The effects of Obamacare

The 182-page Congressional Budget Office (CBO) report projects more people will scale back how much they work as they seek coverage through the Affordable Care Act, better known as Obamacare. Republicans have long criticized Obamacare as job-reducing and economy-devastating, while Democrats insist that the law would transform into a blessing to American people. Based on the data from the report, it looks like Republicans are winning. The report forecasts that the new health law would “reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021.” This labor-force impact is nearly three times larger than the agency’s earlier projection of 800,000 workers.

The top factor to account for this drop is the subsidies for health insurance. To ensure Americans can afford the premiums on the new health care, Obamacare grants tax credits to those who earn between 1 time and 4 times of the federal poverty line. The credits are given on a decreasing scale. Thus, people are subject to a higher tax rate as their income rises, discouraging people from working more hours to increase their income. And with full health insurance coverage, poor workers have access to better health care even with relatively a low income, which might reduce the incentive for them to work harder to self-support. There is also Medicaid. All those earning up to 138% of the poverty line will qualify for the Medicaid program. Hence, workers slightly above this quantity may choose to work less to be eligible for this program.

The main goal of Obamacare is to help the needy, but we always assume that the needy are lazy and maybe that is why they become needy in the first place. Clearly, this logic puts us in a dead circle. But economics assumes people are rational and incentives do play a vital role, so health insurance may not be the most effective way to really help the needy. To avoid the “moral hazard”, I think it’s better to engage the working hours of the needy into the subsidy. For instance, the subsidy can be applied to the wage, which is based on the hours someone works. So one needs to work more to get more subsidies to pay all their health care expenses. Unlike the tax credit, which may act as a negative incentive to working hours, wage subsidies encourage poor workers to work more if they want to earn more. Either way, it’s still redistributing income by transferring money from the rich to the poor. But wage subsidy will not diminish jobs and working hours and will help economy growth.


2 thoughts on “The effects of Obamacare

  1. gkugler

    Relative to other countries, the U.S. is coming late to the party for universal healthcare. However, I do not think this is a bad thing because implementing an effective and cost-efficient program is challenging. Unfortunately, the implementation of Obamacare was a huge disappointment and many people were questioning it from the start. As you mentioned, moral hazard is certainly a problem. Another problem is adverse selection, which is occurring as more sick than healthy people sign up for Obamacare. This could put a huge strain on the taxpayer if there are not enough healthy people paying premiums. According to what I have read, the Republicans seem to be mounting an attack against Obamacare (I’m just hoping the debt ceiling get’s passed without any standoff).

  2. sekoch

    I think you bring up a really interesting idea for eliminating the problem of moral hazard. Do you have any ideas on how to help the unemployed or those limited to 40 hrs/week at a minimum wage job afford their health insurance? One thought I have had that could bring societal benefit is to allow those eligible for the subsidy to contribute to government projects (think of things like govt. projects like building roads, volunteering in public-use areas, etc.) in return for their unemployment benefits/potential insurance subsidies.

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