ACA Subsidies and Labor Market Participation

Since the passage of the Affordable Care Act (ACA) in 2010, many economists have predicted that the Act will cause a reduction in labor market participation and a recentNew York Timesarticle seemingly vindicates these expectations. The article recounts how the rapid increase in insurance premiums have led Anne Cornwell to cut her working hours, and thus her yearly income, by 30 percent in order to be eligible for health insurance subsidies. The $24,000 reduction in income allowed Ms. Cornwell and her husband to qualify for $27,000 in subsidies.Ms. Cornwell ’s reduced labor market participation supports economists’ predictions based on how the ACA determines eligibility for subsidies. Subsidies are available for people who purchase coverage from health insurance exchanges created by the ACA and whose household income is between 100 and 400 percent of the Federal Poverty Level. Economists predicted that because the subsidies are based on household income instead of individual income, second earners in many households would reduce their hours in order to qualify.In 2014, for example, the Congressional Budget Officeprojected that the ACA would reduce the total number of hours worked by 1.5 to 2 percent between 2017 and 2024. In terms of full-time-equivalent workers, this represents a decline of 2.5 million workers in 2024.It is not yet clear whether Ms. Cornwell ’s decision is representative of a larger population of American workers, but her situation does coincide with ec...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs