Health Reform Winners and Losers

How the House bill redistributes money to the middle class.

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Speaker of the House Nancy Pelosi addresses health care reform

We hear a lot these days from Democrats about what health reform will give you and from Republicans about what health reform will take away. Democrats say it will provide greater access to health insurance; less-expensive premiums, co-payments, and deductibles; and a guarantee that your insurer won’t reject you or charge you an arm and a leg because you have a pre-existing condition. Republicans say it will burden you with higher taxes, reduced benefits, less freedom to choose what type of health insurance you want (Sen. John Kyl, R-Ariz., complained at last week’s markup that as a man he shouldn’t have to pay for maternity care), and no freedom at all to forgo health insurance altogether.

What we don’t hear much about is how health reform will take money from one group of people and give it to another. Some parts of health reform help people in all income groups—even millionaires worry that developing a chronic or fatal disease might imperil their insurability. But in general, health reform has a redistributive impact. Democrats hesitate to talk about this for fear of sounding like socialists. Republicans hesitate to talk about it for fear of sounding like plutocrats. But let’s face it: Redistributing income in one form or another is a very large part of what government does. Arguing about whether it should be done is like arguing about whether the sky should be blue. The more urgent question is how it is done.

How will health reform redistribute income? In a manner both just and efficient, to judge from an improbable source: the Tax Foundation, a conservative nonprofit think tank dedicated to keeping taxes as low as is humanly possible. The Tax Foundation has plugged a July 17 Congressional Budget Office analysis of the unamended House version of the health-reform bill (text, summary) into its Fiscal Incidence Microsimulation Model, an instrument no less mysterious to me than the flux capacitor powering Doc Brown’s time-traveling DeLorean in Back to the Future. I will assume, for simplicity’s sake, that the FIMM is a legitimate tool for economic analysis and that the Tax Foundation’s economists have not rigged it.

A common Republican complaint about health reform is that it will put the screws to hard-working ordinary Americans to please the whims of Washington’s high-paid, out-of-touch cognitive elite. In an Oct. 6 op-ed in the Louisville Courier-Journal, Sen. Mitch McConnell, R-Ky., writes, “If you already have health insurance, this plan will tax you in the form of a new tax on insurance companies, which of course would be passed on to consumers.” The “you” in that formulation suggests that McConnell is addressing the broad middle class.

But in truth, the House health-reform bill is quite generous to the middle class—so generous, in fact, that the Tax Foundation purports to be scandalized. “Families in the middle of the income spectrum would benefit the most—an average of about $1,900 per family—from the greater income redistribution embedded in the House health reform plan,” says Tax Foundation President Scott Hodge in a press release. Who’s paying? Mostly people earning more than $358,000. That may outrage a few anti-redistributionist wonks on the right. But don’t expect to hear a lot of congressional Republicans bleat too openly about this, lest they alienate the party’s sizeable Glenn Beck/Rush Limbaugh wing. Glenn and Rush earn more than $350,000, but I doubt many of their followers do.

I have reproduced the Tax Foundation’s chart above. (Click here for the full report.) It might easily be the handiwork of the White House press office. (Indeed, its findings jibe roughly with those of the labor-affiliated nonprofit Citizens for Tax Justice, which examined only the House health reform bill’s tax provisions.) In 2016, the first year the House health reform bill would go into effect, the measure would cause average net income to rise by $595 to $1,908 for families earning up to $141,000, with the maximum benefit going to those in the middle 20 percent of American incomes. Everybody’s a net gainer, on average, until you get to the 70th percentile.

Republican nit-pickers can (and probably will) point out that the Tax Foundation’s distribution chart puts President Obama in technical violation of his (ill-advised) campaign pledge not to raise taxes on anyone earning less than $250,000. Families earning between $141,000 and $181,000 would lose, on average, $34. Families earning between $181,000 and $252,000 would lose, on average, $358. That’s a pretty trivial hit for people in these income groups and a very small price to pay to make sure your health insurer won’t cancel your policy if you get diagnosed with lymphoma. Even families earning between $252,000 and $358,000 would lose a similarly trivial (for them) $581.

If you earn more than $358,000 a year, your monetary loss from health reform would be significant. According to the Tax Foundation, the average family in this income group would lose nearly $20,000. But even that burden is weighted heavily toward those at the very highest incomes. If your family is lucky enough to occupy the top 1 percent in income—that is, if it makes more than about $918,000—you would lose about $89,000. That’s disturbing only to the sort of person who can’t bear to write down the word rich without putting it inside quotation marks.

Could the House health reform bill be more generous to lower-income people? Sure. Remember, though, that many low-income people already receive health insurance through Medicaid. Medicaid’s eligibility rules are extremely complicated, but if your income is below the federal poverty line—currently $22,000 for a family of four—odds are you can participate in the program under current law.

The Senate bill has not yet been “scored” by the Congressional Budget Office, but my guess is that it will be less burdensome to the top 5 percent and less generous to the middle class—one reason among many that the House bill is the superior product.

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