Reader WC Varones emailed an article he wrote on Obamacare and the Disincentive to Work.
At the heart of the matter is a redistribution scheme that punishes the middle class the most, and the wealthy the least, for the benefit of the poor.
As awful as Obamacare has been at its purported goal of making health care affordable, it has been unquestionably successful at one of Obama’s other primary goals: the redistribution of wealth. Unfortunately, the poor design of the redistribution function is one of the reasons Obamacare is failing.
As the Economist points out in “Healthy Dose of Redistribution“, Obamacare imposes new taxes and costs on the middle class to fund subsidies for low-income earners. Low-income people get Obamacare for almost free, while middle class families are required to pay full freight for the most expensive government health care plan in the world by far.
Varones took data from an Obamacare Subsidy Calculator and crunched the numbers for a married couple in their 50’s in San Diego.
He posted the Subsidy Data along with a chart that shows a huge drop-off in after tax income if you make too much money.
I copied his spreadsheet, and prettied up the chart a bit with data points and axis labels. This is what it looks like.
The above chart is for a couple in San Diego. It reflects the price of a typical “silver plan” and Obamacre subsidies at various gross income levels.
Thanks to Obamacare, it is better for the average childless couple in California to make $63,000 than $72,000. Things are really horrendous if someone makes $64,000.
Taking Obamacare, federal, and state taxes into consideration, a couple that makes $63,000 annually takes home $48,770. A couple that makes $64,000 takes home $42,360!
Varones calculates the marginal tax rate of that extra $1,000 in income to be 741%.
The income level at which the cliff happens varies by family size and place where one lives. The cliff happens at $98,000 for a family of four in Omaha. Everyone has a cliff at some income level.
Varones finishes appropriately “The cliff is likely to get even bigger with the Huge Obamacare Premium Increases expected in 2017. This will not end well.”
Thanks to Obamacare, it is frequently better for a middle class family to get no raise than even a decent sized raise.
The wage point varies, but many will say “Dear employer, please don’t pay me more. It will cost me a lot of money”.
Mike “Mish” Shedlock
That is precisely my bitch about virtually every welfare program. They all have cliffs and the benefactors can flip complicated math in their heads to figure out what income level they need to be at, but they have no incentive to break out of their situation due to the job situation.
This is crazy since it is easily possible to iron out such inconsistencies. You don’t even have to debate the plan on any other merits or drawbacks — this is simply a matter of getting the administrative details right by a competent authority!
Yaknow… I’d really like to think that this was done the way it was because in the incompetency of the legislators writing and passing the laws. If you look at the repetition of the same theme, you can only conclude that it’s by design. If that’s true, then you have to wonder what the agenda of this ruling class really is. There’s 2 things to look at here:
1. Our “legislators” complain that once they get into office, they have no time to work on what needs to be done because they are on the phone trying to raise funds for their next election campaign.
2. None of the legislators actually read, let alone think about, the legislation that they vote on and pass.
Assuming these 2 complaints are correct, you have to ask, “then who is writing the laws”? which would lead one to believe that the corporations are running this country into the ground. Now think about why Obunghole is in such a frenzy to pass this phuching TPP which everyone that’s seen it is sworn to secrecy.
For one; anything simultaneously requiring “competent” and “authority”, is mathematically impossible.
In addition, an integral part of the progressive delusion, is that there exists meaningful non-tautological classifications of people. Like ‘the poor”, “the rich” etc. Hence, their entire worldview, extended via pervasive publicly funded indoctrination for over a century to most of the population, is nothing but a mishmash (lower case mish….) of inconsistencies and discontinuities. All backed up by an asymmetrically armed state charged with bending actual reality to their childish models by way of uncontested brute force.
Mike – my son-in-law, an engineer with two small boys, expecting their third child this summer, found himself EXACTLY here last year – debating whether or not to tell the boss to KEEP the raise because it would negatively effect him just as the graph shows!
Well, in California the state legislators voted to provide free (compliments of the taxpayers) soup to nuts health care (called Medi-Cal) for all illegal aliens up to 19 years old. They started signing up in May and are now eligible.
At the same time vets are being turned away by the VA.
