CBO forecast for Obamacare: cloudy with a chance of not working

Yesterday’s Congressional Budget Office (CBO) report forecasts that Obamacare will reduce the number of hours in the labor force at a level equivalent to 2.3 million full-time jobs through the next decade.

What does this mean

Due to Obamacare’s $2 trillion in subsidies that will be distributed through heath plans sold on the exchanges to eligible consumers, lower-income employees will have a greater propensity to forego a job that provides health insurance benefits for them and their families.  Instead, the government will provide such individuals with subsidized health plans – which is the same thing as saying that working taxpayers will provide individuals with health care coverage.

Avik Roy of Forbes writes:

 …The new subsidized insurance exchanges will allow low-income workers to work less while maintaining the same effective income: what economists call the income effect. In addition, because the subsidies decline on a sliding scale as you make more money, that sliding scale means that as workers work more, they make less per hour worked: what economists call the substitution effect.

Low-income individuals residing in states that have implemented Obamacare’s optional Medicaid expansion will also contribute to the CBO’s predicted labor force reduction.

Again, Avik:

Several economists, like Harvard’s Kate Baicker, MIT’s Amy Finkelstein, Texas A&M’s Laura Dague, and Northwestern’s Craig Garthwaite have found that rising unemployment is associated with an expansion of Medicaid. “Taking that research into account, CBO estimates that expanded Medicaid eligibility under the ACA will, on balance, reduce incentives to work.” 

Meanwhile, the Foundation for Government Accountability paints a clear picture of how Arkansas’s Medicaid expansion deters low-income individuals from climbing the economic ladder:

Screen Shot 2014-01-22 at 4.39.40 PMThis chart depicts that an individual making just one dollar above the Medicaid expansion eligibility limit faces a significant jump in health care premiums and out-of-pocket costs.   

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