Every time the non-partisan Congressional Budget Office (CBO) issues a new report on the Affordable Care Act (ObamaCare) Klaxon alarms must go off in spin rooms all over Capitol Hill, such as those we heard in old World War Two submarine movies, as political spinmeisters run to their keyboard battle stations. Fortunately, our military submariners had better aim. The spinmeisters from both parties wildly fired salvos that were well wide of the mark when spinning their interpretations of CBO’s latest report.
According to the Republicans, the CBO report proved that ObamaCare was killing jobs. The report, of course, said no such thing. ObamaCare, the report did suggest, will dampen or kill the motivation of some people to work, but this particular report didn’t suggest that jobs were going to be eliminated.
Not to be undone in this theater of the absurd, the Democrats argued that the CBO report demonstrated that ObamaCare would so improve the quality of life for lower income workers, and other Americans that they could now make the decision to stay at home and enjoy more time with their kids and not have to work so hard. Please guys! Americans really are not stupid. They understand what is happening.
It’s all about government subsidies and market distortion. As we have written many times in these essays, government subsidies invariably distort the marketplace. In this case, we’re talking about the labor market. ObamaCare provides health insurance premium subsidies for many lower income individuals and families. So, as might be expected, many workers may choose to forego an opportunity to work more hours or earn more money, if their higher earnings will jeopardize their subsidies. CBO estimates that wage earners making just such a decision will result in a loss of hours worked that will be the equivalent of 2.3 million jobs. When workers are inclined to pass up job improvement for fear of losing a government subsidy, the subsidy has distorted the market. Employers could be forced to offer higher wages than a job, or the skill to do the job, warrants in order to compete with the government subsidy. Guess who ultimately gets to pay for the resulting higher cost of goods or services?
That some market distortion would take place is not a surprise, but the magnitude of the distortion is. CBO originally projected that the decline in hours worked because of the ObamaCare subsidies would be the equivalent of 800,000 jobs by 2021. CBO’s revised projections of reduced hours worked because of the subsidies are 200% higher. Democratic talking heads implied that this demonstrated that ObamaCare was improving the quality of life for working Americans because men and women could now choose to spend more time at home. Senate Majority Leader Harry Reid was quoted as saying “the report was “far better for us than not.” Good grief.
“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. Well this essay is, after all, all about spinning. More logical, however, is the likelihood that wage raises will simply be declined out of fear of losing subsidies.
CBO opined that the reduction in hours worked would be a result of workers’ choices, and therefore, the lost hours wouldn’t, technically, represent a rise in the unemployment rate. That’s somewhat like the logic that causes the unemployment rate to go down when people give up looking for work
Republicans were quick to argue that the report proved that ObamaCare would cause a disincentive to work, while Minority Leader Mitch McConnell focused on the report’s conclusion that the law will still leave 31 million people without coverage in ten years.
Senator Orin Hatch of Utah fulminated the law was “A direct threat to the long-term health and prosperity of our nation, (and) must be repealed…its impact and consequences are too great.” All of which might be true, but there was little in the most current CBO report from which to draw such a conclusion.
As we stated near the top of this essay this, ultimately, is about government subsidies (along with an agonizingly slow and weak economic recovery) creating distortions in the marketplace, and, sadly we think, distortions in the American psyche. CBO writes that some Americans may feel they would be better off working fewer hours and earning less because then they would qualify for Medicaid, which subsidizes healthcare for low-income Americans, while others might be drawn to the law’s healthcare premium subsidies for low earners and opt to reduce their hours to secure these subsidies. The CBO even suggests that high earners whose tax rates were increased by ObamaCare might choose to work less.
Ironically, CBO Director Douglas Elmendorf agreed with a long-held Republican point of view that many Americans, by reducing their work hours, would wind up reducing the amount of money people paid in taxes from 2017 through 2024. On the other hand, he said the law might create some new jobs by freeing up disposable income previously set aside for health insurance.
And so we have had a week of he said, she said, talking heads yelling at one another. But at the end of the day, it’s all spin. What we know for sure is that huge distortions are taking shape in the marketplace. There is really no need to decide which talking head to believe. Just focus on what was the critical conclusion of the CBO report in the CBO’s own words.
“For some people, the availability of exchange subsidies under the ACA will reduce incentives to work both through a substitution effect and through an income effect. The former arises because subsidies decline with rising income (and increase as income falls), thus making work less attractive. As a result, some people will choose not to work or will work less—thus substituting other activities for work. The income effect arises because subsidies increase available resources—similar to giving people greater income—thereby allowing some people to maintain the same standard of living while working less.”
The die is cast. Available government sector ObamaCare subsidies now compete with available private sector work. The worker takes on more work and responsibility at the cost of losing the new ObamaCare subsidies, or the worker reduces his work and achieves more in federal ObamaCare subsidies. The choice is entirely the workers to make.
Early results indicate that millions will prefer the subsidies to improved earnings, and that that the government-granted opportunity to work less will be looked upon with favor by many.
The Republicans see this new ObamaCare phenomenon as a diminution in job creation. They are wrong. The Democrats, somehow, see this new taxpayer provided government-funded phenomenon as an improvement in the quality of life for the worker. They too are wrong. Very wrong.
We find little to celebrate when lower-earning Americans forego the opportunity to earn more out of fear of losing a new subsidy. Very little.