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The dark side of Obamacare: The unintentional outcomes

24 February 2014 Margaret Labban

Obamacare may reduce labour force participation The Congressional Budget Office (CBO)'s latest Budget and Economic Outlook forecast has come under significant scrutiny in the media since its release, mainly due to political and social controversy surrounding the Affordable Care Act (ACA) and the far-reaching impact the new healthcare reform law will have on the US economy.

According to the CBO report, due to certain provisions under the ACA, the US labour market will see a reduction in the total number of hours worked by 1.5-2% between 2017 and 2024. This reduction is equivalent to around 2 million individuals dropping out of full-time employment in 2017. The number rises to an estimated 2.5 million in 2024 as a result of subsidised health coverage benefits on marketplace plans, and expanded Medicaid coverage under the new law.

In other words, workers--mostly low-wage employees--may choose to leave the workforce, or reduce their hours to keep benefiting from federally subsidised tax credits or Medicaid coverage. This leads to a slight reduction in labour force participation rather than an increase in unemployment. The CBO referred to this phenomenon as an "implicit tax on employment-based insurance" that will mainly impact a segment of the population earning below 400% of the federal poverty limit (FPL; $11,670) equivalent to annual incomes up to $46,680 for individuals. The CBO acknowledges that the subsidies will alter people's incentives to work and could influence the behaviour of individuals who stand to lose their eligibility by working and earning more.

The subsidies have greatly facilitated enrolment in the new plans, and will likely continue to do so moving forward. In its latest enrolment update, the Department of Health and Human Services (HHS) has reported that more than three quarters (79%) of individuals who have selected a marketplace plan between October and December 2013 were eligible for federal financial assistance, including tax credits for premium assistance. The potentially unfavourable impact they may have on the low-wage labour force may be offset by potentially facilitating opportunities for underprivileged individuals, such as low-income working parents who may be encouraged to work more according to the CBO. This group's median income cap for eligibility for Medicaid was around 64% of the FPL in 2013. However, the threshold has been raised to 138% of FPL in states expanding Medicaid. Furthermore, for those that surpass the Medicaid eligibility, federal subsidies will kick in and help these former beneficiaries safely transition to private insurance while enjoying higher incomes without fear of losing the ability to cover medical costs. Unfortunately, however, this is not the ideal scenario in nearly half of the states due to a Supreme Court ruling in June 2012 that allowed states to opt out of Medicaid expansion.

Falling through the Medicaid expansion gap According to recent estimates, nearly 5 million low-income Americans currently find themselves eligible for neither Medicaid coverage nor federal subsidies for private plans, as recently highlighted by a Wall Street Journal article. This is because nearly 24 states have decided against expanding the eligibility threshold for their Medicaid programmes under ACA, an initiative that would have been fully paid for by the federal government for the first three years, after which states would assume responsibility for 10% of the expansion costs. The result is that individuals earning below 138% of the FPL in these states will not be eligible for any federal subsidies that kick in above that threshold up to 400% of the FPL. Governors in states that have opted out of Medicaid expansion will likely start feeling the pressure of leaving millions of low-income individuals without any financial assistance for health coverage, while those earning higher incomes benefit from federal subsidies. While more states are expected to expand the programme in the future, millions of individuals remain stuck in an unfair--albeit inadvertent--gap.

Unfortunately, the aforementioned examples are only a few of the unintended changes that might be taking place in the early stages of the Obamacare roll-out. There remains a lot of uncertainty regarding the large-scale impact of unprecedented healthcare reform in the US. It is likely, however, that ACA provisions will create a ripple effect on the US labour force as well as the overall economy, while raising important socio-political questions regarding prioritisation of healthcare access and equity. Favourable outcomes need to outweigh the negative effects however if the law is to permanently alter the healthcare framework in the US successfully.

Posted 24 February 2014



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