How much subsidy should each person get for health insurance?
November 16, 2013 9 Comments
For all the bubble and boil the past 4.5 years on health reform, there are basic questions that have not been asked clearly, much less answered. An important one is how much subsidy should people get from government for their health insurance?
The table below is a quick estimate of the per capita subsidy that different groups now receive, or will receive in health exchanges under the ACA. The magnitudes range from a maximum of $10,720 per capita for Medicare, to none for the uninsured or persons purchasing health insurance in the individual market currently, or in exchanges in the future if they make above 400% of poverty. Most people get some government subsidy for their health insurance.
Link to table, including sources: insurancesubsidy.11.16.13
A few points:
- Medicare. You might object to the word subsidy in the case of Medicare. People did pay taxes in the past, but they were of course paying for old people’s health care then. This is the magnitude of actual government flows required to fund the program today (and does not include out of pocket costs). If you want to call it something other than subsidy, fine.
- Employer Provided (ESI). Underneath per capita figures there are big variations. For example, I receive about double the average subsidy shown for ESI. My federal tax bill is around $3,000 less than it would be if ESI did not receive tax preferences because: (1) the amount Duke pays for my insurance is not subjected to taxation (and thus tax free compensation); (2) My premium share is pre-tax, and thus reduces my income that is subjected to taxation. Further, there are 5 people who receive coverage via my employment at Duke and this subsidy (me, wife, 3 kids). This subsidy, combined with the pooling power of (especially) large employers mean that there are a very large number of people who have it quite good under the current system. So, the size of the per capita subsidy understates the political power for the status quo that exists in employer sponsored coverage. Paul Starr calls this plus the Medicare subsidy above the policy trap.
- Individual purchase v uninsured. Speaking of political power, the force behind the “President lied” meme leading to the administrative “fix” is a subset of those currently in individual coverage plans who make over 400% of poverty and were therefore going to be forced to buy employer-sponsored levels of benefits without the benefit of an employer paying 75-80% of the premium cost with tax preferenced spending (a true disadvantage for the self employed). A better fix would have been to add some tax preference short term while not messing with the risk pooling aspects of the law, and answering the question posed in this post longer term. Note the crushing political silence on behalf of the uninsured, and especially on behalf of those purposefully left out by their state’s decision to not expand Medicaid, while their income falls below 100% of poverty so they don’t qualify for exchange subsidies.
- Speaking of Medicaid, the per capita expenditure of $7,000 shown above does not characterize any group of Medicaid beneficiaries well. Children and adults are numerous and relatively inexpensive; there are fewer disabled and elderly, but they have high per capita costs. The most important thing to understand about Medicaid reform is who is covered by the program. In a state like North Carolina that has not expanded Medicaid for 2014 (seven part series of NC Medicaid reform), most of the expansion effect would be in groups with relatively low per capita costs, and who would therefore likely improve the state’s Medicaid risk pool (in North Carolina, childless adults can never be eligible for Medicaid, and working parents only up to 49% of poverty; non-working to 39%).
- Exchange subsidies. There is a sliding scale from 100-400% of poverty ($11,500-$46,000 for singles, $23,500-$94,000 for family of 4) that determines how much subsidy is provided to purchase private health insurance in the exchanges. The $5,510 shown in the table is an average, with the amount of subsidy falling with income. Note that the tax benefits of employer sponsored insurance are the opposite, and rise with income. The different slopes of these curves summarize how politically hard it would be to modify/end the tax preference for ESI that now exists, to be replaced by a fixed amount of money to purchase private insurance.
What is the correct amount of subsidy? Above is what we have now and coming in the near future. I am not telling you what to think, but your thinking needs to account for all these groups.
update: revised ESI section for clarity.