Premium%20Subsidies%20in%20the%20Context%20of%20Section%20125%20Plan%20Tax%20Savings%20and%20Employer%20Payroll%20Withholding

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Premium Subsidies in the Context of Section 125
Plan Tax Savings and Employer Payroll Withholding

• How Much Can This Save Individuals and States?
• Ed Neuschler, Institute for Health Policy
  Solutions
• SCI/NASHP/NGA Section 125 Plans Meeting
• July 18, 2008
• Denver, CO

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Illustration Single Worker with No
ChildrenEarning 20,800 Annually (10.00 per
hour) 200 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan
Full Premium (monthly) 350  
Payroll Deduction Amount (i.e., through sec. 125 plan) -  
Reduction in FICA tax -  
Reduction in federal income tax withholding -  
Desired Worker Contribution 87 5.0
Public Subsidy Payment 263  
Note Red figures in italics percent of income.
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Illustration Single Worker with No
ChildrenEarning 20,800 Annually (10.00 per
hour) 200 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan   Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Net Amount
Full Premium (monthly) 350   350  
Payroll Deduction Amount (i.e., through sec. 125 plan) -   112 6.5
Reduction in FICA tax -   9 7.65
Reduction in federal income tax withholding -   17 15.0
Desired Worker Contribution 87 5.0 87  
Public Subsidy Payment 263     238  
Public Savings -   25 9.6
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Illustration Single Worker with No
ChildrenEarning 28,080 Annually (13.50 per
hour) 270 of Poverty
  Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Gross Amount Using Sec. 125 Plan, Billing Gross Amount
Full Premium (monthly) 350   350  
Payroll Deduction Amount (i.e., through sec. 125 plan) 151 6.5 350 15.0
Reduction in FICA tax 12 7.65 27 7.65
Reduction in federal income tax withholding 23 15.0 53 15.0
Desired Worker Contribution 117 5.0 117 5.0
Public Subsidy Payment 199   154  
Public Savings 34 14.7 79 34.0
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Illustration Single Worker with No
ChildrenEarning 41,600 Annually (20.00 per
hour) 400 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan   Using Sec. 125 Plan, Billing Gross Amount Using Sec. 125 Plan, Billing Gross Amount
Full Premium (monthly) 350   350  
Payroll Deduction Amount (i.e., through sec. 125 plan) -   350  
Reduction in FICA tax -   27 7.7
Reduction in federal income tax withholding -   53 15.2
Net Worker Contribution 350 10.1   270 7.8
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Illustration Single Parent with Two
ChildrenEarning 31,200 Annually (15.00 per
hour) 177 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan
Full Premium (monthly) 350  
Payroll Deduction Amount (i.e., through sec. 125 plan) -  
Reduction in FICA tax -  
Reduction in federal income tax withholding -  
Desired Worker Contribution 130 5.0
Public Subsidy Payment 220  
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Illustration Single Parent with Two
ChildrenEarning 31,200 Annually (15.00 per
hour) 177 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan   Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Net Amount
Full Premium (monthly) 350   350  
Payroll Deduction Amount (i.e., through sec. 125 plan) -   164 6.3
Reduction in FICA tax -   13 7.6
Reduction in federal income tax withholding -   22 13.2
Desired Worker Contribution 130 5.0 130 5.0
Public Subsidy Payment 220     186  
Public Savings -   34 15.5
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Illustration Single Parent with Two
ChildrenEarning 31,200 Annually (15.00 per
hour) 177 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan   Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Net Amount
Full Premium (monthly) 350   350  
Payroll Deduction Amount (i.e., through sec. 125 plan) -   164 6.3
Reduction in FICA tax -   13 7.6
Reduction in federal income tax withholding -   22 13.2
Desired Worker Contribution 130 5.0 130 5.0
Public Subsidy Payment 220     186  
Public Savings -   34 15.5
Add'l end-of-year savings to worker       414 1.3
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Illustration Single Parent with Two
ChildrenEarning 52,000 Annually (25.00 per
hour) 295 of Poverty
  Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Net Amount Using Sec. 125 Plan, Billing Gross Amount Using Sec. 125 Plan, Billing Gross Amount
Full Premium (monthly) 350   350  
Payroll Deduction Amount (i.e., through sec. 125 plan) 280 6.5 350 8.1
Reduction in FICA tax 21 7.6 27 7.7
Reduction in federal income tax withholding 42 15.0 53 15.0
Desired Worker Contribution 217 5.0 217 5.0
Public Subsidy Payment 70   54  
Public Savings 63 47.6 79 59.5
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Illustration Married Couple with Two
ChildrenEarning 72,800 Annually (35.00 per
hour) 343 of Poverty
  Not Using Sec. 125 Plan Not Using Sec. 125 Plan Using Sec. 125 Plan, Billing Gross Amount Using Sec. 125 Plan, Billing Gross Amount
Full Premium (monthly) 1,000   1,000  
Payroll Deduction Amount (i.e., through sec. 125 plan) -   1,000  
Reduction in FICA tax -   77 7.65
Reduction in federal income tax withholding -   150 15.0
Net Worker Contribution 1,000 16.5   774 12.8
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Single Worker with No ChildrenContributions as
a Percent of Family Income Before and After Tax
Savings From Using a Section 125 Account to Pay
Premiums(Illustration Using Oregon Tax Rates)
7.0
6.0
3.0
4.9
4.2
2.2
2.1
Combined effective marginal tax rate starts at
25.75, reaches 30.3 at 170 FPL.
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Married Couple with 2 ChildrenContributions as
a Percent of Family Income Before and After Tax
Savings From Using a Section 125 Account to Pay
Premiums (Illustration Using Oregon Tax Rates)
7.0
6.0
3.0
4.2
4.9
2.2
Combined effective marginal tax rate starts at
26.55, exceeds 30 above 200 FPL. Does NOT
include EITC effects.
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Distribution of Subsidy Costs for Low-Income
Peoplein an Illustrative Subsidized
Exchange,with and without Section 125
Tax-Sheltering
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Affordability Example 3Single workers for pay
employers at different ages, 500 FPL (51,050)
--Purchasing a 2500 deductible plan--
Age Annual Premium (for coverage actually purchased) "20 Credit" plus Tax Savings as a of Premium Net Annual Cost to Family, After Tax Savings Net Cost as Percent of Family Income, After Tax Savings
19-24 1,392 51.3 678 1.33
25-29 1,392 51.3 678 1.33
30-34 2,052 50.8 1,009 1.98
35-39 2,460 51.2 1,200 2.35
40-44 3,084 50.9 1,515 2.97
45-49 3,300 51.6 1,598 3.13
50-54 4,212 52.1 2,019 3.96
55-59 5,400 52.3 2,575 5.04
60-64 6,888 51.5 3,343 6.55
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Affordability Example 4Married parent working
at pay employer (with non-working spouse), 500
FPL (103,250) --Purchasing a 2500 deductible
plan--
Age Annual Premium (for coverage actually purchased) "20 Credit" plus Tax Savings as a of Premium Net Annual Cost to Family, After Tax Savings Net Cost as Percent of Family Income, After Tax Savings
19-24 5,148 38.1 3,186 3.09
25-29 5,148 38.1 3,186 3.09
30-34 6,660 39.2 4,052 3.92
35-39 7,272 40.0 4,365 4.23
40-44 8,064 40.7 4,781 4.63
45-49 8,832 41.3 5,185 5.02
50-54 10,308 42.4 5,942 5.76
55-59 12,420 43.1 7,061 6.84
60-64 14,844 43.5 8,393 8.13