Monday, December 7, 2015

CBO Estimates ACA To Reduce Labor Force Participation By 2 Million Full-Time Equivalent Workers By 2025

From Congressional Budget Office, "How CBO Estimates the Effects of the Affordable Care Act on the Labor Market: Working Paper 2015-09" by Edward Harris, Tax Analysis Division, Congressional Budget Office and Shannon Mok, Tax Analysis Division, Congressional Budget Office:
CBO’s current estimate of the ACA’s effect on the labor supply in 2025 is the sum of several components
(see Table 1) [Table omitted.]:
  • Health insurance coverage expansions—comprising exchange subsidies, rules governing health insurance, and an expansion of the Medicaid program—are together expected to reduce the labor supply by 0.65 percentage points.

  • The HI surtax is expected to reduce the labor supply by 0.12 percentage points.

  • Other major provisions—a penalty on larger employers that do not offer insurance coverage, an excise tax on certain high-premium insurance plans, and a penalty on certain individuals who do not obtain coverage—are together expected to reduce the labor supply by 0.10 percentage point.
The projected reduction in the labor supply would occur in several ways. Some people would choose to work fewer hours; others would leave the labor force entirely or remain unemployed for longer than they otherwise would. CBO did not split its estimate of the overall reduction into the reduction in the number of hours worked and the reduction in labor force participation, because in formulating its estimate, the agency generally relied on labor supply elasticities (which measure the change in the labor supply resulting from a change in tax rates) that combined those two decisions. CBO did, however, translate the reduction in the labor supply into an effect on full-time-equivalent employment. The labor force is projected to be about 2 million full-time-equivalent workers smaller in 2025 than it would have been otherwise. [Emphasis added.]

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