Painful health care lessons from Massachusetts: health care exchanges

How did health care costs in Massachusetts get so big? A major reason is that health care exchanges reward people for working less and earning less, says Shawn Tully, a senior editor-at-large with CNN.money.

Data is lacking on how damaging these perverse incentives are in practice. But it's clear in Massachusetts that low-to medium-earning families often suffer financially if they get a raise, work overtime, move to a higher paying job – or if a spouse rejoins the workforce, says Tully.

For example:
 

• A family earning $33,000 pays no premium at all under Commonwealth Care.
   
• But if their pay goes to $46,000, they're obligated to contribute about $2,400.
   
• That's an effective tax rate of 18.5 per cent on that $13,000 raise.
   
• A pay increase of $44,000 to $46,000 is mostly erased by higher premiums alone.
  
  The federal bill is plagued by the same weakness. For example:
   
• A $55,000 earner contributes $4,400 a year towards insurance.
   
• At $65,000, the bill is $6,300; so the family is paying a "tax" of $1,900 or 19 per cent on that $10,000 raise.
  
  After payroll taxes, those Americans would face a marginal rate of around 35 per cent, a number that's heretofore been the territory strictly for high-earners, says Tully.
  
  Source: Shawn Tully, Five painful health care lessons from Massachusetts, Fortune, June 15, 2010.
  
  For text: http://money.cnn.com/2010/06/15/news/economy/massachusetts_healthcare_reform.fortune/
  
  For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16
  
  First published by the National Center for Policy Analysis, United States
  
  FMF Policy Bulletin/ 29 June 2010