How would the Reid bill affect the middle class?

How would the Reid bill affect the middle class?

There has been confused public discussion about the effects of the Reid bill on low- and middle-income taxpayers. Senator Grassley and his Finance Committee staff have worked with the Joint Tax Committee staff to disentangle the strands a present and clearer picture of the actual financial effects of the Reid bill on different middle class populations.

Grassley’s staff summarize the results this way:

First, there is a group of low- and middle-income taxpayers who clearly benefit under the bill. This group, however, is relatively small. There is another much larger group of middle-income taxpayers who are seeing their taxes go up due to one or a combination of the following tax increases: (1) the high cost plan tax, (2) the medical expense deduction limitation, and (3) the medicare payroll tax. In general, this group is not benefiting from the tax credit (because they are not eligible for the tax credit), but they are subject to the tax increase(s). Also, there is an additional group of taxpayers who would be affected by other tax increase provisions that JCT could not distribute. Finance Committee staff is working with JCT to determine how to identify this “un-distributed” group of people. … This analysis reveals that while a relatively small group of middle-class individuals, families, and single parents are benefiting under the Reid bill, a much larger group of middle-class individuals, families, and single parents are disadvantaged.

Senate Democrats have used a different JCT analysis that show the combined effects on these two populations when blended together. You have a relatively small group of people getting big net benefits, and a much larger group paying net costs. The aggregate impact for the two populations combined is a net benefit for the group as a whole, and advocates for the bill have therefore argued the bill is a “middle class tax cut.” Senator Grassley and his staff deserve credit for separating the effects on distinct (and large) subpopulations.

Here’s the quantitative summary for the Reid bill. All figures are for the year 2019, and in each case these are net results of premium changes, tax subsidies, and tax increases.

  • 17.8 million individuals, families, and single parents with incomes under $200K will be net financial winners (11% of all tax returns under $200K):
    • Of that 17.8 million total, 13.2 million of them will benefit from the government subsidy for health insurance, net of any premium increases.
    • The other 4.6 million of them will also benefit, netting out their premium reduction with the higher taxes they will pay. These people in general will not get a health insurance subsidy.
  • 68.4 million individuals, families, and single parents with incomes under $200K will be net financial losers (41% of all tax returns under $200K):
    • In general these people are not eligible for premium subsidies, so the effects of he Reid bill on them are direct premium effects and/or tax increases.
    • Within this group, here are some representative averages, taking into account premium changes, tax subsidies for premium purchase, and tax increases:
      • Within this population of 68.4 million net losers, an average individual working for a small business who gets health insurance through the small group market will be worse off, even if his income is below $10K per year:
        • Income of 0 – $10K: He pays $31 more (per year).
        • Income of $10K – $20K: He pays $99 more.
        • Income of $20K – $30K: He pays $202 more.
        • Income of $30K – $40K: He pays $325 more.
        • Income of $40K – $50K: He pays $377 more.
        • Income of $50K – $75K: He pays $576 more.
        • Income of $75K – $100K: He pays $681 more.
        • Income of $100K – $200K: He pays $726 more.
      • If this individual works for a large employer buying insurance in the large group market, the bill helps him if his income is <$20K, and hurts him if his income is >$20K:
        • Income of 0 – $10K: He pays $135 less.
        • Income of $10K – $20K: He pays $67 less.
        • Income of $20K – $30K: He pays $36 more.
        • Income of $30K – $40K: He pays $159 more.
        • Income of $40K – $50K: He pays $211 more.
        • Income of $50K – $75K: He pays $410 more.
        • Income of $75K – $100K: He pays $515 more.
        • Income of $100K – $200K: He pays $561 more.
      • For an average family among the 68.4 million losers getting insurance through the small group market (including most small business employees), they are on average better off if their family income is <$20K, and worse off if their income is >$20K. If they get insurance through a large employer, the breakpoint is $30K.
      • For an average single parent among the 68.4 million losers, he or she will be better off if income is <$20K, and worse off if income is >$20K, whether he or she gets insurance in the small group or large group markets.

While the press obsesses over the public option and abortion, will they pay sufficient attention to the harder-to-explain components of the bill that would make 68.4 million middle-class individuals, families, and single parents worse off?

Lots more detail is below and linked, courtesy of Senator Grassley and his fine staff.


From Senate Finance Committee Republican staff

Here is an analysis of the premium changes, tax subsidies, and tax increases under the Reid bill. Here are the JCT tables that were the basis for these findings: 4 tax provisions in 2019, tax credits in 2019, and universe of returns in 2019. The other data source is the November 30th CBO letter to Senator Bayh.

