Quantcast

Small Business Nation. A Project of The U.S. Chamber of Commerce

Health Law To Cut Into Labor Force

February 5, 2014
The Wall Street Journal
Louise Radnofsky and Damian Paletta

The new health law is projected to reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021, a bigger impact on the workforce than previously expected, according to a nonpartisan congressional report.

The analysis, by the Congressional Budget Office, says a key factor is people scaling back how much they work and instead getting health coverage through the Affordable Care Act. The agency had earlier forecast the labor-force impact would be the equivalent of 800,000 workers in 2021.

Because the CBO estimated that the changes would be a result of workers' choices, it said the law, President Barack Obama's signature initiative, wouldn't lead to a rise in the unemployment rate. But the labor-force impact could slow growth in future years, though the precise impact is uncertain.

The agency also said the rough launch of the health law's online insurance portals shrunk its estimates of the number of people who will get coverage in 2014. It said six million people would obtain private coverage through the exchanges and eight million people would sign up for Medicaid, compared with its earlier estimates of seven million and nine million, respectively.

The report, part of the budget office's annual economic and budgetary outlook, provides the agency's most detailed analysis yet of the ways in which the law is expected to change incentives in the workplace as it takes full effect. The report indicates that, in effect, some workers will either leave the workforce entirely or cut back on hours because the law lets them get coverage on their own without regard to their medical history, in some cases with a subsidy.

The report also said that in the next few years, some of the hours that were given up would be picked up by the many Americans seeking jobs.

Republicans seized on the report to bolster their argument that the law is creating a disincentive to employment, while Sen. Mitch McConnell of Kentucky, the Senate Republican leader, pointed to the report's finding that the law would ultimately reduce the number of uninsured by 25 million but still leave 31 million people without coverage in 2024.

"A direct threat to the long-term health and prosperity of our nation, this law must be repealed," said Orrin Hatch of Utah, the top Republican on the Senate Finance Committee. "Its impact and consequences are too great."

But there was positive news for the Obama administration and Democrats who are eager to point to signs of the law's success heading into tough midterm congressional elections. The CBO estimated that insurance premiums on the health-care exchanges were 15% less than originally forecast, and, more broadly, the agency said the recent slowdown in the growth of Medicare costs had been "broad and persistent" and projected "that growth will be slower than usual for some years to come."

The analysis also offered Democrats a reprieve as they try to preserve a provision in the health law known as "risk corridors," in which the government collects money from insurers that end up with a healthier-than-expected pool of customers and uses it to reimburse ones who have a sicker population. The CBO estimated that through 2024, the government would collect $8 billion more from the provision than it would be required to pay out. Previously, the agency had estimated there would be no savings for the government.

Senate Majority Leader Harry Reid (D., Nev.) said the report was "far better for us than not."

While the CBO confirmed that enrollment in 2014 would likely be lower than expected, it said the number of people getting coverage in 2015 and beyond would be at the previously assumed levels.

It also said that incentives in the law that cause people to choose to work fewer hours would be more significant than people losing their jobs or having their workweeks reduced because of the law. It pointed to older workers, in particular, as a group that might feel they don't need to keep full-time jobs to easily maintain health coverage.

A 64-year-old with a pre-existing health condition, for example, may have been unable to buy coverage on the individual insurance market before 2014 or could have been able to find a policy but considered the price of that coverage unaffordable.

As a result, that worker may have previously decided to work until reaching the age at which they could enroll in Medicare, the federal insurance program for the elderly.

The agency also said some workers might decide they were better off working fewer hours because a smaller paycheck might qualify them for Medicaid, the federal-state program for low-income Americans that some states are expanding under the health law, while other workers might eye the law's income-based subsidies toward the cost of private insurance premiums and decide to change their hours to affect their eligibility. Meanwhile, higher-income workers whose tax rates were increased to help pay for the law may also choose to work less, the CBO said.

"This is not businesses cutting back on jobs; this is people having new choices they didn't used to have," such as working part time or starting their own businesses, said Jason Furman, chairman of the White House's Council of Economic Advisers. "Those are two completely different things in terms of the impact it has on people."

The agency said the law's impact on the labor market could vary markedly, depending on how many people enroll for benefits and also how swiftly the unemployment rate falls.

It found, for example, that the law could provide incentives for workers to take jobs that better matched their skill set because workers would be less concerned about a new job's health-care coverage. CBO Director Douglas Elmendorf also said Tuesday that the law could lead to job creation in some areas, as many newly insured Americans would have more disposable income as a result of having to spend less money on medical costs.

<- Go Back

Small Business Toolkits