The Obamacare Lock-Out Effect

How the president’s health reform will harm the working poor

0000072500001497298482For City Journal,Joel Zinbberg writes:  The nonpartisan Congressional Budget Office (CBO) recently projected that the Affordable Care Act (ACA)—better known as Obamacare—will lead Americans to reduce the hours they work by 2 percent. This will reduce the overall labor supply by the equivalent of 2.5 million full-time workers over the next decade. The decrease in labor supply will occur because the ACA mandates that everyone buy health insurance and provides large subsidies to low-income individuals and families to buy insurance on the new exchanges. As CBO director Douglas Elmendorf recently testified, “By providing heavily subsidized health insurance to people with very low income, and then withdrawing those subsidies as income rises, the act creates a disincentive for lockoutpeople to work.” Thanks to this implicit tax on extra work, spending a few more hours on the job will, at the margins, result in minimal or even negative income for those qualifying for the ACA’s subsidies. The CBO reports that some will choose to work fewer hours in order to qualify for a subsidy. Others will choose not to work at all.

Normally, when the well-respected CBO finds that a law will significantly decrease the labor supply and harm economic growth, it becomes a great embarrassment to the law’s authors. But the White House insists that critics have misconstrued the CBO report. It’s not a bad thing if people work less, they say. On the contrary, the law will give workers the flexibility to leave jobs that they’re currently “locked” into because of their health-insurance benefits. According to Jason Furman, Chairman of the Council of Economic Advisors, the law will alleviate such “job lock,” giving workers the freedom to work less, enjoy more family time, or start a new business.

Like so much of the White House’s defense of the ACA during its troubled rollout, these claims have a desperate and improvisational quality. The disincentive to work that the CBO report identifies is not a good thing. In fact, a careful reading of the report shows that the ACA will disproportionately harm the most vulnerable people in the workforce—the working poor, especially those with incomes low enough to qualify for subsidies under the ACA but too high to qualify for Medicaid.

These people will not gain new economic freedom. On the contrary, they will be “locked out” from moving to a better job that might raise their income but jeopardize their subsidized health care; from working more hours at their current job and raising their standard of living; and from achieving upward economic mobility. Over time, the harmful effects could be compounded by the ACA’s employer mandate, which requires employers of 50 or more full-time workers (defined as 30 hours per week) to provide employees with health insurance or pay a penalty for each uninsured full-time worker. To stay beneath the 50-worker threshold and avoid paying the penalty, employers could reduce hiring, cut jobs, or cut hours. Lower-wage workers will almost certainly be the first to suffer…

Read the rest…

City Journal


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