Obamacare's Continued Consequences: Making Hard Work, Not Pay.

[Obama 2012 1,714]

This happens with tax brackets all the time, so it's nothing new really. It is a shame though at the end of the day and something that lawmakers rarely think about... Well, more like they don't give a damn...

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http://online.wsj.com/article/SB10001424052748704628404576265692304582936.html?mod=googlenews_wsj

Supporters of ObamaCare acknowledge it will have some unintended consequences. Yet surprisingly little attention has been focused on the law's most problematic provision: government subsidies to help individuals and families purchase health insurance.

This new entitlement—which the chief actuary of the Centers for Medicare and Medicaid Services estimates will cost more than $100 billion per year once it is fully implemented—will damage the country's long-term fiscal outlook. It also will introduce far-reaching negative effects on rewards to work and bizarre new inequities into American life.

The health law establishes insurance exchanges—regulated marketplaces in which individuals and small businesses can shop for coverage—and minimum standards for the insurance policies that can be offered. Because the policies will be so costly, there's a subsidy for buyers that phases out as family income rises. This sounds reasonable—but the subsidies required to make a "qualifying" insurance policy affordable are so large that their phaseout creates chaos.

Starting in 2014, subsidies will be available to families with incomes between 134% and 400% of the federal poverty line. (Families earning less than 134% of poverty are eligible for Medicaid.) For example, a family of four headed by a 55-year-old earning $31,389 in 2014 dollars (134% of the federal poverty line) in a high-cost area will get a subsidy of $22,740. This will cover 96% of an insurance policy that the Kaiser Family Foundation predicts will cost $23,700. A similar family earning $93,699 (400% of poverty) gets a subsidy of $14,799. But a family earning $1 more—$93,700—gets no subsidy.

Economists call large, discontinuous changes in program benefits like this "notches." Although notches might be administratively convenient, they have terrible incentive effects. As Prof. Raj Chetty of Harvard points out in a recent National Bureau of Economic Research working paper, prior research on notches show that they induce sharp reductions in labor supply.

Consider a wife in a family with $90,000 in income. If she were to earn an additional $3,700, her family would lose the insurance subsidy and be more than $10,000 poorer. In addition, she would also pay more in income and Social Security taxes. Taken together, these policies impose a substantial punishment on work effort.

Notches also lead to unfairness. The principle that families of the same size with similar incomes should be treated similarly by tax law and transfer programs has deep philosophical roots and appeals to basic notions of equity. The notch turns this principle on its head. Next-door neighbors with virtually identical circumstances could receive very different levels of government assistance, depending on which side of the notch they happen to fall. This feature will justifiably increase public cynicism about the law and government in general.

Fixing the notch is not so easy. To phase out the subsidy smoothly for families with incomes of 134% to 400% of poverty, the law would have to take away $22,700 in subsidies as a family's income rose to $93,700 from $31,389. In other words, for every dollar earned in this income range, a family's subsidy would have to decline by 36 cents. On top of 25% federal income taxes, 5% state income taxes, and 15% Social Security taxes, this implies a reward to work of less than 20 cents on the dollar—in economists' language, an implicit marginal tax rate of over 80%. Although economists may differ on the effect of taxes on work effort, it is hard to fathom how anyone could argue that this will not reduce economic activity.

It gets worse. There are also subsidies to cover the deductibles and copayments of insurance policies purchased through an exchange—and like the premium subsidies, these subsidies also phase out with income. There is also the likelihood that federal and state income taxes on upper-middle income families will have to be raised above current levels to finance the cost of the subsidy, the Medicaid expansion, and other provisions of the new law. Both of these effects exacerbate the law's negative work incentives.

Either leaving the notch in or smoothing the notch out seems impossibly unattractive. Yet these choices are the inevitable consequences of the law's attempt to redistribute around $20,000 to someone making $30,000, but nothing to someone making $94,000. The only fix is to drastically reduce or eliminate the premium subsidies. As the 2012 elections approach, voters will have to decide: For middle-income families, should economic success be determined by work and savings, or by participation in a government program?

Mr. Kessler is professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

[Ban Hammer 12,829]

should make things interesting now in the latter part of the year when people take a month or two off work so they don't go over the limit and lose an almost 15k subsidy.

[Nina~ 431]

I just started a new job with a higher pay that puts my husband and me at a higher tax bracket by a couple of thousand dollars.. So we decided to divert the extra money into a FSA a/c and have more money withheld for our 401k to push us back to the lower tax bracket. I am sure that most sane people would do something like that rather than not go to work.. Not going to work is like cutting your nose to spite your face, especially when most people in America live from paycheck to paycheck.

[The Dude 206]

Paul, you wonder why you are accused of histrionics so frequently? Just look at the title you chose for this thread, now click through to the title of the actual article. Now stop wondering why you have no credibility.

ETA: If you're going to be an idealogue, at least be correct. It was Romneycare™ before Obama had even thought of running for office.

Edited April 25, 2011 by The Dude

[Obama 2012 1,714]

Paul, you wonder why you are accused of histrionics so frequently? Just look at the title you chose for this thread, now click through to the title of the actual article. Now stop wondering why you have no credibility.

ETA: If you're going to be an idealogue, at least be correct. It was Romneycare™ before Obama had even thought of running for office.

If you have nothing to contribute, don't contribute at all. Seriously.

There's nothing wrong with the title other and it's correct in its wording. get over it.

[The Dude 206]

If you have nothing to contribute, don't contribute at all. Seriously.

There's nothing wrong with the title other and it's correct in its wording. get over it.

