Obamacare Subsidies Are Not a Free Lunch

Brian Blase / October 28, 2010

Families USA is out with a new report, Lower Taxes, Lower Premiums: The New Health Insurance Tax Credit, which lauds the health insurance tax credits (subsidies) in Obamacare. But the report tells only half of the story.

It is true that the tax credits will reduce the effective premium that many households will face for health insurance coverage. However, the key question from a policy perspective is whether the benefits of the Obamacare tax credits outweigh their costs. Since the Families USA report failed to list any of the costs or concerns of the Obamacare tax credits, Heritage will fill the void.

First, the tax credits are going to be enormously expensive. The Congressional Budget Office (CBO) estimated that the average subsidy per subsidized enrollee will be between $5,200 and $6,000. Subsidies have to be paid for with revenue generated through taxes. So the gross benefit is exactly offset by the gross cost of the tax credit paid by federal taxpayers (all else being equal). According to the Families USA report, the total cost of the tax credits will be $110 billion in 2014 alone. All else is not equal, however. The tax credits will be financed not only by higher taxes paid by many millions of households but also through substantial Medicare cuts and net revenue from the CLASS Act scheme. (more…)