Topics: Obamacare

Four ways CBO says Obamacare will reduce jobs

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The Congressional Budget Office created an uproar when it released an estimate that Obamacare will lead to a decline in the number of full-time-equivalent workers by 2.5 million by 2024.

Although Republicans seized on the news as proof that Obamacare is a job-killer as they have predicted and the Obama White House tried to spin the report as saying that workers will no longer be "trapped" in jobs they are working only for the health insurance, the reality is a bit more complicated.

The CBO projected that a small minority of those full-time-equivalent workers — meaning aggregate jobs and hours — will be lost. And some people trapped in jobs they don't like will be able to leave without losing health insurance.

But the vast majority of the lost full-time-equivalent jobs will come because the law's implicit tax rates will make work, and working longer hours, less rewarding and less attractive for many people at the margins of the workforce today. These full-time-equivalent job losses are what the CBO describes as workers being "likely to reduce the amount of labor they choose to supply." That's a roundabout way of describing the law's complicated effects.

Obamacare will reduce jobs in four ways, according to CBO:

- The first, and the most straightforward, are the tax increases that were included in the law to help pay for the insurance coverage provisions. The Medicare payroll tax hike for high earners, the so-called Cadillac tax on generous insurance plans, and the individual mandate will raise taxes on labor, slowing job growth.

- The second is the employer mandate. The mandate penalty will be borne by workers in the form of lowered compensation, according to the CBO, leading some people to quit or work fewer hours.

Together, those effects will be relatively small compared with the other ways Obamacare will reduce work.

- The third is the exchange subsidies. Those subsidies are phased out as workers' income rises, creating an implicit tax on their earnings.

That is, someone who doesn't get insurance from his employer could get subsidized coverage through an exchange. But if his income rose, especially over a few thresholds set by the law, he would face the loss of some or all of his subsidy.

Those implicit marginal tax rates could be large for families at certain levels of income just below a subsidy threshold. They also would be significant for people who work part of the year and would lose subsidies if they took a job with employer-provided insurance.

The availability of subsidized exchange plans also would allow some workers near retirement who were working only to maintain an employer-provided insurance plan to retire without facing the loss of their benefits.

– Lastly, the law's Medicaid expansion would lead workers to drop out of the workforce.

The clearest evidence that receiving Medicaid can lead some people to give up work comes from Tennessee, where the government abruptly cut off the state Medicaid program for roughly 170,000 workers in 2005. The result, according to a study published by the National Bureau of Economic Research last year, was a spike in job search activity in the state. That development suggests that many people sought work solely for the insurance benefits.

That, in turn, is an indication that if Medicaid is expanded, many people who are now working just for the insurance will quit when they become eligible for Medicaid benefits. That is the "job lock" impact of the law that Democrats and the White House have touted.

Other recent evidence, such as that taken from the recent Medicaid experiment in Oregon, was less clear that the job lock phenomenon is widespread and that expanding Medicaid will shrink the workforce.

Nevertheless, CBO's assessment is that, overall, Obamacare will lead to lower employment by extending Medicaid to a projected 7 million Americans.

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Joseph Lawler

Economics Writer
The Washington Examiner