Obamacare is No Prescription for Income Inequality

When President Barack Obama passed the Affordable Care Act in 2010 without a single Republican vote, it seemed to many as though the Democratic Party was embarking on a tyranny-of-the-majority of sorts. With procedural maneuvers in place to annul Republican efforts at blocking its passage, the bill—termed ‘Obamacare’ by many on the right—became law, finally fulfilling the decades-old liberal dream of healthcare reform. Immediately after the bill was signed, David Leonhardt wrote in the New York Times as one of the first to declare that the new law was “the federal government’s biggest attack on economic inequality” in decades. Irrespective of a ‘we told you so’ attitude from the Republican Party, and the apparent newfound boldness displayed by many Democrats in addressing income inequality, perhaps it is time to separate truth from propaganda, and examine some of the mechanisms by which the ACA is able to influence wealth redistribution in the United States – and how successful they might be.

Firstly, given that the law is now four years old, it seems as though whatever objectives the ACA wished to accomplish regarding income inequality have not actually taken root yet. This is understandable, as many provisions of the law either just recently went into effect, or will go into effect in the coming years through 2020. Since the day the law was signed, however, many critical components of the ACA have already been implemented, namely, the banning on arbitrary insurance cancellations, the Consumer Assistance Program, and the new “Rate Review” procedures which are allegedly going to keep healthcare costs down. Yet, a recent study of income inequality in major U.S. cities notes that between 2007 and 2012, the gap between the richest and poorest residents is wider than ever before. It would be very, very difficult to argue that, between the law’s passing and the current time, any meaningful progress has been made in terms of income inequality in this country. That being said, it would be impossible and unwise for anyone, including the President, to make the case that the ACA has inaugurated some new period of economic fairness – at least not yet. Perhaps many of the mechanisms to counteract income inequality are contained in the “insurance marketplace,” or other components whose effects on personal finances cannot quite yet be measured.

A widely-discussed economic study from the Brookings Institution3 which addressed the ACA and income levels specifically reported just a few weeks ago that, according to their calculations, “Incomes in the bottom one-fifth of the distribution will increase almost 6%; those in the bottom one-tenth of the distribution will rise more than 7%. These estimated gains represent averages. Most people already have insurance coverage that will be left largely unaffected by reform. Those who gain subsidized insurance will see bigger percentage gains in their income.” The same study continues, “On net and under the broadest income measure, the gains and losses cause small proportional drops in income for Americans in the top three-quarters of the income distribution which offset the larger proportional gains obtained by Americans in the bottom quarter of the distribution.” In other words, wealthy individuals will lose very little because there are many of them, and the poor might collectively make out better due only to their proportion. If this study is, in fact, an accurate indicator of precisely how the ACA will affect the distribution of wealth across the country, what was often seen as President Obama’s subtle yet strong onslaught against income inequality might not be too grand after all.

This raises some questions: just how broad is this abstract national income inequality issue? Are the “very poor” (the bottom 10-20%) the only people that are hurt by the inequity trend? Is the concept of raising the incomes for the absolute bottom of the income bracket, while decreasing incomes by an essentially negligible 0.3-1.1% from wealthier Americans, actually enough? Better still, is it even an accomplishment? For today’s liberals, probably not.  In his inaugural address, Mayor Bill De Blasio stated that current levels of economic inequality threaten to “unravel” New York as he proposed profoundly higher taxes for the city’s wealthiest residents. Even President Obama himself noted in his most recent State of the Union address, “Today, after four years of economic growth [note: perhaps he should have said, “Four years after the passing of the healthcare reform bill”] corporate profits and stock prices have rarely been higher, and those at the top have never done better. Average wages have barely budged. Inequality has deepened.” As the White House, the City of New York, and states across the country under Democratic control seek to make income inequality their main focus of 2014, most liberals seem to think of the issue on much wider terms than this study’s bipolar approach dividing the country between the “extremely poor” and the other 75% of citizens who are more affluent – and rightly so, because as Mr. Obama points out, the vast majority of the country, including the middle class, is financially struggling. He noted, “The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by, let alone get ahead.” At its core, the ACA might not be able to deliver the massive income inequality results for which many on the American Left were ecstatic.

A recent article in the Associated Press addresses the specific ways that the law will theoretically function as a sort of Robin Hood progressive dream: “Obamacare takes a small slice out of the incomes of the top 80 percent…an increased payroll tax for the rich, a new tax on investment income and a reduction to enrollees in Medicare Advantage, a private insurance plan. The AP listed a jump in Medicare premiums for the wealthiest retirees as an additional reason.” Granted the blurriness and subjective nature behind describing the “American middle class,” one must ask: is the bottom 20% of Americans the only group who might be in extreme financial difficulty? Especially since the wealthy in the United States are colloquially described as the “upper one percent,” is it really sensible to address income inequality by designing a system that will only aid the most destitute social echelon, while lowering incomes for essentially everyone in the “middle class?”

It is entirely irrelevant whether this arrangement is seen as socialist government overreach, a perfectly acceptable way to support the economy, or something else entirely. Some things cannot be denied by anyone, on either side of the aisle: the implications of the ACA in regards to income inequality will definitely help some people – but too few. The law will certainly demand a larger income portion from high earners, but the net is cast way too widely, as it targets the “upper 80%.” That number should be much, much lower if the Affordable Care Act aims to make a substantial difference in terms of income inequality. Like a medication given for something other than its intended purpose, if Obamacare truly sought to be an “off-label” recipe for improving the economic prospects for struggling Americans by means of addressing income inequality, it might fail – miserably.

 

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