Health care - work less to get more coverage

Unless you spend a lot of time on federal lands or you are directly impacted by water rights in California, this week’s legislative activity probably isn’t going to be all that interesting to you.

So, in lieu of rehashing all of the technical amendments and details of the most recent floor activity, I wanted to try to use this week’s letter to explain the stir caused by the latest economic projections related to the President’s healthcare law.

Earlier this week, many of you probably saw a flurry of headlines regarding a new report from the Congressional Budget Office (CBO) citing “2.5 million jobs lost as a result of the Affordable Care Act” or something to that effect.

The Democrats promptly responded by saying that the report doesn’t indicate that people are going to lose jobs.  It’s actually a lot more complicated than that, and I wanted to try to explain what the report actually says.

So here’ goes…

CBO Report

To start with, the quote in question (below) is from page 117 of CBO’s new report under the heading,  “Labor Market Effects of the Affordable Care Act:  Updated Estimates”:

“CBO estimates 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.”

Some news outlets and commentators took that to mean that 2.5 million people will lose their jobs as a result of the healthcare law.  That’s not what CBO is saying.  CBO is saying that people will choose to work less hours… a lot less hours.  So many hours, in fact, that it is the equivalent of two and a half million full-time jobs.

In a nutshell, because of the certain mix of tax increases and subsidies, many workers will decide it is in their financial interest to work less.

Say what…?

This actually happens a lot in government programs where well-meaning provisions end up creating a perverse incentive for people…  In layman’s terms (which I prefer), the government’s perverse incentive structure is paying some people not to go to work at all or to select a job with fewer hours and less benefits.  Or conversely, the government’s incentives create a situation where it behooves a CEO in certain situations to cut his or her employee’s hours or perhaps stop offering health coverage all together.

So how and why does this happen?  There is a simple truth about government policy (at any level)…  tax something and you will get less of it.  Subsidize something and you will get more of it.

In this country, we tax work, we tax savings, and we tax investment.  In short, we tax all of the things that we want people to do more of.  We even have disincentives in the tax code for getting married (more on that in a second).

On the opposite side of the ledger, our policies tend to subsidize (whether we explicitly intend to or not) staying home, working less, spending more, borrowing more and so on.  All of the things we want less of.  It’s easy to understand how it got that way, but that doesn’t make it right.

You might also find this opinion piece informative.

Richard Nugent,
Member of Congress, 11th Congressional District