Beyond Unemployment: Obamacare's Long-Term Problem

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The Congressional Budget Office recently revealed greater problems for ObamaCare than just its frequently cited employment loss. It additionally projected a reduction in earnings and employer-provided health insurance. Against these long-term problems, the law's proponents can only attempt to counter with short-term improvements.

Facing terrible headlines about 2.5 million lost jobs, the Affordable Care Act's supporters tried to meet the charges head-on. Alan Blinder, writing in the 2/11 WSJ explained why ObamaCare is not a "job killer": "The CBO makes it crystal clear that its analysis suggests that U.S. labor supply, not labor demand, would likely be reduced by various provisions of the ACA. Fewer sellers, not fewer buyers. That means, for openers, that the ACA should raise wages, especially low wages."

What Blinder and other defenders are referencing is CBO's analysis that low wage workers receiving ObamaCare's highest subsidies will have less incentive to work. Proponents reason that while this labor supply diminishes, labor demand will remain steady - thus increasing wages. The verdict being: "...the program's beneficiaries are still better off."

It is a superficially interesting argument. It's problem is it is only a short-term one. Admittedly, if low wage workers receiving the largest subsidies respond by reducing their work, there could be excess demand - though with unemployment still at 6.6 percent (and that inflated by low participation), this is hardly a given - as their employers are caught shorthanded. However, the long-term economic response will be the opposite: to reduce use of a more expensive commodity - regardless whether it is labor or anything else.

This reaction has played out repeatedly. If there is increased demand for the lowest paid workers, it will likely be short-lived. This is particularly true because these workers are also the lowest skilled - precisely why they are also the easiest and most likely to be replaced.

In addition to employment loss, there were two overlooked CBO assertions regarding ObamaCare's impact on earnings and employer-provided health insurance. "Specifically, CBO estimates that the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017-2024 period, compared with what it would have been otherwise." Illustratively, for an individual earning $46,680 - the amount above which she will receive no ObamaCare subsidy - a 1 percent loss amounts to $467 annually.

Furthermore, CBO estimated that "...as a result of the ACA, between 6 and 7 million fewer people will have employment-based insurance coverage each year from 2016 through 2024, than would be the case in the absence of the ACA." In 2019, CBO estimates there will be "11 million people who would have had an offer of employment-based coverage in the absence of the ACA will lose their offer under current law..."

Not only has employer-provided insurance been the mainstay of America's quality health care system for approximately 70 years, but this prevents those people wishing to retain their coverage through work from doing so.

Another overlooked point is that despite a net cost to the government of $1.5 trillion from 2015-2024, roughly 8 percent of America's nonelderly population (not including "unauthorized immigrants") will still be uninsured. That amounts to roughly 23 million individuals - despite enormous federal cost and disruption to the nation's health care system.

Against these new estimates of decreased earnings, employer-provided coverage, and continuing uninsured, ObamaCare's proponents seize on CBO's estimated 15 percent decrease in the new policies' premiums.

CBO's estimated 15 percent decline in premiums offered through exchanges calls to mind the adage: When something seems too good to be true, it probably is. Even Blinder admits "no one attributes the entire slowdown in health-care costs to ObamaCare - which, after all, is barely under way. " In truth, it has not actually started yet and the estimated fall in premiums begs the conclusion that ObamaCare itself was unneeded to decrease healthcare costs.

More importantly, CBO's decline is only for 2014 premium costs - for one year only, and none of the following nine years. As CBO states: "Because the information about premiums and enrollment is still limited, however, CBO and JCT have not adjusted their projections of premiums for years after 2014." The reason is clear from a later section of the report detailing that ACA's additional coverage will "... stimulate greater demand for health care services..."

The problem here is that this demand - in contrast to the earlier conjectured increase in demand for low wage workers - is a long-term one, made possible by government subsidies.

Here lies the overriding problem apparent in CBO's report. It identifies three serious problems based on long-term concerns. Its single significant positive re-estimation, the decline in premiums, is a short-term one.

These long-term re-estimations, while seemingly nominally small, threaten great effect over time. Ask the unsubsidized worker just above the subsidy line what effect a 1 percent earnings reduction of $468 will have year after year.

Nor have these re-estimations been small, as ObamaCare's defenders claim. The aggregate earnings reduction doubled from 0.5 percent to 1 percent. The decrease in employment tripled: "Previously, the agency estimated that if the ACA did not affect the average number of hours worked per employed person, it would reduce household employment in 2021 by about 800,000. By way of comparison, CBO's current estimate for 2021 is a reduction in full-time equivalent employment of about 2.3 million."

Just three and a half years removed, CBO has dramatically increased its long-term negative impacts to three fundamental areas: employment, earnings, and employer-provided health insurance. All this for a law that has not really had an impact...yet. Facing these long-term concerns, its apologists can only offer short-term rebuttals.

 

J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004, and as a congressional staff member from 1987 to 2000. 

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