ObamaCare strikes out with workers

FROM THE POLITICO.COM

ObamaCare, formally known as the Patient Protection and Affordable Care Act, is bad news for U.S. workers.

Strike One: ObamaCare is fiscally dangerous, raising the risk of higher taxes all around — including taxes on labor at a time when the job market is struggling.

Strike Two: ObamaCare creates strong incentives for employers — even while holding workers financial harmless — to drop employer-sponsored health insurance for as many as 35 million Americans. This is sure to lead to widespread turmoil in labor compensation, employee insurance coverage and labor relations.

Strike Three: ObamaCare slaps big increases in effective marginal tax rates on low-income workers. Every worker forced onto the subsidized exchanges is sure to face higher barriers to upward mobility and the pursuit of the American Dream.

ObamaCare should be sent back to the dugout.

But, sadly, the political arithmetic argues against a simple repeal. So the focus should be on cutting the massive subsidies that lie at the heart of the problem. Let’s take the reasons in turn.

The Congressional Budget Office projects that ObamaCare will reduce federal deficits by $143 billion over its first 10 years. But Michael Ramlet and I expose the bill to closer scrutiny in our coming Health Affairs article.

Not surprisingly for an act that creates two new, rapidly-growing entitlement programs —insurance subsidies and long-term care insurance — we conclude that ObamaCare instead increases the deficit by more than $500 billion in the first 10 years.

Not the best step at a time when even the sober-minded are beginning to worry that events in Greece and Europe are the ghost of America’s fiscal future.

Deficits represent a commitment to either raise taxes or reduce future outlays. New taxes on labor is sure to impede smooth functioning of labor markets by interfering with decisions involving education, career choice, hiring, job switching, second-jobs and myriad aspects of the most crucial U.S. economic activity today.

For better or — more likely — worse, health insurance is heavily entangled with the labor market. Today, roughly 163 million workers and their families receive health insurance coverage from their employers; and about one-half of the ObamaCare spending is for insurance subsidies.

These subsidies are remarkably generous — even for those with relatively high incomes.

For example, a family earning about $59,000 a year in 2014 would receive a premium subsidy of about $7,200. A family making $71,000 would receive about $5,200. Even a family earning about $95,000 would receive a subsidy of almost $3,000.

These subsidies threaten to undermine existing labor market relationships.

Health insurance is generally only one piece of an overall compensation package that employees receive as a result of competitive pressures. Evidence suggests that if the health insurance portion of that package is reduced or eliminated, the wage aspect will ultimately be increased as a competitive necessity to retain and attract valuable labor.

So the key question is whether the employer can keep the employee “happy” — appropriately compensated and insured — and save money.

The answer is frequently “yes” — thanks to the generosity of federal subsidies. In a study available at the American Action Forum website, we find that for a worker with an income of $59,250 — 250 percent of the federal poverty level — the employer could drop $12,000 in insurance, pay the $2,000 penalty ObamaCare imposes on doing so, give the worker a raise of $8,391 and pocket a tidy $1,550.

More important, the worker could use her raise and the $7,530 subsidy to purchase insurance as good as what she gave up.

What’s not to like — as long as the other 138 million taxpayers are financing the deal?

The potential affect is large. There are now 123 million Americans at or below this income cutoff. Roughly 60 percent of Americans work; about 60 percent of those receive employer-sponsored insurance. This suggests that there are about 43 million workers for whom it may make financial sense to drop insurance.

In the interest of being conservative, let’s say it is 35-40 million.

CBO estimated that only 19 million would receive subsidies, at a cost of about $450 billion over the first 10 years. This analysis suggests that the number could easily be triple that — or 19 million plus an additional 38 million in 2014. Meaning the price tag would be $1.4 trillion.

On top of that, there would be a disruptive and vast reworking of compensation packages, insurance coverage and labor market relations.

Strike Three is that our study shows that every worker shifted to public subsidies will face striking increases in effective marginal tax rates (EMTRs). These rates — the fraction of each additional dollar workers get to save or spend — are at the heart of economic incentives and should be kept as low as possible.

Unfortunately, ObamaCare imposes stunning increases on EMTRs for low-income workers. For every worker who faces a loss in employer coverage, we have a worker who faces a greater difficulty in getting ahead when taking an extra shift; finding a way for a second parent to work, or investing in night school courses to qualify for a raise.

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