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265 IRET Congressional Advisory 1 (2010)

handle is hein.taxfoundation/iretcgadv0262 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies thait will promote growth and efficient operation of the market economy. March 10, 2010 Advisory No. 265 HEALTH BILL GIVES BIGGER SUBSIDIES TO NEWLY COVERED HEALTH EXCHANGE USERS THAN TO PEOPLE WHO GET INSURANCE AT WORK The House, Senate, and Administration health care bills all offer large subsidies for low income and middle income individuals and households to purchase health insurance. The policies will be offered through a government supervised health insurance exchange, a sort of farmers' market for individual and family policies provided by private insurers. About 127.3 million people under Medicare age (age 65) with incomes between 100% and 400% of the poverty level might be eligible.1 The Congressional Budget Office estimates that a far smaller number, about 19 million people, will use the new exchange to purchase individual and family policies, with the rest getting insurance at work or through other means, or remaining without coverage. People who already obtain health insurance at work from employer-provided health insurance plans will generally not be eligible to buy the exchange-based plans, and a business would be fined if too many of its employees switch to the government-subsidized program. Employer-based health insurance is a tax-favored fringe benefit. The employee is taking part of his or her income in kind instead of in cash, and the in- kind benefit is not counted as taxable income of the employee. Neither income tax nor payroll tax is imposed on the value of the insurance premium. The employee is receiving an implicit tax subsidy equal to his or her marginal income tax rate plus the payroll tax rate. The health bill subsidies for people eligible to buy the new health exchange policies would be much larger than the tax subsidies currently available to people with employer-provided health insurance. Making people remain with their employment-based plans, instead of switching to the new subsidy program, will hold down the cost of the new program for the government. However, it will mean that two otherwise identical households with the same total income, number of adults, and number of children would face sharply different costs of insurance and health care. This is a violation of the tax principle of horizontal equity, which requires that people with equal incomes and family circumstances pay equal taxes. It also strains the concept of equal treatment under the law. Subsidies in the House-passed bill The Congressional Budget Office (CBO) has presented illustrative tables showing the cost to participants of a typical health plan under the House bill and the Senate bill. The House bill numbers are shown in the table. The cost would be held down the most for lowest income households (those at the poverty level), and would rise as income increases until the subsidy is ended entirely for households at 400 percent of the poverty level. There would be subsidies for the premium, and there would also be subsidies for the out-of-pocket costs, such as deductibles and co-payments. All incomes and prices are in 2016 dollars. The House health bill numbers a~em km A * I I6~ 8 ~gg

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