PI Original Ellyn Fortino Friday February 7th, 2014, 5:58pm

Economists, Health Policy Experts Weigh In On The CBO Obamacare Report

In the coming years, some Americans will voluntarily reduce their work hours or decide not to be employed at all as a result of the health coverage available under the Affordable Care Act, a report released Tuesday by the Congressional Budget Office shows. Progress Illinois takes a closer look at the report, which has prompted strong reaction from both supporters and opponents of the health reform law.

In the coming years, some Americans will voluntarily reduce their work hours or decide not to be employed at all as a result of the health coverage available under the Affordable Care Act, a report released Tuesday by the Congressional Budget Office (CBO) shows.

As a result of the health reform law, Americans may reduce their works hours by 1.5 percent to 2 percent, which would come out to be about 2 million fewer full-time equivalent workers by 2017 and 2.5 million by 2024, according to the CBO's estimates. The office also predicts that work hours might be reduced by an equivalent of 2.3 million full-time workers by 2021, which is nearly three times greater than what the CBO previously estimated in 2010.

As Erik Wemple of the Washington Post details in this recent blog post, a number of media outlets got the facts wrong in their initial coverage of the CBO report, with many first reporting that the Affordable Care Act would cost more than 2 million jobs. Affordable Care Act opponents also used the CBO report to bolster their belief that Obamacare is a "job killer."

But that's not what the report said.

“I think people hear fewer jobs, and they think people are getting fired or something and this is going to be bad for the economy, and that’s really not what’s going on,” said Elise Gould, director of health policy research at the Economic Policy Institute. "I think there might be some political motivation going on behind some of the reports that we’re seeing.”

The CBO specifically said that the "estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in business’ demand for labor."

That means some workers may choose to work less hours or not at all because they can now gain affordable health coverage through the exchanges and the expanded Medicaid program. 

"Let's say a working mother wants to get health insurance for her family, and that's why she's working full-time, but now if she can get health insurance another way, and she can stay home and spend more time with her kids, then she might cut back her hours," Gould explained "Or someone who is close to retirement who is working full-time to keep that insurance because at 62 they can't get Medicare; they have to wait three more years. So they're working full-time to keep those benefits. They may want to keep working because they like the income, but now they can get subsidized coverage in the exchange, or even just affordable coverage even if it's not subsidized ... and so you may just decide to work part-time."

Craig Garthwaite, an assistant professor of management and strategy at Northwestern University's Kellogg School of Management, said it's not surprising that people would do this.

"We are solving an inefficiency in the individual market, and now they're going to choose not to work. We’re giving something that is valuable, and so they feel a little wealthier, and therefore they may not want to work," said Garthwaite, an applied microeconomist who has examined labor supply effects of the Affordable Care Act.

Some may scale back hours in order to keep receiving their federal health insurance subsidies, which decrease in value as earnings increase, or to qualify for Medicaid expansion.

The CBO report does note that the phaseout of the federal health care subsidies may reduce the incentive to work because it "effectively raises people's marginal tax rates (the tax rates applying to their last dollar of income)."

But Gould said she does not believe a potential reduction in federal health care subsidies is incentive enough for people to stop working or work less hours.

"The subsidies for these health insurance exchanges have a very shallow phase out. In fact, they don’t phase out until 400 percent of poverty, so until more than $80,000 for a family of four. There isn’t some sort of a steep curve that happens, such that people want to work less to get the subsidies," she explained. "Implicitly, there would be a higher marginal tax rate, let's say, on those additional dollars of income above a particular amount because the subsidies will phase out, but you're still going to make more money on the whole. Your take-home pay will still be higher after taxes, after paying for health insurance, and so there's still a strong incentive to work more." 

Jim Duffett, executive director of the Campaign for Better Health Care, said the notion that lower-income people will work less in order to reap a greater federal health subsidy is a "nice soundbite" for those against the law, but he doesn't buy it. 

Hypothetically speaking, say a part-time and lower-wage worker earns $400 a month, he said as an example. If the worker scales down by 10 hours of work per week, his or her insurance might cost $60 instead of $80, Duffett explained.

"Do I want to trade $400 a month to know that I'm going to be saving 20 or 40 bucks on my insurance, and I won't be able to buy more food or won't be able to go buy this and buy that," he asked. "I don't think so. People are driven to want more commodities, some much more than others."

University of Illinois at Chicago economics professor Robert Kaestner, who focuses on health, labor and social policy, said the issue boils down to a tradeoff.

"If you didn’t have the subsidy of course more people would be working, but they would also be worse off," he said. "The subsidy does make people better off, even if they’ve decided not to work so much."

To supporters of the Affordable Care Act, the findings of the CBO report show that the health reform law allows individuals to make greater decisions about their own livelihoods.

"It's great news for American workers and their families," Duffett said. "Two point five million Americans are going to have better choices. You hear from the right about freedom, freedom. That Obamacare is taking the freedom away. Actually, this is going to give workers more freedom. They can leave their jobs or decrease the amount of hours that they're working without losing their coverage to pursue different passions that they might have. They may want to spend more time with a loved one."

