Obamacare could end a brake on the economy

Rep. Paul Ryan (R., Wis.) questions Congressional Budget Office Director Douglas Elmendorf. The CBO set off a furor over the Affordable Care Act's effect on jobs, though the fuss ignores several factors.
Rep. Paul Ryan (R., Wis.) questions Congressional Budget Office Director Douglas Elmendorf. The CBO set off a furor over the Affordable Care Act's effect on jobs, though the fuss ignores several factors. (J. SCOTT APPLEWHITE / AP)
Posted: February 10, 2014

Say you're a 62-year-old man who's ready, willing, and eager to take Social Security's offer of early retirement. There's just one pesky detail. Although you're well-fixed financially, you can't afford hundreds of thousands of dollars in uninsured medical bills. And your wife, a 55-year-old cancer survivor worried about a relapse, can't get insurance.

At least that was so last year, when you were still "job-locked" - stuck by your family's need for insurance in a position you'd be happy to give up, perhaps to a recent college grad struggling to find work. This year, you have an option: Obamacare, which offers access to the equivalent of job-related coverage via the new health-insurance exchanges.

Or say you're in your early 30s, with two young children and a good job with health coverage that your spouse's work does not offer. You'd like to stay home with the kids, but what about insurance? You, too, were job-locked till the Affordable Care Act changed the equation Jan. 1.

Last week, the nonpartisan Congressional Budget Office set off the latest "Obamacare is a job killer" furor by projecting that the law will cut the nation's full-time-equivalent workers by about two million in 2017 - a number already quoted in ads targeting Sen. Kay Hagan (D., N.C.).

Sadly, you can expect more such ads in the months ahead - attacks that exaggerate a real problem caused by the law or that even twist its benefits into something bad. So it's worth considering what the forecast really says - and what it omits.

Since World War II, job-related insurance has been the tail that wags the dog in the U.S. economy. Calls to sever the connection have come from both the right and the left, but Obamacare only tweaked it. The CBO's model attempts to measure a multitude of effects - particularly new incentives or disincentives to work - those tweaks may cause.

One disincentive affecting some people is a potential flaw of any means-tested program: The law's premium subsidies - which limit the cost of a midlevel insurance plan to 9.5 percent of household income - phase out for families at four times the poverty level, about $94,000 for a family of four. With an average family plan costing about $16,000 a year, forgoing work to qualify for a subsidy could be a rational choice for some.

The CBO's bottom line: a reduction in hours worked, "almost entirely because workers will choose to supply less labor," equal to about two million full-time jobs in 2017. It says total compensation will drop about 1 percent since lower-wage workers will be most likely to cut their own hours.

Before you assume this is a sign of somebody else's sloth, remember that Obamacare seeks to fix an even greater distortion in the economy - one that has kept people working when they don't really want their jobs, don't need them for pay, and aren't likely to be especially productive. Freeing a 62-year-old to retire, or a parent to stay home with children, is a feature of the law, not a bug.

"There are people who are truly unhappy in their jobs who are locked there by the failure of our markets, and if we end that, that's a good thing," MIT economist Jon Gruber, who advised the Obama administration during the ACA's crafting, told me last week.

Perhaps more important to the law's ultimate success is what the CBO did not model: the value of finally ending the distortion from linking health insurance to jobs.

Though it has been hard to prove, economists such as Gruber call the logic compelling: Expecting people to get health insurance through work dampens productivity and discourages the kind of risk-taking that's an economic-growth engine.

Each year, about 3 percent of wage or salary earners leave their jobs for self-employment, says Susan Gates, director of the Kauffman-Rand Institute for Entrepreneurship Public Policy. Gates coauthored a 2011 study that estimated that level would rise by a third if insurance weren't linked to employment.

Gates calls it "entrepreneurship lock." In an economy with 145 million workers, that could mean 1.4 million new enterprises a year - some, tomorrow's job creators.

It's a factor the forecasters at the CBO consider too speculative to include in their models, like the productivity gains that could come from a healthier workforce. But finally ending a needless drag on the economy could be one of Obamacare's biggest legacies.


215-854-2776 @jeffgelles


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