The Baucus Healthcare Deceit

A Great Plan—Unless You Need Medical Care, Are Poor, or Have Kids
From a new Heritage paper by Robert Book, Guinevere Nell, and Paul Winfree, some perverse consequences that would follow from the health care overhaul put forward by Sen. Max Baucus (D-Mont.):

• Under the bill’s mandate that individuals must purchase health insurance, many moderate-income workers would be required to purchase the health insurance offered through their employers. As a result, moderate-income workers at firms with high average wages could be forced to buy expensive insurance designed for high-income workers willing to pay for more extensive coverage. Insurance provided by employers is not free to the employee: Ultimately it comes out of the compensation that employers are willing to pay their employees.

• The bill places an excise tax of 35 percent on the amount of any health insurance plan’s price that exceeds $8,000 for individual plans or $21,000 for family plans. While the tax is nominally placed on the insurer, the customer bears the cost in the form of higher prices. Data from the Current Population Survey and the Medicare Expenditure Panel Survey show that more than 570,000 families that pay no income tax or are in the 10 percent income tax bracket would be subject to this punitive 35 percent tax on “excessive” health benefits. In all, 7.2 million households—almost 94 percent of those who would pay the tax—would pay higher taxes on their health insurance than on their income. Some employees could avoid this tax by opting out of their employer’s health insurance and purchasing insurance through state-sponsored health insurance exchanges, but that would trigger an additional cost (see next bullet point).

• The bill places a tax on employers (companies with more than 50 employees) for every employee who gets insurance from a state-sponsored health insurance exchange instead of from the employer. Again, the cost of that tax would ultimately be passed back to the employee in the form of lower wages. But if an employee is earning near the minimum wage, then the employer would be limited in his ability to pass the costs of the tax back to the employee in the form of lower wages. In those situations, the employer might decide to fire the worker because his costs exceed his value to the firm. In effect, the tax for these workers is like an increase in the minimum wage, a policy that hurts those on the bottom rungs of the economic ladder the most because it threatens their jobs.

• The structure of the employer tax penalizes firms that hire low-income workers with families to support. The subsidy provided to a worker who purchases insurance through a state health insurance exchange would vary by family income and family size. Workers with lower family incomes or bigger families get a bigger subsidy, and, thus, the employer would have to pay a bigger tax penalty. Hiring a high-income worker with no children to support would incur a lower tax penalty. Businesses would thus be encouraged to skimp on support staff. Again, this is a policy that hurts most those workers who need help the most.

• The bill places a tax on medical devices, places a tax on branded drugs, and increases the thresholds for deducting medical expenses—in effect taxing those who are sick and need health care in order to subsidize health insurance for the healthy.