If you say so Paul. So I have to ask, if you say this isn't histrionics, then this must be your awkward trolling. Your obvious disingenuous reference to Obamacare is a dead giveaway though. At least be truthful about Romneycare Paul.

[Obama 2012 1,714]

If you say so Paul. So I have to ask, if you say this isn't histrionics, then this must be your awkward trolling. Your obvious disingenuous reference to Obamacare is a dead giveaway though. At least be truthful about Romneycare Paul.

Dude, the only person trolling here is you. All you do is run into a thread, ignore the topic and hand and make accusations.

Read the title:

Is is a consequence of Obamacare? Yes.

If you read what I posted in the thread as well, I said this happens all the time.... In this case though, it's an effect of Obamacare.

Why are you bringing up Romneycare? The article isn't about MA. While aspects might be similar, we're talking about the National Healthcare, not one of an individual state.

I know you get your kicks Rob out of trying to piss people off or get a reaction. I know because it's all you do. If you have a sincere post, then actually post it instead of just attacking people.

As I've said before, I might tell someone they are being ignorant, but I try and back it up based on the article at hand. You rarely every do this if at all.

Seriously dude, grow the ** up.

[The Dude 206]

Dude, the only person trolling here is you. All you do is run into a thread, ignore the topic and hand and make accusations.

Read the title:

Is is a consequence of Obamacare? Yes.

If you read what I posted in the thread as well, I said this happens all the time.... In this case though, it's an effect of Obamacare.

Why are you bringing up Romneycare? The article isn't about MA. While aspects might be similar, we're talking about the National Healthcare, not one of an individual state.

I know you get your kicks Rob out of trying to piss people off or get a reaction. I know because it's all you do. If you have a sincere post, then actually post it instead of just attacking people.

As I've said before, I might tell someone they are being ignorant, but I try and back it up based on the article at hand. You rarely every do this if at all.

Seriously dude, grow the ** up.

Paul, I tried to give you a bit of constructive criticism. If you haven't noticed, nobody takes you seriously here Paul. You are prone to histrionics and fits of rage for the most insane topics. But you continue with your blathering topics and partisan hack threads.

Edited April 25, 2011 by The Dude

[Usui Takumi 1,562]

I just started a new job with a higher pay that puts my husband and me at a higher tax bracket by a couple of thousand dollars.. So we decided to divert the extra money into a FSA a/c and have more money withheld for our 401k to push us back to the lower tax bracket. I am sure that most sane people would do something like that rather than not go to work.. Not going to work is like cutting your nose to spite your face, especially when most people in America live from paycheck to paycheck.

Right, plus I don't see how someone near that threshold could just "stop working" to stay below the noted

level. I will say that this is a sharper contrast than taxes where once you cross each threshold only the money earned above that threshold is taxed at the higher level. Kinda sounds like they should have eased the quantities a bit where the last subsidy tier is just a few thousand.

[Obama 2012 1,714]

Paul, I tried to give you a bit of constructive criticism. If you haven't noticed, nobody takes you seriously here Paul. You are prone to histrionics and fits of rage for the most insane topics. But you continue with your blathering topics and partisan hack threads.

Hack threads?

99% of the articles I posted are from major news sources and break things down accordingly.

Seriously, get your head out of your butt.

The last person who's a 'hack' around here is me.

God, you're too funny.

[The Dude 206]

Hack threads?

99% of the articles I posted are from major news sources and break things down accordingly.

Seriously, get your head out of your butt.

The last person who's a 'hack' around here is me.

God, you're too funny.

I would put that ratio more at 50% Paul. Even then, you take the given title of the article, and then change it to your own partisan hack title. Just saying, you wouldn't invite so much vitriol if you weren't so disingenuous.

[Trumplestiltskin 5,791]

Dude, the only person trolling here is you. All you do is run into a thread, ignore the topic and hand and make accusations.

Read the title:

Is is a consequence of Obamacare? Yes.

If you read what I posted in the thread as well, I said this happens all the time.... In this case though, it's an effect of Obamacare.

Why are you bringing up Romneycare? The article isn't about MA. While aspects might be similar, we're talking about the National Healthcare, not one of an individual state.

I know you get your kicks Rob out of trying to piss people off or get a reaction. I know because it's all you do. If you have a sincere post, then actually post it instead of just attacking people.

As I've said before, I might tell someone they are being ignorant, but I try and back it up based on the article at hand. You rarely every do this if at all.

Seriously dude, grow the ** up.

Like hell you do

[Usui Takumi 1,562]

Right, plus I don't see how someone near that threshold could just "stop working" to stay below the noted

level. I will say that this is a sharper contrast than taxes where once you cross each threshold only the money earned above that threshold is taxed at the higher level. Kinda sounds like they should have eased the quantities a bit where the last subsidy tier is just a few thousand.

Just noticed the subsidy tier is "softer" if you are younger. If you're in your mid thirties its only different by a few thousand.

Edited April 25, 2011 by Sousuke

[Usui Takumi 1,562]

Just noticed the subsidy tier is "softer" if you are younger. If you're in your mid thirties its only different by a few thousand.

So it looks like its from the early 40s until your medicare days where the drop is substantial in an "expensive" area (more than 5,000)

[Zero Sum 305]

Right, plus I don't see how someone near that threshold could just "stop working" to stay below the noted

level. I will say that this is a sharper contrast than taxes where once you cross each threshold only the money earned above that threshold is taxed at the higher level. Kinda sounds like they should have eased the quantities a bit where the last subsidy tier is just a few thousand.

Its that 1% watching out for the 1% again.