Freeing Workers From the Insurance Trap
The Congressional Budget Office estimated on Tuesday that the Affordable Care Act will reduce the number of full-time workers by 2.5 million over the next decade. That is mostly a good thing, a liberating result of the law. Of course, Republicans immediately tried to brand the findings as “devastating” and stark evidence of President Obama’s health care reform as a failure and a job killer. It is no such thing.
The report estimated that — thanks to an increase in insurance coverage under the act and the availability of subsidies to help pay the premiums — many workers who felt obliged to stay in a job that provided health benefits would now be able to leave those jobs or choose to work fewer hours than they otherwise would have. In other words, the report is about the choices workers can make when they are no longer tethered to an employer because of health benefits. The cumulative effect on the labor supply is the equivalent of 2.5 million fewer full-time workers by 2024.
That is the DNC spin all right (Michael Hiltzik of the LA Times echoes the NewSpeak "Slacking=Success" party line). However, to get there from here requires a dedicated misreading of the CBO report. Here we go, p. 125 and following from the .pdf; sort of econo-geeky, but work with them:
The Number and Types of Workers Likely To Be Affected.
Subsidies clearly alter recipients’ incentives to work and can certainly influence the labor supply of those who would gain eligibility by working and earning slightly less. But most full-time workers do not confront that particular choice—either their income is well above 400 percent of the FPL or they are offered employment-based health insurance and thus are generally ineligible for subsidies regardless of their income.
Even so, one line of research indicates that the subsidies will affect the labor supply of many full-time workers with health insurance from their employer—precisely because they effectively forgo exchange subsidies when they take or keep a job with health insurance. If instead a worker switched to a part-time job, which typically does not offer health insurance, that worker could become eligible for exchange subsidies. In that view, exchange subsidies effectively constitute a tax on labor supply for a broad range of workers.
In CBO’s judgment, however, the cost of forgoing exchange subsidies operates primarily as an implicit tax on employment-based insurance, which does not imply a change in hours worked. Instead, the tax can be avoided if a worker switches to a different full-time job without health insurance (or possibly two part-time jobs) or if the employer decides to stop offering that benefit. The consequences of that implicit tax are incorporated into CBO’s estimate of the ACA’s effect on employment-based coverage—which is projected to decline, on net, by about 4 percent because of the ACA (see Appendix B).
Correspondingly, the negative effects of exchange subsidies on incentives to work will be relevant primarily for a limited segment of the population—mostly people who have no offer of employment-based coverage and whose income is either below or near 400 percent of the FPL.
So when the Times writes "In other words, the report is about the choices workers can make when they are no longer tethered to an employer because of health benefits." they are exactly wrong. There will no doubt be such people, but the CBO attempts to model that behavior elsewhere.
The CBO says that they tried to separate two decisions - one is to work less (or more) and the other is to change insurance status, perhaps by quitting or switiching employers. As they say above:
In CBO’s judgment, however, the cost of forgoing exchange subsidies operates primarily as an implicit tax on employment-based insurance, which does not imply a change in hours worked. Instead, the tax can be avoided if a worker switches to a different full-time job without health insurance (or possibly two part-time jobs) or if the employer decides to stop offering that benefit.
So someone who likes their income but not their employer will find it easier to switch. That is a good thing, but it is separate from a decision to work less. Back to the CBO:
Nonetheless, another subgroup that has employment-based insurance does seem likely to reduce their labor supply somewhat. Specifically, those people whose income would make them eligible for subsidies through exchanges (or for Medicaid), and who work less than a full year (roughly 10 to 15 percent of workers in that income range in a typical year), would tend to work somewhat less because of the ACA’s subsidies.
For those workers, the loss of subsidies upon returning to a job with health insurance is an implicit tax on working (and is equivalent to an average tax rate of roughly 15 percent, CBO estimates). That implicit tax will cause some of those workers to lengthen the time they are out of work—similar to the effect of unemployment benefits.
CBO’s estimate of the response of labor supply to the subsidies is based on research concerning the way changes in marginal tax rates affect labor supply and on studies analyzing how labor supply responds to changes in after-tax income.
There may be compelling and convincing research estimating the number of corporate drones who can't wait to quit but are trapped by their health insurance plan (perhaps even at the Times!), but that is not what the CBO looked at.
The CBO gist is that the ACA subsidy phase-outs represent a high marginal tax on earnings for the working class, and hence discourage work:
However, people whose employment or hours worked will be most affected by the ACA are expected to have below-average earnings because the effects of the subsidies that are available through exchanges and of expanded Medicaid eligibility on the amount of labor supplied by lower-income people are likely to be greater than the effects of increased taxes on the amount of labor supplied by higher-income people.
Overlap that with the ACA War on Marriage and we wonder how the working class will ever get ahead under Obama. Single and Slacking=Success! Oh, I say that, but maybe single and state-dependent is a bug rather than a feature for Nancy Pelosi and the progressive statists. Maybe!
Let's add it up - today it's the ACA's War on the Working Class; tomorrow Dems will focus on waving in a new group of unskilled workers from abroad to compete with native unskilled workers; then maybe on Friday Obama will return to income inequality as the defining challenge of his era. And why not - the weather precludes a round of golf.
IT'S ONLY THE PROLES... Great moments in compassionate progressivism from Michael Hiltzik of the LA Times:
The ACA will reduce the total hours worked by about 1.5% to 2% in 2017 to 2024, the CBO forecasts, "almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive." That translates into about 2.5 million full-time equivalents by 2024 — not the number of workers, because some will reduce their number of hours worked rather than leaving the workforce entirely.
The overall impact on the community will be muted, moreover, because most of that effect will be seen at the lowest levels of the wage-earning scale. The effect will be "small or negligible for most categories of workers," the CBO says, because there will be almost no impact on workers who get their insurance from their employers or who earn more than 400% of the federal poverty line (for a family of three, that's $78,120), the point at which eligibility for federal premium disappears.