Two brothers, Jim and Scott, each earn $14 per hour as fulltime employees working for different companies. Jim works for a company offering health insurance and Scott works for a company not offering health insurance.
Jim's situation: Let's start with Jim, a $14.00-per-hour worker in a 40 person company already offering health coverage. He works 40 hours a week, 50 weeks a year, making his total wage income $28,000 annually. At 116% of the federal poverty level, it's tough to provide for his stay-at-home spouse caring for two young children, but he gets $6,026 in Earned Income Tax Credit (EITC) that helps out. Jim's proud that he's managed to provide health insurance for his family for years, but it's expensive. For 2014, he's selected the most affordable plan his company offers, but he's crossing his fingers that his family's out-of-pocket spending won't reach the average level expected for those who select such a plan: $5,000. Jim's employer pays much of the $13,800 family premium and fortunately has set up a Section 125 plan so that every penny of Jim's $3,241 contribution is paid pre-tax. Still, that's a hefty 11.6% of his wage income, which might make it appear that Jim's coverage meets the ACA 9.5% of income definition of "unaffordable." In which case, he would qualify for subsidized coverage on the exchange. Unfortunately, exchange eligibility is restricted to those whose cost for "employee-only" coverage under their employer plan exceeds 9.5% of W-2 income, and Jim needs family coverage. Since Jim's share of a "employee-only" premium would be only 4.9% of his income, he is not legally permitted to buy subsidized coverage through the exchange for his dependents.
But Jim realizes that he is, in effect, also paying the employer's share of his premium in reduced wages. How? He has a brother, Scott, doing the same work for a neighboring company of the same size. However, because that company consists only of a few high-paid partners, along with a staff of lower paid clerical assistants, Scott's employer has decided to drop its health benefits in 2014, so their employees are eligible for the premium subsidy in their state exchange. To replace the lost benefit, the company has already announced it will instead pay Scott about $8,000 more a year to do the identical job.
Jim's problem: Here's what frosts Jim. His brother will get not only a much higher cash wage in 2014, but also a better health plan than Jim's, paid for with $15,616 worth of taxpayer-financed exchange subsidies. (Under the Affordable Care Act, the base plan is a "Silver" health plan which covers 70% of a typical plan member's out-of-pocket expenses. In addition to the subsidy to pay the premium, someone at the income level of Scott will also receive a cost-sharing subsidy to improve the coverage from 70% to 94% of his health spending.) After deducting all taxes and health expenses, Jim's net income is expected to be $26,884, whereas his brother's will be $33,350. Jim does not live in one of the 24 states moving forward with Medicaid expansion, so his only prospect for subsidized coverage is through the exchange. In short, Jim can boost his cash income considerably if he can get exchange-subsidized coverage.
The way Jim sees it, Uncle Sam is levying a substantial tax on him simply for working for an employer that responsibly offers health benefits. How is that fair? He appreciates that by not taxing his health benefits Uncle Sam is giving him roughly a 10% discount on all his health insurance premiums. He just can't figure out why his brother is getting an 82% discount. To add insult to injury, Jim knows that he will eventually be saddled with higher premiums and/or higher taxes to pay for his brother's premium subsidy.
