Sunday, March 28, 2010

The ginormous health care subsidies

Even now, I don’t think most people realize the size and scale of the subsidies involved in the new system. Take a typical family of four earning $45,000 a year, which is about twice the poverty line and slightly lower than the median household income. ... Come 2014, such a family will be entitled to buy a health-care policy for just above six per cent of their income, or $2,800, with the government picking up the rest of the cost. ...

By 2014, assuming health-care costs rise by five per cent a year, [the average health-insurance premium for a family of four] will be about $17,000. If insurance companies on the new health exchanges were obligated to offer equivalent coverage, the subsidy per family would be at least $14,300 per family. Put another way, the federal government would be providing the typical lower middle class American family with a new entitlement worth roughly thirty per cent of its pre-tax income. ...

After excluding these pieces of [accounting] trickery and the questionable Medicare cuts, Douglas Holtz-Eakin, a former head of the C.B.O., has calculated that the reform will actually raise the deficit by $562 billion in the first ten years. “The budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” he wrote in the Times. “So fantasy in, fantasy out.” ...

[M]any businesses, once they realize the size of the handouts being offered for individual coverage, will wind down their group plans, shifting workers (and costs) onto the new government-subsidized plans. ...

Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). ...

Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? ...

Over time, the “firewall” between the existing system of employer-provided group insurance and taxpayer-subsidized individual insurance is likely to break down, with more and more workers being shunted over to the public teat.
--John Cassidy, New Yorker, on the fiscal consequences of the new health care bill. HT: Alex Tsai

No comments: