Save American Workers Act of 2014

Floor Speech

BREAK IN TRANSCRIPT

Mr. McDERMOTT. Madam Speaker, I yield myself such time as I may consume.

Madam Speaker, on a rainy September day in 2008, a constituent of mine named Ingrid was badly injured after a terrible fall in her home. She was rushed to the emergency room, where she was cared for and her life was spared, yet Ingrid came out of that experience stuck with a $23,000 hospital bill because she couldn't afford to have health insurance. A few months later, Ingrid was forced to sell her home to pay off that enormous hospital bill.

Today, on a rainy day in April of 2014, there is a different story to tell. It is a rainy day in Seattle, not here. It is the story of the Affordable Care Act, the story of 7.1 million mothers and sons, fathers and daughters, who have a newfound sense of health security and peace of mind.

That is 7.1 million honest, hardworking Americans, in addition to the 2 million young adults who are protected by staying on their parents' plan, in addition to the millions more who are now covered through the Children's Health Insurance Program and Medicaid expansion. One of them is Ingrid.

Ingrid's life is vastly different now from what it was in 2008. She still is one of the hardest working people her friends and neighbors have ever met. She still loves the outdoors and drives a pickup truck, but today, she is happy, healthy, and covered because of the ACA.

So as this Chamber, for the 52nd time, considers a radical and extremist Republican bill to kill the Affordable Care Act, I stand with millions of people who have been covered because of the ACA and the millions who still need health security. I stand in opposition to the idea that this Nation is incapable of guaranteeing health security for all its citizens.

Republicans have no plan to cover the American people. Speaker Boehner earlier this week would not commit to releasing a Republican plan until after the election. How transparent can you be? Proof that this is political.

So the introduction of this bill is simply surrender in the face of the health care crisis in America. How else can you explain the Republicans' introduction of a bill that cancels the health insurance policies of 1 million Americans? That sounds like surrender to me.

How else can you explain a bill that raises the deficit by $75 billion? More surrender.

How else can you explain a bill that puts five times the number of American workers at risk of losing hours at work? How else do you explain a bill that does anything but dare employers to slash work hours for workers in order to avoid the responsibility to offer health insurance coverage?

How can they say this bill solves a problem of employers cutting hours and refusing benefits when it really only makes it worse?

It is unconditional surrender by the Republicans, pure and simple, to force yet another vote on a bill that has no chance of becoming law. There isn't one chance in a million.

One thing I learned in medicine was you never say never, but this is one time I can say it. It will never, ever pass the Congress. It is a bill crafted purely to appeal to the Koch brothers and the producers of FOX News, rather than forged to protect honest Americans like Ingrid.

The latest Republican bill also denies a confirmed truth; the ACA is succeeding in its primary mission to expand access to quality health care for each and every American.

So make no mistake. I have got news for you. The ACA is not going away. It is not going away. It is here to stay.

The mission before the Congress now should be--in fact, must be--to move forward to further implement the ACA and to improve the law, where needed.

I talked to Bill Frist about a year ago, former Republican leader of the Senate. He said: Don't repeal; fix.

That is what we ought to be about doing--but we are not doing that--in order to guarantee not just access for each and every American, but to lower health care costs across the board; yet this rather perverse bill raises health care costs for everyone by increasing the number of uninsured. That is surrender, pure and simple surrender.

It is surrendering to an idea that our Nation is no longer capable of accomplishing great things and surrendering to the idea that America, the richest and the most advanced country on the Earth, can't guarantee that its citizens won't lose their homes when they get sick. That is what you are admitting by this bill.

You are saying they have to choose between food on the breakfast table instead of medicine on their bedside table. That, in my view, is a situation that has no explanation, other than the fact that you have surrendered. You have given up the idea that America can take care of its own people.

It was a choice that Ingrid once had to make, but she will never have to make again. That is what is true about the ACA. She has health care coverage. That is what is right about the ACA, and this bill under consideration, H.R. 2575, has nothing to do with what is either true or right.

I urge my colleagues to vote ``no,'' and I reserve the balance of my time.