Based on this analysis, Finance Committee staff believes we can summarize the benefits and disadvantages to individuals, families, and single parents under the Reid bill this way: First, there is a group of low- and middle-income taxpayers who clearly benefit under the bill. This group, however, is relatively small. There is another much larger group of middle-income taxpayers who are seeing their taxes go up due to one or a combination of the following tax increases: (1) the high cost plan tax, (2) the medical expense deduction limitation, and (3) the medicare payroll tax. In general, this group is not benefiting from the tax credit (because they are not eligible for the tax credit), but they are subject to the tax increase(s). Also, there is an additional group of taxpayers who would be affected by other tax increase provisions that JCT could not distribute. Finance Committee staff is working with JCT to determine how to identify this “un-distributed” group of people.

Further Analysis Reveals Benefits and Disadvantages to

Individuals, Families, and Single Parents

Analysis of Premium Changes, Tax Subsidies, and Tax Increases

On November 30, 2009, the Congressional Budget Office (CBO) estimated the average premiums for single and family health insurance policies purchased in the non-group market and offered by small businesses and large employers under both the Reid bill and current law. The Joint Committee on Taxation (JCT) has provided Finance Committee Republican staff with a distributional analysis of four of the major tax provisions in the Reid bill, along with a distributional analysis of the number of tax returns that will receive the premium tax credit for health insurance for 2019. Based on this data, Finance Committee Republican staff compared the average premium change, according to CBO, with the average subsidy or tax increase individuals, families, and single parents would see, based on JCT data in 2019, and concluded following:

  • According to JCT, 13.2 million individuals, families, and single parents or 8% of all tax returns under $200,000 in 2019 will benefit from receiving the government subsidy for health insurance, net of any health insurance premium increases under the Reid bill.
  • According to JCT, a group of 4.6 million individuals, families, and single parents or 3% of all returns under $200,000 in 2019 will also benefit from a premium reduction, net of a tax increase, under the Reid bill. In general, this group of 4.6 million individuals, families, and single parents are NOT eligible to receive the subsidy for health insurance.
  • According to JCT, a group of 68.4 million individuals, families, and single parents or 41% of all returns under $200,000 in 2019, however, will be worse off as a result of a tax increase, net of any premium reduction, under the Reid bill. In general, this group of 68.4 million individuals and families are NOT eligible to receive the subsidy for health insurance.
    • An average individual who receives health insurance through a small employer and earning between $0 and $200,000 would be paying, on average, a range of $31 to $726 more. In the large group market, an average individual making between $20,000 and $200,000 would be paying, on average, a range of $36 to $561 more.
    • An average family who receives health insurance through a small employer and earning between $20,000 and $200,000 would be paying, on average, a range of $82 to $892 more. In the large group market, an average family making between $30,000 and $200,000 would be paying, on average, a range of $116 to $724 more.
    • An average head of household who receives health insurance through a small employer and earning between $20,000 and $200,000 would be paying, on average, a range of $383 to $1,587 more. In the large group market, an average head of household also making between $20,000 and $200,000 would be paying, on average, a range of $185 to $1,419 more.

This analysis reveals that while a relatively small group of middle-class individuals, families, and single parents are benefiting under the Reid bill, a much larger group of middle-class individuals, families, and single parents are disadvantaged.

 

Background

 

Premium Analysis – CBO has estimated the average premiums in 2016 for a single and family health insurance policy in (1) the non-group, (2) the small group, and (3) the large group health insurance markets under both the Reid bill and current law. Based on CBO data, we can identify the average annual increase in premiums in each of these markets under the Reid bill and current law. Based on these CBO’s estimates and data, we can project the cost of a single and family health insurance policy in (1) the non-group, (2) the small group, and (3) the large group markets under the Reid bill and current law in 2019.

Tax Increase and Subsidy Analysis – JCT has provided Finance Committee staff with a distributional analysis of four of the major tax provisions in the Reid bill – (1) the advance-refundable tax credit for health insurance, (2) the high cost plan tax, (3) the medical expense deduction limitation, and (4) additional Medicare payroll tax. Separately, JCT has provided a distributional analysis of the number of tax returns that will receive the premium tax credit for health insurance. Based on this data, we can determine how many individuals, families, and single parents receive the premium tax credit for health insurance. We can also identify (1) those individuals, families, and single parents who are NOT eligible to receive the tax credit and (2) those individuals, families, and single parents whose taxes may go up before they see some type of tax reduction from the tax credit.