But Affordable Care Act opponents interpreted the report differently.

"The middle class is getting squeezed in this economy, and this CBO report confirms that Obamacare is making it worse," House Speaker John Boehner (R-OH,8) said in a statement. "The report also confirms what the American people already know: further action is necessary to address the drivers of our debt."

Kaestner summed up the hubbub about the report this way: "I don’t think that anything that came out in the report changes anybody’s mind."

"It just gives them another bullet in their gun of being an opponent or proponent of the law," he added.

On Tuesday, the White House promptly pushed back against the negative spin on the report, like the claim that the law would mean 2 million more "pink slips" for American workers, as Senate Republicans reported in an email blast.

Here's the full statement from the White House:

Since the Affordable Care Act passed into law in March 2010 the private sector has added 8.1 million jobs. That is the strongest 45 month job growth since the late 1990s and contrasts with the 3.8 million private sector jobs lost in the decade before the Affordable Care Act passed.

Claims that the Affordable Care Act hurts jobs are simply belied by the facts in the CBO report. CBO’s findings are not driven by an assumption that ACA will lead employers to eliminate jobs or reduce hours, in fact, the report itself says that there is “no compelling evidence that part-time employment has increased as a result of the ACA.”

 While many factors affect job growth, the actual performance of businesses refutes those who predicted that the Affordable Care Act would dramatically hurt the economy.

What the CBO report does find is one key immediate effect of the Affordable Care Act is to “induce some employers to hire more workers or to increase the hours of current employees” during the 2014-16 period. Over the longer run, CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families. At the beginning of this year, we noted that as part of this new day in health care, Americans would no longer be trapped in a job just to provide coverage for their families, and would have the opportunity to pursue their dreams. This CBO report bears that out, and the Republican plan to repeal the ACA would strip those hard-working Americans of that opportunity.

In addition, the CBO itself confirms that this analysis of the implications of the ACA on the labor force is incomplete, does not take into account the impact that ACA’s slowing health care cost growth which experts have estimated that slower growth in health costs due to the ACA will cause the economy to add an additional 250,000 to 400,000 jobs per year by the end of the decade. Moreover, CBO does not take into account positive impacts on worker productivity due to the ACA’s role in improving workers’ health, including reduced absenteeism.

 Finally, as it has since the enactment of the ACA, CBO continues to confirm that the ACA is projected to reduce the deficit by more than $1 trillion over the next two decades.

Garthwaite maintains that both sides are guilty of drawing false conclusions from the report.

"People who support the ACA say, 'Oh this is just great. It's people making choices. We're freeing them from the shackles of employment, and then they’re going to be able to do what they want to do with their time,' which is true. But then on the other side we have this sort of implicit tax rate," he said. “People who oppose the ACA say, 'Oh this is the worst thing. It's killing jobs.' It's clearly not killing jobs, because it’s a labor supply, not labor demand. The answer unfortunately … is somewhere in the middle. … It’s the combination of both of these things."

Here are some reasons why the report is not a clear win for either side.

The CBO said total employment in the nation will actually increase over the coming decade. That increase will just be smaller than it would have been if the Affordable Care Act was not on the books.

Also, the penalty associated with the employer mandate, which doesn't start until 2015, may spur businesses to scale back or limit their full-time staffing and hire more part-time workers, the report reads. The CBO did point out, however, that there is “no compelling evidence that part-time employment has increased as a result of the ACA.” But because the employer mandate hasn't kicked in yet, "the current lack of direct evidence may not be very informative about the ultimate effects of the ACA." Additionally, the CBO predicts that the employer penalty will eventually "be borne primarily by workers in the form of reductions in wages or other compensation—just as the costs of a payroll tax levied on employers will generally be passed along to employees." 

And in a let down for Affordable Care Act supporters, the CBO projected that about 1 million fewer people would obtain coverage through the exchanges than initially estimated, mostly because of the technical problems that plagued the federal HealthCare.gov site after its October 1 launch. 

In the updated report, the CBO said that 6 million people in 2014 would receive insurance coverage through the new exchanges, which is down from an earlier projection of 7 million enrollees. But the CBO anticipates an increase in sign ups in the coming years, with 24 million people expected to obtain coverage through the exchanges by 2017. About 80 percent of those who sign up are expected to receive subsidies for purchasing their insurance, the CBO said.

Meanwhile, the people who do decide to leave the labor force on their own or work part-time as a result of the Affordable Care Act could be a big help for jobless individuals currently looking for work, Gould explained.

"There are a lot of workers trying to get jobs right now, a lot of unemployed workers, so as those fill the jobs in the short-run that are left by those workers leaving their jobs or cutting back hours, there will be more jobs available, and we'll see the unemployment rate fall," she said.

The Labor Department said on Friday that the nation's unemployment rate dropped to 6.6 percent in January, which is still relatively high. The CBO, however, said in its report that it does not expect the unemployment rate to fall below 6 percent until 2017.

Overall, Garthwaite stressed that any policy that can weaken people's attachment to the labor force probably should be pondered more carefully.

"I think this is a feature of the Affordable Care Act that people didn't spend a lot of time thinking about," he said.


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