A primary criticism of the Affordable Care Act is that it creates incentives for employers to hire fewer full-time employees. One of the House’s attempts to repeal the ACA even referenced it as the “job-killing healthcare law.” It’s true that there are some provisions in the ACA that employers may exploit in order to minimize the cost of doing business.
At the same time, it’s also true that the ACA protects employees’ access to health insurance in some very important ways that didn’t exist previously, like mandating large employers with more than 50 full-time equivalent employees to provide affordable insurance to their employees, subsidizing the purchase of insurance for small businesses, and creating other insurance options for employees (besides those their employers may or may not offer) on the health insurance marketplace.
But the latest round of controversy has erupted over the Congressional Budget Office’s February 2014 Budget and Economic Outlook for 2014 to 2024. Buried in Appendix C of that report is a summary of the “Labor Market Effects of the Affordable Care Act.” The report says 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.”
The report continues: “The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA … 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 businesses’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked…rather than as an increase in unemployment.”
Those who think that the ACA is bad for business have seized on this report–specifically the projected decline of 2 to 2.5 million full-time-equivalent workers — to claim that their concerns about the “job-killing healthcare law” have been vindicated. But, as the emphasized portions of the quotes above show, that’s not the real story.
The real translation is that the workforce will grow at a slower rate because some people will choose not to work as much. There is more than one reason why that may be an attractive choice.
First, as with any benefit involving a subsidy on a sliding-scale, there can be a disincentive to earn more income. In other words, a low-income person may find that they receive a larger subsidy if they work a few less hours each week. If the increase in the subsidy is larger than the amount of income foregone, it makes sense to work fewer hours. A similar principal is at work for those at or near 138 percent of the poverty level in states that have elected to expand Medicaid coverage.
