Possible Obamacare Tweaks

Supposing that the Affordable Care Act is implemented in essentially the same form as it was written, what minor modifications would be most likely?  Here’s my list. These are NOT my preferred changes, just my guesses of what labor market related minor changes are most likely. The economics and politics of the tweaks are fascinating!

  1. Implementation date.  Push every provision dated January 2014 back to January 2015.  Another version would be to keep the 2014 date in law, but grant lots of one-year waivers.  The difference between these two approaches is who would be paying the Administration to go along.  In the first case, House Republicans might pay in terms of agreeing to a tax increase or raising the debt ceiling, etc.  In the second case, individual businesses might pay for their waiver, perhaps by supporting 2014 Democratic candidates for Congress.  A clever administration would remind the House Republicans that failure to pay concede enough would lead it to fall back on the waiver approach, which might cost Republican members seats in the next Congress.
  2. Form of the Employer Penalty.  The employer penalty, equivalent to more than $3,000 per employee not offered affordable insurance by his employer, is a particularly large burden on employment relationships with low-income employees.  It will reduce wages and create unemployment, especially among low-income people, and may end up indirectly costing the government more than the fees collect.  The per-employee penalty could be converted into a proportional payroll tax, which would make it much less of a burden on on employment relationships with low-income employees.  It could apply to all employees — even those with health insurance from their employer — but employer health insurance contributions could count as payments of the tax, as Massachusetts had once proposed before it settled on its per-employee penalty (see the “Competing Visions” chapter of this book).  If capped like the UI tax, it could be made to appear like an insurance payment.  Perhaps, relative to the status quo, Republicans could embrace this approach if the cap coincided with the existing penalty amount and Democrats could accept it once they realize that this penalty puts our government on the wrong side of the laffer curve for tax collections among low-income households.
  3. Limit Enrollment in the Exchange Subsidies.  Massachusetts is thought to have had a de facto enrollment limit on enrollment in their CommCare plans, but the limits were not reached.  Federal enrollments have already been limited in some of the plans created by the ACA [need cite for this].  There is a good chance that the exchange subsidies cost the federal government astonishingly more than anticipated, and stopping enrollment seems like the natural next step at that point.

The economic effects of these modifications are interesting.  Changing the form of the employer penalty to a proportional payroll tax would cause more low-income people to drop out of employer insurance (if they have it) and take coverage in the exchanges.  Perhaps that means that the payroll tweak would have to come after the enrollment limit.

An enrollment limit could reduce the long run substitution from employer coverage to exchange coverage.  But anticipation of that limit would accelerate the process: an employer who was too slow to make his employees eligible for exchange subsidies could ultimately cost his employees a lifetime of exchange subsidies.  Households who were too slow to reduce their incomes below 400% of the poverty line (households above that cannot get exchange subsidies even with unlimited enrollment) would also cost themselves a lifetime of exchange subsidies.  The economics of enrollment limits also depend on what criteria are used to admit applicants into the program as existing participants exit.

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About Casey B. Mulligan 76 Articles

Affiliation: University of Chicago

Casey B. Mulligan is a Professor in the Department of Economics. Mulligan first joined the University of Chicago in 1991 as a graduate student, and received his Ph.D. in Economics from the University of Chicago in 1993.

He has also served as a Visiting Professor teaching public economics at Harvard University, Clemson University, and Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

Mulligan is author of the 1997 book Parental Priorities and Economic Inequality, which studies economic models of, and statistical evidence on, the intergenerational transmission of economic status. His recent research is concerned with capital and labor taxation, with particular emphasis on tax incidence and positive theories of public policy. His recent work includes Market Responses to the Panic of 2008 (a book-in-process with Chicago graduate student Luke Threinen) and published articles such as “Selection, Investment, and Women’s Relative Wages,” “Deadweight Costs and the Size of Government,” “Do Democracies have Different Public Policies than Nondemocracies?,” “The Extent of the Market and the Supply of Regulation,” “What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?,” and “Public Policies as Specification Errors.” Mulligan has reported on some of these results in the Chicago Tribune, the Chicago Sun-Times, the Wall Street Journal, and the New York Times.

He is affiliated with a number of professional organizations, including the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. He is also the recipient of numerous awards and fellowships, including those from the National Science Foundation, the Alfred P. Sloan Foundation, the Smith- Richardson Foundation, and the John M. Olin Foundation.

Visit: Supply and Demand (in that order)

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