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

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.

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    First published by the National Center for Policy Analysis, United States

    FMF Policy Bulletin/ 29 June 2010
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