Economics, Health Care

What we learned about Obamacare Feb 4-6, 2014

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1.) On Tuesday the Congressional Budget Office released a new outlook, which has gotten everybody talking. In it, the CBO addresses the impact of Obamacare on labor and incentives for full-time work. Read the whole thing here, and find commentary on it below.

2.) Scott Gottlieb looks at the latest CBO report in a piece titled “CBO: Obamacare is a tax on work, may cut full-time workforce by 2.5 million”:

As workers transition from part time work (without benefits) to full time work (with health benefits) many workers will actually lose income in the form of the subsidies that they will have to forgo (and the additional fact that lower wage workers, who are in lower tax brackets, won’t benefit as much from the implicit subsidy they will get from the special tax treatment of health benefits bought at work)…. CBO states, in reference to these impacts, that the “exchange subsidies effectively constitute a tax on labor supply for a broad range of workers.” CBO focuses mostly on those transitioning to full time work (with benefits). But the same disincentives apply to workers on Obamacare who are already employed full time, and looking to grow their income.

Translation? The old employer sponsored system forced people to stay in jobs they didn’t like because they needed the health insurance coverage. The new Obamacare system will force people to stay out of jobs they do want because they need to maximize their subsidies. And this is social progress? These disincentives can’t be easily fixed — they are baked into the structure of the Obamacare subsidies. A refundable tax credit, similar to the one offered in some conservative plans, sidesteps some of these effects. Also significant are some related points that CBO doesn’t tackle in its report. Principal among them is the fact that Obamacare is going to make certain wages sticky as more workers try and stay under certain income ranges in order to maximize their subsidies.

3.) “What accounts for Obamacare numbers?” Megan McArdle asks:

So, in theory, the government could transfer a bunch of money to insurers if the insurance market ends up with fewer young healthy customers than expected — or, conversely, that the government could end up making money off the program. And to the surprise of everyone, that’s what the CBO is projecting. Over the provision’s three-year life, the agency now estimates that insurers will pay in $8 billion more than they take out. The CBO bases this projection on the experience with a similar part of Medicare Part D.

Is Medicare Part D really comparable? my editor asked me this morning. And the answer is, No, I don’t think it is…. So while I think the CBO used the right method, reporters and others should be cautious about concluding that it therefore got the right answer: that the government is likely to net $8 billion from the program over the next three years. That’s certainly within the realm of possibility. But a scenario in which the government loses money seems at least as likely.

4.) For more on the CBO’s Obamacare findings, check out these pieces: “The Obamacare poverty trap,” from AEI’s Stan Veuger, “Obamacare’s attack on the work ethic,” “Health care law projected to cut the labor force,” and “CBO’s ACA report bodes ill for work,” from AEI’s Andrew Biggs.

5.) Jim Pethokoukis asks, “Does Obamacare exchange an opportunity ladder for a poverty trap?”

It’s simple: climbing the opportunity ladder into the middle class or higher requires a job. And there’s your trouble with the Affordable Care Act. It slaps working class and low-income families with a big tax increase if they try and climb that ladder. Higher incomes are offset by lower insurance subsidies from government. As a result of steep effective marginal tax rates, some people will work fewer hours. Other will quit the job market completely. Obamacare supporters call that a feature not a bug. People who are only working to pay for health care will now have the ability to make a different “choice”….

But even the best-intended, smartly-devised plans often have unintended and harmful consequences. Here is one trade-off, one reality that President Obama doesn’t want to talk about. Keith Hennessey offers the example of a working-class family of four whose sole wage earner makes $35,000 a year and doesn’t get health insurance through a job. The other spouse wants to take a $12,000 part-time job to raise the family’s income. But doing that would reduce Obamacare’s subsidy and raise the family’s effective federal tax rate to 50% from 37%. Yes, the Obamacare subsidies help the family afford health insurance. But there is the trade-off:

“Do the benefits of the premium subsidy to this family outweigh the costs of trapping this family at this income level by killing the financial benefit they receive from more work, education, training, or other professional advancement?  … Nobody wants to trap people and discourage further economic advancement, even if they do so by helping that family with generous subsidies.”

