At one time, getting a job was not that much of a problem. Neither was getting married. But the Affordable Care Act appears to create substantial disincentives both to hiring and marriage, potentially changing the fabric of American society in serious ways.
Let’s first look at hiring.
The Affordable Care Act is partly responsible for the slow jobs recovery. If employers with 50 or more employees do not offer the right kind of health insurance, and at least one employee gets subsidized coverage on the exchange, they are faced with penalties of $2,000 per employee per year. Since the first 30 workers are exempt from the penalty, moving from 49 to 50 workers can cost an employer $40,000 a year.
No wonder that many small businesses are opting to stay at 49 workers. If they decide to expand, they can use temporary workers or contract employees.
Bob Funk, president and founder of Express Employment Services, the fifth-largest employment agency in America, told The Wall Street Journal in an interview published last week, “Obamacare has been an absolute boon for my business…We’re up 8% this year. But it’s just terrible for the country.”
Funk continued, “Firms are just very reluctant to hire full-time workers. So they are taking on more temporary help, which is what we do.”
Companies can get around the penalty by hiring part-time workers, because they do not owe the $2,000 penalty on those who work fewer than 30 hours a week. Many companies such as SeaWorld, Wal-Mart , and Lands’ End, are substituting part-time for full-time workers.
As well as effects on hiring, the subsidies in the Affordable Care Act, could increase the incentive to divorce and discourage marriage.
Under the Act, if workers have affordable single-family coverage from an employer — coverage that by law workers are obligated to accept — their family members will not be eligible for premium subsidies on the exchanges. This can make the cost of insurance for some low- or middle-income families unaffordable. But if they divorce, they get the subsidy.
Without subsidies, low-income families will not be able to afford to buy insurance on the state exchanges. The Internal Revenue Service estimates that family plans will cost $20,000 (in after-tax dollars) a year by 2016. Anyone under 400% of the poverty line, currently $94,000 for a family of four, qualifies for a subsidy — unless a family member has employer-provided insurance.
In a 2011 National Bureau of Economic Research working paper , Cornell University professor Richard Burkhauser, Indiana University professor Kosali Simon, and Cornell PhD candidate Sean Lyons showed that in 2014, when the law will take full effect, 13 million low-income Americans may be unable to get subsidized health insurance through new state health care exchanges because one family member has employer-provided coverage for that person only.
Perversely, the only way for other family members to get subsidized coverage would be for the spouses to get divorced. Then the spouse without coverage and the children could get coverage on the exchange.
This provision of the Act also discourages marriage. Say that Jeff, who receives health insurance from his employer, wants to marry Jenny, who is buying her subsidized health insurance from the state exchange. If they married, Jenny would no longer qualify for subsidized coverage.
Furthermore, since premium subsidies are on a sliding scale, two married people getting their coverage on the exchange would pay more than if they were single.
Those at 133% of the poverty line can pay no more than 3% of their income in premiums. Someone at 400% of the poverty line can pay no more than 9.5% of income. Two people making $32,000 annually would qualify for subsidies when single, but not when they got married and earned a combined income of $64,000. See 2013 poverty guidelines here.
The system is set up so that low-income employees with families may prefer to work for firms that do not offer health insurance. In that way, they can qualify to purchase family coverage through the exchange, and get a subsidy.
Furthermore, if the employer does offer health insurance, low-income workers with dependents might prefer that the coverage is unaffordable, that the employee’s share of the premium exceed the affordability test. That is because if coverage is unaffordable, then the employee will be able to buy subsidized insurance for his family on the exchange.
The employer would owe the Treasury a $3,000 penalty for providing unaffordable coverage for each employee whose coverage is unaffordable, but many workers would rationally accept $3,000 in lower wages to get the opportunity to buy subsidized health insurance.
The incentives are different for employees earning above 400% of the poverty line because they will not qualify for subsidies. They will be better off with an employer who does offer health insurance, because it’s a tax-free benefit. To the extent that premiums are paid through an employer, these can be paid out of pre-tax income — income that is not taxed.
Families without employer-provided insurance who do not qualify for a subsidy will be worse off because they will have to buy insurance with after-tax dollars on the exchange. So to pay for a $20,000 family policy — the Internal Revenue Service’s estimate of the cost of a health insurance plan on the exchange in 2016 — a person in the 50% federal and state tax bracket would have to earn an extra $40,000 in pre-tax dollars (because half would be paid in tax). A taxpayer in the 33% tax bracket would have use $30,000 in pre-tax dollars to buy a $20,000 policy.
That would be a substantial change from today, both in the price of the insurance and in its tax treatment. In order to retain higher-paid employees, firms are going to have to offer health insurance as a benefit.
The structure of the Affordable Care Act will increase the already widening gap between the rich and the poor. More divorces and fewer marriages at the lower end of the income scale result in more households headed by singles. Children in these families often have fewer advantages and lower educational performance, making it harder for them to get a well-paying job when they grow up.
There will be many glitches when the state exchanges open for business on Oct. 1. But the effects of the Act on job creation and marriage — two of the stepping stones to the American dream — are even more damaging.