Subsidies aren’t taxes

by Karoli on October 19, 2009 · 1 comment

in News, Patients, Payers

The newest effort to undermine health care reform appears to be an effort to convert subsidies for health insurance to taxes. The Wall Street Journal:

Think about a family of four earning $42,000 in 2016, which is between 150% and 200% of the federal poverty level. CBO says a mid-level “silver” plan will cost about $14,700 in premiums, of which the family will pay $2,600—since the government would pay the other $12,100. If the family breadwinner (or breadwinners, because the subsidies are based on combined gross income) then gets a raise or works overtime and wages rise to $54,000, the subsidy drops to $9,900. That amounts to an implicit 34% tax on each additional dollar of income.

Well, not exactly, and it’s rather surprising to hear a Rupert Murdoch mouthpiece argue for a higher subsidy level. After all, the House bill (HR 3200) called for subsidies to 400% of the Federal poverty level. But let’s deconstruct the numbers a bit.

The argument goes like this: If the government subsidizes $12,100 and the worker earns an additional $8,000, the subsidy drops by $2,200, or $183.33/month. Dropping the subsidy is not an implicit tax. It is the expectation that as wages rise, workers can assume a greater portion of the cost. Suggesting that it’s an effective tax is simply a dishonest argument against any reform at all.

With that argument debunked, let me also say this: I think the Baucus plan brings the worst of all worlds to the table. Forcing individuals to purchase insurance (subsidies or not) without a strong public option or option to buy into Medicare as a choice is a money grab for insurance companies without any corresponding offset to individuals.


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