For that fictional family – and maybe thousands or hundreds of thousands real-life counterparts – Obamacare pulls up the opportunity ladder and leaves them mired in a kind of poverty trap.

6.) Watch AEI’s Scott Gottlieb and James Capretta discuss dropped health care plans:

7.) “Insurers are facing pressure from regulators and lawmakers about plans that offer limited choices of doctors and hospitals, a tactic the industry said is vital to keep down coverage prices in the new health law’s marketplaces,” The Wall Street Journal says. “This week, federal regulators proposed a tougher review process for the doctors and hospitals in plans to be sold next year through, a shift that could force insurers to expand those networks.” For more on this, check out Kaiser Health News’ round-up.

8.) Did you know: “Obamacare will reduce incomes of most Americans,”(graph courtesy of Brookings):

A new study finds that Obamacare’s redistribution will be stunningly lopsided. Scholars at the liberal Brookings Institution have discovered that Obamacare will increase the income of Americans in the lowest 20 percent of the income scale, and especially in the lowest ten percent. But all other income groups — even people who make very modest incomes in the $25,000 to $30,000 range, as well as all income brackets above that — will experience a decline in income because of Obamacare. In other words, Obamacare is going to cost some of the very people it was designed to help….

Brookings scholars Henry Aaron and Gary Burtless sought to determine the law‘s impact on income in 2016, when almost all of Obamacare will be in effect…. They found quite an impact. “The ACA may do more to change the income distribution than any other recently enacted law,” Aaron and Burtless wrote…. [Obamacare] will increase income by 9.2 percent for the lowest bracket — households making below about $21,000 a year — for those in their working years, age 25 to 64. Then the surprise. Obamacare will reduce, by an estimated 0.9 percent, the incomes of working-age Americans in the next-lowest income bracket, households making between about $21,000 and $40,000 a year. And in the next income group, households making between about $40,000 and $65,000 a year — Obamacare will reduce their income, too, also by 0.9 percent.

9.) “AOL CEO says Obamacare forced company to reduce 401(k) benefits,” Huffington Post writes:

“Obamacare is an additional $7.1 million expense for us as a company, so we have to decide whether or not to pass that expense to employees or whether to cut other benefits,” AOL’s Chairman and CEO Tim Armstrong told CNBC Thursday morning…. Beginning Jan. 1, AOL stopped depositing matching funds into employee 401(k) accounts each pay period. The company will now make one yearly lump-sum deposit of those matching funds into retirement accounts, at the beginning of each year. The change means employees who leave AOL before the yearly match won’t get that additional income — potentially losing out on hundreds or thousands of dollars they would have added to their retirement accounts otherwise. Current employees also won’t benefit from market gains that take place throughout the year.

10.) “Humana ACA enrollees younger than expected,” Kaiser Health News says, providing the below graph. Only 20% are under the age of 30, though, and 42% are aged 50-64:

11.) More on Humana — Scott Gottlieb points out that “Obamacare ‘bailout’ for one insurer will cost up to $450 million in 2014”:

Humana announced that it expects to tap the three risk adjustment mechanisms in Obamacare for between $250 and $450 million in 2014. This amounts to about 25 percent of the insurer’s expected exchange revenue. This money is needed to offset losses that the insurer will take as a result of slower enrollment in its Obamacare plans, and a skewed risk pool that weighs more heavily toward older and less healthy members than it originally budgeted.

More than half of the money will come from the $25 billion reinsurance pool that Obamacare provides (collected through a tax on employer-sponsored health plans). The other half will come mostly from the risk corridors. Humana is expected to book the money as revenue to offset shortfalls between what it collects in exchange premiums and pays out in medical claims. The company blamed the Obama Administration’s decision late last year to extend grandfathering of individual market plans for the overall deterioration in the risk pool.

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