others but we will pay for yours.
So My solution has always been.
1. Every employer now paying for health care coverage for their employees pays that fee to the federal government.
2. Every insurance company in America joins the exchange.
3. No more lawsuits against doctors. A portion of every premium is paid into an account much like the FDIC and those with grievances file against the Fund which is heard by a board of Arbiters. You would need a lawyer to do this and the lawyer could still get ambulance chasing fees but they just would not be exorbitant. Malpractice insurance would cease to exist and it would be a part of the costs of health insurance premiums thus dropping doctors expenses.
4. A portion of all profits paid by hospitals. Doctors, pharmaceuticals, insurance companies is paid each year into the this general health care fund. Windfall profits tax.
5. Once all these funds are received the Actual cost of medical treatment as a nation is calculated and the remaining costs each year is paid for by the US Government.
6. Everyone is treated equally. Every health insurance company is still in business. Every hospital and doctor still makes his millions and every job is saved. More are created because now we have 45 million more Americans seeking health care.
7. What portion of the national health care expense is not covered by insurance companies after all the fees have been collected will be tagged as part of a national VAT of 3 percent.
8. 2 percent of the VAT is used to directly PAY OFF the national debt in the form of any and all HIGH interest rate Bonds outstanding if the budget is not balanced.
9. The remaining 1 percent is used to pay for any and all national health care shortages.
10. The usual true reforms are put in place. No preexisting conditions, no loss of coverage. 100 percent free health care and drugs. Free in the sense their is no deductibles to meet, no out of pocket expenses.
Voilla we have a national health care that is NOT contributing to the National Debt….Is not losing jobs but creating them and is not penalizing the rich or the poor or the middle class.
Health care is fully funded. Their is no costs to anyone other then a national VAT.
If you will………ONE gigantic COOP joined by every Citizen of the United States of America and funded by everyone equally.
Im sure it has flaws but not any more then this silly bill that still does not insure 20 million people. Does not take into account the costs of doing that in the near future and who is using VOODOO economics to lie to the American public about paying for it.
January 1st, 2010 at 1:05 pm
Chris, just because the liberal infected media hasn’t reported on it doesn’t mean it doesn’t exist. The GOP does have alternative plans. For the first time in our history, major legislation is being rammed through without any bi-partisan participation, and all of the minorities’ proposals have been dismissed without consideration. Having the “fourth estate” in the pocket of the ruling party doesn’t help the matter.
So even though they have been locked out of the process, the GOP has still proposed:
The Common Sense Healthcare Reform and Affordability Act, Empowering Patients First Act, Improving Health Care for All Americans Act, the Medical Rights and Reform Act and a half dozen others are ones you are evidently not aware of, or choose to ignore. See http://www.gop.gov/solutions/healthcare for a partial list of bills submitted to committee.
There are alternatives, but the Democrats don’t want you to know about them. Instead, the meme is that the GOP hasn’t proposed anything, and the straw man President Obama and the rest of the Democrats set up is “doing nothing is not an option.” The inference is that the opposition hasn’t proposed anything. That’s a lie.
January 1st, 2010 at 2:49 pm
@Frank
Most GOP amendments to this legislation have been passed. For most of the time this legislation was being written Republicans had half the seats at the table. In fact Sen Isakson, a Republican from Georgia, actually denounced his own amendment as Death Panels when he realized that’s what HRH the Prince Rush, and HRH the {Princess Sarah of Wasilla wanted. The GOP can claim it was frozen out all they want, but it’s just spin.
And please explain those GOP proposals to me. Preferably with links to CBO reports concluding their numbers are not absolute fantasy. I have serious trouble believing that the people who gave us a budget without numbers would propose reforms that would actually work.
On your point in this post I agree. It’s extremely stupid that we’re keeping the link between employment and health insurance for most of the country but not all of it. That link means that there are two different sets of regulations regarding insurance which will inevitably screw some people.
But unions get real paranoid when you start talking about de-linking. Which means a filibuster from the left is a real possibility. Unless somebody on the right says “I won’t filibuster if you break the link between employment and insurance completely.”
So, from a practical point-of-view, we could choose between no cost-controls, no insurance expansion, no pilot programs to find out what cost controls might work in the future, etc. or jack-squat. Given that the health cost problem will bankrupt us regardless of anything else Obama does fairly soon I can’t disagree with his decision.
