Washington is currently focused on whether to extend COVID-era Obamacare subsidy add-ons. Democrats demanded these supposedly temporary subsidies be extended, leading to the recent government shutdown. Even after the end of the shutdown, there is talk in Washington of finding a way to extend these subsidies. Continuing these add-on subsidies creates many problems, starting with the fact it forces taxpayers to subsidize a significantly larger portion of the premiums for people who buy on Obamacare’s individual health insurance exchanges.
However, one major, and overlooked, problem with these subsidies is how they harmed people with employer-sponsored insurance and created large incentives for small employers to not offer health insurance.
Americans choose where to work based on the compensation they receive, which often includes health insurance for themselves and their families. Yet, as a result of the Affordable Care Act, the federal government increasingly penalizes people with employer-sponsored health insurance, while rewarding those who do not get coverage at work. This structure causes employers to forgo offering coverage and workers to prefer jobs where they do not receive health insurance.
If you get employer-sponsored insurance, you get a tax advantage because you get to exclude the premium — a large portion of which is the compensation you earned — from your income taxes and payroll taxes. In contrast, under the ACA, the federal government sends subsidies to health insurers in the names of their enrollees, but these are unearned benefits.