They tell us that it’s a crime for a foreigner to come into the country without the proper documents – yet once they arrive they’re given free medical care, free education, access to state drivers licenses and many other free social services that citizens must pay for.
What a F’ed up system.
You can have open borders. You can have a welfare system. You can’t have both open borders, and a welfare system that gives benefits to illegals or you end up…, um, never mind, we all know where you end up.
The reality is, if they end up being a voter, one of the parties will want them in. Right now, most end becoming democrats when they get the right to vote, so the dems are all in favor of them coming in, They care far more about getting re-elected than the country. The pubs would do the same.
On a side note, by turning DOWN the raise mentioned above, he continued to RECEIVE tax money to pay for the family health insurance – tax-free. If he HAD gotten the raise, we the taxpayers would be paying less and he would be paying more. So, the best move is to keep the subsidy unless you get a really large raise!
People want to blame those getting the free or nearly free Obama care. The problem is in the system. You can’t blame families trying to survive. Take a family of the income range of 75K and subtract 1 to 1.2k for a 5k or more deductible…… It is really difficult.
Try a 10k deductible. Family is 2x individual, and most silvers now have a 5k deductible, at least in these parts.
I was actually going to say 10K, but thought someone would argue. Thx for making the point though.
It’s almost like a “planned” disaster, isn’t it? Obamacare was supposedly a response to a healthcare crisis, and now we have one. This is quickly becoming not just a healthcare crisis but an overall economic crisis, and miraculously only those who created these crisis seem to have the power to help….by introducing more and more to government dependency at a cost the the shrinking few desperately trying to hold onto their lives and dignity. This will lead to many problems, the least of which is class warfare, coinciding with race and religious conflicts to be the “perfect storm”.
Why would a redistribution program be designed with discontinuities like that rather than a smooth curve?
Who has time to figure those things out when writing a 3000 page piece of legislation?
What’s more amusing is that larger middle class families, one of those things needed to maintain entitlement programs and social fabric everywhere, are further smacked with the cost of adding children to insurance. Poor families and rich families can breed freely, but the middle class suckers are toast if they have more than 1 child.
This is why it’s ultimately cheaper to pay the Obamacare tax than pay a family premium plus deductible.
Just another point of failure…
Until you find that few will take Obamacare insurance for what ails you. It is already effecting all classes of health care. One of my employees needs surgery and the doctor told him that he would not do it and instead it would have to go to the surgery pool at the hospital as it is an eight hour procedure that only pays $1000. And this in NOT Obamacare, as I pay for it in full. Pricing structures are being squeezed down and fewer doctors are willing to take on the work for the offered pay, MEANING that you will end up with second and third tier doctors, and hospitals with more bureaucracy. The best doctors will hold out for cash paying customers. This thing is a disaster and getting worse…fast.
Yep, and a large number of doctors won’t take any ObamaScare plans at all for any services they provide.
I pay cash for everything. It is the only way to go. Far cheaper than Obamacare. I am sure Killary will have to implement domestic drone killings and jail sentences to get 100% compliance to this insane system. The only sanity in an insane system is to stay as far outside the insane system as possible.
Killary will need Soviet style gulags and re-education camps, and still the socialist central planning will fail. There is decades of empirical proof, which is valid scientific evidence, that socialist central planning does not work. Ignorant fools are running the insane asylum (USA.gov).
Cash is fine for as long as it lasts. I was brought up with the notion that the whole point of saving was for not only retirement, but any unexpected expense, illness being an important one as EVERYONE gets sick. The problem is that there is an “almost” cure for everything and they are increasingly expensive. For someone who develops a serious illness, it can eat up significant wealth, and if it sidelines you from earning as well, it can suck you dry very quickly. Ideally, a high deductible plan that covers these extreme cases is ideal, but our laws force hospitals to provide care for everyone and everything. This is what I have always had and provided to my employees, but now days a couple of trips to the ER can eat $5-7K pretty damned fast before you get really any healthcare. Rates have gone through the roof.My rates have increased about 25% every year for the last five anyway. I’m currently paying over $4k/month for five people. I don’t know how much longer I can do this, and I don’t think my employees can absorb it. The clock is ticking towards and uncertain crisis.
