OBAMASCARE FEBRUARY 4, 2014
The Congressional Budget Office today released the latest update of its projections for the economy and the budget, including Obamacare. And a fair reading would be that not a ton has changed since last time. CBO now expects the law will lead to 25 million people getting health insurance, while some 31 million people will remain uninsured. It will require a lot of new government spending but, because of offsetting revenue and cuts to other programs, it will actually reduce the deficit.
But CBO revised one finding and, all day long, critics have been seizing on the revision as proof that the law is a boondoggle.
The real story, as usual, is a lot more complicated.
The projection is about how the Affordable Care Act will affect labor output—that is, the number of hours Americans work every year. From the get-go, CBO assumed that Obamacare would slightly reduce labor output, relative to what it might have been without the law in place. Why? The CBO gave a bunch of different reasons.
For one thing, CBO reasoned, the financial assistance Obamacare provides depends on income. The more money you make, the less assistance you get. CBO argued that this would discourage some workers from putting in more hours, since the reward for working harder would be more income but less assistance on health insurance. In addition, CBO noted, historically some people have taken or held on to jobs exclusively to get health insurance. Obamacare makes it possible to get coverage without a job. As a result, CBO predicted, some of these people would stop working—or, at least, work fewer hours.
These weren’t the only ways that Obamacare will affect jobs, according to the CBO. And sometimes Obamacare will lead to people working more hours—for example, by giving people with chronic medical problems more freedom to switch jobs or start their own firms.
Overall, the CBO had said previously, Obamacare's net effect would be a reduction in total labor compensation of about 0.5 percent. Now, citing new research on the effects of taxes, CBO is predicting that the net effect will eventually be twice as large—a full 1 percent reduction in compensation, or the rough equivalent of what we'd expect if two million fewer people were in full-time jobs.
That sounds like a big deal—and Obamacare critics certainly treated it like one. Here's the conservative publication Newsmax: "Simply put, the new analysis from the nonpartisan agency suggests the 2010 Affordable Care Act is driving businesses and people to choose government-sponsored benefits rather than work." Here's Republican Congressman Tom Price: "This independent analysis by the Congressional Budget Office confirms that Obamacare will destroy economic opportunity and with it financial security for many American families." And here's a spokesman for the National Republican Congressional Committee: "There is no way to spin this. Because of #ObamaCare, there will be 2.5 million less jobs in our economy." (If you want more quotes, Glenn Kessler and Greg Sargent of the Washington Post have nice roundups—and some good analysis of their own.)
But CBO didn't actually say Obamacare would lead to 2 million fewer jobs. It said that Obamacare would lead to the "equivalent" of 2 million fewer jobs. In reality, CBO expects a much larger group of people to reduce their hours by a much smaller amount. Only a relative few will stop working altogether.
More important, CBO says, most of the people working fewer hours will be choosing to do so. And that's a very different story from the one Obamacare critics are telling. Some of the people cutting back hours will be working parents who decide they can afford to put in a little less time with their co-workers and a little more time with their kids. Some will be early sixty-somethings who will retire before they reach 65, rather than clinging to low-paying jobs just to get health benefits. "This is what we want in a fair society," says Jonathan Gruber, the MIT economist and Obamacare architect. "We don't want to enslave the old and sick to their jobs out of some sense of meanness. If they are dying to quit/retire, then let's them. That's a good thing, not a bad thing."
Of course, some able-bodied Americans will cut back on hours for reasons that conservatives, in particular, might not like. To put it crudely, they'll work fewer hours simply because they don't feel like working so hard. But whether or not that's so problematic, it's also the inevitable by-product of any program that makes assistance conditional on income. The Earned Income Tax Credit works that way. So do food stamps and Medicaid.
And so, by the way, would the new health care proposal from three Republican senators, which makes subsidies available to people with incomes at 299 percent of the poverty line but not those with incomes at 300 percent. The only question with programs like these is how big the disincentive to work is—and whom, exactly, it affects. The only alternatives are to give help to everybody (which requires much more government spending) or to give help to nobody (which leaves many more people struggling).
Ironically, the CBO report included two other findings that should, if anything, make most people more optimistic about Obamacare's future. First, the CBO found that the net cost of the coverage provisions will be a little lower than the agency initially expected, which probably means the law as a whole will reduce the deficit by a little more. Second, it found that the now-infamous "risk corridor" program, in which government and insurers share gains and losses, will result in net payments from insurers to the government, rather than the other way. (Jonathan Chait has the details on that drama.)
The change in projected deficits isn't very large and the risk corridor prediction comes with more uncertainty than usual, so you wouldn't want to bet a lot of money on either prediction coming true. But both findings call into more serious doubt two of the Republicans' favorite talking points—that Obamacare will drive up the deficit and that, because of the risk corridor program, it's a "taxpayer bailout" of insurers. As of today, those claims look even weaker than they did before.
Will Republicans stop making these arguments? Or will they at least acknowledge some uncertainty about them? Nope. And that's a prediction in which you can feel very confident.
Note: This item has been updated, in order to clean up the prose and add a little more naunce—and to make clear that CBO merely found that the net cost of coverage predictions had declined. It did not make a new projection about the law's total impact on the deficit.