By J. Lester Feder and Kate Nocera
February 10, 2011
CBO Director Douglas Elmendorf told the House Budget Committee on Thursday that the health care law will reduce employment by 0.5 percent by 2021 because some people will no longer have to work just to afford health insurance.
“That means that if the reduction in the labor used was workers working the average number of hours in the economy and earning the average wage, that there would be a reduction of 800,000 workers,” Elmendorf said in an exchange with Rep. John Campbell (R-CA).
The report, published in August, said, “The Congressional Budget Office estimates that the legislation, on net, will reduce the amount of labor used in the economy by a small amount — roughly half a percent — primarily by reducing the amount of labor that workers choose to supply … That net effect reflects changes in incentives in the labor market that operate in both directions: Some provisions of the legislation will discourage people from working more hours or entering the workforce, and other provisions will encourage them to work more.”
Republicans gleefully seized on the admission, eagerly promoting it as evidence of what they call the law’s job-killing effect.
“More bad news for American families,” was how Budget Committee Chairman Paul Ryan’s office described the report in a release.
“Since day one Republicans have opposed Obamacare for a simple reason: it would destroy jobs. Minority Leader Pelosi, Leader Reid and others said we were wrong. Guess not,” said John Murray, deputy chief of staff for Majority Leader Eric Cantor.
The Budget and Economic Outlook: An Update
Congressional Budget Office
Effects of Recent Health Care Legislation on Labor Markets
The Patient Protection and Affordable Care Act (Public Law 111-148) and the Health Care Education Reconciliation Act of 2010 (P.L. 111-152) will affect some individuals’ decisions about whether and how much to work and employers’ decisions about hiring workers. The Congressional Budget Office (CBO) estimates that the legislation, on net, will reduce the amount of labor used in the economy by a small amount — roughly half a percent — primarily by reducing the amount of labor that workers choose to supply. That net effect reflects changes in incentives in the labor market that operate in both directions: Some provisions of the legislation will discourage people from working more hours or entering the workforce, and other provisions will encourage them to work more. Moreover, many people will be unaffected by those provisions and will face the same incentives regarding work as they do under current law.
The net reduction in the supply of labor is largely attributable to the substantial expansion of Medicaid and the provision of subsidies that will reduce the cost of insurance obtained through the newly created exchanges, beginning in 2014. In particular:
* The legislation extends Medicaid eligibility to most nonelderly residents whose income is below 138 percent of the federal poverty level (FPL) — including childless adults who are currently ineligible for Medicaid in most states. (The FPL in 2010 is $10,830 for a single person and $22,050 for a family of four.)
* People who purchase insurance through the new exchanges will generally be eligible for tax credits to help them pay their health insurance premiums if their income is between 138 percent and 400 percent of the FPL and they are not offered coverage through an employer. (They may also be eligible for reductions in their cost-sharing requirements.) Those subsidies decline in value as income rises and can, under some circumstances, drop sharply to zero when income exceeds 400 percent of the FPL.
The expansion of Medicaid and the availability of subsidies through the exchanges will effectively increase beneficiaries’ financial resources. Those additional resources will encourage some people to work fewer hours or to withdraw from the labor market. In addition, the phaseout of the subsidies as income rises will effectively increase marginal tax rates, which will also discourage work. But because most workers who are offered insurance through their jobs will be ineligible for the exchanges’ subsidies and because most people will have income that is too high to be eligible for Medicaid, those effects on financial resources and marginal tax rates will apply only to a small segment of the population.
Other provisions in the legislation are also likely to diminish people’s incentives to work. Changes to the insurance market, including provisions that prohibit insurers from denying coverage to people because of preexisting conditions and that restrict how much prices can vary with an individual’s age or health status, will increase the appeal of health insurance plans offered outside the workplace for older workers. As a result, some older workers will choose to retire earlier than they otherwise would.
Some other provisions of the legislation may also affect decisions regarding work, but their net effect on the total labor supply will probably be small.
By Don McCanne, MD
The Republicans in Congress have been using this report from the Congressional Budget Office (CBO) to claim that the Patient Protection and Affordable Care Act (ACA) is a “job killer,” even naming the bill that they passed to repeal health reform the “Repealing the Job-Killing Health Care Law Act.” But on reading the report from the CBO on which this claim is made, it is clear that this is not taking jobs away from the workforce; rather it is removing the shackles of job lock from these workers.
Until ACA many individuals who wanted to and were otherwise able to retire early, or wanted to pursue other less structured jobs or avocations, were unable to because they would lose their employer-sponsored health insurance and would be unable to replace it either because it was too expensive or was not available because of preexisting medical disorders. Thus this job lock was one more major defect that the reform bill was designed to correct, and it partially will once fully implemented.
The CBO explicitly states that “the legislation, on net, will reduce the amount of labor used in the economy by a small amount — roughly half a percent — primarily by reducing the amount of labor that workers choose to supply.” Note that word “choose.” These workers will not be terminated. In contrast, they will celebrate freedom, much as the Egyptians are doing today. These 800,000 jobs are not being killed, they are being abandoned voluntarily.
Which leads to a very important point that was left out of the CBO report, and certainly left out of the Republican rhetoric. These are 800,000 jobs that have been opened up to the labor market. Once these 800,000 individuals have stepped aside because they no longer need their jobs, 800,000 new jobs will have been created, not killed. And aren’t the Republicans, the Democrats and the nation at large claiming that job creation is one of our most urgent priorities?
This does not end the problems inherent in a largely employer-sponsored system. Employers are shifting more of the costs to their employees for purely business considerations, trying to control overhead expenses. Under-insurance is becoming the standard. The private plans that will be available through the exchanges will be overpriced and inadequately subs
idized. Waste will be perpetuated because of administrative excesses and the lack of an efficient system of financing health care.
We should relieve employers of their employee health benefits burden, while ending job lock forever. Employees would never again have to worry about health insurance and the costs of it if we had an improved Medicare that covered everyone.