Magazine Article | March 3, 2014

Distortions Bedevil Obamacare Implementation

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By John McManus, president and founder, The McManus Group

As the “rollout” of Obamacare staggers into its fifth month, the distortions the law has inflicted on America are only beginning to ripple through the economy. The nonpartisan Congressional Budget Office (CBO) recently provided new analysis that the subsidies for Obamacare would result in the equivalent of 2.5 million fewer jobs. That’s right — 2.5 million Americans now have less incentive to work because more work means higher incomes, which results in less meanstested subsidies. The worst is yet to come: CBO said, “The ACA’s [Affordable Care Act’s] largest impact on labor markets will probably occur after 2016, once its major provisions have taken full effect.”

White House spokesman Jay Carney exclaimed that this was actually a positive development, because it “reduces what economists call 'job lock' or, more colloquially, it gives more opportunities for entrepreneurism and moving from job to job.”

For Carney’s contorted contention to hold water, overall employment would remain stable or possibly increase as workers switch into more desirable jobs. But that’s not what CBO predicts.

Keith Hennessey, former National Economic Council Chairman, observed, “If you make work less financially rewarding you’ll usually get less of it. Subsidized health insurance helps the people who receive it. When those subsidies phase out as income increases, they also reduce both the number of hours worked and the number of people working. The reduced labor supply hurts the economy as a whole, and is generally bad for those people receiving subsidies as well, because they are being pushed by government policies to forgo economic opportunities that could help them even more in the long run than the immediate benefits they are getting.”

In addition, Obamacare is layered on top of other social programs, which have similar income phase-outs that disincentivize work in an already weak job market.

Indeed, the labor participation rate has dropped from about 67 percent in 2000 to 62 percent today — the lowest in American history, on par with Portugal and less than Azerbaijan. Certainly, a large factor has been the anemic recovery that has not produced enough jobs and discouraged millions from even looking for jobs. But there is no doubt that Obamacare will exacerbate this phenomenon.

Safety-net programs designed with the best intentions can turn into a hammock that traps individuals in suboptimal conditions.

Meanwhile, millions of individuals below the poverty level who live in 25 states that have not opted to expand Medicaid have no access to coverage, while across-state families with incomes close to $100,000 can receive a $5,000 premium subsidy. How can any rational person explain this?

The architects of Obamacare assumed all states would accept the generous Medicaid subsidies and expand coverage to everyone with incomes below 133 percent of poverty. But when the Supreme Court made this expansion optional, many states opted not to undertake the expansion, believing they would be on the hook for greater obligations than they could afford. At the same time, the Affordable Care Act statute expressly prohibits anyone under the poverty level from enrolling in the subsidized insurance policies offered on the exchanges.

Despite this irrational unfolding of events, the Obama administration has refused to offer any proposals to fix these fundamental problems with the president’s signature legislative achievement. There has been zero dialogue with the Republican leadership in Congress or committees of jurisdiction on how to address these issues — possibly because that would require recognition of a coequal branch of government and compromise where the administration would inevitably have to negotiate and accept some Republican priorities.

For now, the Obama administration is fixated on only addressing politically damaging aspects of Obamacare, getting the president’s party beyond the 2014 midterms, and doing so unilaterally without congressional input. The latest example was another year delay of the employer mandate to offer “qualified coverage” for midsize businesses (50 to 100 employees) and softening the mandate for large employers.

Why push off this statutory requirement now? The administration fears employer layoffs this summer as November approaches. It is the 18th time the administration has unilaterally ignored clear language in the statute.

It is time to fundamentally rewrite the law. That would require the Obama administration to work with Congress. How revolutionary! But coming from a man who devoted his State of the Union speech to announcing his expanded actby- fiat administration, don’t bet on it.

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