January 1st, 2010 at 2:59 pm
@Doomed
The Apocalypse is upon us. I’d vote for your program, with a few changes (ie: your third point is impossible without a Constitutional Amendment, but we could probably cut down on lawsuits dramatically if we had binding arbitration by a truly neutral party when a Doctor was accused of screwing up).
The trick is getting something like that through the Senate when so many interest groups would hate it.
January 1st, 2010 at 5:54 pm
Frank, all of the “proposals” to come out of the grand ole poopers that I read look like a list of insurance company pipe dreams. It’s not a big surprise, considering the people who authored those proposals, none of which that I saw actually had enough information in them to even be called legislation, have been receiving huge sums of money from the insurance industry.
I’m not supporting the current legislation at all, and I’m disappointed that our senators here voted for it, but that bi-partisan line is a load of … poop.
January 1st, 2010 at 7:34 pm
Perhaps, Chris — just perhaps — you might consider evaluating proposals on their likely actual effects and actual cost/benefit to the body politic rather than on who proposes them.
Or is that just a bridge too far?
January 1st, 2010 at 8:30 pm
Count me as someone who thinks that the historical link between health insurance and employers is an outmoded artifact of an era when providing such a benefit was a much more, manageable and predictable cost. I don’t see any fundamental underlying reason why we need to preserve this link.
Tully said something similar just the other day. I agree in theory that there is no fundamental reason why reform has to be an omnibus beast. In theory, individual issues could be dealt with one at a time to try and mitigate various problems. In practice though, I think it’s safe to assume that if this bill does not pass, no aspects of healthcare will be dealt with legislatively until spring and summer of 2011, at which point the next presidential election will begin casting its lengthy shadow. Will a more evenly divided congress successfully enact wiser solutions than the current proposals? Meh.
And hey, if you really hate this bill, then doing nothing probably sounds OK by comparison. I just don’t see how any timely one-step-at-a time healthcare reforms could happen any time soon if the current one were to tank. While it sounds sensible in theory, it feels unrealistic to me. In my view, the failure of the current bill would lead directly to bitter acrimony and hardened positioning in the run up to this fall’s mid-terms.
And, I sh!t you not, my capthca is “decent possible.” Tell me there’s no ghost in the machine.
January 1st, 2010 at 9:02 pm
Nick
That most likely is because Im not nearly as far right as you think I am and I do have a tremendous amount of desire to see poverty cured in this nation. Cured not coddled.
I think Poverty is the greatest danger to the health of this nation and if we as a nation would just raise these people UP and OUT of poverty we would create billions of more tax dollars while reducing entitlements and balancing the budget.
We would and could even pay it off.
My biggest concern is the price of this bill. This is the federal government and they have never ever created a plan that does what it says it will do. Seriously you can quadruple the costs in the next 10-20 years…….and our deficit will be shredded.
January 1st, 2010 at 11:40 pm
Nick, the CBO only scores what they are asked to score … by the majority. So don’t hold your breath on seeing how the GOP proposals would fare. And Chris, its one thing to say you don’t like the dozen or so GOP proposals, but something else entirely to say they have not been proposing anything.
As far as sweetheart deals for insurance companies … the Dems are going to pass one. Imagine having your product forced upon every person in the country. Only the biggest insurance companies will survive (its a myth that big business hates regulation; they usually sponsor it as a way to erect barriers to entry into their market).
Employers started offering health benefits back in the 1950s because of wage controls; without being able to offer higher wages, they substituted benefits, similar to the way stock options are given today. It trickled down to union members and then everyone else. So its a bastardized system now, the illegitimate child of government intervention.
So what bastard will health care insurance reform bring us?
January 2nd, 2010 at 10:34 am
@Tully
January 2nd, 2010 at 1:44 pm
Incoherent as always, Nick. Try re-formatting. It won’t improve your argument but it could at least be read.
Kranky: So you support passing a massive omnibus bill that by any rational real-world analysis makes our national health care problems WORSE in almost ALL respects AND violates the Constitution in more than one respect AND will add trillions to the national debt while doing almost nothing to address some of the very real problems in American health care, just to pass something? When doing nothing will result in LESS damage, etc.? Because that’s what that argument of yours amounts to. Legislative nihilism.