BREAK IN TRANSCRIPT

Mr. McDERMOTT. Madam Speaker, I yield myself such time as I may consume.

A little history might be helpful here. There was a time in this country where people worked 60 hours a week, 7 days a week, 6 days a week. The only reason we have a 40-hour week at all were labor unions who went out and struck and forced the process to get a 40-hour workweek.

They also were the ones who created the health care system in this country after the Second World War. People didn't have health insurance prior to that. When the President said, we can't have an increase in wages, that we can't have an increase in benefits, that prices can't go up, the labor unions said, well, let's have something called a benefits package.

The benefits package that was created in the middle forties included health care and pensions. It came from the union movement. They are the ones that stood in the rain and the sleet and the snow on the picket lines to get these changes.

Now, we have a law that comes in and says, let's deal with everybody in this country, and the judgment of this Congress was that an employer had the responsibility to provide health insurance for his or her employees if they worked 30 hours a week. That was considered full time.

It doesn't change the other laws, the labor laws or any of the other things. It is for the purpose of this act that employers must consider their people full time if they work 30 hours.

Now, if employers don't care, if they say, well, let me figure out how I can cheat my people out of any benefits, I am going to drop them down to 29 hours--well, you know, there are people like that. But the law says, if do you that, then you have to pay a penalty for everybody you didn't cover.

So we tried in every way possible to make it possible to give people flexibility. But this law will not work, according to the American Enterprise Institute, without a mandate that everybody be covered.

We are not changing the labor law. We are not changing overtime rules. We are not changing any of that stuff. We are saying, for the purpose of this law, an employer must cover anybody who works 30 hours. And if they don't care about their employees, if they run a restaurant, and they don't want their employees to be healthy, knock them all down to 29 hours, and let them come in sick. Then you have got a restaurant where you are going to eat lunch, and the employees haven't been able to see a doctor. That is what you are asking for.

We are saying everybody in this country ought to have health insurance, and they ought to have the access to go to a doctor when they need it. So this business about we are somehow destroying the work ethic in this country and all that kind of nonsense is simply nonsense. That is not what this is about. This is about another way to destroy the act. And you know it. We know it. And the world should understand that this is the 52nd attempt to repeal the law, to undermine it so it will not work. I urge people to vote ``no.''

I reserve the balance of my time.

BREAK IN TRANSCRIPT

Mr. McDERMOTT. Madam Speaker, I yield myself 30 seconds to point out to my colleagues that CBO did not say people would lose their jobs. They said because they have health care, they no longer have to stay in the job that they have, and they will be able to stay home or do something else, and that will reduce the number of hours of work. They did not say the bill cuts them out or knocks them out of work.

Madam Speaker, I yield 2 minutes to the gentleman from Virginia (Mr. Connolly).

BREAK IN TRANSCRIPT

Mr. McDERMOTT. Mr. Speaker, I yield myself such time as I may consume.

My colleagues out here today have really had a good time telling personal stories, so I have got a few of them for them.

Last week, the distinguished Senator from Texas, Senator Cruz, put a poll up on his Facebook, asking if people are better off under the law. The responses were not what he expected. The overwhelming number of responses--he got nearly 56,000 responses--were in support of the ACA. If you look at it online, of the most recent 100 comments, there are just two that appear more negative than positive, so that is 2 percent that are against it.

One of them said:

Not only am I better off now, but I have friends who are better off, too.

The second one said:

Yes. I have MS, and I lost my job, and I wasn't able to get any other insurance because of my preexisting condition. Thank you, President Obama.

Another one said:

This Nation is better off for helping people avoid the devastation that poor health can bring. Thank you, ACA.

I reserve the balance of my time.

BREAK IN TRANSCRIPT

Mr. McDERMOTT. Mr. Speaker, I yield myself such time as I may consume.

It is an old political tactic to use confusion. We have watched for almost 4 years the Republican Party try to confuse the American people about the Affordable Care Act. It was the worst thing that was ever going to happen on the face of the Earth. We would have storms, hurricanes, unemployment, wars, and famines, all because of the Affordable Care Act.

