Friday, February 13, 2015

The Cost of the Affordable Care Act on Employers, the Workforce, the Taxpayer, Kentucky

The Atlanta Federal Reserve's macroblog has been running a nice series on U.S. labor force participation and examining trends in part-time versus full-time employment. A recent post asks "Are We Becoming a Part-Time Economy?"

"Compared with 2007, the U.S. labor market now has about 2.5 million more people working part-time and about 2.2 million fewer people working full-time. In this sense, U.S. businesses are more reliant on part-time workers now than in the past. But...almost all jobs created on net from 2010 to 2014 have been full-time. As a result, from 2009 to 2014, the part-time share of employment has declined from 21 percent to 19 percent and is about halfway back to its prerecession level... the decline in part-time utilization is not uniform across industries and occupations. In particular, the decline is much slower for occupations that tend to have an above-average share of people working part-time. This portion of the workforce includes general-service jobs such as food preparation, office and administrative support, janitorial services, personal care services, and sales... The economy has been generating full-time general-service jobs at a much slower pace than in the past." (emphasis mine)

One interpretation could be that manufacturers have a larger workforce and likely already offer health insurance. Or they have to have 100+ FTE employees to run the plant (think Toyota and its suppliers) and therefore will offer insurance instead of paying the penalties.
Smaller service firms, like Staples, may have had a mix of part and full time employees in the past but are trying hard to push their FTE employees below 100 in order to avoid the ACA penalties: $2,084 / [12 * (# of FTE employees – 80) ] in 2015. (FTE – 30 in 2016, denominator gets bigger, as does the $2,084).

Now, Alice is working far fewer hours — and if she clocks above 25, she may be fired.”

Here's an important point: 
An employer can also avoid the penalty by enrolling employees in Medicaid if they are eligible (those employees are subtracted from the FTE hours in the penalty equation). If limiting employees to fewer hours also helps limit their incomes to be eligible for Medicaid, easier to do in an expansion state like Kentucky where the income limit is 138%, the firm has a clear incentive to do so. 

What does this mean? More people on Medicaid, fewer hours worked, and less tax revenue. Casey Mulligan's analysis from his book (my review) suggests "3 percent fewer aggregate work hours, 2 percent less GDP, and 2 percent less labor income." 

People, including shareholders, respond to incentives. On the labor supply side, which often gets overlooked, if I'm in Kentucky and my part-time income keeps me below 138%, what kind of a job would provide enough income or benefit that makes it worth it for me to climb out?  

A household of two 40-year old non-smokers with no kids earning $21,700/year is eligible for Medicaid at 138% of poverty. So, they have full insurance coverage and no hassle on their taxes, they just check a box. However, if they earn just $10 more, they lose Medicaid and now qualify for a subsidized insurance policy via KYnect. 
A Silver plan costs the family $720 for premiums for the year (3.32% of income). The plan pays 94% of costs of covered benefits while the family pays the other 6% with an out-of-pocket limit of $4,500. When applying for the coverage they have to estimate their income over the following year to achieve that amount. They also have to update the Marketplace on their income regularly and file IRS Form 8962 that checks their actual 2015 income against their premium credit. Their tax refund is adjusted by how much of their premium credit they chose to receive up front, monthly, or not at all. That form process is a bear.

A Bronze plan would relieve them of all premiums but they would pay a higher deductible (averaging $5,181?) to and be on the hook for 40% of the covered costs, with out-of-pocket limits at $6,350(?). If the family has any health concern at all the Bronze would be a big risk.

The low-income household above can least afford help on their taxes, but hopefully they'll find some free options available locally. This is crucial because if it turns out they earned more than $21,710 then their subsidy has to be readjusted, and they will owe the difference (it’ll be subtracted from their refund). This whole calculation is what economists call an implicit marginal tax. If you're in their shoes, what would you rather do, spend the money and hassle above or reduce your hours to earn $10 less and keep your health coverage?

Unless you're able to get a job with an employer providing insurance (as some people I know formerly on Medicaid have done with Toyota) then you'd be irrational to earn the extra $10 or more. You're better off with less. (Now, consider what also happens if your employer has to pay you more because of a minimum wage increase, pushing you above the $21,700 line all else equal...)

None of the above states whether the Affordable Care Act is good policy or not. While you have an incentive for workers to see fewer hours and lower income, more will have health coverage under Medicaid, health providers will have more income, you can think of the decrease in hours worked as increase in leisure/family time, the workforce will likelier be healthier, and may have more peace of mind because of the safety net. One just has to compare all the benefits with the costs. Some economic and fiscal impact studies look at the demand side without examining the supply side, it's helpful to look at both.

I welcome any questions, corrections, and clean comments.

No comments: