Tuesday, May 29, 2012
David Gamage (UC-Berkeley), How the Affordable Care Act Will Create Perverse Incentives Harming Low and Moderate Income Earners, 65 Tax L. Rev. ___ (2012):
Called “Obamacare” by some, the Affordable Care Act (or “ACA”) is the most extensive reform to the American healthcare system since the creation of Medicare and Medicaid in 1965. The ACA promises many improvements to American health care. While recognizing the importance of these improvements, this Essay focuses on how the ACA’s tax provisions will also create perverse incentives harming low- and moderate-income workers.
This Essay argues that – once key tax-related provisions of the ACA come into effect in 2014 – the ACA will create perverse incentives with respect to a number of important decisions affecting low- and moderate-income Americans, including: the ACA will deter low- and moderate-income taxpayers from accepting jobs with employers that offer “affordable” health insurance; the ACA will discourage many low- and moderate-income taxpayers from attempting to increase their household incomes; the ACA will penalize many low- and moderate-income taxpayers who choose to marry and will incentivize many low- and moderate-income taxpayers to divorce; the ACA will dissuade employers from hiring low- and moderate-income taxpayers and will encourage employers to reduce the salaries paid to some low- and moderate-income employees; the ACA will prompt employers to shift some low- and moderate-income employees from full-time positions to part-time positions; the ACA will tempt employers to implement a number of other costly strategies for circumventing the ACA’s employer mandates and penalties; the ACA will induce employers to stop offering “affordable” health insurance to at least some low- and moderate-income employees, and – if this occurs to a significant enough degree – the budgetary cost of the ACA may greatly exceed the official projections issued by the Congressional Budget Office.
Tragically, these perverse incentives could have been avoided. We ought perhaps to accept these perverse incentives were they a necessary cost of achieving the ACA’s many positive goals. Yet this Essay explains how the ACA could be reformed so as to to attain its desirable ends without creating most of the perverse incentives discussed in this Essay.