Well, we are up here today with yet another attempt to confuse people about the 40-hour workweek and whether or not we are going to cause people to lose their jobs.

On page 125 of the CBO report on the budget outlook for 2004 to 2024, it says:

In CBO's judgment, there is no compelling evidence that part-time employment has increased as a result of the ACA.

Everything you have learned out here about losing jobs is not true. There is nothing in the law that says people have to shorten the workweek.

I don't know if anybody on the other side understands the free enterprise system. Businesses are run by entrepreneurs who decide what kind of product they are going to produce. They hire people to do that. They decide the hours. They decide the pay. They decide everything.

You keep saying that ObamaCare came in and it is forcing these entrepreneurs in America to cut their employees' wages and hours. There is no such thing in the law. That is not true.

In fact, my colleague from Washington State (Mr. Reichert) just said, Mr. Speaker, that people's hours were already being cut before ObamaCare.

It is not ObamaCare that decides how much somebody works. It is the person who runs the company. If he doesn't care about his employees and doesn't want to give them health care, that is one thing. There are people like that, but there are a lot of people who would like to give health insurance to their people, and we are trying to help them do that with the subsidies in this bill.

Let me come to one other issue, and that is this whole question of women.

I have flown back and forth across the country every week, 35 flights a year, for 25 years, and I know most of the flight attendants on United Airlines between Seattle and Washington, D.C.

I can't tell you how many of those women are working because they get health care benefits. Their husband has a job, but has no benefits, and if they don't have their job, they simply won't have health care in their family.

United Airlines has been through two bankruptcies. They have lost pay increases. They have lost their pension rights. The only thing they have left is that health care benefit, and that is what is holding the family together.

I am sort of interested to watch what happens to the older flight attendants I know, to see whether they leave flying, because they would like to. Their husband has a job, but before, he couldn't get health insurance, and now, he can under the Affordable Care Act, and they can quit working.

When the CBO talks about people working less, it is because the job lock is gone. People are not locked into their jobs because of the fact that they can't get health insurance anyplace else. It makes it available for any American.

The fact is that the cuts you are seeing--if you see employers that are going to take people down from 40 hours a week to 39 so that they can avoid giving benefits, take a look at the morals. I wonder if that person goes to church and talks about how they take care of the poor and the weak and the sick and all the rest.

No, no. You can't have it both ways. You cannot cut your people down 1 hour just to get out of giving them benefits, and that is what you are suggesting is going to go on in this country.

I don't think that badly of owners of businesses myself. Now, there may be some people out there looking for a way to get around the law, but this law doesn't make anybody do anything, and this law is going to create more problems.

You hear 1 million people are going to lose their health care benefits, and that is not good. This whole idea of continuing to undermine this law by confusing the American people, and making them think it bad isn't working. 1.7 million joined.

Labor Market Effects of the Affordable Care Act: Updated Estimates

OVERVIEW

The baseline economic projections developed by the Congressional Budget Office (CBO) incorporate the agency's estimates of the future effects of federal policies under current law. The agency updates those projections regularly to account for new information and analysis regarding federal fiscal policies and many other influences on the economy. In preparing economic projections for the February 2014 baseline, CBO has updated its estimates of the effects of the Affordable Care Act (ACA) on labor markets.

The ACA includes a range of provisions that will take full effect over the next several years and that will influence the supply of and demand for labor through various channels. For example, some provisions will raise effective tax rates on earnings from labor and thus will reduce the amount of labor that some workers choose to supply. In particular, the health insurance subsidies that the act provides to some people will be phased out as their income rises--creating an implicit tax on additional earnings--whereas for other people, the act imposes higher taxes on labor income directly. The ACA also will exert conflicting pressures on the quantity of labor that employers demand, primarily during the next few years.

HOW MUCH WILL THE ACA REDUCE EMPLOYMENT IN THE LONGER TERM?

