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Three Ways Obamacare Is Impairing Economic Growth

Jared Meyer | 07/03/2014 |
Three Ways Obamacare Is Impairing Economic Growth

This article originally appeared in the Washington Examiner.

In terms of economics, the Supreme Court’s ruling in Burwell v. Hobby Lobby gives opponents of Obamacare little to celebrate. 

The case is narrow in its application. It is specifically applicable to “closely held businesses,” and does not affect all organizations. Additionally, only two types of birth control are exempted (morning-after pills and IUDs). This means the Affordable Care Act still retains many of its negative economic consequences.

Here are three of Obamacare’s provisions that are more harmful to individuals and economic growth than the HHS mandate to pay for employees’ birth control.

The Employer Mandate. The Act originally required businesses with over 49 full-time equivalent employees to offer insurance that met government requirements by January 1, 2014, but President Obama has delayed the mandate. Once implemented, if employers decide not to offer coverage, they will face fines of $2,000 per worker (the first 30 workers are exempt). This penalty is effectively over $3,000 since it is not tax deductible. Going from 49 to 50 workers will cost a business an additional $60,000. 

With employment just recently surpassing pre-recession levels, labor force participation falling to levels not seen since the 1970s, and GDP growth for last quarter (-2.9 percent) coming in at the lowest rate in 5 years, policies that make it more costly to hire workers are substantial barriers to economic recovery.

Disincentives to Work. Because of the maze of subsidies and penalties under Obamacare, University of Chicago economist Casey Mulligan finds up to 11 million low- and middle-income Americans lose money by taking a job or working more. These penalties and losses of subsidies act as effective taxes on full-time employment.

Discouraging individuals from working has negative short- and long-term consequences.  Working less robs people of the skills they need to have successful careers, and full-time job status is a crucial signal to future employers. 

Full-time employees and their families are not allowed to receive subsidized health insurance if their employers offer what the administration deems to be “affordable” coverage. Because of this ACA provision, employees are encouraged to work fewer than 30 hours per week so they can receive federal subsidies, which increase as income falls. 

Subsidies phase out completely at 400 percent of the federal poverty line ($95,400 for a family of 4). They do not gradually decrease all the way down to zero. This is problematic since earning one additional dollar over the cutoff makes families ineligible for any subsidies, resulting in a tax rate on an additional $100 in earnings well over 1,000 percent, and up to 9,000 percent for certain families. 

Declining Labor Force Participation. In February, CBO released a report that projected Obamacare will reduce U.S. employment by 2 million full-time workers by 2017. This number is expected to increase 2.5 million by 2024. Supporters of the law touted this decrease as beneficial but, as Charles Blahous pointed out on Economics21, this is terrible news for the economy.

Economic growth comes from how much people work, and how productive they are while working. Policies that lower either of these factors necessarily decrease economic output, usually leading to decreased standards of living. 

While the Supreme Court’s decision may be monumental on other grounds, its economic effects will be practically non-existent. There are much larger problems with the law that are out the Supreme Court’s hands. President Obama has already postponed some of the worst aspects of Obamacare—such as the employer mandate—by executive order, but Congress must act to reform the law before further harm is done to the economy.

 

Jared Meyer is a policy analyst at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.

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