Is Obamacare a Disincentive to Earn More?

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Thanks to Obamacare, 14 million Americans now receive subsidized health insurance. But can cheap coverage dampen their will to work?

It could, say some who have studied its effects.

More than 85 percent of the 16.4 million people who access health insurance through the Affordable Care Act qualify for government subsidies. If your family income is less than four times the poverty rate, your government subsidy could be worth thousands.

“But you make one dollar too much and, ‘Bam!’ That subsidy goes to zero,” warns Stacy Johnson, Money Talks News financial expert. “You fell off a cliff.”

Bradley Heim, Indiana University associate professor, researches health economics and especially how the tax system affects the behavior of individuals, households and businesses. He explains with this example:

“Take a family of four, two parents, two kids, they live in Bloomington, Indiana, [the parents are] each 40. If their income went from $95,000, which is right below 400 percent of the poverty line, to just above, the subsidy would go down from $3,084 to zero.”

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Poverty guidelines, often referred to as the Federal Poverty Level, are a bit higher in Alaska and Hawaii.

Nearly half the insured who received government subsidies in 2014 did not realize they were getting them, according to a Kaiser Family Foundation study.

“I wasn’t very happy,” Mike Highsmith, 61, a retired US Airways flight attendant, told CNBC after learning when he filed his taxes he would have to pay back the $6,624 in federal subsidies that helped pay the lion’s share of his plan.

“This shocked me … I didn’t know this was coming,” he told CNBC.

When he bought his health plan, Highsmith had estimated his annual income at $22,000. He went over the income cliff when he withdrew $30,000 from his 401(k) retirement plan to buy a motorcycle for himself and a car for his college-student son.

Other government programs, from food stamps to welfare, include subsidies that fade as income rises, Heim says, but Obamacare contains a steep drop-off.

The average subsidy repayments in the tax season just past were $667 from low-earning recipients to $1,380 for those earning between 300 and 400 percent of the poverty level, CNBC reported.

What would you do?

Would an abrupt end of a subsidy stop you from trying to earn more?

You may face that question in the future even if now you’re one of the non-elderly still covered by employer-sponsored health insurance. (There are about 149 million, according to Kaiser.)

The Congressional Budget Office in 2014 predicted that Obamacare will be responsible for people choosing to work less or not at all in part because losing health insurance subsidies as income rises “represents an implicit tax on earnings.”

The expected decrease in hours people offer their labor “represents a decline in the number of full-time-equivalent workers of about 2 million in 2017, rising to about 2.5 million in 2024.”

Many factors affect decisions about working, the CBO said, citing income and payroll taxes, commuting costs, child care and whether people who want to work can find jobs.

The Obamacare subsidies, which effectively boost recipients’ incomes, will lead some to decide they can work less while they “maintain or improve their standard of living.” Some may retire earlier than they would have without the ACA; others may work less and rely on a spouse’s earnings.

“To be clear, total employment and hours worked will increase over the coming decade, but by less than they would have in the absence of the ACA,” the CBO said.

Heim says it’s unlikely that the effect of the ACA provision on work will show up in aggregate statistics. “It only applies to those who purchase insurance in the individual market, and of this group, it only applies to incomes in a certain range.”

Data testing the effect at the micro level should be available later this summer, he says.

Five years into the ACA and with two open-enrollment seasons gone by, here’s where the labor picture stands, according to the Bureau of Labor Statistics:

  • Wages are up: In April 2015, workers on average earned $24.87, a 53-cents an hour, or nearly 2.2 percent, increase from April 2014, when it was $24.34.
  • Quitting is up: The rate at which people quit jobs reached 2 percent, or 2.78 million workers, in March 2015, compared with 1.8 percent, or 2.43 million, in March 2014.
  • Hiring is up: In March 2015, nearly 4.8 million workers were hired, compared with 4.4 million in March 2014.
  • Openings are up: There were 4.9 million job openings in March 2015, compared with nearly 4.2 million in March 2014. The increases mainly were in professional and business services, health care and social assistance, and accommodation and food services.

Sheer politics

So what can we do to flatten the Obamacare subsidy cliff?

“Making changes to the Affordable Care Act is easier said than done, especially with the partisan politics going on in Washington,” Stacy says.

The public isn’t in agreement, either.

Kaiser’s April 2015 Health Tracking Poll finds Americans’ opinions of the health care law almost evenly divided, with 43 percent saying they have a favorable view of the law and 42 percent saying they have an unfavorable view.

When asked about health care priorities for the president and Congress, Democrats, Republicans and independents alike say the top priority is making sure that high-cost drugs for chronic conditions, such as HIV, hepatitis, mental illness and cancer, are affordable to those who need them. After that, they differ about top priorities in health care.

Meantime, “All you can do is learn how the subsidy works, and try to keep from falling off that cliff,” Stacy says.

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