Linda Gorman on How ObamaCare Treats Middle Class
By David Henderson
Linda Gorman, my former Naval Postgraduate School colleague and author of three excellent articles in The Concise Encyclopedia of Economics (here, here, and here), has written a post laying out some weird consequences of the ObamaCare law. I would be tempted to call them “Rube Goldberg” consequences but the difference is that the Rube Goldberg device, however complicated, actually worked.
Here are some sample calculations for a wage earner couple with two children living in a state that offers Medicaid to households with incomes at or below 133 percent of the federal poverty level (FPL). Because the law allows 5 percent of income to be “set aside,” this is functionally equivalent to offering Medicaid to families with incomes under 138 percent of the federal poverty level. The federal poverty level for a family of four is currently $23,550. Allowing for the income set-asides and multiplying by 1.38, this family would be eligible for Medicaid as long as it doesn’t earn more than $32,499.
Now, suppose that the family earns an additional $501. It will now be ineligible for Medicaid. If the employer does not offer affordable coverage, the family will have to turn to a health insurance exchange.
According to the Kaiser Health Reform Subsidy Calculator, the premium cost for family coverage purchased through an exchange will be $1,143 per year (3.46 percent of annual income). Yet, after paying this premium and paying the additional federal income taxes it owes, this family is actually worse off as a result of its higher earnings. (See the table).
The whole thing is worth reading.
One correction, though. The last column in her table, which is the most important column in the piece, is mislabeled. It is not the “Percent Change in Marginal Tax.” Rather, it’s the marginal tax rate on the additional $501 of income. That’s what’s shocking. A family can get implicitly taxed 238% on that additional $501.