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Unions Conclude Obamacare Will Make Inequality Worse

March 11, 2014

By Diana Furchtgott-Roth

A new report from the union UNITE HERE, entitled The Irony of Obamacare: Making Inequality Worse, concludes that the Affordable Care Act will increase inequality because low-income Americans will have fewer hours of work and have to pay more for health insurance. At the same time, according to the report, insurance companies will gain $965 billion in federal transfers to provide health insurance.

As Americans have seen, the Affordable Care Act has plenty of problems ranging from disincentives for hiring to cancelled plans. That is one reason President Obama is rolling out a series of delays in the Act's implementation, delays that some say are extra-legal. But these legitimate problems do not need to masquerade as increasing income inequality.

UNITE HERE, with nearly 300,000 members, is rightly concerned because its multi-employer health insurance plans do not comply with the provisions of the Affordable Care Act. As plans conform with the law, they become more expensive. Low-income Americans without employer-provided insurance get federal subsidies to buy insurance on the exchanges. But not members of multi-employer plans, such as those negotiated by UNITE HERE.

Multi-employer plans, also known as Taft-Hartley plans, cover groups of employers whose workers are represented by the same union. The plans are managed by boards with union and employer representatives. These plans were set up under the Labor Management Relations Act of 1947, also known as the Taft-Hartley Act, in order to provide continuous coverage for union workers who changed companies but who continued to be represented by the same union.

UNITE HERE is not the only union complaining. The Labors International Union of North America joined UNITE HERE in a letter to President Obama in January, stating that "The concerns of more than one million members that we collectively represent, their families, our health and welfare funds, and the employers we work with have not been addressed by these or any other ACA regulations."

Inequality is the buzzword of the day, "the defining challenge of our time," according to President Obama, which might be why UNITE HERE chose it as the title of its report. But the report does not prove that the Affordable Care Act increases inequality, it shows the opposite.

Data from the Brookings Institution presented in the report show that under the Affordable Care Act the average income of the bottom tenth will rise by 7 percent, and the next tenth by 5 percent. Income of the two top tenths will decline by three tenths of a percent and five tenths of a percent. Although income at the bottom increases and income at the top declines, UNITE HERE insists that the ACA increases inequality become income in the some of the middle deciles declines by one percent, more than incomes at the top. Nevertheless, inequality is measured by comparing the bottom to the top, not the middle to the top.

Further, UNITE HERE's assertion that almost $965 billion will go to insurance companies, thereby increasing inequality, neglects the amount that these companies have to spend to provide health care to enrollees. The report treats the $965 billion as profit. But if it ends up going to insurance companies, it will be revenues, not profits. As it stands, some are complaining that insurance companies will receive bailouts because they are projecting net losses.

The Affordable Care Act, while providing subsidies for Americans below 400 percent of the poverty line, makes some above that income level worse off because they must purchase more expensive policies than they have chosen to do in the past, raising the cost of insurance.

Furthermore, if their employers drop coverage and they buy health insurance from the exchanges, they must pay premiums from after-tax income, not pre-tax income. The after-tax cost is higher.

Inequality or no inequality, unions are right to be concerned about Obamacare, because it will make joining a union far less desirable. Federal health premium subsidies are unavailable for union members, even for those who earn below 400 percent of the poverty line. In 2016, a tax on expensive health care plans, known as a "Cadillac tax," will affect many union plans.

The real problem is an increase in the cost of health insurance to the union's members, who work primarily in the leisure and hospitality area. If UNITE HERE's members keep the employer-provided health insurance, they forgo the subsidies. If the union and employer decide to drop the plan, and members get health insurance on the exchange, that is one less reason to join a union.

Over the past 30 years, union membership has declined from 15 percent of private sector workers to 7 percent. UNITE HERE knows that the health care law will accelerate the decline because the union uses its health insurance plans to attract members. According to the UNITE HERE website, Bryan, a 2012 summer organizer for UNITE HERE, said, "Hearing the workers [sic] personal stories of how a lack of affordable health care and decrease in work hours would affect their lives was a really powerful force in the room."

As has been extensively documented elsewhere, the Affordable Care Act poses particular problems for low-income workers, and the UNITE HERE report presents some of these problems. Although some employer penalties for noncompliance have been delayed, in 2016 employers with more than 49 workers can face a $2,000 per worker penalty for not offering the right kind of health insurance, so that moving from 49 to 50 workers can result in a fine of $40,000 a year. (The first 30 workers are exempt.) Since the penalty is not paid on part-time workers, some employers are reducing employee hours.

In a case of politics making strange bedfellows, the UNITE HERE report cites the U.S. Chamber of Commerce and the International Franchise Association to show that employers are cutting back on workers' hours. The report lists 388 announcements of employers' plans to cut jobs or hours documented by Investors Business Daily.

The report quotes union members complaining that the Affordable Care Act is lowering their take-home wage. Earl Baskerville, a 50-year old food service worker at the University of Hartford, Connecticut, earning $45,000 a year, said, "Obamacare would cost me $4,855.20 a year more, or a $2.33 an hour pay cut. That's not right."

At least Baskerville will not lose his job. The major form of inequality in the Affordable Care Act is that some low-skill workers will not be hired at all, or hired only for part-time work.

The Affordable Care Act has many flaws. It forces people to buy more insurance than they prefer. It gives employers a disincentive to hire low-wage workers. It may be hard for the Act to recover from its latest problem-the Democratic union base rising up against Obama's signature "achievement."

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