“Welcome to the Recovery?” CBO Estimates Health Law Will Discourage Work, Reduce Labor Supply
“This bill is not only about the health security of America. It’s about jobs. In its life it will create 4,000,000 jobs—400,000 jobs almost immediately.”
— Speaker Pelosi, White House health summit, February 2010[i]
“The Congressional Budget Office estimates that the [health care] legislation, on net, will reduce the amount of labor used in the economy.”
— Congressional Budget Office, August 2010 Budget Update[ii]
Two weeks after Treasury Secretary Geithner published a New York Times op-ed entitled “Welcome to the Recovery,”[iii] the Congressional Budget Office (CBO)—Congress’ impartial budgetary scorekeeper—provided yet another example of how the Administration’s damaging policies are undermining its rosy rhetoric. Specifically, the CBO found that the recently passed health care law, by raising the price of labor and giving people strong financial disincentives to work, will reduce the labor supply, thereby exacerbating current economic difficulties:
- The health care law[iv] includes significant expansions of Medicaid, and new health insurance subsidies for low-income Americans. CBO found that these provisions “will encourage some people to work fewer hours or to withdraw from the labor market,” so as to remain eligible for taxpayer-funded insurance subsidies.[v]
- CBO also found that “the phase-out of the [insurance] subsidies as income rises will effectively increase marginal tax rates, which will also discourage work.”[vi] For instance, in 2016 a family of four with income of $95,000 would lose nearly $5,000 in health insurance subsidies by receiving an extra $1,000 of income.[vii] These perverse financial incentives will discourage families from obtaining additional income—whether through a part-time job, overtime, or raises and bonuses—because an extra dollar in wages could result in that family losing more than a dollar’s worth of health insurance subsidies.
- The health care law’s new “tax on jobs”—in the form of penalties on businesses that do not provide “government-approved” insurance for their workers—will punish workers and the economy. CBO found that the penalties “will, over time, generally be passed on to workers through reductions in wages…However, firms generally cannot reduce workers’ wages below the minimum wage, which will probably cause some employers to respond by hiring fewer low-wage workers.”[viii] CBO also concluded that some firms may convert their full-time employees to part-time or seasonal work, further harming economic productivity.[ix]
- In total, CBO estimates that the legislation will have the net effect of reducing the labor supply by about half a percent.[x] As the Bureau of Labor Statistics estimates[xi] that more than 150 million Americans are currently in the labor force, the CBO’s projected reduction in labor supply means that about 750,000 employees will choose to stop working as a result of Democrats’ health “reform.” In an economy with unemployment at historic highs, many would argue that Congress should be enacting policies that encourage work, not discourage work.
Two months after Democrats began trumpeting “Recovery Summer,”[xii] even liberals admit that “this cheery bit of political sloganeering…rings more than a bit false.”[xiii] In a leaked presentation of results from its own surveys, liberal group Families USA admitted that “Many don’t believe health care reform will help the economy.”[xiv]
But it’s not just the American people who don’t believe health care reform will help the economy. The CBO, Congress’ independent budget scorekeeper agrees, and believes that the health care law will provide disincentives to work that will reduce the supply of available American workers. The only question that remains is when Democrats will finally admit that the problem lies not in their messaging on the health care law, but rather in the effects of their damaging policies.
[i] http://www.whitehouse.gov/the-press-office/remarks-president-senator-alexander-speaker-pelosi-and-senator-reid-opening-stateme
[ii] Congressional Budget Office, “The Budget and Economic Outlook: An Update,” August 2010, http://cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf, Box 2-1, Effects of Recent Health Care Legislation on Labor Markets, p. 66
[iii] “Welcome to the Recovery” by Tim Geithner, New York Times August 3, 2010, http://www.nytimes.com/2010/08/03/opinion/03geithner.html
[iv] Patient Protection and Affordable Care Act, P.L. 111-148, text available at http://www.opencongress.org/bill/111-h3590/text; reconciliation amendments (P.L. 111-152) available at http://www.opencongress.org/bill/111-h4872/text.
[v] Congressional Budget Office, “Budget and Economic Outlook,” p. 66
[vi] Ibid.
[vii] Based on a projected federal poverty level in 2016 of $24,000 and an average “Silver” insurance plan premium of $14,100, as estimated by CBO in a letter to Honorable Evan Bayh, November 30, 2009, http://cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf, p. 29. As amended by the reconciliation bill, the health care law would provide insurance subsidies for families and individuals with incomes less than four times the poverty level; those with incomes between three and four times poverty would pay no more than 9.5 percent of their income in premiums. Thus a family of four making $95,000 in 2016 (just below four times the poverty level) would receive a federal subsidy of about $4,980, which would reduce their $14,100 premium costs to 9.5 percent of their income ($9,120). A family with income over $96,000 (four times the poverty level) would receive no federal subsidy at all.
[viii] Ibid., p. 67
[ix] Ibid.
[x] Ibid., p. 66
[xi] “The Employment Situation—July 2010,” Bureau of Labor Statistics release, August 6, 2010, http://www.bls.gov/news.release/archives/empsit_08062010.pdf, Summary Table A, p. 4
[xii] “Obama Hopes ‘Recovery Summer’ Will Warm Voters to the Stimulus” by Michael Cooper, New York Times June 19, 2010, http://www.nytimes.com/2010/06/19/us/19stimulus.html
[xiii] “Can You Think of a BETTER Name for the Obama Administration’s ‘Recovery Summer?’” by Ryan McCarthy, Huffington Post August 16, 2010, http://www.huffingtonpost.com/2010/08/16/rename-the-recovery-summe_n_683733.html
[xiv] “Dems Retreat on Health Care Cost Pitch” by Ben Smith, Politico August 20, 2010, http://dyn.politico.com/printstory.cfm?uuid=8C22DEA6-18FE-70B2-A84E6340EB72163F