CBO: Obamacare would lead employees to work less
02/04/2014 5:22 PM
02/19/2014 6:15 PM
A government analysis sparked fierce debate Tuesday, projecting that the Affordable Care Act will lead American workers to voluntarily put in fewer hours on the job, a total that would add up to the equivalent of as many as 2.5 million jobs over the next decade.
The nonpartisan Congressional Budget Office said it expected total employment and compensation in the whole economy to increase over the next 10 years. But “that increase will be smaller than it would have been in the absence of the ACA.,” it said in a report.
The lower work total will come from people who choose not to be employed or to reduce their hours in order to maximize government-provided benefits under the new law. Such a decline is a common phenomenon in social welfare programs, according to the agency.
The projected reduction in hours over 10 years could translate into the equivalent of 2 million fewer full-time jobs in 2017 than otherwise expected and 2.5 million fewer full-time jobs by 2024, the CBO said. While there’s no way to be certain in advance how many people would leave the work force altogether and how many would simply reduce their hours, the estimates reflect new thinking on how the Affordable Care Act might ripple through labor markets.
The report set off a pitched debate, with Republicans simplifying the analysis to claim that it would eliminate jobs, and Democrats saying it was good that workers would have the flexibility to choose to work less.
“The middle class is getting squeezed in this economy, and this CBO report confirms that ObamaCare is making it worse,” said House Speaker John Boehner, R-Ohio.
“CBO just reported that #ObamaCare will push 2.5 million Americans out of the workforce,” said a tweet from the National Republican Congressional Committee, the campaign operation for Republicans in the House of Representatives.
“It’s not that the businesses are cutting those jobs,” countered Jason Furman, the chairman of the White House Council of Economic Advisers. The potential decision by workers to reduce their hours is an “option that they didn’t use to have,” he added.
One independent analysis Tuesday said the Republicans overstated the case in claiming that the report said the health care law would eliminate jobs. “CBO did not say Obamacare will kill 2 million jobs,” said The Fact Checker column in The Washington Post.
Yet the column also concluded that “the decline in the workforce participation rate has been of concern to economists, as the baby boom generation leaves the work force, and the health-care law appears to exacerbate that trend.”
The CBO said that over 10 years the health care law was likely to reduce compensation nationally by 1 percentage point. That’s a “proportionally smaller” effect than the fall in hours worked.
The impact on hours worked is likely to come further out in the decade, and in the near term the health care revamp will be a “boost to demand for goods and services,” CBO Director Douglas Elmendorf said. That translates into more jobs, though neither he nor the White House could say how many.
The subsides for health insurance “will both stimulate demand for health care services and allow low-income households to redirect some of the funds that they would have spent on that care toward the purchase of other goods and services _ thereby increasing overall demand,” the CBO report said. “That increase in overall demand while the economy remains somewhat weak will induce some employers to hire more workers or increase the hours of current employees during that period.”
Poor and middle-income workers have a greater propensity to spend, with economic research showing that these groups save very little.
The estimated effects of the Affordable Care Act on employment are an update on a 2011 report in which the CBO calculated that workers would put in reduced hours that added up to the equivalent of 800,000 jobs. The changes reflect more information obtained as the law is being implemented. A better read on the impact of the massive health care revamp is likely to come around 2016, Elmendorf said.
The updated estimates “would not reverse the original conclusion” by the CBO that repealing the health care law would make deficits worse over the next 10 years, Elmendorf said.
Also, the CBO expects 1 million fewer people than once predicted – 6 million – to gain coverage through marketplaces this year, because of major technical problems with the October debut of the federal website HealthCare.gov.
The number of people likely to be insured through the Affordable Care Act’s Medicaid expansion likewise has been downsized, from 9 million to 8 million this year.
About 5 million people are expected to receive subsidies to help purchase marketplace coverage this year, rising to nearly 19 million in 2016. The CBO estimates that subsides will cost $15 billion this year, rising to $143 billion by 2024.
The CBO also said it projected a federal budget deficit of $514 billion for fiscal 2014, after a peak of $1.4 trillion in fiscal 2009. David Lightman contributed to this article.
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