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Posts Tagged ‘Congressional Budget Office’

GOP Health Care Reforms would Affect Jobs, Too

February 10th, 2014

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Lost in the back-and-forth over the most recent CBO report on the Affordable Care Act (ACA) is a simple fact that any expansion of health care coverage for Americans will inevitably have an impact on America’s working habits. It is no less true of GOP proposals than Obamacare.

To make coverage more affordable, any proposal must provide some sort of subsidy. For example, the recent Republican proposal from Sens. Tom Coburn (R-OK), Richard Burr (R-NC), and Orrin Hatch (R-UT) includes a tax credit for lower income workers. The act of giving someone financial assistance for health care will naturally reduce the need to work somewhat.

Rep. Paul Ryan (R-WI) thinks this creates a poverty trap. While Ryan neglects the fact that millions of Americans are bankrupted every year due to medical bills, he instead focuses on the ACA’s subsidies to buy coverage through the federal and state marketplaces. These subsidies decline as workers earn more money, which means that workers have to work a little harder to keep another dollar in take-home pay. So yes, some people will choose to work less to keep their subsidy. But does that make the ACA a poverty trap? Of course not. We have dozens of social insurance programs ranging from food stamps to the Earned Income Tax Credit, and yet we remain the world’s greatest economy.

The alternative to phasing out benefits by income is to provide the same benefit to rich and poor alike, as many European nations do. But that requires higher tax rates or cuts in government services, which, in turn, leads to greater burdens on everyone.

Here is how CBO describes this problem in their most recent report:

CBO’s estimate that the ACA will reduce employment reflects some of the inherent trade-offs involved in designing such legislation. Subsidies that help lower- income people purchase an expensive product like health insurance must be relatively large to encourage a significant proportion of eligible people to enroll. If those subsidies are phased out with rising income in order to limit their total costs, the phaseout effectively raises people’s marginal tax rates (the tax rates applying to their last dollar of income), thus discouraging work. In addition, if the subsidies are financed at least in part by higher taxes, those taxes will further discourage work or create other economic distortions, depending on how the taxes are designed. Alternatively, if subsidies are not phased out or eliminated with rising income, then the increase in taxes required to finance the subsidies would be much larger. 

This is nothing new. CBO had previously estimated that the ACA would have some impact on jobs. What’s new is that the CBO has refined his estimate and made it more precise based on the latest research.

Some conservative commentators like Avik Roy have acknowledged that GOP plans will also affect working habits due to income-based subsidies. But conservatives persist in the belief that GOP alternatives are morally superior even though their actual solutions are just different choices about the amount of the subsidies and the degree of security offered to American workers.

Economics is called the dismal science because it shows the downside to any choice. But there’s nothing dismal about having security and stability in your health care. As Jason Furman, Chairman of the Council of Economic Advisors at the White House explains, the ACA provides many economic benefits. Today, under Obamacare, millions of Americans no longer have to worry about getting coverage for a pre-existing condition.  They don’t have to stay in a job that they don’t like because of their health insurance. And they don’t have to worry about losing their health care coverage if they lose their job. The GOP needs to make it clear whether they disagree with the goals of Obamacare or the means.