This is because employees still pay significant costs out of pocket for their coverage. In Mulligan’s example, a full-time employee costs her company about $56,000 in total compensation, including family coverage. The employee’s annual share of her insurance costs (including premium contributions and co-pays) comes out to $7,667. A part-time worker with Obamacare coverage, on the other hand, would only pay $4,342 in total out-of pocket- costs — 44 percent less, thanks to generous taxpayer subsidies.
Rather than bluntly assail the ACA as a “takeover” of U.S. health care, conservatives need to recognize that government’s distorting role in labor and health insurance markets started more than 60 years before Obama took office — during World War II, when employers were first allowed to offer employer-provided health insurance as a tax-free benefit to employees.
Today, large employers fiercely protect the employer tax exclusion because it allows them to compete for labor more cheaply than if they had to offer compensation that was taxed as wages. (A dollar of wages is taxable for both the employee and the employer, while a dollar of health-care compensation is untaxed for both of them.)
Unfortunately, rather than confronting the tax problem head on, Obamacare offers a confusing hodge-podge of premium tax credits and cost-sharing subsidies as an alternative to employer coverage. But, as the CBO report implicitly shows, the Affordable Care Act expands insurance coverage at the cost of creating yet another tier in the U.S. health-insurance caste system, giving some workers more generous tax subsidies than others with employer-based coverage, depending on the number of hours they work.
The solution is to equalize and cap the tax preference for health insurance between the ACA exchanges and employer-provided insurance (a Republican Study Committee proposal from last year envisioned such an arrangement), while also eliminating the employer mandate. A flat-tax credit (tied to catastrophic coverage and health-savings accounts) that was available to all Americans would remove the Obamacare penalty that accrues to working more hours, and would encourage economic mobility because the choice of where to attain insurance would be entirely tax neutral. Employers could still pool the credits for their employees, and purchase group coverage, or make it easier to purchase insurance through private insurance exchanges.