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Sen. Sam Brownback: Perverse Obamacare incentives jeopardize recovery

This Op Ed was published by The Washington Examiner and can be veiwed online here.

There is some hope in the latest report on unemployment that our battered economy may be showing some tentative signs of recovery as the rate of job loss continues to slow.

But with consumer confidence still low, unemployment hovering at 10 percent, and over 7 million jobs lost since the beginning of this recession, it should be clear that any potential recovery is still fragile.

This being the case, Congress and the administration should focus like a laser beam on policies that encourage economic growth and put Americans back to work.

Instead, this administration and Congress have taken up crucial months with a proposed revamping of our entire health care system that would cost $2.5 trillion over the first 10 years of full implementation, paid for by a host of new taxes and employer mandates that pose a grave risk to a sustained rebound of our nation’s economy.

Not only that, but the Democratic health care bills include some positively perverse incentives that would discourage hiring, work, savings—and even marriage. Higher taxes, more employer mandates, and disincentives to job creation, productivity, and family formation are hardly the prescription for growth that our economy so desperately needs right now.

Both the House and Senate bills would, for instance, increase the already-existing penalty on work faced by many low-income families who receive tax and in-kind benefits from government welfare programs.

The health insurance subsidies in the legislation for individuals and families in poverty would tack on an additional 12% to 20% to marginal tax rates, which already approach 40% - 50% for families receiving a variety of benefits for those with low incomes.

This would result in marginal tax rates of 50% - 60% for most affected families. If working more hours or obtaining a better paying job results in more than half of those additional earnings being taken away as a result of taxes and reductions in benefits, the incentive to work harder or to invest in an education is greatly reduced.

This is not the only work disincentive in the bill. It is very common for teenagers and college students to obtain jobs so that they can have some spending money of their own or help with their educational expenses.

The Senate bill penalizes the families of these younger workers by including their wages in benefit eligibility calculations. For many low- to moderate-income families, the inclusion of a teen or college student’s wages could mean a significant increase in their cost of health insurance, or could even result in them losing thousands of dollars of health insurance subsidies altogether.

More harmful to the economy, potentially, are the incentives directed at employers. Both the House and Senate bills include temporary subsidies to small businesses to encourage them to offer employer-sponsored health insurance.

As the number of employees increases, or as salaries increase, the amount of the credit provided to the business decreases. The structure of this subsidy not only discourages employers from hiring new employees, but it also discourages them from increasing employees’ salaries.

Ironically, the incentives in the bill would even work to encourage employers to drop health insurance coverage for individual employees—or to eliminate insurance coverage altogether.

The Senate bill would cap employee contributions to insurance premiums at 9.8% of their income. If an employer offered a policy that required employees to pay more than this, the employee would be eligible to purchase insurance through the new “health care exchange,” and the employer would have to pay a fine.

Since in many cases that fine is considerably less than the additional insurance costs the employer would incur if they retained coverage, many businesses concerned about their bottom line will be enticed to stop providing any health insurance coverage.

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