Eligibility for the Subsidy for Health Insurance – Under the Reid bill, individuals, families, and single parents between 133% and 400% of the Federal Poverty Level (FPL) who purchase health insurance through the “exchange” would be eligible for a subsidy for health insurance. In general, individuals, families, and single parents who get health insurance through their employer are NOT eligible for the subsidy, even if they are below 400% of FPL.

Analysis

Comparison of Subsidy for Health Insurance and Premium Increase

Based on the projected cost of an average single and family health insurance policy in the non-group market in 2016, and based on CBO data on the average premium inflation rates under the Reid bill and current law, Finance Committee Republican staff projected the average cost for these plans in the non-group market in 2019. Staff then compared the premium changes with the average subsidy for health insurance an individual, family, or single parent would receive based on JCT data. The below tables illustrate this comparison.

As we can see from the below tables, every individual, family, or single parent is benefiting irrespective of a premium increase.

Non-Group – Single

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Increase Subsidy Net Premium Increase/Premium Subsidy
$0 to $10,000 $6,953 $6,444 $509 ($6,500) ($6,218)
$10,000 to $20,000 $6,953 $6,444 $509 ($5,694) ($5,412)
$20,000 to $30,000 $6,953 $6,444 $509 ($4,723) ($4,441)
$30,000 to $40,000 $6,953 $6,444 $509 ($3,742) ($3,459)
$40,000 to $50,000 $6,953 $6,444 $509 ($4,075) ($3,793)
$50,000 to $75,000 $6,953 $6,444 $509 ($3,304) ($3,022)
$75,000 to $100,000 $6,953 $6,444 $509 ($667) ($384)
$100,000 to $200,000 $6,953 $6,444 $509 ($1,500) ($1,218)

 

Non-Group – Family

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Increase Subsidy Net Premium Increase/Premium Subsidy
$10,000 to $20,000 $19,026 $15,387 $3,639 ($9,183) ($5,544)
$20,000 to $30,000 $19,026 $15,387 $3,639 ($14,127) ($10,489)
$30,000 to $40,000 $19,026 $15,387 $3,639 ($14,647) ($11,008)
$40,000 to $50,000 $19,026 $15,387 $3,639 ($14,129) ($10,490)
$50,000 to $75,000 $19,026 $15,387 $3,639 ($13,542) ($9,904)
$75,000 to $100,000 $19,026 $15,387 $3,639 ($11,117) ($7,478)
$100,000 to $200,000 $19,026 $15,387 $3,639 ($6,743) ($3,110))

Non-Group – Head of Household

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Increase Subsidy Net Premium Increase/Premium Subsidy
$0 to $10,000 $19,026 $15,387 $3,639 ($7,555) ($3,916)
$10,000 to $20,000 $19,026 $15,387 $3,639 ($7,958) ($4,139)
$20,000 to $30,000 $19,026 $15,387 $3,639 ($7,464) ($3,825)
$30,000 to $40,000 $19,026 $15,387 $3,639 ($7,764) ($4,125)
$40,000 to $50,000 $19,026 $15,387 $3,639 ($9,201) ($5,562)
$50,000 to $75,000 $19,026 $15,387 $3,639 ($9,497) ($5,858)
$75,000 to $100,000 $19,026 $15,387 $3,639 ($8,039) ($4,400)
$100,000 to $200,000 $19,026 $15,387 $3,639 ($8,500) ($4,861)

Comparison of Premium Reduction and Tax Increase

Based on the projected cost of an average single and family health insurance policy in the small group and large group market in 2016, and based on CBO data on the average premium inflation rates under the Reid bill and current law, Finance Committee Republican staff projected the average cost for these plans in the small and large group markets in 2019. Staff then compared the premium changes with the average tax increase an individual or family would see based on JCT data. The below tables illustrate this comparison.

As we can see from the below tables, low-income individuals, families, and single parents between $0 and $20,000 (and in the case of a family policy in the large group market, between $0 and $30,000) are benefiting from the premium reduction, net of a tax increase. Individuals, families, and single parents with income between $20,000 and $200,000, however, are actually paying more, net of the premium reduction and tax increase.

