April 1, 2014

Obamacare’s Bad Economics

Democrats have made countless false claims about the President’s health care law over the years. The latest, and one of the most absurd, is that the law is fiscally responsible. Last month, House Minority Leader Nancy Pelosi and Budget Committee ranking member Chris Van Hollen claimed at a press conference that Obamacare saves the American people and the federal government money. The Obama administration and its allies are desperate for a good news story, but the numbers are stubbornly resisting Democrats’ spin.

Regulatory Costs Soar

The Democrats’ health care law wraps businesses in red tape – already more than 22,000 pages of regulations generated from a 2,700 page law. According to a March 24 analysis by the American Action Forum, Obamacare regulations have produced only $2.6 billion in annualized benefits compared to $6.8 billion in costs. Since its passage, Obamacare has imposed more than $27.2 billion in total private sector costs, $8 billion in unfunded costs to states, and more than 159 million annual paperwork hours.

Obamacare paperwork burden

Obamacare paperwork burden

Negative Jobs Impact

Before the President signed his health care bill into law, House Speaker Pelosi infamously declared: “In its life it will create four million jobs – 400,000 jobs almost immediately.” By August 2010, the non-partisan Congressional Budget Office was predicting the health care law would reduce the labor supply by the equivalent of 800,000 jobs.

This past February, CBO predicted that Obamacare’s flawed policy incentives will effectively drive 2.5 million people out of the workforce by 2024. That figure is nearly triple the impact CBO had estimated in 2010. The Democrats’ health care law forces Americans to decide if they want to work more and earn higher wages, but potentially lose generous government subsidies, or if they want to work less, earn lower salaries, and retain government benefits.

The White House tried to spin the report, claiming that CBO’s report proves the health care law will save people from being “trapped in a job.” Washington Democrats once advertized the health care law as a way to stop “job lock,” by giving Americans the chance to move to a different job and retain their health insurance. Democrats never promoted the law as encouraging people to simply drop out of the workforce. Even liberal pundits have been forced to admit, as one did in the Washington Post on February 4, 2014, that Obamacare is “a drag on economic growth … as more people decide government handouts are more attractive than working more and paying higher taxes.”

Obamacare Makes the Deficit Worse

Washington Democrats often claim Obamacare reduces the nation’s deficit. This statement conflicts with a Government Accountability Office report estimating that, under a realistic set of assumptions, the law will increase the deficit by roughly $6.2 trillion over the next 75 years.

Democrats also contend that Obamacare caused national health care spending to slow. This runs counter to the Obama administration’s own Medicare actuaries, who said in September 2013 that the slowdown in health care spending was due to the weak economy. The Kaiser Family Foundation also released a study in April of 2013 showing 77 percent of the recent decline in health spending can be attributed to the sluggish economy. Even leading economists expect health care spending to increase once the economy recovers.

Employer Mandate Tax Reduces Wages

Obamacare imposes new penalties on businesses that do not offer health insurance to their workers. Starting in 2016, businesses that employ 50 or more full-time workers will be fined $2,000 per employee (after the first 30 workers) if they fail to provide government-approved health insurance to their workers. Even those companies that offer insurance will pay a $3,000 penalty for every full-time worker whose coverage is deemed unaffordable and who receives a federal subsidy to buy insurance in the exchange.

This labor market distortion creates a disincentive against business growth. Businesses may not hire more full-time employees and instead use part-time workers or independent contractors. CBO noted that the law’s new penalties on employers “will, over time, generally be passed on to workers through reductions in wages” or by hiring fewer low-wage workers.

A 2008 Harvard study reached the same conclusion: “When the cost of benefits rises, wages fall (or rise more slowly than they would have otherwise), leaving workers to bear the cost of their benefits in the form of lower wages.” When it is not possible to reduce wages, the study authors wrote, “employment can be reduced for workers whose wages cannot be lowered, outsourcing and reliance on temp agencies may increase, and workers can be moved into part-time jobs where mandates do not apply.” Low-wage workers at highest risk are more likely to be high school dropouts, minorities, and women.

Medical Device Tax Stifles Innovation and Kills Manufacturing Jobs

Starting in 2013, the health care law levies a $30 billion tax on medical device manufacturers who develop and import products such as pacemakers, artificial joints, and ultrasound equipment. This 2.3 percent tax is applied to revenue, not profits. In some cases, companies could pay more in federal taxes than they generate from day-to-day operations. Both CBO and the CMS chief actuary have warned that the health care law’s taxes on medical device manufacturers, drug manufacturers, and health insurance providers would largely be passed through to consumers in the form of higher premiums. Alternatively, device makers may shift product construction and distribution overseas. A February 2014 survey found that 33,000 industry jobs were lost during the tax’s first year of implementation.  

Obamacare Taxes the Middle Class

President Obama made a “firm pledge” that his health care law would not raise taxes “a single dime” on middle class Americans earning less than $200,000 per year and families earning less than $250,000 per year. The President extended this promise to all taxes, saying “Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

In December 2009, the Joint Committee on Taxation confirmed that a significant portion of the health care law’s tax increases will hit the middle class. More than 73 million American households with income of less than $200,000 will see their taxes go up due to the health care law. By 2019, JCT predicts 42.1 million people making less than $200,000 annually will see their taxes go up even after taking the taxpayer premium subsidy into account.

Those tax increases take money out of the pockets of Americans. They are a direct, and personal, economic harm created by the Democrats’ health care law. Just like the jobs destroyed, the wages decreased, and the added government debt, they are part of the mountain of evidence showing how disastrous Obamacare is for our economy.

Issue Tag: Health Care