November 09, 2015
Tyler Cowen had a piece in the NYT arguing that the mandates in Obamacare may be painful for many moderate-income people who don’t qualify for subsidies and don’t value the insurance. This is true, but it is also true of almost any policy that would be designed to help low- and moderate-income people.
First, the basic point is that the mandate requires people to buy insurance who might not have otherwise if the law didn’t require it. If we give these people credit for acting rationally, they would choose to pay necessary medical expenses out of pocket and to rely on emergency room care rather than pay for an insurance premium. In this case, the mandate is effectively a tax that can be a substantial burden on households who are over the cutoff for subsidies at 350 percent the poverty level. (That would be $41,200 for a single person, $71,300 for a family of three.)
This sort of argument would also apply to a program like Social Security. There are many people who can reasonably expect that they will not enjoy long retirements based on the age at which parents and other relatives have died. Social Security also provides survivors benefits for spouses and dependent children. In addition, it provides disability benefits. But if a person with a short life expectancy does not have children, or they have grown, and either does not have a spouse or the spouse would be entitled to comparable benefits based on their own work history, Social Security will not provide this person with a very good expected payback. We may or may not feel bad about requiring this person to contribute to Social Security, but it is essentially the same sort of dilemma that Cowen raises about Obamacare.
As a practical matter, there are really no policies designed to help low-income households that won’t have some losers among this groups. As minimum wage opponents like to point to out, some low-wage workers will lose their jobs due to a minimum wage. They tend to exaggerate the number and imply that workers are permanently out of jobs (as opposed to spending more time between jobs), but surely someone somewhere will lose their job as a result of a minimum wage hike.
But this problem comes up even with their preferred alternative, the Earned-Income Tax Credit (EITC). If we give workers with children more incentive to work, we increase the supply of less-skilled workers. Increased supply will lower the wage, which means that workers who do not benefit from the EITC will be harmed. Should EITC supporters feel guilty?
Also, in the economists’ wonderful world of full employment (everyone who is willing to work at a wage equal to their productivity has a job) the diversion of resources to give EITC beneficiaries an after-tax wage that is above what their productivity would command, will require giving others in the economy less. Even if we pay for the EITC entirely with progressive taxes, it will still hit ordinary workers, since taxing the wealthy will lead them to save and invest less. This means slower increases in productivity and therefore lower wages.
Cowen is right to point out that Obamacare will have some people who don’t consider it a net benefit. This should be a real concern. It is a reason to try to minimize costs and ensure that the subsidies are as generous as possible. (If Obamacare has contributed to the slowdown in health care costs, the number of net losers from buying insurance will be far fewer, although that may not be clear to them if they don’t recognize the role of the program in slowing cost growth.)
However, it is wrong to imply that Obamacare is unique in being a program intended in large part to help low- and moderate-income people that will produce some losers from this group. That will be true of almost any policy imaginable.
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