Obamacare matters, as deficits and health care costs fall, job flexibility increases

Credit: 401(K)2013/Creative Commons.

Credit: 401(K)2013/Creative Commons.

The federal deficit keeps falling and premiums for insurance policies are lower than predicted.

Those are a few of the tidbits from the new Congressional Budget Office Report.

According to the CBO’s executive summary:

The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. CBO estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009. At that level, this year’s deficit would equal 3.0 percent of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years. [source]

But what about the Affordable Care Act? Won’t it increase the deficit?

No. As p. 111 of the full CBO report reads:

Compared with last year’s projections, which spanned the 2014-2023 period, the new estimate represents a downward revision of $9 billion in the net costs of those provisions over that 10-year period.

Why are estimated costs lower now?

The main reason is that premiums are less than originally projected.

CBO and JCT lowered their estimate of average premiums for insurance coverage through exchanges in 2014 by about 15 percent on the basis of a preliminary analysis of plans offered through exchanges. (p. 120)

Lower premiums mean lower costs because that translates into lower costs for federal subsidies.

But another element involves “risk corridors,” which some Obamacare opponents have dubbed a bailout of insurance companies. These involve funds that would be paid to insurance companies if the mix of people signing up had too many sick folks, thus increasing the costs of covering them.

The CBO now says that, rather than the government paying the insurance companies, the insurance companies will be paying the government. This is not a huge amount of new revenue but it is more money coming in.

CBO now projects that, over the 2015–2017 period, risk corridor payments from the federal government to health insurers will total $8 billion and that the corresponding collections from insurers will amount to $16 billion, yielding net savings for the federal government of $8 billion. (p. 116)

And what about jobs? Doesn’t the CBO say there will be fewer?

Kind of, as the CBO does estimate that, if you add up the number of hours, there will be 2 million fewer full time jobs in 2017 than earlier predicted.

But they are clear that this aggregated labor supplied will not result from reduced labor demand, that is, it won’t come from employers being less willing to hire.

Instead, people who now the ACA gives the freedom to make different decisions will choose to do so.

  • Some might be moms who will, instead of working for money full-time, go to part-time or live on a spouse or partner’s salary.
  • Some might be older folks who can leave the workforce before they qualify for Medicare.
  • And some might be middle-aged people with chronic health conditions who could handle part-time work but not a full-time position; if they left the workforce, they’d go on disability, a greater expense for taxpayers.

They can change their situation because they will be able to get health coverage after making the choice.

You can see the CBO report make this point here:

The 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 business’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking, but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week). (p.117)

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, 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. (p. 123)

At the same time, the CBO says that availability of subsidies for private insurance means that people who are eligible for Medicaid but previously would have lost their coverage by earning a bit more won’t be dissuaded from working more.

That’s because they can transition from Medicaid to private insurance rather than just losing coverage because they make a little more money.

The Affordable Care Act, as predicted, will be changing the job market, as people have more freedom to make decisions about work. Workers don’t have to stay with a particular job because they aren’t dependent on it for health insurance.

Another impact, predicted by the law’s proponents, will be to increase job flexibility for people who want to start their own businesses. A May 2013 Urban Institute study projected an 11% increase in self-employment nationwide.

Obamacare opponents have taken the CBO’s statements to mean that people will lose their jobs because of health reform. That’s not true.

As discussed above, with relevant sections from the report presented as evidence, the CBO points to people deciding to work less, not employers deciding to hire fewer people. In fact, the CBO explicitly says that labor demand will not increase and there’s no evidence that employers will be converting jobs from full-time to part-time.

The Washington Post fact checker awards Three Pinocchios to those falsely claiming that the CBO said that Obamacare will kill 2 million jobs.

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And they also note:

[I]n contrast to a common GOP talking point, the CBO declares that “there is no compelling evidence that part-time employment has increased as a result of the ACA,” though it notes the data may be murky because the employer mandate was delayed until 2015.

Finally, we should note that the figures (2 million, etc.) are shorthand for full-time equivalent workers—a combination of two conclusions: fewer people looking for work and some people choosing to work fewer hours. The CBO added those two things and produced a hard number, but it actually does not mean 2 million fewer workers.


By the way, if you’ve read this far, you might be interested in this snapshot of how the Affordable Care Act is playing out in New England.

Amy Fried

About Amy Fried

Amy Fried loves Maine's sense of community and the wonderful mix of culture and outdoor recreation. She loves politics in three ways: as an analytical political scientist, a devoted political junkie and a citizen who believes politics matters for people's lives. Fried is Professor of Political Science at the University of Maine. Her views do not reflect those of her employer or any group to which she belongs.