Friday, December 23, 2016

The other subsidy for those who buy their own health insurance

Troubled by the high price of unsubsidized health insurance in the individual market, I have wondered for some time what percentage of those who buy their own insurance without benefit of subsidy are self employed and so claim the self-employed health insurance tax deduction.

I needn't have speculated. Back in October, a google search quickly brought me to detailed estimates provided by the IRS. I've written up the upshot over at healthinsurance.org:
In 2014, 4.2 million tax filers took the self-employed health insurance deduction, deducting a total of $28.1 billion from taxable income, according to a yearly estimate published by the IRS. That comes out to about $6,700 per filer, which indicates that a significant number are deducting premiums for more than one person. $6700 is a bit less than what a pair of 40 year-olds would pay for the average silver-level plan offered in the ACA marketplace 2014.
When I originally drafted this piece back in that relative utopia we dwelled in prior to November 8, I suggested that extending the tax deduction to all unsubsidized buyers in the individual market would be good policy and good politics:
Relatively modest though the self-employed tax subsidy is, the fact that about half of otherwise unsubsidized individual market enrollees access it raises a question of equity. Almost everyone in the U.S. who has health insurance is subsidized in some way. Employer-sponsored insurance is untaxed on both the employer and employee side. Medicare is heavily subsidized; Medicaid is free or close to free for enrollees.  Most ACA marketplace enrollees are also heavily subsidized.

That leaves all of about 4-6 million individuals -- between 1 and 2 percent of the insured U.S. population -- who get no subsidy at all. It would seem a matter of fairness to allow them too to deduct the cost of insurance from their taxable income. Doing so would not only help stabilize the individual market by bringing in modestly affluent, and therefore likely relatively healthy, new customers. It would also lend substantial relief to those slammed by this year's sharp premium spikes.
The healthinsurance.org post instead considers how extending the deduction to anyone who buys in the individual market might fit into Republican plans to replace the ACA subsidy structure with more limited and less progressive subsidies..


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