Small Group – Single

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Reduction Subsidy Tax Increase Net Tax Increase/Premium Reduction
$0 to $10,000 $9,130 $9,130 $0 $0 $31 $31
$10,000 to $20,000 $9,130 $9,130 $0 $0 $99 $99
$20,000 to $30,000 $9,130 $9,130 $0 $0 $202 $202
$30,000 to $40,000 $9,130 $9,130 $0 $0 $325 $325
$40,000 to $50,000 $9,130 $9,130 $0 $0 $377 $377
$50,000 to $75,000 $9,130 $9,130 $0 $0 $576 $576
$75,000 to $100,000 $9,130 $9,130 $0 $0 $681 $681
$100,000 to $200,000 $9,130 $9,130 $0 $0 $726 $726

Small Group – Family

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Reduction Subsidy Tax Increase Net Tax Increase/Premium Reduction
$0 to $10,000 $22,469 $22,637 ($168) $0 $88 ($80)
$10,000 to $20,000 $22,469 $22,637 ($168) $0 $99 ($69)
$20,000 to $30,000 $22,469 $22,637 ($168) $0 $250 $82
$30,000 to $40,000 $22,469 $22,637 ($168) $0 $452 $284
$40,000 to $50,000 $22,469 $22,637 ($168) $0 $620 $452
$50,000 to $75,000 $22,469 $22,637 ($168) $0 $743 $575
$75,000 to $100,000 $22,469 $22,637 ($168) $0 $826 $658
$100,000 to $200,000 $22,469 $22,637 ($168) $0 $1,060 $892

Small Group – Head of Household

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Reduction Subsidy Tax Increase Net Tax Increase/Premium Reduction
$0 to $10,000 $22,469 $22,637 ($168) $0 $0 ($168)
$10,000 to $20,000 $22,469 $22,637 ($168) $0 $55 ($113)
$20,000 to $30,000 $22,469 $22,637 ($168) $0 $521 $353
$30,000 to $40,000 $22,469 $22,637 ($168) $0 $1,294 $1,126
$40,000 to $50,000 $22,469 $22,637 ($168) $0 $1,755 $1,587
$50,000 to $75,000 $22,469 $22,637 ($168) $0 $1,482 $1,314
$75,000 to $100,000 $22,469 $22,637 ($168) $0 $1,114 $946
$100,000 to $200,000 $22,469 $22,637 ($168) $0 $999 $831

Large Group – Single

Income Premiums Under Reid Bill Premiums Under Current Law Premiums Reduction Subsidy Tax Increase Net Tax Increase/Premium Reduction
$0 to $10,000 $8,514 $8,680 ($166) $0 $31 ($135)
$10,000 to $20,000 $8,514 $8,680 ($166) $0 $99 ($67)
$20,000 to $30,000 $8,514 $8,680 ($166) $0 $202 $36
$30,000 to $40,000 $8,514 $8,680 ($166) $0 $325 $159
$40,000 to $50,000 $8,514 $8,680 ($166) $0 $377 $211
$50,000 to $75,000 $8,514 $8,680 ($166) $0 $576 $410
$75,000 to $100,000 $8,514 $8,680 ($166) $0 $681 $515
$100,000 to $200,000 $8,514 $8,680 ($166) $0 $726 $561

Large Group – Family

Income Average Premiums Under Reid Bill Average Premiums Under Current Law Premiums Reduction Subsidy Tax Increase Net Tax Increase/Premium Reduction
$0 to $10,000 $23,542 $23,878 ($336) $0 $88 ($248)
$10,000 to $20,000 $23,542 $23,878 ($336) $0 $99 ($237)
$20,000 to $30,000 $23,542 $23,878 ($336) $0 $250 ($86)
$30,000 to $40,000 $23,542 $23,878 ($336) $0 $452 $116
$40,000 to $50,000 $23,542 $23,878 ($336) $0 $620 $284
$50,000 to $75,000 $23,542 $23,878 ($336) $0 $743 $407
$75,000 to $100,000 $23,542 $23,878 ($336) $0 $826 $490
$100,000 to $200,000 $23,542 $23,878 ($336) $0 $1,060 $724

Large Group – Head of Household

Income Average Premiums Under Reid Bill Average Premiums Under Current Law Premiums Reduction Subsidy Tax Increase Net Tax Increase/Premium Reduction
$0 to $10,000 $23,542 $23,878 ($336) $0 $0 ($336)
$10,000 to $20,000 $23,542 $23,878 ($336) $0 $55 ($281)
$20,000 to $30,000 $23,542 $23,878 ($336) $0 $521 $185
$30,000 to $40,000 $23,542 $23,878 ($336) $0 $1,294 $958
$40,000 to $50,000 $23,542 $23,878 ($336) $0 $1,755 $1,419
$50,000 to $75,000 $23,542 $23,878 ($336) $0 $1,482 $1,146
$75,000 to $100,000 $23,542 $23,878 ($336) $0 $1,114 $778
$100,000 to $200,000 $23,542 $23,878 ($336) $0 $999 $663

