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Big impact on income gap is health law’s new angle

Published: Wednesday, Jan. 29, 2014 5:09 p.m. CDT
Caption
(AP photo)
Gary Burtless of the Brookings Institution speaks in Washington. If the gap between haves and have-nots is the defining issue of President Barack Obama’s second term, his health care overhaul was its first-term counterpart. Now it turns out the two are linked: new research shows that Obama’s health care law will significantly boost the economic fortunes of people in the bottom fifth of the income ladder. Obama may be hard pressed to top his first-term accomplishment.

WASHINGTON – Maybe the health care law was about wealth transfer, after all.

If the gap between haves and have-nots is the defining issue of President Barack Obama’s second term, his health overhaul was its first-term counterpart.

Turns out the two are linked. New research shows the Affordable Care Act will significantly boost the economic fortunes of those in the bottom one-fifth of the income ladder while slightly reducing average incomes on the rungs above.

Because Obama lacks the votes in Congress for such major policy changes such as a higher minimum wage, prospects for his second-term agenda on income inequality appear slim.

The health care law may one day be seen as his biggest legacy to the poor, not just the uninsured. The two groups often overlap, but not always.

Economists at the nonpartisan Brookings Institution, a Washington public policy center, found an average increase of about 6 percent in the incomes of the poorest 20 percent of the United States, meaning those making below about $20,600 a year.

The study used a broad definition of income that counts the value of health insurance, which is not normally measured by Census Bureau income statistics.

Changing the distribution of incomes was not a stated objective of the health care law, wrote co-authors Henry Aaron and Gary Burtless. “Nonetheless, the ACA may do more to change the income distribution than any other recently enacted law.”

A leading economic adviser to Republicans says he agrees with the broad findings.

“This was always portrayed as a health reform, not a big redistribution policy, but it turns out they are the same thing,” said Douglas Holtz-Eakin, president of the American Action Forum, a center-right public policy institute.

Major programs such as Social Security, Medicare and Medicaid redistribute income in various ways: from workers to retirees and disabled people; from wealthier people to those of more modest means; and from younger people to older ones.

Americans prefer to describe such programs as “social insurance,” or the “safety net.”

Burtless said the Brookings researchers used a large government survey of more than 60,000 people. They developed a measure of income that included not only categories such as wages, rents and investments, but also the value of health insurance benefits, whether provided by an employer or obtained through a government program.

The health care law expands Medicaid to serve more low-income people and provides taxpayer-subsidized private insurance to middle-class people who can’t get coverage on the job. It pays for those new benefits partly by raising several taxes on upper-income earners, raising Medicare premiums for upper-middle-class to wealthy retirees and reducing subsidies for Medicare private insurance plans.

The combined effect of such financing measures is to push economic resources down the income ladder. People on the higher rungs get dinged an average of less than 1 percent, the study found.

Burtless emphasized the results represent averages for large chunks of the U.S. population.

A low-income Medicaid recipient in good health may not feel much better off because of new coverage. On the other end, a wealthy person with generous wage income, investment earnings, and Medicare coverage may feel like being hit by a triple whammy.

“This is certainly a very big deal for the income distribution of the United States,” Burtless said. “If you are raising the incomes of the people in the bottom fifth by 6 percent, then we are talking about a big change.”

Burtless and Aaron are fine-tuning their preliminary findings.

In 2010 when the health care law was passed, Obama could count on a Democratic-led Congress for support. Since 2011, Republicans have been in charge of the House and are maneuvering to capture the Senate this year. That probably would deny Obama the chance to have a significant impact on the nation’s economic divisions.

“To have a big effect on income inequality, you need to have concerted action by both the president and Congress,” Burtless said. “You can’t just have the president acting alone. If he doesn’t have Congress in his corner, I don’t think that there’s much he can do.”

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