In the years since this was passed many of the problems could have been corrected with additional legislation. Instead there was only symbolic gestures by the Republicans. Indeed the only fixes were those implemented by the Obama administration such as extending the grandfathered plan availability. Of course the best gesture would be at least to make health insurance premiums fully tax deductible. In all of this the congress was not as helpless as they have been pretending.
Experts wonder why the voters seem angry – this is why – a critical problem with health care affordability caused by Washington left unfixed for years. My grandfathered plan goes away next year and that will cause my premiums to double again consuming most of our income. It may be better to early retire and get free coverage.
There is no such thing as “free coverage” with ObamaScare. All of the Medicaid plans at no upfront cost rack up claims which will be charged to your Estate and there is no way to avoid that.
I see you’ve never heard of overseas precious metals. 🙂
That’s right. It’s the Republicans’ fault for not fixing the bill Nancy Pelosi passed under extreme parliamentary rules so that we could all see what was in it.
I don’t get to vote for the whole Senate but I expect my own Senators and congressman to do what they can to advance my interest. I could care less who created this mess at this point years later. My Republican Senators could have pushed corrective legislation that would have helped. Instead they chose to support the many symbolic repeal bills they knew would not pass. I am not inclined to view the Republicans any more favorably because they were totally ineffective in doing anything to improve the situation.
Any legislative attempt to fix Obamacare would have ultimately ended up hurting citizens. Laws are no longer drafted for your benefit, but to the benefit of those who treat you like cattle. Republicans own the slaughterhouses just as much as democrats.
Just another reason not to be a fully productive US citizen working to full capacity in 2016.
What man in his right mind would seek a promotion, a pay raise and take on added job responsibilities when it would only hurt his financial health?
The ramifications go far beyond healthcare. It’s a major drag on the economy when it makes more sense for people to remain in a lower income bracket to protect their net worth.
Punishing productivity and rewarding mediocrity does not a great nation make.
Agreed. That’s why I renounced in 2013 and became Singaporean.
WANT TO INSTANTLY BECOME A TOP 20%er?
The Average US Welfare Payment Puts You In The Top 20% Of All Income Earners
http://www.forbes.com/sites/timworstall/2015/05/04/the-average-us-welfare-payment-puts-you-in-the-top-20-of-all-income-earners/
Work or Welfare: What Pays More? – WSJ
http://blogs.wsj.com/economics/2013/08/19/work-or-welfare-what-pays-more/
Typical Socialist Central Planning outcomes. Déjà vu no doubt for eastern Europeans, this mythical utopia where everyone lives happily ever after in blissful redistributed equality in Medical Care Land. The Central Planners will deliver the New and Improved ACA to siphon more money from the wealthy to redistribute to favored groups and fix the inequalities. There will be great popular applause (liberal media chorus), and then as more “distribution anomalies” crop up, Gruber will unveil the real end game of a single payer regime ruled by IRS health care czars.
Welcome to the Command and Control Economy, from interest rates and QE to cash transactions, flight passenger travel approvals to medical care. All the pieces are falling into place. George Orwell, or perhaps it was someone else, had a name for it. Eludes me a the moment. Is it totalitarian? Certainly not free market.
The largest problem with the welfare system as it exists is that we have created a roach motel. The recipients can check in but it becomes very difficult, if not impossible to leave. They need a very high quality job to end up with more than they had, yet they most likely are not qualified for such a job. The predictable result of such a system is stagnation of the bottom 20%. You would expect the people at the bottom of the income ladder to have little incentive to escape, and therefore to remain largely the same people from year to year, and I think that’s exactly what we do see.
Lower marginal tax rates do give people the incentive to earn more. How about we apply the same thinking to those on welfare, and integrate all the welfare programs so that they work together to assure that each and every person comes out better off in they earn more money?
Basic income and basic welfare services for all, funded by consumption tax, might be the summit of that. Anything earned extra is yours. However such a system still presents a lot of argument and may not lead to the balance hoped for. Personally I think that judging approaches comparatively to resolving something of the problem is more likely than hoping for an ideal circumstance to be introduced…how to do that without giving up ideals is another question though…maybe people should start by accepting they play along with a system that is way off their ideals anyway.