(photo credit: White House official photo by Sharon Farmer)

14 responses

  1. Pingback: Tweets that mention How would the Reid bill affect the middle class?  |  KeithHennessey.com -- Topsy.com

  2. This is an awesome analysis, but there is a simpler way to look at it. If you are currently employed, earn a "middle class" wage, and pay for health insurance (wholly, or with help from your employer), you still have to pay for that same health insurance in the new plan. You also have to pay for the uninsured, in the same way that you know pay for Medicare and Medicaid. And Social Security. And service on the debt that our parents left us. And everything else.

    You pay for what you have now, and you pay for somebody else's ride. That's it in a nutshell, and at some point the voters will realize this.

    Here's the only math that really matters: To insure perhaps 30 million people, Harry Reid is proposing approximatel $1T in new Federal Spending. That comes to $33,000 for each of these people.

    Where else on the planet do you pay $33,000/year per person for health insurance? Not per family, but per person? Even if I'm off by a factor of two, and there are actually 60 million uninsured, it's still $16,500 per person, per year, forever.

    • I believe the $1T number is for a ten year period. However, the subsidies / expenses are only for 6-7 years of that period, so $5,000 per year per person is more like the actual expense. That's a pretty cheap policy, which the government can offer by simply not reimbursing providers fully for their services.

      "You pay for what you have now, and you pay for someone else's free ride" just about sums it up, though.

  3. Pingback: Hot Air » Blog Archive » Reid version of ObamaCare would slam middle class

  4. Brilliant article. This is the message that opponents to the Reid bill need to get out. Keith Hennessey does a great job of taking an extremely complicated bill and creating a simple and strong message to all middle-class families: Some of you may benefit, but far more will see their health care costs increase.

  5. I'm troubled by the idea of subsidizing low income people by buying insurance policies. It looks to me like this could easily have the affect of providing 2 forms of subsidization where one of them results in subsidizing those who are supposedly paying their own way. This results from the notion that insurance itself is a method of subsidizing some policy holders at the expense of others. Therefore, when we subsidize someone by buying them an insurance policy we are also subsidizing other policy holders within the subject insurance pool. If the insurance pool consisted of only subsidized policy holders then this would net out in the way that most people might expect. In that, the subsidies all went to people we wanted to get them. However, if the insurance pool includes policy holders who are not subsidized and for some reason they end up having higher payouts (i.e., they're relatively more in need of health care) then we end up subsidizing people we had no intention of subsidizing. Now if it should happen that low income subsidized people are disproportionately younger and healthier we have the scenario I mention.

    Did I miss something?

  6. It seems to me that an important characteristic of the mechanism used to subsidize health care is that you want to retain motivation for people to get off the subsidy and start paying their own way. With respect to tax credits this should mean that when people earn more money they end up with more money. In this case I think we're talking about after health care money. The question that arises is, “does the tax credit mechanism create a situation where a worker can get a raise that causes them to have their tax credit reduced or eliminated in such a way that they end up without any extra money after paying for health care?”.

  7. Pingback: Reid Healthcare Bill: Amendments and Middle Class Impact « Verus Politics: Truth and Reason

  8. Pingback: Vodkapundit » Tax THIS!

  9. Pingback: The Greenroom » Forum Archive » ObamaCare: Lieberman, Nelson needle Reid’s trial balloon (and the CLASS Act)

  10. Pingback: The Monstrous Mess of ObamaCare. « American Elephants

  11. Pingback: Maggie's Farm

  12. As Obama so eloquently stated to Joe the Plumber we need to "spread the wealth around". This health care bill/disaster has never been anything other than a massive transfer of wealth. They have always known that "bending the cost curve down" was nothing more than a convenient lie.

    And the fun part is coming…….as they have announced their next mission: to "control our deficit" (a deficit that they created). That is code for means testing social security, Medicare, and other programs, turning them into nothing more than welfare programs. It is also code for raising taxes significantly at both the state and national level (probably a national sales tax). Someone has to pay for spreading the wealth around.

    So let’s “spread your wealth around”. That’s what you voted for…..right?

  13. Pingback: [blog] – How Will the Reid Bill Affect Me? | Giant Link List || Stupid Funny Videos || Stupid News || Funny Blogs || Everything Else

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