Small Business and the ACA

Comments on Casey Mulligans Average Marginal Labor Income Tax Rates Under the ACADon TaylorAssociate Professor of Public Policy at Duke Universitywww.donaldhtaylorjr.comJanuary 18, 2014Question?In 20 years, how do you want your children (grandchildren) to obtain health insurance?

ACA 50,000 foot versionLittle c conservative: keep what we have in ESICreate market for premium supported private insurance + Medicaid expansionMacro finance: tax increases & Medicare cutsKitchen sink cost/system demosCaddy tax: limit of tax preference of ESI

Mulligan PaperEstimates marginal labor income tax rates from ACADocuments implicit + explicitPainstaking effort, carefully donePuts an estimate to intuitionUseful: break down provisions into programsUses median wage earner to evaluate impactsStatutory Index $204/month, or 4.8% points of employee compensationBig effect

More on effectsEmployer shared responsibility payment only third largest impact (delayed)Sliding scale subsidies for those offered ESI at work & those not both largerAnalysis identifies incentives to work as well as disincentivesI am unclear on Table 2Table 2 key. Overall estimates focus on short run decisionsTable 2 provides an adjustment of overstatement of tax increase due to longer time frameTable 1 uses 3 month overstate adjustment=-0.212 months overstate=-1.6; 6 month =-0.6

Big question: are there really behavioral opportunities to take advantage of this math?Table 3 MemorableMore taxable income net insurance + work expenses for part time than full timeMath is correctSeems an atypical examplePart time $26/hour in wagesFull time $26/hour in employment cost (insurance premiums excluded, employee premiums pre tax)Sensitivity? Run it at $16 and $36/hour?

Slight quarrelTable 1 does not include a loss of the tax subsidy when leaving ESI to move to an exchange planCasey notes the ACA doesnt take away the subsidy; the tax code has provided it for 60+ years, it is simply triggered when you decide to leave ESI for ACAPerhaps put what the magnitude of the term would be in the footnoteWhat I would like to see in paperShow how sensitive overall findings are to using median wages (10th, 25th, 50th, 75th, 90th )Estimate Medicaid expand States v not separatelyEvaluate other financing approaches for ACAVAT/Sales taxWalk down ESI tax exclusion 75th, 50th, 25th, etc & end employer penaltyThis could be another paper (very interesting one)What I hope is happening longitudinallyAre the data being collected to test for the predictions that flow from this analysis? (and other analyses)State Level ImpactsI think an incentive to work term is missing for States that have not expanded Medicaid & who have 0% eligibility for childless adults (you are in one now)Childless 46 year old Adult in NC: if you make $11,489 you get nothing; if you make $11,490 you can buy ACA plan in Durham county for: $0/month bronze; $11.37/month silver + cost share subsidiesPaper has disincentive factor from Medicaid expansion which I agree with; needs an incentive term in addition to the one derived from table 2 to account for low cliff in some states

But what about Massachusetts?Very interesting analysisMass the increase in labor income tax rate$16/month or 0.3% points US $204/month or 4.8% points

Key talking point been ESI went up in Mass, didnt tank labor market

Difference between doing in rich State v the South?

Two key ifs in the discussionCombined employment taxes roughly what they were in 2013 even with ACA ifEmergency Unemployment Compensation not extendedEmployer penalty delayed

The first is likely, the second is a near certainty (forever)If so, shift from $ to health insurance (hope someone studying this)How much subsidy should you get?

Need a deal to transitionWe need a political deal that could allow Caseys paper to stimulate a conversation about what might be a better way to finance health reformLeft, Right and Center can sketch distant approaches, but transitioning there is very hardBoth sides need a dealEasier to poke holes in any plan than it is to do better

Three suggestions:Replace individual mandate w/ Paul Ryan auto-enrollFor exchange purchases above subsidy, make some/all premium deductible Replace caddy tax with capping of tax exclusion ESIMy answerI dont want my kids to get insurance from a job

Decouple employment from health insuranceMake all subsidies explicitAt Duke, there is some one with a good idea who wont try it because they need health insuranceBut need stable source of coverageExchange approach ~ inevitable. Details flexiblePaul Starrs Policy Trap165 Million with employer sponsored insurance50 Million with Medicare; 65 Million + Medicaid15 Million individual purchaseACA makes these buy ~ employer benefit level policies; those above 400% poverty must pay full price. Pissed and noisyIssues Casey demonstrates

Republicans & canceled health plansRamesh Ponnuru in National Review on line 10/30/13

Some Republican health-care plans would run up against this same obstacle, because they, too disrupt the existing health-insurance arrangements.

Understatement alert. 165 Million with tax free employer contributions via ESI have lots too lose (aggregate $272 Billion this year)

The hardest part of any reformIs the transitional periodLeft, Right and Center can sketch distant approaches, but transitioning there is very hard

How ACA Impacts Small BusinessEmployer penalty (delayed)96% of firms < 50 employers so does not applyBut, only 28% of workers in such firmsFT v PT issues (notch is inherent)Small Biz Employer Tax CreditSmall Biz Exchange (SHOP Exchange)Small Biz Tax CreditComplexEmployers