Makers v Takers in Health Insurance

Peder Zane laments that Obamacare has turned his family into takers in the health insurance realm. This post shows the subsidy different groups now get for health insurance, with the key table below.

ScreenHunter_02 Nov. 16 11.16

I work for Duke and Duke pays ~$12,000/year in premiums for my insurance, and I pay $5,100/year. The ACA essentially mandates employer provided insurance levels of coverage, and as Zane notes above, substantial subsidies between 100%-400% of poverty (for a family of 5, 400% is around $120,000/year). Note that many would say the subsidy I calculated for employer (the tax savings from the tax code not considering premiums income) sponsored is a vast understatement, and that the true value of ESI is the full premium; the conversation of “employers will dump and pay the penalty and pocket the difference” argument implicitly views what Duke pays as nearly identical to the subsidy reported by Zane in the sense of a flow to an individual controlled by someone else.

Indeed, AEI this week released a report on the cost of government citing an E21/Manhattan Institute assertion that employer paid should be viewed as implicit taxes, because employees don’t have the choice to cash out, and they loose this purchasing power if they lose their job. The traditional Labor Economics view says benefits are foregone wages and would be returned to employees if employers ended employer provided health insurance for any reason, including dumping individuals into exchanges. The truth likely differs by industry, and probably falls somewhere between these two poles.

What this all means is that there are myriad ways that our society has constructed over long periods of time that serve to make health spending vastly higher than it would be if everyone bought what they could afford from their wages and earnings. The ACA is just he latest example. In that sense, just about all of us are makers and takers in the realm of health care, with our mix of income, age and illness determining the balance of the cross subsidy (and it could change for any of us tomorrow). Simply put, we have consistently preferenced health care over other types of spending since the end of World War II, to both good and bad ends.

update: added age to next to last sentence

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

11 Responses to Makers v Takers in Health Insurance

  1. Jackie Ogburn says:

    Zane doesn’t include the employer contribution to his plan, which is probably considerably more than the $440 a month, and as you keep pointing out, is a tax deduction for the employer. So he is already a “taker,” he just didn’t know it.

    • Don Taylor says:

      I assume he is a contractor/self employed, or else he would be ineligible for a subsidy in the exchange unless his employer provided insurance premium (his premium) is great than 9.5% of his adjusted gross income. In terms of magnitude of money sense, he is now receiving something that is ~ similar to whatever McClatchy provides employees.

  2. Aidan says:

    Nothing gets my sympathy flowing like people complaining they don’t get to pay enough for their own health insurance.

  3. Bob Hertz says:

    Thanks for a fascinating post.

    Three quick comments:

    1. As someone who had employer coverage for almost 35 years, I would have run screaming from the room if I had to pay $440 a month for a $10,000 deductible. I am disgusted that some the ACA plans are no better. I just shake my head when some persons complain that they were happy with their old plan pre-2014.

    2. Your earlier post on subsidies showed very graphically the tremendous inequality between covered employees vs the self-employed in health insurance. To some extent the ACA is stepping as kind of the big employer and reducing that inequality. I favor this.

    3. One big flaw of the ACA is the same flaw that exists in Medicaid — namely. the very harsh penalty for earning more money and falling off the subsidy cliff.

    In the long run, this will reduce the taxable income reported by the nation, which will decrease tax revenues, which will make the subsidies harder to pay for.

    In this respect I agree with Republican critics. Means-tested programs can have this bad effect.

    Medicare is not means tested and that is a virtue. No one age 65 has to stop earning money to keep their Medicare.

  4. Bob Hertz says:

    Got to disagree a little bit with you, Don. Medicare is not means tested in my definition. You do not lose Part B if you make more than $80K a year. You just pay more for it.

    This makes it more like a European system, where the cost of health insurance is tied closely to income. But everyone has insurance!

    • Don Taylor says:

      i doubt Medicare becomes means tested using your definition Bob (you don’t have access to it over X income), but suspect further means testing defined as different premium by income is coming. The big change would be adding a premium to Part A.

  5. Pingback: Cancelled coverage as hardship | freeforall

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