Poverty Trap Or Job-Lock: Obamacare Will Be Costly For Those Ineligible For Subsidies
February 7, 2014 by Sam Rolley
The Congressional Budget Office revealed this week that Obamacare is expected to make unemployment more attractive than working for more than 2.3 million Americans in coming years. For some Americans the incentive to not climb the economic ladder will be especially strong, as earning just $1 more than 400 percent of the Federal poverty line could drive their insurance costs up by as much as $20,000 a year.
The nonpartisan budget watchdog reported that Obamacare “will raise effective tax rates on earnings from labor,” while also creating incentive for some Americans to sign up for government benefits instead of seeking employment.
“CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 to 2 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive,” CBO analysts said in their economic outlook.
The CBO noted in its report that individuals earning less than 400 percent of the Federal poverty line are eligible for healthcare premium subsidies, but those subsidies taper dramatically if earnings rise above that threshold: “People whose income exceeds 400 percent of the FPL are ineligible for premium subsidies, and for some people those subsidies will drop abruptly to zero when income crosses that threshold.”
A recent analysis by The Weekly Standard explored one extreme example of how Obamacare could disincentive gainful employment when subsidies disappear:
Take the case of a couple of 55-year-olds living in St. Croix County, Wisconsin, where the median household income is a little over $68,000.
Let’s say that they earn $62,040 in 2014. They would pay $211 per month for the cheapest Obamacare plan available on healthcare.gov. …
But if they earn $62,041–just one dollar more–they would pay $1,342 per month. That’s an extra $13,572 per year for the same bare-bones insurance plan. …
The cost of crossing the threshold of subsidy eligibility will vary based on age. For a couple in their 30s, according to healthcare.gov, it might only cost you a little over $4,000. For a couple of 64-year-olds, who are a year away from qualifying for Medicare, falling over the subsidy cliff could cost more than $20,000.
The CBO’s most recent Obama revelations are expected to take center stage in the run-up to the 2014 midterm elections.
Republicans like House Budget Committee Chairman Paul Ryan said the CBO report shows that Obamacare is a “poverty trap.”
“I guess I understand ‘better off’ in the context of healthcare. But ‘better off’ in inducing a person not to work who is on the low-income scale, not to get on the ladder of life, to begin working, getting the dignity of work, getting more opportunities, rising their income, joining the middle class, this means fewer people will do that,” he said during a Wednesday hearing.
Meanwhile, Congressional Democrats have championed the report, saying that it will eliminated so-called job-lock and give Americans the freedom to follow their dreams.