…last phrase meaning they are playing along in a system that is not their ideal, not that they should accept to do that, only accept that they are.
Either way, I think people either have a clear sense of justice, or they don’t, the rest is imposition or deceit, which moves away from compromise as compromise is not coerced but a voluntary exchange. Follows that any compromise that moves towards personal responsibility and away from collective responsibility is likely to be in the right direction.
To be better off earning more money tends to conflict with being well enough off without working, and that conflicts with those who work to subsidize that, unless we are talking of politicians working to subsidize votes.
Imagine the markets that a massive low income population supports. Maybe something we might find in Mexico or South America, and THAT will point you in the direction of our economy. The constant down spiral that a welfare economy supports is not what we think of as American, more third world. And given that most of that low income wealth is spent on cheap imports, it could be worse still.
The example is a trick. There is no way for a couple to live in San Diego on $64,000/yr. Unless they’re homeless.
Not so far off for a couple that has a tiny mortgage, as anyone who bought pre-2000 has. Even better if they have paid it off already.
So that’s one, maybe two couples. In all of SD. There’s no way to live there on that money. It’s one of the most expensive places in the world to live. It’s a crazy example, but that’s more the FedGov’s fault than yours.
Would you believe I got pushback when I said $75k households were not “upper class?”
http://www.wcvarones.com/2013/07/is-middle-class-disappearing-into-upper.html
The median household income of San Diego is about $66K so half the households there make less.
And this is exactly why I’ve refused the last raise I’ve been offered. I even volunteered to do my overtime work free of charge, just so that the money wouldn’t show up on my tax return. Obamacare is the worst thing since… well… since Obama.
There are articles explaining that divorce then co-habitation is the choice of some to avoid the imposed income limit before high contribution starts.
So what he’s telling us is the system IS working.
Cloward and Piven Rule!
Forward Soviet!
To the gulag and beyond!
Why aren’t more people angry about this! Too dumb, stupid or both? 90% of my neighborhood are clueless twits walking into trees and believe all is well. Farkn young people should be very pissed at the current state of affairs across the board. My dear old Dad, a WWII bomber pilot, would be pissed that he risked his life for these politicians, these apathetic citizens. clinton, bush Obama….repeal glass stegal, invade Iraq, double deficit …..WTF. And people think Trump is dangerous?!
The liberals warn us that Trump would bring fascist rule. Naturally that’s political hyperbole and not even close to the truth. However, given a choice I would rather live under fascists than kleptocrats who rob the productive working man of his earnings and standard of living to support a welfare class who sire children they cannot afford and are complacent living like parasites off the labor of others.
Give me a fascist who allows me keep my earnings and enjoy the fruits of my labor over a kleptocrat any day of the week.
The problem is health care costs are too high. You can’t solve this by coming up with new ways to pay for it.
“…while middle class families are required to pay full freight for the most expensive government health care plan in the world by far.”
That way the middle class will be begging for the system to be fixed…
by single payer.
Destroy the village… to appear to save it.
Destroy college students with debt… to appear to save them with tuition free college.
It is all about the agenda, regardless who gets hurt in the process.
That applies to both political parties, too.
No one realizes issue is cost of medical expenses.
Doctors here in France are going to see the standard visit health check rise from 23 to 25 euros (about a 1/4h) . It is not enough indeed, in particular because of patient not showing up often. 30 euros would make it.
Those are the real news since I just chatted with my doctor.
How much does a simple check cost in USA ?
I remind that in most Europe parts, the hippocratic oath is effective to all doctors.
I am totally shocked when I hear you are rejected if ill and not rich enough…
Sampe applies to medicine where companies are just over the government in terms of power, of life and death.
The solution is pretty simple, increase the subsidies slightly to even out the red line. But for the ‘disincentive to work’ issue, it’s a bit overblown. For one thing, it isn’t exactly easy for most people to target their work level to just a so-so level of income.
“Sorry boss, I don’t want to work any more hours this week least I surge above $62K a year but don’t hit $73K”…
“OK, I’ll solve that problem for you really fast, talk to HR tomorrow!”
It’s also the fact that at that income level you start getting to the point where health insurance is offered by your employer. And there the subsidies via untaxed income are clearly on the side of the employee.