Opinion: Daily Journal

What About Those Obamacare Subsidies?

People who sign up for health insurance on the new Obamacare exchanges may qualify for subsidies. The subsidy amount one receives is determined by the individual’s projected annual household income for 2014.

Also known as premium assistance tax credits, these subsidies offset some of the cost of one’s health insurance premium. Individuals can gain access to subsidies only through plans sold within the health insurance exchanges.

I would like to respond to a popular question regarding the federal health law’s rollout of its health insurance exchanges:

Where do these subsidies come from? What is the funding source?

Redistribution of Health

The distribution of health insurance subsidies is paid for in part by the enforcement of Obamacare’s many taxes and fees. Below I’ve outlined just four to start:

Individual Mandate — This provision of the law is not a penalty, but a tax. The Obama administration euphemizes the individual mandate as the “individual shared responsibility provision.” If an uninsured individual does not purchase health insurance between now and February 2014, that person will face a tax of either $95 or 1 percent of income, whichever is greater.

Employer Mandate — Also referred to by the Obama administration as the “employer shared responsibility payment,” employers with 50 or more full-time workers (30 hours/week) must provide affordable, qualified health insurance for their workers. If not, an employee who obtains subsidized coverage on the exchange triggers a tax on the employer.

Large employers may be subject to two penalties under the employer mandate, one strong and one weak. The ultimate smack-down penalty is a $2,000 fine per worker for every worker after the 30th employee if an employer does not provide any health benefits. Meanwhile, the slap-on-the-wrist penalty occurs when an employer does offer coverage, but the firm either does not cover 60 percent of the employee’s costs or requires the employee to pay a contribution that exceeds 9.5 percent of his income. In these situations, an employer is fined $3,000 per worker, but only for those who choose to purchase subsidized private coverage on the health insurance marketplace.

Reinsurance Tax — The reinsurance tax applies to any company that provides health insurance (big businesses, labor unions, insurance carriers). It is a $63 fee assessed on not just every worker or individual, but dependents as well. Because of this, The Wall Street Journal refers to the “reinsurance tax” as the “belly-button tax.”

The reinsurance tax has a lifespan of three years and is supposed to kick in at the start of the new year. The majority of the estimated total of $25 billion it will raise will be designated as a fund for individual insurers to offset the cost of high-risk individual policyholders both on and off the exchanges. It will also serve as a pain reliever for these insurance companies when young and healthy invincibles refuse to sign up for costly health plans.

High-risk individual policyholders will therefore benefit at the extra expense of those who do not even participate in the individual marketplace, such as small businesses, large businesses, and the self-insured.

Health Insurance Tax — Unlike the Patient Protection and Affordable Care Act, HIT will live up to its name, in which consumers will take a direct one to the wallet. The tax kicks off in 2014, when insurers catering to the individual and small group markets will have to pay an annual fee to the federal government. This fee is conditional upon the insurer’s share of the market and will be collected based on a fixed structure:

What this really means is that the cost to insurers will be passed along to consumers. Blue Cross and Blue Shield of North Carolina states:

Because the new fees are non-deductible, BCBSNC will have to use an estimated $107.5 million of premiums in 2014 to cover the amount for which we are responsible. To generate that $107.5 million in new revenue, premiums for BCBSNC insured customers would increase by up to an additional 3.0 percent — or a few hundred dollars a year for a typical North Carolina family.
Meanwhile, Politico says:

Nonpartisan federal experts estimate that the tax will be 2 percent to 2.5 percent of premiums to which it applies. That’s about $360 for a family plan in 2016 — or $30 per month, according to the Joint Committee on Taxation. Bills in the House and Senate would repeal the tax, which would collect $8 billion next year. The House bill has enough support to pass.

Obamacare certainly rains, not reins in, burdensome taxes.

Katherine Restrepo is Health and Human Services Policy Analyst for the John Locke Foundation.