CNBC has found an incredible gap in the Affordable Care Act. In short, the ACA has disincentivized working. Due to the arbitrary income caps for taking government subsidies, people making certain levels of income would lose roughly $5,000 dollars if they earned even a dollar more than their respective cap:
In that scenario, an individual or family whose annual income surpasses maximums set by the federal government—if only by $1—will totally lose subsidies available to buy health insurance under the Affordable Care Act.
The loss of those subsidies in some cases will mean that people potentially would have been better off financially if they had worked less during the year, Wu said. And they then would have to work significantly more to make up for the lost subsidy…
Under the ACA, federal subsidies in the form of tax credits to buy insurance on new state health insurance exchanges will be available to millions of people who can start enrolling on those exchanges Oct. 1. The subsidies are available to people or families whose incomes total 400 percent above the federal poverty level or less, and are designed to cap their insurance premiums at 9.5 percent of their total income.
For a single person, that FPL income maximum is $45,960 per year. The maximums are adjusted upward for couples and families until maxing out at $94,200 for a family of four.
Under a scenario that ValuePenguin.com identified, a couple in Ohio, both age 50, would be eligible for subsidies worth $3,452 to purchase a so-called silver insurance plan—a moderately priced level of benefits under the ACA’s scheme—that costs $9,346 annually if they made up to $62,040 per year.
But if they made just $1 more than that, they would lose the subsidy. Wu noted that the couple then would have to earn at least $65,492 to make up for the lost subsidy.
In New York, a family of three whose annual income totals $78,120 would pay $12,784 for the second-lower-priced silver plan on that state’s insurance exchange. After getting a $5,363 tax credit, the family’s net cost for the insurance would be $7,421.
But if the family earned even slightly more than $78,120, they would have to pay the entire $12,784 for the insurance because they then wouldn’t qualify for the subsidy.
To make up for that, the family’s annual income would have to reach $83,483, Wu said.
This is a bit wonky, but what ACA has done is create $5,000 gaps (roughly) where workers are penalized for working overtime. Rational logic would lead employees to not work those overtime hours and thus reduce productivity at their businesses. Obviously, reduced productivity amongst countless workers is bad for our overall economy and damages employment opportunities. Indeed, marginal raises will not be enough to bridge these gaps so workers may simply do the minimum until they can find a new job that increases their wages enough to get past the subsidy gap. Sadly, ACA makes this approach completely logical.
Once again, the federal government has outsmarted itself. With broad, sweeping legislation like ACA, there seems to be a belief amongst D.C. policy staffers that they can account for every possible scenario, even though it’s been repeatedly demonstrated that they cannot. These subsidy gaps are the latest example in the long history of the law of unintended consequences.
So the lesson here is that under the Affordable Care Act, you can work less and make more from the government.