The ACA's largest impact on labor markets will probably occur after 2016, once its major provisions have taken full effect and overall economic output nears its maximum sustainable level. 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. Because the largest declines in labor supply will probably occur among lower-wage workers, the reduction in aggregate compensation (wages, salaries, and fringe benefits) and the impact on the overall economy will be proportionally smaller than the reduction in hours worked. 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. Although such effects are likely to continue after 2024 (the end of the current 10-year budget window), CBO has not estimated their magnitude or duration over a longer period.

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. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA. The decline in full-time-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours; however, CBO has not tried to quantify those two components of the overall effect. The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses' demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week).

CBO's estimate that the ACA will reduce employment reflects some of the inherent trade-offs involved in designing such legislation. Subsidies that help lower-income people purchase an expensive product like health insurance must be relatively large to encourage a significant proportion of eligible people to enroll. If those subsidies are phased out with rising income in order to limit their total costs, the phaseout effectively raises people's marginal tax rates (the tax rates applying to their last dollar of income), thus discouraging work. In addition, if the subsidies are financed at least in part by higher taxes, those taxes will further discourage work or create other economic distortions, depending on how the taxes are designed. Alternatively, if subsidies are not phased out or eliminated with rising income, then the increase in taxes required to finance the subsidies would be much larger.

CBO's estimate of the ACA's impact on labor markets is subject to substantial uncertainty, which arises in part because many of the ACA's provisions have never been implemented on such a broad scale and in part because available estimates of many key responses vary considerably. CBO seeks to provide estimates that lie in the middle of the distribution of potential outcomes, but the actual effects could differ notably from those estimates. For example, if fewer people obtain subsidized insurance coverage through exchanges than CBO expects, then the effects of the ACA on employment would be smaller than CBO estimates in this report. Alternatively, if more people obtain subsidized coverage through exchanges, then the impact on the labor market would be larger.

WHY WILL THOSE REDUCTIONS BE SMALLER IN THE SHORT TERM?

CBO estimates that the ACA will cause smaller declines in employment over the 2014--2016 period than in later years, for three reasons. First, fewer people will receive subsidies through health insurance exchanges in that period, so fewer people will face the implicit tax that results when higher earnings reduce those subsidies. Second, CBO expects the unemployment rate to remain higher than normal over the next few years, so more people will be applying for each available job--meaning that if some people seek to work less, other applicants will be readily available to fill those positions and the overall effect on employment will be muted. Third, the ACA's subsidies for health insurance will both stimulate demand for health care services and allow low-income households to redirect some of the funds that they would have spent on that care toward the purchase of other goods and services--thereby increasing overall demand. That increase in overall demand while the economy remains somewhat weak will induce some employers to hire more workers or to increase the hours of current employees during that period.

WHY DOES CBO ESTIMATE LARGER REDUCTIONS THAN IT DID IN 2010?

In 2010, CBO estimated that the ACA, on net, would reduce the amount of labor used in the economy by roughly half a percent--primarily by reducing the amount of labor that workers choose to supply. That measure of labor use was calculated in dollar terms, representing the approximate change in aggregate labor compensation that would result. Hence, that estimate can be compared with the roughly 1 percent reduction in aggregate compensation that CBO now estimates to result from the act. There are several reasons for that difference: CBO has now incorporated into its analysis additional channels through which the ACA will affect labor supply, reviewed new research about those effects, and revised upward its estimates of the responsiveness of labor supply to changes in tax rates.

EFFECTS ON RETIREMENT DECISIONS AND DISABLED WORKERS

Changes to the health insurance market under the ACA, including provisions that prohibit insurers from denying coverage to people with preexisting conditions and those that restrict variability in premiums on the basis of age or health status, will lower the cost of health insurance plans offered to older workers outside the workplace. As a result, some will choose to retire earlier than they otherwise would--another channel through which the ACA will reduce the supply of labor.

