Friday, February 7, 2014
Opponents of the Affordable Care Act (ACA) have claimed for years that it will “kill jobs.” Because of ostensibly onerous and expensive mandates, higher taxes, and increased regulations, the ACA will cause employers to shed jobs, refrain from hiring additional workers, and reduce the hours present employees work.
Indeed, now it appears even the Congressional Budget Office, the nonpartisan source of information on all things financial for Congress, agrees. On Feb. 4, CBO released its projection that 2.5 million fewer Americans will be employed by the end of the next ten years as a result of the ACA.
Will this occur because CBO projects that employers will decide to cut jobs or hours in an effort to avoid the ACA’s “play or pay” provision, or because increased benefit costs under the ACA will make it untenable for employers to open new positions? Not particularly (although it does project a possible very small and speculative effect as a result of the employer mandate). Rather, “[t]he estimated reduction stems 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, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment … or underemployment…” (CBO, pp 117-18).
The structure of the ACA’s subsidies is the primary culprit, according to CBO. The way subsidies are structured for the purchase of coverage on the Exchanges may act as a disincentive for individuals, especially those near the lowest end of the income bracket eligible for subsidies, to work enough to raise their income sufficiently to diminish their subsidy, at least to the extent that the subsidy is more valuable than the additional income that could be earned. The premium and cost-sharing subsidies, while quite generous for those earning between about 100% and 150% of the federal poverty level, decline more sharply thereafter. In that regard, they function somewhat like the Earned Income Tax Credit, to the extent that, at a certain period after phase-in, the amount of each declines as income increases.
All things being equal, many policymakers might prefer individuals to work more – at least up to a certain point, and depending on a variety of variables – rather than less. But while the ultimate legislation increased the subsidy amounts, the substantial cost of providing subsidies at more generous levels to individuals with higher incomes was enough to outweigh this argument, at least as far as the 111th Congress was concerned.
Incidentally, CBO projects that other factors, such as the ACA’s Medicaid expansion, the play or pay mandate, and some higher marginal tax rates, will have “modest,” if any, effects on the labor market.
-Guest Blogger Laura Hermer