Holes in Baucuscare

Reihan Salam points to this analysis of the shortcomings of the Baucus bill from Jim Capretta:

A family with an income at twice the poverty line, or $48,000 in 2016, would get $9,072 in federal assistance for coverage — still a substantial sum. But it’s $7,400 less than the family would get if they earned half as much. The Baucus plan thus imposes an implicit marginal tax rate of about 30 percent ($7,400/$24,000) on wages earned by families in this income range.

And that would come on top of the high implicit taxes already built into current law. Low-wage families with children also get the Earned Income Tax Credit (EITC). The EITC boosts incomes for those with the very lowest wages, but it is also phased-out as incomes rise. Past a certain threshold (about $21,400 in 2016), the EITC is reduced by $0.21 for every additional $1 earned. Throw in the individual income tax rate (15 percent) and payroll taxes (7.65 percent), and the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.

This would effect a pretty wide swath of Americans, considering the median income in the United States in 2007 was $50,233.  It’s also important to note that health care reform is not targeted at people earning at or below the poverty line because these people already receive Medicaid.  This is about making insurance affordable to Americans in the middle and lower-middle class.

The more I look at all of this, the more I see it as a huge, slow-motion trainwreck rife with unintended consequences and hidden costs, especially for the middle class this bill is supposed to help.

That being said, the more I think about health care writ large, the more I’d like to see two things happen:

First, I think that the government should be involved in health insurance as long as they can include real cost-savings measures to keep rising costs from making the program insolvent.  I’m not even worried really about the extent the government is involved in health insurance, so long as they keep costs in line and don’t turn the whole project into one big gift-basket to the insurance or health care industries.  (That’s why I still like DeLong care best, even though it’s basically single-payer above the HSA’s.  It’s those HSA’s that ensure that costs remain low, and it’s the single-payer that makes sure people don’t go bankrupt.)

In the end, low subsidies pan out to a hidden tax on the middle class.  And if we’re going to tax, we shouldn’t unduly burden working families.

So whatever happens, I’d like to see some more generosity in subsidies to the middle class, and I’d like to see the exchange open up to every American as Sen. Wyden has proposed (despite rabid union opposition).  Of course, with costs as high as they are now, we’ll need government subsidies on the supply side as well, possibly in the form of reinsurance.

The bill goes to the floor soon.  Should be interesting.