The nonpartisan Congressional Budget Office (CBO) recently projected that the Affordable Care Act (ACA)—better known as Obamacare—will lead Americans to reduce the hours they work by 2 percent. This will reduce the overall labor supply by the equivalent of 2.5 million full-time workers over the next decade. The decrease in labor supply will occur because the ACA mandates that everyone buy health insurance and provides large subsidies to low-income individuals and families to buy insurance on the new exchanges. As CBO director Douglas Elmendorf recently testified, By providing heavily subsidized health insurance to people with very low income, and then withdrawing those subsidies as income rises, the act creates a disincentive for people to work. Thanks to this implicit tax on extra work, spending a few more hours on the job will, at the margins, result in minimal or even negative income for those qualifying for the ACAs subsidies. The CBO reports that some will choose to work fewer hours in order to qualify for a subsidy. Others will choose not to work at all.
Normally, when the well-respected CBO finds that a law will significantly decrease the labor supply and harm economic growth, it becomes a great embarrassment to the laws authors. But the White House insists that critics have misconstrued the CBO report. Its not a bad thing if people work less, they say. On the contrary, the law will give workers the flexibility to leave jobs that theyre currently locked into because of their health-insurance benefits. According to Jason Furman, Chairman of the Council of Economic Advisors, the law will alleviate such job lock, giving workers the freedom to work less, enjoy more family time, or start a new business. Like so much of the White Houses defense of the ACA during its troubled rollout, these claims have a desperate and improvisational quality. The disincentive to work that the CBO report identifies is not a good thing. In fact, a careful reading of the report shows that the ACA will disproportionately harm the most vulnerable people in the workforce—the working poor, especially those with incomes low enough to qualify for subsidies under the ACA but too high to qualify for Medicaid.
These people will not gain new economic freedom. On the contrary, they will be locked out from moving to a better job that might raise their income but jeopardize their subsidized health care; from working more hours at their current job and raising their standard of living; and from achieving upward economic mobility. Over time, the harmful effects could be compounded by the ACAs employer mandate, which requires employers of 50 or more full-time workers (defined as 30 hours per week) to provide employees with health insurance or pay a penalty for each uninsured full-time worker. To stay beneath the 50-worker threshold and avoid paying the penalty, employers could reduce hiring, cut jobs, or cut hours. Lower-wage workers will almost certainly be the first to suffer.
To support its claim that the ACAs employer mandate will not lead businesses to cut jobs or hours, the White House seized on the CBOs statement that its estimates of reduced future employment stem almost entirely from a net decline in the amount of labor that workers choose to supply rather than from a net drop in businesses demand for labor. But the White House failed to mention that it had (unilaterally) delayed implementation of the employer mandate for a year, until 2015. The CBO report concedes that, because the employer penalty will not take effect until 2015 the current lack of direct evidence [of decreased demand for labor] may not be very informative about the ultimate effects of the ACA. In fact, despite the delay, employers may already be holding off on hiring, considering layoffs, and cutting employees hours in anticipation of the mandates implementation. An Investors Business Daily survey showed that more than 400 employers have systematically cut workers hours to avoid liability under the employer mandate. This is probably a low estimate, because private employers fearful of negative publicity have been reticent about acknowledging cuts. Despite its protestations, the White House is clearly concerned (especially in an election year) about potential job losses. Earlier this month, it delayed the mandate for employers with 50-99 employees for another year, until 2016, while also phasing in the requirement for larger firms over a few years.
The disincentive to work (to qualify for the ACAs subsidies) and the disincentive to hire (to avoid the ACAs penalties) will combine to hurt those who can least afford not to work. Had the ACAs authors been more careful, they could have avoided locking out our most vulnerable citizens from economic advancement and upward mobility. But, as becomes clearer with each passing day, the policy minds that brought us the ACA are anything but careful.