Kaiser Health News, via the New York Times, has the story of Anne Cornwell, 62, who "made $80,000 a year as a project manager for a small consulting firm that doesn't offer health insurance. Her husband, Donald Donart, 63, and a cancer survivor, receives Social Security and a small pension, bringing their pretax household income to $92,000."
They live in Tennessee. Their health insurance premium for 2017 was going to be $2,100 a month for a plan with a $6,500 per person deductible. The article reports:
Ms. Cornwell asked her boss to reduce her hours 30 percent, dropping her pay by $24,000 a year. She became a part-time hourly employee — at $56,000 a year. The couple now qualified for a $27,000 subsidy that made up for Ms. Cornwell's lost income. They claimed their subsidy as an advance tax credit — an option under the health law — to reduce their upfront insurance costs as much as possible. The Internal Revenue Service paid their insurer directly, which reduced the couple's premium.
Their subsidized premium was so low that they upgraded to a better silver-level plan, which carried a lower deductible than the bronze plan they had passed up.
This is an example of what economist Casey Mulligan calls The Redistribution Recession. It also shows how statistics can be misleading. Ms. Cornwell's lower pay might look on its own, or together with other wage statistics, like an example of middle class wage stagnation or increasing inequality. But if you look at her post-tax, post-transfer income, or her wages plus her benefits post-tax, she is doing better than she was doing before. Republican politicians tend to focus on marginal tax rates for the highest earners, understanding that when the rates get too high it adversely affects incentives. But there are all kind of benefit phase-outs in the tax code and the welfare system that wind up creating perverse incentives for middle class Americans. If there's a way to work less but come out financially ahead because of quirks in the tax code or welfare policy, Americans turn out to be pretty good at figuring that out. From the perspective of the taxpayers, it would be better to find out some way to get Ms. Cornwell reasonably priced health care without encouraging her to work less and take a big pay cut.