BTW, how’s that ObamaCare prototype program working out in Mass, as compared to the promises made for it? Yeah. Thought so.
January 2nd, 2010 at 4:30 pm
There is NOT a health care crisis.
What there is is a democratic party who has read Saul Alinsky’s rules for radicals and is actively doing this………
Rule 8: Keep the pressure on. Use different tactics and actions and use all events of the period for your purpose. “The major premise for tactics is the development of operations that will maintain a constant pressure upon the opposition. It is this that will cause the opposition to react to your advantage.”
To Chris the above rule 8 is CUT and PASTED.
As far as CRISIS. We all know that the democrats entire premise is to create a crisis and then solve it. Jim Demint spoke of it in January that the Obama administration would create a crisis and then solve it.
When Obama took office every other word out of his mouth was Crisis, Catastrophe, danger, distress, troubling, dangerous, and on and on and on. Everything was a crisis.
The problem is the MSM refuses to call them on it and as such….Health care is going to collapse NEXT WEEK if we dont pass it and PASS IT NOW!!!!!!!!!!
I have news for Obama and his followers there is NO CRISIS….there is only massive spin that has resulted in the worst bill in history and even 1/2 the democrats cant support.
January 3rd, 2010 at 10:57 am
Not quite Tully. I support it because it makes things better for at least some of the people who really need it to be better.
This comes at some demonstrable cost for several other groups. Granted.
I largely agree with most of your quarrels. (I don’t care about the constitutional one. SCOTUS can decide that). But I expect that the realistic alternative outcome is that nothing happens, which I think is the worst outcome for those who will continue to have no help without this bill. I support the bill on behalf of those folks.
I wish we could do much better than this, I really do. But I don’t think congress is capable. I have zero confidence that anything useful and substantive will pass within the next 3 years if this bill tanks. That’s the only possible expectation that congress has left us.
In a sense, I think America is getting exactly the bill it deserves. Nihilistic? Perhaps. How many times must congress perform ugly puppet theater until the only sane conclusion is that it’s the best they can do?
I blame congress as a whole far more than the administration. I am not unsympathetic to the idea that dynamic hands-on leadership from the President can be a good thing. Here though, I feel strongly that the GOP would have tuned out or run forcefully against Obama had he waded in more forcefully.
Congress lacks both good leaders and fair-minded followers who will put the country first, IMO. We have a bunch of egomaniacal, half-informed, job-entitled, fundraising-compromised jerks determining national policy. Congress needs an enema. Since I can’t foresee that being delivered, I think we’re struck fingering for corn in whatever they poop out.
January 4th, 2010 at 9:54 am
@Tully:
To quote myself, or at least the bits that applied to you:
That was not very incoherent. I asked you to explain one of your points and slammed Boehner.
It’s almost as if you found you couldn’t beat me on the facts, so you’re flaming me with irrelevant asides about formatting.
And I will add another simple request:
I can’t think of a way to cut up the bill into smaller proposals that would would actually improve it. What elements of Obama’s bill could be removed without compromising the entire legislation?
@Doomed:
The crisis is two-fold, and I have yet to see anyone who works in the field claim it does not exist.
Number one is we already spend significantly more then everyone else (including more tax money per capita than almost anyone else), and yet our results aren’t much better. Some folks argue that it’s impossible to measure the effectiveness of general health, but IMO that’s a lame attempt to rationalize our inability to do well in any of them.
Number two is related to number one: high costs, combined with high cost increases mean all the carping we do about the deficit is irrelevant if we don’t fix health care. We’re sunk without a successful reform, the sooner the better.
The theory with ObamaCare is we’ll cut cost growth by a variety of measures, which will allow us to pay for near-universal insurance. Both are necessary to the legislation. Even if Progressives didn’t demand significant progress on insuring people, few politicians have the guts to tell grandma “the program you depend on is projected to spend way to much in 10 years, therefore we’re cutting it” unless they can also say something like “but your art student grandson will be able to buy subsidized insurance.”
January 5th, 2010 at 12:33 pm
[...] Cross posted to Donklephant.com [...]
January 5th, 2010 at 10:12 pm
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