The new insurance rules and wider availability of subsidies also could affect the employment decisions of people with disabilities, but the net impact on their labor supply is not clear. In the absence of the ACA, some workers with disabilities would leave the workforce to enroll in such programs as Disability Insurance (DI) or Supplemental Security Income (SSI) and receive subsidized health insurance. (SSI enrollees also receive Medicaid; DI enrollees become eligible for Medicare after a two-year waiting period.) Under the ACA, however, they could be eligible for subsidized health insurance offered through the exchanges, and they cannot be denied coverage or charged higher premiums because of health problems. As a result, some disabled workers who would otherwise have been out of the workforce might stay employed or seek employment. At the same time, those subsidies and new insurance rules might lead other disabled workers to leave the workforce earlier than they otherwise would. Unlike DI applicants who are ineligible for SSI, they would not have to wait two years before they received the ACA's Medicaid benefits or exchange subsidies--making it more attractive to leave the labor force and apply for DI.

POSSIBLE EFFECTS ON LABOR SUPPLY THROUGH PRODUCTIVITY

In addition to the effects discussed above, the ACA could shape the labor market or the operations of the health sector in ways that affect labor productivity. For example, to the extent that increases in insurance coverage lead to improved health among workers, labor productivity could be enhanced. In addition, the ACA could influence labor productivity indirectly by making it easier for some employees to obtain health insurance outside the workplace and thereby prompting those workers to take jobs that better match their skills, regardless of whether those jobs offered employment-based insurance.

Some employers, however, might invest less in their workers--by reducing training, for example--if the turnover of employees increased because their health insurance was no longer tied so closely to their jobs. Furthermore, productivity could be reduced if

businesses shifted toward hiring more part-time employees to avoid paying the employer penalty and if part-time workers operated less efficiently than full-time workers did. (If the dollar loss in productivity exceeded the cost of the employer penalty, however, businesses might not shift toward hiring more part-time employees.)

Whether any of those changes would have a noticeable influence on overall economic productivity, however, is not clear. Moreover, those changes are difficult to quantify and they influence labor productivity in opposing directions. As a result, their effects are not incorporated into CBO's estimates of the effects of the ACA on the labor market.

Some recent analyses also have suggested that the ACA will lead to higher productivity in the health care sector--in particular, by avoiding costs for low-value health care services--and thus to slower growth in health care costs under employment-based health plans. Slower growth in those costs would effectively increase workers' compensation, making work more attractive. Those effects could increase the supply of labor (and could increase the demand for labor in the near term, if some of the savings were not immediately passed on to workers).

Whether the ACA already has or will reduce health care costs in the private sector, however, is hard to determine. The ACA's reductions in payment rates to hospitals and other providers have slowed the growth of Medicare spending (compared with projections under prior law) and thus contributed to the slow rate of overall cost growth in health care since the law's enactment. Private health care costs (as well as national health expenditures) have grown more slowly in recent years as well, but analysts differ about the shares of that slowdown that can be attributed to the deep recession and weak recovery, to provisions of the ACA, and to other changes within the health sector. Moreover, the overall influence of the ACA on the cost of employment-based coverage is difficult to predict--in part because some provisions could either increase or decrease private-sector spending on health care and in part because many provisions have not yet been fully implemented or evaluated. Consequently, CBO has not attributed to the ACA any employment effects stemming from slower growth of premiums in the private sector.

EFFECTS OF THE ACA ON THE DEMAND FOR LABOR

The ACA also will affect employers' demand for workers, mostly over the next few years, both by increasing labor costs through the employer penalty (which will reduce labor demand) and by boosting overall demand for goods and services (which will increase labor demand).

EFFECTS OF THE EMPLOYER PENALTY ON THE DEMAND FOR LABOR

Beginning in 2015, employers of 50 or more full-time equivalent workers that do not offer health insurance (or that offer health insurance that does not meet certain criteria) will generally pay a penalty. That penalty will initially reduce employers' demand for labor and thereby tend to lower employment. Over time, CBO expects, the penalty will be borne primarily by workers in the form of reduced wages or other compensation, at which point the penalty will have little effect on labor demand but will reduce labor supply and will lower employment slightly through that channel.

