How Obamacare Will Shrink the Labor Supply

by Veronique de Rugy

Under the Affordable Care Act, someone making less than 138 percent of the poverty line qualifies for Medicaid, and someone between 138 and 400 percent of the poverty line is qualified to receive a federal tax subsidy for health insurance bought on a government exchange. But here is the problem: premiums will rise for millions of Americans because of requirements that policies provide certain benefits that they didn’t offer before. This means plenty of people will now have a pricier plan, and no way to defray the cost. My colleague Chuck Blahous sends me this piece from SFGate that gives an example of what that could look like for many families:

Take, for example, Jacqueline Proctor of San Francisco. She and her husband are in their early 60s. They have been paying $7,200 a year for a bare-bones Kaiser Permanente health plan with a $5,000 per person annual deductible. “Kaiser told us the plan does not comply with Obamacare and the substitute will cost more than twice as much,” about $15,000 per year, she says.

This new plan, Kaiser’s cheapest offering for 2014, would consume about 25 percent of their after-tax income. The new plan still has a $5,000 deductible but provides coverage for things her current policy does not, such as maternity care, healthy child visits and coverage for dependents up to age 26. Proctor has no use for such coverage, since her son is 30.

In other words, this couple makes too much money to qualify for the subsidy, but they will see their premium increase significantly, consuming a larger share of their income without clear added benefits to them. The author of the piece goes on to provide a series of suggestions about how to get the subsidy nonetheless. The easiest way: Lower your income level. Here is a sample of what people can do:

 There are several ways to reduce MAGI [Modified Adusted Gross Income]. If you are working, you can make a tax-deductible contribution to an individual retirement account, 401(k) or other workplace plan for 2014. (IRA contributions for 2014 can be made until April 15, 2015.)

You might be able to take advantage of other deductions that appear above the AGI line on your tax return, such as student loan interest and tuition and fees.

Don’t worry about itemized deductions (for charitable contributions, mortgage interest, state income taxes and such). They won’t impact your MAGI because they come below AGI on your tax return.

Here is another one, which seems like a problem:

You can also consider reducing your 2014 income by working just a bit less.

 We don’t know how many Americans will decide to work less to benefit from the subsidy, but it won’t be zero. As I have mentioned before, over time, welfare payments definitely do have an impact on people’s labor supply and the overall health of an economy.

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