Obamacare: The Hits Keep On Coming

Obamacare and employment are not a match made in Heaven:

A historically high number of people will be locked out of the workforce by 2021, according to a report by the Congressional Budget Office released Tuesday.

President Barack Obama‘s signature health-care law will contribute to this phenomenon, the CBO said, citing new estimates that the Affordable Care Act will cause a larger-than-expected reduction in working hours—eliminating the equivalent of about 2.3 million workers in 2021.

In 2011, the CBO estimated the law would cause a reduction of about 800,000 full-time equivalent workers.

“CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 to 2 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,” said the report.

“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,” it added.

The White House claims that the CBO report does not show that there will be a reduction in employment, but of course, given the above, such claims are ridiculous. This is one of those rare times when Dana Milbank gets things right:

The congressional number-crunchers, perhaps the capital’s closest thing to a neutral referee, came out with a new report Tuesday, and it wasn’t pretty for Obamacare. The CBO predicted the law would have a “substantially larger” impact on the labor market than it had previously expected: The law would reduce the workforce in 2021 by the equivalent of 2.3 million full-time workers, well more than the 800,000 originally anticipated. This will inevitably be a drag on economic growth, as more people decide government handouts are more attractive than working more and paying higher taxes.

I suppose that I should note that Darnell Summers is very likely not the only person in America whose work hours were cut because of Obamacare. I thought that we were supposed to care about the down-and-out, but evidently, according to port-side pundits, the problems of people like Mr. Summers don’t amount to a hill of beans.

There is other bad Obamacare-related news as well:

After overcoming website glitches and long waits to get Obamacare, some patients are now running into frustrating new roadblocks at the doctor’s office.

A month into the most sweeping changes to healthcare in half a century, people are having trouble finding doctors at all, getting faulty information on which ones are covered and receiving little help from insurers swamped by new business.

Experts have warned for months that the logjam was inevitable. But the extent of the problems is taking by surprise many patients — and even doctors — as frustrations mount.

Aliso Viejo resident Danielle Nelson said Anthem Blue Cross promised half a dozen times that her oncologists would be covered under her new policy. She was diagnosed last year with non-Hodgkin’s lymphoma and discovered a suspicious lump near her jaw in early January.

But when she went to her oncologist’s office, she promptly encountered a bright orange sign saying that Covered California plans are not accepted.

“I’m a complete fan of the Affordable Care Act, but now I can’t sleep at night,” Nelson said. “I can’t imagine this is how President Obama wanted it to happen.”

Maybe it isn’t, but as the Obamacare rollout fiasco reinforces, good intentions are not enough when considering the effects of a particular piece of legislation. Incidentally, remember that people like Paul Krugman proves that the implementation of Obamacare in California proves that Obamacare will work wonderfully.

UPDATE: I am going to note Glenn Kessler’s argument that the CBO “is examining whether the law increases or decreases incentives for people to work,” and that the CBO is telling us that

some people might decide to work part-time, not full time, in order to keep getting health-care subsidies. Thus, they are reducing their supply of labor to the market. Other people near retirement age might decide they no longer need to hold onto their job just because it provides health insurance, and they also leave the work force.

Look at this way: If someone says they decided to leave their job for personal reasons, most people would not say they “lost” their jobs. They simply decided not to work.

Fine, but if we have people leave the labor force, that will serve as a drag on economic growth. And Kessler admits as much:

. . . Some might believe that the overall impact of the health law on employment is bad because it would be encouraging people — some 2.3 million  – not to work. Indeed, the decline in the workforce participation rate has been of concern to economists, as the baby boom generation leaves the work force, and the health-care law appears to exacerbate that trend.

Additionally, as the case of Darnell Summers shows, we will have people whose hours are cut by employers as a consequence of Obamacare. So when it comes to Obamacare’s impact on employment, there is indeed a great deal to worry about. And given the story above about people in California not being able to receive treatment because Covered California plans are not honored at hospitals–and similar stories concerning doctors and hospitals refusing Obamacare plans–people may think twice about leaving the labor force due to a belief that they no longer need to work in order to hold on to comprehensive health care coverage.

ANOTHER UPDATE: All of this, from Tyler Cowen, is worth reading. But I’ll excerpt some especially good bits:

A lot of Keynesians try to maintain the communication of the feeling (if not the outright statement) that demand-driven employment shocks have very little to do with the choices of workers but that is closer to wrong than right.  (By the way, sarcastic comments about soup kitchens causing the Great Depression belie an understanding of both this argument and of contemporary search models for the labor market.)

OK, given all that, when those workers, hit by negative shocks, do not rush to go back to work at lower reservation wages, we then read a portrait of hysteresis, despair, and soul-crushing joblessness, a psychic swamp so difficult to escape that even summoning up the strength to go back to work may be difficult.

In other words, would-be workers irrationally undervalue the benefits of having a job and they also underestimate the costs of remaining unemployed.

Now let’s switch settings.  A benefit shock comes along, positive for many people, and it induces many of them to work less or not work at all.  How happy should we be?  And here I mean happy at the margin, due to their change in employment decision.

People, it is rather difficult to have it here both ways.  I guess it is possible that workers are irrational in changing their employment decisions in response to changes in relative dollar wage opportunities, but rational when changing their employment decisions in response to changes in relative benefit opportunities.  It really is possible.  But are any of you actually arguing that or holding some deep-seated reason for believing in that difference, other than perhaps the reason this post might have induced you to come up with?  No, I see one assumption about a destructive choice in one context and the opposing assumption about a beneficial choice in the other context, without much regard for the tension or contradiction between those two assumptions.  A lot of you may be subbing in general feelings — “unemployment is terrible,” and “ACA is good,” and simply transferring those general feelings to feelings about the respective marginal changes in employment in each case.  That is a fallacy and dare I say it is a “mood affiliation” fallacy?

And by the way, the distinction between a substitution effect and an income effect is a little tricky in this context.  But providing ACA-subsidized health insurance for non-workers is in general a substitution effect which switches them out of working in a way that, if pro-ACA stories about adverse selection and uninsurability are true, a simple equivalent cash grant would not.

A simpler possibility is that people undervalue the long-term benefits of having a job and thus in both settings the contraction in employment is a quite negative outcome.  That is then very bad news for ACA, if only in expected value terms.

And yes, as Professor Cowen notes, Ross Douthat makes good points:

Here is how I would frame the issue: There are specific classes of people who plainly benefit, in fairly uncomplicated ways, from benefits that provide an incentive to work less, or leave a job outright. The obvious examples are the ones that liberals keep invoking: Parents of young children (for whom the family-friendly tax overhaul that conservative reformers like to tout would presumably have a similar effect), and people with a disability or chronic medical condition that makes work a simple misery.

But there also lots of people who emphatically do not benefit from being given an incentive to either detach from the workforce or (if they’re already unemployed or underemployed) remain detached rather than taking a lower-paying job. And given the current economic landscape, especially — in which persistently high unemployment coexists with a growing population of workers too discouraged to even look for work — the size and scope of a work-discouraging effect matters a great deal: The bigger the effect, the more likely that the people dropping out aren’t just, say, parents cutting hours to spend more time at home while the other spouse works full time, but people we should want to be attached to the workforce, for their own long-term good and the good of the economy as well.

Which is why it’s appropriate that the new C.B.O. projection of 2 million to 2.5 million job-equivalents disappearing has inspired more disquiet and debate than the old projection of 500,000-900,000 … because it’s a sign, however provisional, that the costs of Obamacare’s workforce effects might exceed the benefits. I don’t see liberals reckoning seriously with that possibility, and I think they really should.