Tag Archives: affordable care act

The Cadillac Tax Is a Poor Solution to a Real Problem

A presidential candidate wants to repeal part of the Affordable Care Act. Normally this would not be news, but the candidate in question is Democratic frontrunner Hillary Clinton, and the ACA provision is the Cadillac Tax, a levy on expensive employer-sponsored health insurance plans. The tax is deeply unpopular—it has been delayed to 2018—and with Democratic members of Congress under heavy pressure from labor unions who oppose the tax, itcould be repealed altogether. While the tax is certainly a poorly-designed policy, it does have a real purpose, and lawmakers should have an alternative solution ready before they repeal it.

The Cadillac Tax seeks to address the unlimited tax deduction for employer-sponsored health insurance. Since there is no comparable deduction for insurance purchased individually, employers have a massive incentive to provide their employees with insurance rather than letting them purchase it on their own. Currently, 90 percent of privately insured individuals get coverage through their employers.

The deduction is problematic for many reasons. Most obviously, it costs $250 billion per year—a figure subsidized by poorer individuals whose employers do not offer health insurance. It also encourages employers to give workers raises in the form of more-expensive health insurance plans rather than cash wages, since wages are taxable and health insurance is not. These employer-sponsored health insurance plans reduce competition through “insurance lock:” since employed individuals are disincentivized from shopping for their own health coverage, insurance companies are less likely to maintain both low prices and high quality. If you want a better plan, you might have to leave your job.

Read the full piece at Economics21.

Graduate students hurt by the Affordable Care Act

The IRS is penalizing universities for providing healthcare to student employees, and it’s hurting the very people the Affordable Care Act was supposed to help.

In June Forbes reported that under new IRS regulations, starting in July 2015, small businesses and universities that reimburse employees healthcare premiums or pay their health costs directly will be fined up to $36,500 a year per employee. A penalty that is 18 times greater than the $2000.00 employer mandate.

As a result, graduate students around the country are being told that they will no longer be provided healthcare as part of assistantships.

This is a clear case where government intervention, far from improving the U.S. healthcare system, has actually made things worse. Universities were providing coverage for their graduate students prior to governmental intervention and now, under the Affordable Care Act, these same universities are being forced to cancel the insurance plans they provided to students.

The Affordable Care Act was supposed to encourage businesses to provide healthcare, not punish them for doing so.

Read the rest on The Hill Congress Blog here.

Don’t Propose on Valentine’s Day

With Valentine’s Day fast approaching, many lovers are undoubtedly contemplating popping the question. But unfortunately, getting married may cost a lot more than people expect due to the structure of government programs.

Tying the knot costs lovers, and it’s not just the ring, the flowers, the dress, and the wedding. Higher tax rates, reduced college financial aid, and the loss of Affordable Care Act subsidies all combine to create a marriage penalty if both partners work, which is often the case.

The Taxman

When two people marry, their income is combined for tax purposes. This additional income can lead to higher taxes paid by a working married couple than if they had remained single and filed separately. When the penalties from getting married are too costly, people may be more hesitant to exchange vows.

Frequently it is the income of second earners that pushes families into the top brackets—where combined federal and state marginal income tax rates can top 50 percent. When the additional associated costs of entering the workforce (transportation, professional clothing, and possible child care) are added, working becomes an even more expensive decision. It should come as no surprise that when the reward for working decreases, people choose to work less.

Second earners in families with children are most responsive to decreased incentives to work. Often women, they are more likely to move out of the labor force to look after their children.

It should come as no surprise that the labor force participation rate for prime-age working women has been declining, especially since the recession. At the beginning of 2007, 76 percent of prime-aged women were in the labor force. Now, this rate has declined to 74 percent. If the labor force participation rate had stayed steady at 2007 levels, an additional 1.1 million prime-age working age women would be working or looking for work.

To correct this problem, America could follow the U.K.’s example and move to single, instead of joint, filing. A deduction for second earners could also be reinstituted (one existed from 1981 to 1986). Additionally, a flatter tax rate would reduce the marriage penalty.

Read the rest at The Manhattan Institute’s E21…