Sally Pipes: Obamacare Subsidies Will Collapse the System

Monday, 25 Nov 2013 01:20 PM

By Courtney Coren

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For all the problems coming to light with Obamacare, it may be its subsidy system that causes President Barack Obama's signature healthcare law to collapse, because it imposes a massive tax increase on middle and upper-income earners, healthcare expert Sally Pipes wrote Monday.

Website problems aside, Obamacare is wrought with serious problems with its subsidies, which "suffer from several design flaws," said Pipes, president of the Pacific Research Institute, in an opinion piece on Forbes.com.

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The subsidies were developed to help offset healthcare costs for Americans making between 100 percent and 400 percent of the poverty level, capping the amount families and individuals will pay toward premiums at 9.5 percent of income, Pipes explains.

But CNBC reported that the minute a New York family of three makes a dollar more than the $78,120 allowed, the family's $7,421 premium for the mid-level "silver" plan skyrockets to $12,784 — a $5,363 increase.

"That tax hike will act as a drag on the economy," Pipes said.

"First, it encourages people to work less," she said. "Since the plan only offers tax credits below a certain income level, Americans will face a strong disincentive, to stop working once they reach the income level where their subsidies are cut off."

With the income verification delayed until 2015, "the subsidy system also invites fraud."

In addition, she said, the system penalizes married couples.

"A single person with an income of $45,960 could qualify for insurance subsidies, but a couple earning $91,920 — twice that sum — can't," Pipes wrote. "If they live in New York, such a pair will save at least $3,964 if they split up. That's a powerful financial lure for people to avoid marriage."

There also is the issue of how much the subsidies will cost the government. The Congressional Budget Office projected that they will total nearly $950 billion in the first 10 years.

"But those projections were based on a significant number of young, healthy people signing up for coverage in the exchanges," Pipes wrote. The problem so far is that "young people aren't playing ball."

Most of the applicants so far are older, and many younger Americans are more likely to opt for a fine of $95 or 1 percent of their income versus several thousands of dollars each year.

The last major problem, Pipes explained, is that it may not even be legal for the government to be providing subsidies through a federally run exchange program.

"The law states that insurance subsidies may be distributed 'through an Exchange established by the State,'" she adds. "Thirty-six states declined to establish exchanges and left the task to the federal government . . . But because of Obamacare's text, the judiciary may not let them."

Pipes concludes that all of these problems "may foster the collapse of the president's entire health-reform effort."

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