Businesses face two constraints, however, in seeking to shift the costs of the penalty to workers. First, there is considerable evidence that employers refrain from cutting their employees' wages, even when unemployment is high (a phenomenon sometimes referred to as sticky wages). For that reason, some employers might leave wages unchanged and instead employ a smaller workforce. That effect will probably dissipate entirely over several years for most workers because companies that face the penalty can restrain wage growth until workers have absorbed the cost of the penalty--thus gradually eliminating the negative effect on labor demand that comes from sticky wages.

A second and more durable constraint is that businesses generally cannot reduce workers' wages below the statutory minimum wage. As a result, some employers will respond to the penalty by hiring fewer people at or just above the minimum wage--an effect that would be similar to the impact of raising the minimum wage for those companies' employees. Over time, as worker productivity rises and inflation erodes the value of the minimum wage, that effect is projected to decline because wages for fewer jobs will be constrained by the minimum wage. The effect will not disappear completely over the next 10 years, however, because some wages are still projected to be constrained (that is, wages for some jobs will be at or just above the minimum wage).

Businesses also may respond to the employer penalty by seeking to reduce or limit their full-time staffing and to hire more part-time employees. Those responses might occur because the employer penalty will apply only to businesses with 50 or more full-time-equivalent employees, and employers will be charged only for each full-time employee (not counting the first 30 employees). People are generally considered full time under the ACA if they work 30 hours or more per week, on average, so employers have an incentive, for example, to shift from hiring a single 40-hour, full-time employee to hiring two, 20-hour part-time employees to avoid bearing the costs of the penalty.

Such a change might or might not, on its own, reduce the total number of hours worked. In the example just offered, the total amount of work is unaffected by the changes. Moreover, adjustments of that sort can take time and be quite costly--in particular, because of the time and costs that arise in dismissing full-time workers (which may involve the loss of workers with valuable job-specific skills); the time and costs associated with hiring new part-time workers (including the effort spent on interviewing and training); and, perhaps most important, the time and costs of changing work processes to accommodate a larger number of employees working shorter and different schedules. The extent to which people would be willing to work at more than one part-time job instead of a single full-time job is unclear as well; although hourly wages for full-time jobs might be lower than those for part-time jobs (once wages adjust to the penalty), workers also would incur additional costs associated with holding more than one job at a time.

In CBO's judgment, there is no compelling evidence that part-time employment has increased as a result of the ACA. On the one hand, there have been anecdotal reports of firms responding to the employer penalty by limiting workers' hours, and the share of workers in part-time jobs has declined relatively slowly since the end of the recent recession. On the other hand, the share of workers in part-time jobs generally declines slowly after recessions, so whether that share would have declined more quickly during the past few years in the absence of the ACA is difficult to determine. In any event, because the employer penalty will not take effect until 2015, the current lack of direct evidence may not be very informative about the ultimate effects of the ACA.

More generally, some employers have expressed doubts about whether and how the provisions of the ACA will unfold. Uncertainty in several areas--including the timing and sequence of policy changes and implementation procedures and their effects on health insurance premiums and workers' demand for health insurance--probably has encouraged some employers to delay hiring. However, those effects are difficult to quantify separately from other developments in the labor market, and possible effects on the demand for labor through such channels have not been incorporated into CBO's estimates of the ACA's impact.

EFFECTS OF CHANGES IN THE DEMAND FOR GOODS AND SERVICES ON THE DEMAND FOR LABOR

CBO estimates that, over the next few years, the various provisions of the ACA that affect federal revenues and outlays will increase demand for goods and services, on net. Most important, the expansion of Medicaid coverage and the provision of exchange subsidies (and the resulting rise in health insurance coverage) will not only stimulate greater demand for health care services but also allow lower-income households that gain subsidized coverage to increase their spending on other goods and services--thereby raising overall demand in the economy. A partial offset will come from the increased taxes and reductions in Medicare's payments to health care providers that are included in the ACA to offset the costs of the coverage expansion.

