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Wednesday, September 30, 2015

Obamacare - can pieces be removed?

Presidential candidate Clinton has called for repeal one of the numerous parts of the Affordable Care Act (aka Obamacare).  Reuters reports that on September 29, 2015, she called for repeal of the "Cadillac tax" provision that goes into effect starting in 2018 ("Clinton calls for repeal of 'Cadillac tax' on healthcare plans," by John Whitesides, Reuters, 9/29/15).

A few observations on this:
  • What happens when one piece of the complete healthcare reform plan is removed? The Cadillac tax raises revenue by imposing an excise tax on certain expensive plans offered to employees (see IRC Section 4980I).  Likely it also is an incentive not to offer these generous plans that can result in increased health care costs (the insured in these plans might be getting services not needed when the cost to them looks free, but employers are paying a lot). Does repeal of one provision make the system not work?  Perhaps.
  • Politicians and many others keep skirting around the many inequities in the system.  One of the longstanding, costly inequities is that employees can exclude from income and payroll taxes, the value of the health insurance premiums paid for by their employer.  About 60% of  employees get this benefit.  It is worth more to individuals in higher tax brackets. That is part of the inequity (a credit would be more equitable). Another part is that it is so costly in terms of reduced revenue.  For example, if Jane's employer covers $10,000 of her annual health insurance costs, Jane excludes this from her income. If she is in a 30% tax bracket, she saves $3,000 of taxes compared to if her employer just increased her wages by 30%. And Jane and her employer don't have to pay Social Security and Medicare taxes on this health subsidy income (another savings of 15.3%). This exemption also makes it easy to increase the costs of health care because the insured don't necessarily see it.  Why not reform this costly provision (it is the most costly tax break in the system and isn't even available to everyone).
  • Why not address inequities such as the Premium Tax Credit ending once the insured's household income crosses 400% of the federal poverty line?  The employer-provided health subsidy exclusion (prior bullet) has not such end point? That means that someone with about $43,000 of income getting insurance in the Marketplace, won't get any government subsidy, where as someone making $200,000 with employer-provided health insurance gets to keep their tax break (the exclusion). Why isn't anyone talking about this
  • If the employer-provided health care exclusion were reduced, such as my having employees include 10% (or perhaps 15% or 20%) of the value of what the employer pays in their income, perhaps that would help pay for a better Premium Tax Credit and removal of the complicated Cadillac tax?  And the cost of this is minimal to the employee.  For example, Jane, in the earlier example would have to include $1,000 in her income (if 10% of the employer-provided insurance were taxable).  At her 30% bracket, her taxes go up $300.  That is a small price to pay for $10,000 of coverage!
A bigger discussion is needed.  Obamacare has too many complicated tax provisions in addition to many complicated non-tax provisions.  Has health care improved?  Is it all costing less?  What about removing health insurance from the employer-employee situation?  An many more questions that should be in this tax policy and social policy discussion.

What do you think?

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