Thursday, January 9, 2014

Obamacare "Subsidy Cliffs" and Other Disincentives


Contrary to claims that Obamacare is compassionate, the new health care law further entrenches a superstructure that penalizes work and encourages dependence for a wide swathe of Americans. Obamacare also penalizes marriage, places citizens at a disadvantage compared with non-citizens, and prioritizes coverage for able-bodied adults over services and supports for the disabled. To restore the values of hard work that Americans have held dear for centuries, Congress should stop and repeal all of Obamacare.

An excerpt:

"Obamacare’s formulae for allocating federal premium and cost-sharing subsidies include several “cliffs.” At these cliffs, individuals and families will actually benefit more by working less because additional earnings could cause them to lose thousands of dollars in taxpayer-funded subsidies.
For example, Obamacare subsidizes insurance premiums for individuals with incomes of up to 400 percent of the federal poverty level (FPL), which is just over $62,000 for a couple in 2013. According to the Kaiser Family Foundation’s subsidy calculator, a married couple, each 50 years old, making a combined $60,000 per year would receive a taxpayer-funded insurance subsidy of up to $5,081. The couple would qualify for this subsidy because their combined income would be just below 400 percent of the FPL. However, if the couple earned an additional $2,500—raising their income just above 400 percent of the FPL—they would receive no subsidy at all. Even though they receive $2,500 more in cash compensation, the couple would actually be worse off financially because they would lose more than $5,000 in federal insurance subsidies.
Similar cliffs occur elsewhere in Obamacare’s subsidy structure. As income approaches 400 percent of the FPL, the percentage of income that households are expected to devote to insurance premiums rises, and the premium subsidies under Section 1401 fall. Individuals with rising income also face the loss of federal cost-sharing subsidies established under Section 1402 of the law, which reduce out-of-pocket expenses including co-payments and deductibles. These effects are particularly acute at certain cliffs established in the statute—for instance, 150 percent, 200 percent, and 250 percent of the FPL—but they also pervade the entire subsidy structure. Overall, University of Chicago economist Casey Mulligan has concluded that Obamacare will help raise effective marginal tax rates by more than 10 percentage points." - How Obamacare Undermines American Values: Penalizing Work, Marriage, Citizenship, and the Disabled, Chris Jacobs

Link to the paper appears below:

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