On balance, CBO estimates that the ACA will boost overall demand for goods and services over the next few years because the people who will benefit from the expansion of Medicaid and from access to the exchange subsidies are predominantly in lower-income households and thus are likely to spend a considerable fraction of their additional resources on goods and services--whereas people who will pay the higher taxes are predominantly in higher-income households and are likely to change their spending to a lesser degree. Similarly, reduced payments under Medicare to hospitals and other providers will lessen their income or profits, but those changes are likely to decrease demand by a relatively small amount.

The net increase in demand for goods and services will in turn boost demand for labor over the next few years, CBO estimates. Those effects on labor demand tend to be especially strong under conditions such as those now prevailing in the United States, where output is so far below its maximum sustainable level that the Federal Reserve has kept short-term interest rates near zero for several years and probably would not adjust those rates to offset the effects of changes in federal spending and taxes. Over time, however, those effects are expected to dissipate as overall economic output moves back toward its maximum sustainable level.

WHY SHORT-TERM EFFECTS WILL BE SMALLER THAN LONGER-TERM EFFECTS

CBO estimates that the reduction in the use of labor that is attributable to the ACA will be smaller between 2014 and 2016 than it will be between 2017 and 2024. That difference is a result of three factors in particular--two that reflect smaller negative effects on the supply of labor and one that reflects a more positive effect on the demand for labor:

The number of people who will receive exchange subsidies--and who thus will face an implicit tax from the phaseout of those subsidies that discourages them from working--will be smaller initially than it will be in later years. The number of enrollees (workers and their dependents) purchasing their own coverage through the exchanges is projected to rise from about 6 million in 2014 to about 25 million in 2017 and later years, and most of those enrollees will receive subsidies. Although the number of people who will be eligible for exchange subsidies is similar from year to year, workers who are eligible but do not enroll may either be unaware of their eligibility or be unaffected by it and thus are unlikely to change their supply of labor in response to the availability of those subsidies.

CBO anticipates that the unemployment rate will remain high for the next few years. If changes in incentives lead some workers to reduce the amount of hours they want to work or to leave the labor force altogether, many unemployed workers will be available to take those jobs--so the effect on overall employment of reductions in labor supply will be greatly dampened.

The expanded federal subsidies for health insurance will stimulate demand for goods and services, and that effect will mostly occur over the next few years. That increase in demand will induce some employers to hire more workers or to increase their employees' hours during that period.

CBO anticipates that output will return nearly to its maximum sustainable level in 2017 (see Chapter 2). Once that occurs, the net decline in the amount of labor that workers choose to supply because of the ACA will be fully reflected in a decline in total employment and hours worked relative to what would otherwise occur.

DIFFERENCES FROM CBO'S PREVIOUS ESTIMATES OF THE ACA'S EFFECTS ON LABOR MARKETS

CBO's estimate that the ACA will reduce aggregate labor compensation in the economy by about 1 percent over the 2017-2024 period--compared with what would have occurred in the absence of the act--is substantially larger than the estimate the agency issued in August 2010. At that time, CBO estimated that, once it was fully implemented, the ACA would reduce the use of labor by about one-half of a percent. That measure of labor use was calculated in dollar terms, representing the change in aggregate labor compensation that would result. Thus it can be compared with the reduction in aggregate compensation that CBO now estimates to result from the act (rather than with the projected decline in the number of hours worked).

The increase in that estimate primarily reflects three factors:

The revised estimate is based on a more detailed analysis of the ACA that incorporates additional channels through which that law will affect labor supply. In particular, CBO's 2010 estimate did not include an effect on labor supply from the employer penalty and the resulting reduction in wages (as the costs of that penalty are passed on to workers), and it did not include an effect from encouraging part-year workers to delay returning to work in order to retain their insurance subsidies.

CBO has analyzed the findings of several studies published since 2010 concerning the impact of provisions of the ACA (or similar policy initiatives) on labor markets. In particular, studies of past expansions or contractions in Medicaid eligibility for childless adults have pointed to a larger effect on labor supply than CBO had estimated previously.

BREAK IN TRANSCRIPT

Source