Obamacare and the CBO Report: The Truth Is in the Middle


800px-Capitol_Building_Full_ViewLast week’s kerfuffle over the Congressional Budget Office (CBO) report on Obamacare, like most kerfuffles, had some truth on both sides of the debate. The CBO report says that the equivalent of 2 million full-time jobs will disappear by 2017, and 2.5 million by 2024, in part because people choose not to work at all or to work fewer hours. Is this a liberation of the oppressed American workforce or a death-knell to the American work ethic? Obviously, it is neither completely.

The Affordable Care Act grants subsidies to lower and middle income families to buy health insurance on the exchanges. Subsidies are just a way to give people money, albeit money with restrictions. In this case, people get the money (the subsidy) only if they buy insurance.

If you give people money, they have more choices. People will always choose to use the money in ways that they think will benefit themselves. Some of their choices also benefit society, and other choices do not.

Source: National Cancer Institute

Source: National Cancer Institute

With respect to healthcare, most people have had their health insurance subsidized by someone in the past.  Many received subsidized health insurance from their employers. Many others were covered by Medicare or Medicaid government subsidies. Only those on the individual market who could not tap into a high-risk pool paid for the insurance entirely on their own.

The Affordable Care Act now grants many people another government-subsidized option—health insurance purchased through the federal and state exchanges. So what choices are likely to make as a result of this new option? And will those choices benefit society or only the individuals involved?

  • People will quit jobs they don’t like because they no longer need employer-subsidized healthcare. This is the “benefit” described in the CBO report that the Democrats are touting.

It is true that many employees have stayed employed at a particular workplace only because they need health insurance. Prior to the ACA, employees younger than 65 may only have had the choice of employer-subsidized health insurance or unsubsidized private insurance that they thought cost too much. A second earner in a household might have been working primarily to provide health insurance, rather than because the family needed the salary. Those with pre-existing conditions didn’t feel they could get insurance if they changed jobs or quit work.

So “job lock” is real. Anyone who has worked in Human Resources or managed a workforce knows that many employees would rather be doing something other than working, and often their motivation for staying is related to insecurities around healthcare.

To the extent that the ACA has de-linked health insurance from the workplace, Republicans should extol this benefit. The problem is that the ACA doesn’t de-link insurance and employment. The ACA in fact imposes substantial penalties on employers if they do not continue to provide health insurance to employees. The ACA provides subsidies to employees but increasing costs on employers.

  • People will work less to keep their ACA subsidies. This is the impact of the ACA described in the CBO report that Democrats ignore and Republicans squawk about.

Many government programs give money to people but reduce the amount they receive as their income increases. Most of those programs therefore cause people to question whether they are better off maximizing their government payments or maximizing their income. Some will choose to work less to receive a larger payment from the government. Clearly, ACA subsidies will cause some of this behavior.

Moreover, it appears from the CBO report that lower income workers are more likely to decrease their work hours in response to the ACA. That is because they receive the greater subsidies, and the trade-off between their salaries and their ACA subsidies is more likely to favor the subsidy.

These choices to take the subsidy rather than work more for pay may benefit the individual, because non-working hours are valuable for family, hobbies, and other personal priorities. But the choices do not benefit society, unless someone else performs the same work for less pay or more work for the same pay. If productivity from new workers does not increase sufficiently to cover the cost of the subsidy, then society is worse off.

Even most conservatives believe that some redistribution of income to the poor through government programs is desirable; the question is how much. While I don’t think the ACA itself is the tipping point, I do believe that it will incent some people who could work more to instead work less, and in many cases, that will not benefit society.

So the CBO report contains ammunition for both sides of the Obamacare debate. While I believe the conservative arguments in response to the CBO report are over the top, I also believe that the liberal arguments are ignoring the very real likelihood that the ACA subsidies will decrease productivity.

The bottom line is that after the CBO report, the political argument around the ACA remains what it always has been—a debate on the role of government. Is it better for people to work less and receive more government support at taxpayer expense, or is it better to spend less on government programs and make people cover more of their expenses themselves? Should we redistribute income or not?

For employers, however, Obamacare is still bad news. Employers remain on the hook to provide subsidized health insurance to their workers or face substantial penalties. Moreover, the disparate taxation of employer-provided healthcare and privately purchased healthcare continues. In these ways, the labor market continues to be skewed, and therefore I still believe that the ACA has not moved healthcare in this country in the right direction.

For one of the more reasoned discussions of the CBO report, see Obamacare: ‘Job-killer’ or freedom from ‘job trap’?, by Linda Feldmann, Christian Science Monitor, February 6, 2014.

For a good articulation of the philosophical arguments on the role of government, see Leaving Work Behind, by Ross Douthat, New York Times, February 8, 2014.

What are you hearing from your employees about the Affordable Care Act these days?

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3 Comments

Filed under Benefits, Law, Politics, Workplace

3 responses to “Obamacare and the CBO Report: The Truth Is in the Middle

  1. When you say “But the choices do not benefit society, unless someone else performs the same work for less pay or more work for the same pay. If productivity from new workers does not increase sufficiently to cover the cost of the subsidy, then society is worse off,” you’ve overlooked a benefit to society. That benefit is job creation.

    In that section, you’re talking about people working fewer hours, not people quitting their jobs. Choosing to work fewer hours implies that the hours are still available for employment. Look at in the macro sense. That makes those hours available for others. They don’t have to do “the same work for less pay” to benefit society as you maintain. If they do the same work for the same pay, then society gains because someone else is now employed, potentially removing themselves from some form of government handout. The person picking up those extra hours may even be removing themselves from the medical subsidy. And, the job is still performed, probably by someone equally competent. Many of the jobs you and the CBO are talking about are low paying. Low paying jobs in which the employee can choose to vary their hours don’t usually require extensive training or expertise.

    Perhaps it places an extra burden on the employer to schedule more people who are working fewer hours, but that is a small burden for the benefit of job creation. The conservatives have asked “Where are the jobs?”, but they can’t see them when they’re under their noses.

    • Here’s the point I was trying to make, but I probably didn’t make it very clearly: If I quit and you take my job, there is no net gain in jobs. In this situation, there is only a net gain to society if you do the same amount of work that I did for less money, or if you do more work than I did for the same pay. Then society benefits from the increase in productivity. But no new jobs—or new hours—have been created.

      And because most of the jobs in question are lower paying and require less expertise, as you state, productivity by substituting one person for another is not increase much.

      You’re arguing that splitting a job between two people can be a societal benefit. I suppose that is true, IF government “handouts” (as you call them) to one or both persons are reduced. But the Obamacare subsidies do increase benefits to one of the persons, because that is what is causing the issue. Is it likely that benefits—including health insurance subsidies—to the other person will go down? Maybe sometimes, but not always.

      Thanks for reading and commenting.

      Sara

      • One person quitting and another taking their job is not what the OMB report emphasized. It says the workforce will decrease by 2.3 million EQUIVALENT jobs. By addressing the case of one person quitting and another taking their place, you are stating your argument in very micro terms and missing the point of the report. The report was written with a macroeconomic view.

        The decrease stated was mostly due to individuals working a decreased number of hours – not quitting. The conservative cry is that we need more jobs. In economic terms, that indicates that the U.S. has an oversupply of labor. If the oversupply is decreased by 2.3 million job equivalents, more people have an opportunity to work.

        This, in itself, is not the solution to our jobs problem, but many have supped on the conservative pablum which incorrectly reduces a macro report to a micro view. An increase in the supply of jobs is also needed, but that isn’t a standalone solution either, particularly if it means using artificial incentives to chain more people to jobs they don’t want.

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