Subsidies not generous enough

Posted: Tuesday, October 27, 2009

The following editorial first appeared in the Milwaukee Journal Sentinel:

The health care reform bill about to hit the floor of the U.S. Senate promises to cover millions more Americans by subsidizing their purchase of insurance. The bill would force every American to be covered.

This mandate is borne of good intentions: Healthy, young people need to be a part of the insurance pool so that the costs of insuring everyone are spread fairly. But a mandate is only effective if it actually compels people to get coverage. The test is whether subsidies are generous enough and penalties for ducking the mandate tough enough to ensure compliance.

Unfortunately, the bill that emerged this month from the Senate Finance Committee fails on both counts. Estimates by the Congressional Budget Office indicate that at some income levels, buyers on the new insurance exchanges would be expected to lay out 18 percent to 19 percent of their income when both premiums and out-of-pocket expenses are counted. A family of four with an annual income of $54,000, for example, could expect to pay $4,800 a year for a low-cost "silver" plan envisioned by the Senate Finance Committee bill plus another $5,100 for other medically related expenses.

Because of the way the subsidies phase out, if that same family manages to earn an additional $12,000 the next year, the cost on the exchanges would jump $2,800 annually, which could be a disincentive to seek better-paying work.

Feel like skipping coverage? The penalties are light. An excise tax wouldn't kick in until the second year and then would be phased in over four years before reaching a maximum penalty of $750 for each adult in the household.

Seven-hundred fifty dollars isn't nothing, of course, but it isn't a big enough bite to discourage cheating. And when combined with the skimpy subsidies, it's a good bet that many people who don't buy insurance now still won't bother to seek coverage after the bill becomes law.

The full Senate should beef up subsidies for middle-income Americans and strengthen penalties for forgoing insurance. If there is to be a mandate, it needs to be a strong one.

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