While the U.S. Supreme Court ponders its decision in King v. Burwell, a senior economist at the nonprofit, nonpartisan RAND Corporation suggests that the time may have come to re-evaluate the tax-favored status of employer-provided health benefits coverage to offset the costs of lost subsidies, maintain budget neutrality and end a bifurcated system that favors the wealthy.
But a leading employee benefits industry lobbyist doubts King v. Burwell will spark any significant policy changes and challenges the premise of her argument.
Christine Eibner writes in a commentary appearing in The Morning Consult that policymakers might consider whether there are opportunities to level the playing field for low-income workers, regardless of whether their employers offer insurance. And since the Affordable Care Act intends to make health insurance coverage affordable for all Americans, she went on to say that reallocating these tax benefits to those who need more help could be a sensible place to start.
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At stake in King v. Burwell, whose ruling is expected in June following oral arguments that began on March 4, is the loss of federal subsidies in 34 states that rely on Healthcare.gov. The impact is unclear in three other states (Oregon, Nevada and New Mexico) that initially sought to run their own exchange before turning over that task to the federal government.
About 8 million people might lose their health insurance coverage if those tax credits are eliminated, according to both RAND and the Urban Institute, while the Kaiser Family Foundation estimates that 4 million Americans have fallen into a coverage gap since a 2012 U.S. Supreme Court ruling allowing states to opt out of Medicaid expansion.
But Eibner has set her sights on a much higher number: the roughly 42 million Americans with access to employer-sponsored insurance who are excluded from HIX tax credits or subsidies to lower their out-of-pocket costs unless, she writes, their premium contribution for single-employee coverage is at least 9.5% of income, adding that spending on family coverage is not considered, even if the worker has a family.
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About 17 million people with access to health insurance through their work would qualify for cost-sharing subsidies if they were allowed to receive federal benefits on the exchanges, according to Eibner. Another point she raises highlights a disparity between employer-provided coverage and HIX plans, as well as the latters much lower spending cap relative to income (potentially 2%) for many enrollees.
After crunching the numbers, Eibner estimates that low-income individuals with employer-provided coverage who earn just $17,500 a year could pay more than twice as much in premiums and out-of-pocket spending as HIX enrollees with the same income, or about $8,200 a year. The estimate is based on about $700 in annual premiums and a $2,250 annual spending cap for HIX enrollees vs. $1,660 in annual premiums and up to $6,600 in caps on employer-provided coverage.
But thats not to say any disparity in coverage or ruling against subsidies in the King v. Burwell case will be seen as a tipping point or springboard for influencing a long-standing tax-policy debate. James A. Klein, president of the American Benefits Council, doesnt believe a loss of subsidies is going to be the precipitating factor for any immediate change in the tax treatment of employer-provided health coverage.
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If that were to happen, he says some Republicans are prepared to propose legislation to make available tax credits for individuals a GOP idea that has been floated for decades as part of a suggested transition away from the current tax-favored treatment of employee health benefits.
However, Klein doubts any change in the status quo is forthcoming unless Congress would move forward on comprehensive tax reform, in which case, the treatment of employer-provided health coverage and a whole variety of other things would all be in play.
While noting that tax-writing committee leaders Sen. Orrin Hatch (R-Utah) and U.S. Rep. Paul Ryan (R-Wis.) are seriously committed to this goal, he says its unclear how far they might get in the current Congress. Neither one of them has really tipped their hands in terms of how they would view the appropriate way of dealing with this particular question, he adds.
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Eibner questions whether income and payroll tax exclusions for employer-provided coverage, which the Congressional Budget Office estimates at about $250 billion a year in lost revenue for the federal government, still serves low-income workers well when more meaningful assistance is available through the public exchanges. She also notes that such exemptions benefit higher-income earners with higher marginal tax rates than lower-income workers.
Klein refutes this premise as patently false and the wrong way of looking at it. The issue is for whom is the tax-favored treatment of employer-provided health coverage more valuable from a health benefits perspective? Clearly, it favors the lower-income individuals.
Health care coverage is clearly the most equitable of all of these types of benefits that are provided to people because you get the same coverage, whether you are a low-wage worker or a high-wage worker, according to Klein.
You might get more value if you are a worker with lower wages and youve got family coverage than a higher income individual who has single only coverage. This notion that the current tax treatment of employer-provided health coverage is skewed toward the wealthy is completely up-side-down.
