Obamacare Will Reduce Income Inequality, but Quietly

Traditional measures of income don’t account for health insurance, but a new study shows the law will greatly improve the fortunes of America’s bottom fifth.

WASHINGTON, DC - JANUARY 10: U.S. President Barack Obama listens during a meeting with young citizens at Columbia Height's restaurant The Coupe on January 10, 2014 in Washington, DC. Obama met with some of the people helping with healthcare enroll efforts, their experiences in spreading the word about the importance of signing up for affordable health insurance and thanked them for their efforts. 
National Journal
Clara Ritger
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Clara Ritger
Jan. 28, 2014, 10:40 a.m.

As the pres­id­ent pre­pares to sign an ex­ec­ut­ive or­der rais­ing the min­im­um wage for some fed­er­al con­tract­ors, an­oth­er of his sig­na­ture ini­ti­at­ives is quietly clos­ing the in­come dis­par­ity in Amer­ica, a new study finds.

The Af­ford­able Care Act will boost the av­er­age in­comes of the bot­tom fifth of wage earners, ac­cord­ing to a Brook­ings In­sti­tu­tion re­port, by nearly 6 per­cent in 2016.

Health in­sur­ance premi­um as­sist­ance and ex­pan­ded Medi­caid cov­er­age are two primary factors con­trib­ut­ing to the rise, the re­port says. Both pro­vi­sions tar­get low wage earners, and the cost of the pro­grams are off­set by taxes dis­trib­uted across the pop­u­la­tion.

Such a “re­dis­tri­bu­tion of wealth” has been de­mon­ized by Re­pub­lic­ans, but more than $1 tril­lion will be col­lec­ted from high- and middle-in­come earners to be made avail­able as sub­sidies for people earn­ing be­low 400 per­cent of the fed­er­al poverty line — a big step to­ward mak­ing in­come more equal in the U.S. Payroll taxes and the “Ca­dillac” tax on ex­pens­ive health in­sur­ance plans are two Obama­care pro­vi­sions that tar­get the highest wage earners in the coun­try.

But low-in­come, eld­erly, and minor­ity Amer­ic­ans will also be ad­versely af­fected by cuts to the Medi­care pro­gram, as well as by the de­cision by roughly half of states to opt out of Medi­caid ex­pan­sion. It’s partly why the bot­tom tenth of wage earners will only see an av­er­age in­come rise of roughly 7 per­cent as the law takes ef­fect.

“The Af­ford­able Care Act does not do a lot for the bot­tom decile be­cause we’ve already taken care of the bot­tom decile,” said Mar­ilyn Moon, dir­ect­or of the non­profit, non­par­tis­an Amer­ic­an In­sti­tutes for Re­search Cen­ter on Aging. “What it does is fill in the be­ne­fits for more Amer­ic­ans at the bot­tom.”

To read the com­plete study, click here.

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