House and Senate Democrats have produced
health care legislation whose mandates, subsidies,
tax penalties, and health insurance regulations
would penalize work and reward Americans who
refuse to purchase health insurance. As a result,
the legislation could trap many Americans in low-wage
jobs and cause even higher health-insurance
premiums, government spending, and taxes than
are envisioned in the legislation.
Those mandates and subsidies would impose
effective marginal tax rates on low-wage workers
that would average between 53 and 74 percent—
and even reach as high as 82 percent—over broad
ranges of earned income. By comparison, the
wealthiest Americans would face tax rates no
higher than 47.9 percent.
Over smaller ranges of earned income, the legislation
would impose effective marginal tax
rates that exceed 100 percent. Families of four
would see effective marginal tax rates as high as
174 percent under the Senate bill and 159 percent
under the House bill. Under the Senate bill,
adults starting at $14,560 who earn an additional
$560 would see their total income fall by $200
due to higher taxes and reduced subsidies. Under
the House bill, families of four starting at
$43,670 who earn an additional $1,100 would
see their total income fall by $870.
In addition, middle-income workers could save
as much as $8,000 per year by dropping coverage
and purchasing health insurance only when sick.
Indeed, the legislation effectively removes any
penalty on such behavior by forcing insurers to
sell health insurance to the uninsured at standard
premiums when they fall ill. The legislation would
thus encourage “adverse selection”—an unstable
situation that would drive insurance premiums,
government spending, and taxes even higher.
House and Senate Democrats have produced
health care legislation whose mandates, subsidies,
tax penalties, and health insurance regulations
would penalize work and reward Americans who
refuse to purchase health insurance. As a result,
the legislation could trap many Americans in low-wage
jobs and cause even higher health-insurance
premiums, government spending, and taxes than
are envisioned in the legislation.
Those mandates and subsidies would impose
effective marginal tax rates on low-wage workers
that would average between 53 and 74 percent—
and even reach as high as 82 percent—over broad
ranges of earned income. By comparison, the
wealthiest Americans would face tax rates no
higher than 47.9 percent.
Over smaller ranges of earned income, the legislation
would impose effective marginal tax
rates that exceed 100 percent. Families of four
would see effective marginal tax rates as high as
174 percent under the Senate bill and 159 percent
under the House bill. Under the Senate bill,
adults starting at $14,560 who earn an additional
$560 would see their total income fall by $200
due to higher taxes and reduced subsidies. Under
the House bill, families of four starting at
$43,670 who earn an additional $1,100 would
see their total income fall by $870.
In addition, middle-income workers could save
as much as $8,000 per year by dropping coverage
and purchasing health insurance only when sick.
Indeed, the legislation effectively removes any
penalty on such behavior by forcing insurers to
sell health insurance to the uninsured at standard
premiums when they fall ill. The legislation would
thus encourage “adverse selection”—an unstable
situation that would drive insurance premiums,
government spending, and taxes even higher.
Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.