Obamacare is coming ? with some bizarre consequences

July 31, 2012

Free Market Foundation

We’ve heard all the usual complaints about Obamacare, says John Stossel, a commentator with FOX News: it would cost too much, it would forbid insurance companies from penalizing behaviour that leads to bad health, it would force everyone to buy insurance (the big cause of sky-high costs). But now John C. Goodman, President, CEO and the Kellye Wright Fellow of the National Center for Policy Analysis points out that Obamacare’s inscrutable formulas would have yet another unintended consequence.

Employers of low-paid workers would have an incentive NOT to provide insurance, because the workers could get much greater subsidies in the individual market ($19,400 compared to $2,295)

Employers of high-paid workers would have an incentive to KEEP providing insurance, because it’s tax-free and the workers wouldn’t qualify for subsidies anyway.

Employers’ subsidies are based on the average income of all their workers. So to take full advantage of the subsidies, Goodman points out:

Basically firms with high-income folks will fire their groundskeepers, maids, custodians, etc. and contract out that work to a firm that employs low-wage labour and provides no health insurance.

But getting from point A to point B requires workers to change employers and that will not be a smooth affair; a lot of people will be fired and have to search for new employment.

We will be left with industrial organisation dictated not by economics, but by a subsidy system that can only be called bizarre, says Goodman.

Obamacare has another big problem:

The House version would create marginal tax rates in excess of 60 per cent for workers earning as little as $25,000; this is caused by the steep withdrawal of health insurance subsidies (in the exchange) as income rises.

As is well known by economists and policymakers alike, when people get to keep only one-third of each extra dollar they earn, they react in all kinds of ways that are harmful to the economy; they will choose more leisure and less work.

Health reform is no bargain if it imposes on the middle class the same marginal tax rates that high-income earners faced during the years of stagflation, says Goodman.

Source: John Stossel, Obamacare is Coming, FOX Business, March 5, 2010; and John C. Goodman, “Obamacare with Lipstick,” National Center for Policy Analysis, March 3, 2010.

For Stossel text: http://stossel.blogs.foxbusiness.com/2010/03/05/obamacare-is-coming/#ixzz0hKniOh5V

For Goodman text: http://www.john-goodman-blog.com/obamacare-with-lipstick/#more-9235

For more on Health Issues:
http://www.ncpa.org/sub/dpd/index.php?Article_Category=16

First published by the National Center for Policy Analysis, Dallas and Washington, USA

FMF Policy Bulletin/ 23 March 2010