Magazine article USA TODAY

Can the ObamaCare Genie Be Put Back in the Bottle?

Magazine article USA TODAY

Can the ObamaCare Genie Be Put Back in the Bottle?

Article excerpt

WHAT ARE the economic side effects of the Patient Protection and Affordable Care Act, often-times referred to as ObamaCare? Since most of the economy has to do with labor and work, that is where I will start but, first a caveat: I am an economist, and I am going to talk about some parts of this complex law that have an impact on the labor market. Other parts of it relate to health and medicine and, because I am not a physician or a biologist, I am not going to speak to those parts. From an economic or labor-market perspective, I am going to explain how the costs of PPACA outweigh its benefits, but I cannot measure or estimate its effects on health care. I leave that to others.

The key economic concept required to understand the labor market effects of PPACA is what economists call "tax distortions," which are changes in behavior on the part of businesses or households for the purpose of reducing their taxes or increasing their subsidies. We call them distortions because they do not occur for real business or real personal reasons. They only occur because of the tax code.

A prime example of a tax policy that creates distortions is the ethanol subsidy--technically it is a credit, not a subsidy--whereby gasoline refiners are subsidized on the basis of how many gallons of gas they produce with ethanol. Because of this subsidy, businesses change the type of gas they produce and deliver, people change the type of gas they use--which affects engines--and corn is used for ethanol instead of as feed or food. The distortions, though, do not stop there. Arguably, food prices are increased due to the reallocation of com to different uses--and when food prices are higher, restaurants and households do things differently. There are distortions economy-wide, all for the chasing of a subsidy.

To be clear, just because taxes cause distortions does not mean we never should have taxes. It just means that, in order to get the full picture when it comes to policies like an ethanol subsidy or laws such as PPACA, we need to take into account the tax distortions in order to ensure that the benefits we are seeking exceed the costs.

So, what are the tax distortions that emanate from PPACA? Here, let me simply focus on two aspects of the law: the employer mandate or employer penalty (the requirement that employers of a certain size either provide health insurance for full-time employees or pay a penalty for not doing so) and the Exchanges (sometimes they are called marketplaces, where people can purchase health insurance separate from their employer). The mandate or penalty is intended, of course, to encourage employers to provide health insurance, and the Exchanges are where the major government assistance is provided, since those who purchase insurance in an Exchange typically receive a tax credit.

Taken together, the penalty on employers and the subsidies in the Exchanges add up to a tax on full-time employment--a tax that you pay if you work full time but not if you work part time or do not work at all. The problem with that is that by taxing full-time work--which is the same as subsidizing part-time work and unemployment--you get less of the former and more of the latter two.

How does this full-time employment tax work with regard to the employer mandate? As I mentioned, the penalty applies only in the case of full-time employees and only to employers that do not offer health coverage, and it applies only in those months during which those full-time employees are on the payroll. If an employee cuts back to part-time work, the employer no longer has to pay the penalty. The dollar amount of the penalty does not depend on whether the employee is rich, poor, or middle class--if he or she works full time, the employer either must provide insurance or pay the penalty, and the penalty is indexed to health insurance costs, so every year in which those costs increase more than the economy and wages, the penalty will increase more than the economy and wages. …

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