Wednesday, February 27, 2013
Susan C. Morse (UC-Hastings), ObamaCare and Lower-Income Workers (Jotwell) (reviewing David Gamage (UC-Berkeley), Perverse Incentives Arising From the Tax Provisions of Healthcare Reform: Why Further Reforms Are Needed to Prevent Avoidable Costs to Low- and Moderate-Income Workers, 65 Tax L. Rev. 669 (2013)):
What if Obamacare changes the patterns of lower-income work? Murmurs in the news suggest that this is happening, for example through increased use of part-time schedules. In his forthcoming article, David Gamage explains the powerful incentives that the Affordable Care Act (ACA) presents to employers to ensure that lower-income workers will be insured through public exchanges rather than employer-provided health insurance. These incentives to differentiate apply for a huge number of employees, as they apply until households have income of between 2.25 and 3.5 times the poverty level.
Gamage supports the ACA, but argues that it presents lower-income workers and their employers with a catch-22. If employers provide health insurance, workers will overpay for it. But if employers do not provide health insurance, workers cannot access traditional full-time-with-benefits jobs. ...
[H]e focuses on the question of how to rehabilitate the health insurance market by removing the perverse incentive wedges created by the combination of the ACA and the employer-provided health insurance exclusion. He supports repeal of the income exclusion and enactment of refundable tax credits commensurate with exchange subsidies. The proposal would not eliminate higher marginal tax rates caused by the ACA because of the phaseout of exchange subsidy benefits. But it would leave employer-provided health insurance with only the non-tax risk-pooling and intermediation advantages that Gamage observes at the top of his paper. It would thus create a fair playing field, sans perverse-incentive tax expenditures that favor one approach over the other, for the government and employers to compete to be the most efficient provider of health insurance.