There's no doubt the Affordable Care Act will redistribute wealth in America. People at the top of the income ladder will pay more; people at the bottom will benefit. But how, exactly, will that work?
A new study finds that Obamacare's redistribution will be stunningly lopsided. Scholars at the liberal Brookings Institution have discovered that Obamacare will increase the income of Americans in the lowest 20 percent of the income scale, and especially in the lowest 10 percent. But all other income groups -- even people who make very modest incomes in the $25,000 to $30,000 range, as well as all income brackets above that -- will experience a decline in income because of Obamacare.
In other words, Obamacare is going to cost some of the very people it was designed to help.
Brookings scholars Henry Aaron and Gary Burtless sought to determine the law's impact on income in 2016, when almost all of Obamacare will be in effect. To do so, they adopted a broad definition of income -- not just a person's wages, but also pension income, employer health coverage, government cash transfers, food stamps, other benefits, and now, subsidies from Obamacare.
They found quite an impact. "The ACA may do more to change the income distribution than any other recently enacted law," Aaron and Burtless wrote. Obamacare provides billions in subsidies to those who qualify, expands Medicaid benefits, cuts Medicare, fines those who don't purchase government-approved coverage and levies new taxes -- all of which will change how much income millions of Americans bring in each year.
Aaron and Burtless' first finding is no surprise: Obamacare will mean more for the lowest-income Americans. It will increase income by 9.2 percent for the lowest bracket -- households making below about $21,000 a year -- for those in their working years, age 25 to 64.
Then the surprise. Obamacare will reduce, by an estimated 0.9 percent, the incomes of working-age Americans in the next-lowest income bracket, households making between about $21,000 and $40,000 a year. And in the next income group, households making between about $40,000 and $65,000 a year -- Obamacare will reduce their income, too, also by 0.9 percent.
A 1 percent reduction in income is relatively small. But it is still a reduction -- and not at all what President Obama and Democrats in Congress promised. When the president pledged that Obamacare would make the health care system "better for everybody," it's doubtful Americans interpreted that as meaning it would reduce their income.
"The administration is playing with fire," said former Congressional Budget Office director Douglas Holtz-Eakin. "They sold this as 'only rich people pay, and everyone benefits,' and now we're finding out it's not true."
Less surprisingly, Aaron and Burtless found that Obamacare will also reduce the incomes of Americans in higher brackets. For working-age households bringing in between about $65,000 and about $104,000 a year, Obamacare will reduce income by another 0.9 percent. And for those in the highest bracket, households above $104,000, the decrease will be 0.5 percent.
Why? There could be a number of factors, but the authors suggest that because the Affordable Care Act will make health care more expensive, a significant number of people who receive health coverage through their job will be affected. "Incomes fall ... primarily because the expansion in employer-sponsored insurance is predicted to cause a modest drop in money wages as employers devote a larger share of their compensation payments to health benefits," the researchers wrote.
Aaron and Burtless also found that Americans age 65 and older will see their incomes drop, and by bigger margins. Those at the bottom of the household income scale -- same boundaries as above -- will see a drop of 1.3 percent, and those in the next lowest group will see a decrease of 1.7 percent. The next income category will see a 1.1 percent drop, and the top two categories will see drops of 0.7 and 0.2 percent. Since most Americans in that age group are on Medicare, it seems likely the income decreases are caused mostly by Obamacare's cuts in the rate of growth of Medicare spending.
In an interview, Burtless stressed that most people above the lowest bracket will not see their income affected by Obamacare. But in a Jan. 27 Brookings panel discussion, Aaron noted that Obamacare's costs have to be borne somewhere.
"Some very large benefits will accrue to the millions of people who will become newly eligible for Medicaid and refundable tax credits (under Obamacare)," Aaron said. "But the president and Congress went to great lengths to prevent the ACA from adding to the federal budget deficit. Someone has to pay for those benefits."
That someone, it turns out, is a very large group of Americans who aren't rich, and who didn't expect to be falling behind because of Obamacare.