Affordable Care Act (Obamacare) Includes Incentives for Individuals to Work Less and Earn Less Money

Under the Affordable Care Act (ACA), if your 2014 income is between 138% and 400% of the "Federal Poverty Level" for your household size, you can purchase health insurance on a state-run exchange and receive a federal tax subsidy to offset all or part of your premium.  "Because of the manner in which ACA defines who gets subsidies and who doesn’t, there is a huge “cliff effect” at 400% of the federal poverty line (FPL).  If you make a penny more, you won’t receive health care subsidies. If you make a penny less, you could receive thousands in subsidies.  Therefore, what is the result?  Rational people who are right around the 400% FPL threshold will choose to work less in order to increase their income after paying for health insurance."

As an example, in California, a couple earning $64,000 (412% of the FPL) a year would not qualify for health care subsidies.  A bronze plan for them through Kaiser would cost them about $1,300 each month, or $15,600 a year.  But, if that same family earned just $2,000 less, or $62,000 (399% of FPL) it would qualify for over $14,000 in annual health care subsidies, dropping their premiums for that same Kaiser plan to less than $100 per month.  Therefore, the after-insurance income for the couple earning $64,000 is $48,400.  The after-insurance income for the couple making $62,000, which is just under the 400% FPL threshold, is $60,800. I don't know about you, but $60,800 in spendable income is better than $48,400! 

Why is this knowledge relevant to your financial well being?  Because it makes no sense for a couple on the FPL bubble to work harder to earn a little extra money.  In other words, the ACA would severely punish them for their desire to increase their income, which translates into less GDP growth.

The Henry J. Kaiser Family Foundation has a great Affordable Care Act subsidy calculator. Click here for a direct link to the site.