Can the ObamaCare genie be put back in the bottle?

• Author: Mulligan, Casey
• Position: Economics - Patient Protection and Affordable Care Act

WHAT ARE the economic side effects of the Patient Protection and Affordable Care Act, often-times referred to as ObamaCare? Since most of the economy has to do with labor and work, that is where I will start but, first a caveat: I am an economist, and I am going to talk about some parts of this complex law that have an impact on the labor market. Other parts of it relate to health and medicine and, because I am not a physician or a biologist, I am not going to speak to those parts. From an economic or labor-market perspective, I am going to explain how the costs of PPACA outweigh its benefits, but I cannot measure or estimate its effects on health care. I leave that to others.

The key economic concept required to understand the labor market effects of PPACA is what economists call "tax distortions," which are changes in behavior on the part of businesses or households for the purpose of reducing their taxes or increasing their subsidies. We call them distortions because they do not occur for real business or real personal reasons. They only occur because of the tax code.

A prime example of a tax policy that creates distortions is the ethanol subsidy--technically it is a credit, not a subsidy--whereby gasoline refiners are subsidized on the basis of how many gallons of gas they produce with ethanol. Because of this subsidy, businesses change the type of gas they produce and deliver, people change the type of gas they use--which affects engines--and corn is used for ethanol instead of as feed or food. The distortions, though, do not stop there. Arguably, food prices are increased due to the reallocation of com to different uses--and when food prices are higher, restaurants and households do things differently. There are distortions economy-wide, all for the chasing of a subsidy.

To be clear, just because taxes cause distortions does not mean we never should have taxes. It just means that, in order to get the full picture when it comes to policies like an ethanol subsidy or laws such as PPACA, we need to take into account the tax distortions in order to ensure that the benefits we are seeking exceed the costs.

So, what are the tax distortions that emanate from PPACA? Here, let me simply focus on two aspects of the law: the employer mandate or employer penalty (the requirement that employers of a certain size either provide health insurance for full-time employees or pay a penalty for not doing so) and the Exchanges (sometimes they are called marketplaces, where people can purchase health...