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Why many will work less under Obamacare

Evan Soltas.

Feb. 5, 2014

Welcome to Wonkbook, Wonkblog's morning policy news primer by Evan Soltas. Send comments, criticism, or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here.

Wonkbook's Number of the Day: $7.3 trillion. That's how large the Congressional Budget Office forecasts the U.S. federal government's cumulative deficit will be over the coming decade. That estimate is up by $1 trillion, mostly due to a reduction in the CBO's estimate of potential gross domestic product.

Wonkbook's Graphs of the Day: Why the global economy suddenly looks gloomy, in six graphs.

Wonkbook's Top 5 Stories: (1) Obamacare will cut incentive to work; (2) the dismal science strikes back; (3) it's all about existing power plants; (4) immigration reform might not be salvageable; and (5) Snowden's story, as told by the NSA.

1. Top story: Why many will work less under Obamacare

Health-care law will prompt over 2 million to quit jobs or cut hours, a CBO report says. "In its assessment of the law's impact on the job market, the agency had bad news for both political parties. In an implicit rebuke of GOP talking points, the CBO said that there was little evidence the health-care law is affecting employment and that businesses are not expected to significantly reduce head count or hours as a result of the law. But the report also contained a setback for the White House. The CBO predicts that the economy will have the equivalent of 2.3 million fewer full-time workers by 2021 as a result of the law -- nearly three times previous estimates. After obtaining coverage under the health-care law, some workers will choose to forgo employment, the report said, while others will voluntarily reduce their hours." Zachary A. Goldfarb and Amy Goldstein in The Washington Post.

Read: The CBO report.

It's worth quoting some relevant passages directly: "In CBO's view, the ACA's effects on labor supply will stem mainly from the following provisions, roughly in order of importance: The subsidies for health insurance purchased through exchanges; The expansion of eligibility for Medicaid; The penalties on employers that decline to offer insurance; and [t]he new taxes imposed on labor income...CBO's updated estimate of the decrease in hours worked translates to a reduction in full-time-equivalent employment of about 2.0 million in 2017, [2.3 million in 2021,] rising to about 2.5 million in 2024...[P]eople whose employment or hours worked will be most affected by the ACA are expected to have below-average earnings."

Read: The White House's statement on the report.

The good, bad and ugly of CBO's new Obamacare projections. "The Congressional Budget Office is projecting that the federal government will take in $16 billion from health plans that are essentially making a profit on the exchange -- and will redistribute $8 billion to other insurers running a loss. That means $8 billion in net savings for the federal government...This is a pretty significant obstacle for Republican efforts to repeal the risk corridors. Now, any legislation that repeals the so-called "Obamacare bailout" will be scored as increasing the deficit, and need to come with $8 billion in pay-fors to offset the revenue loss." Sarah Kliff in The Washington Post.

@reihan: Intriguing that Obamacare is convincing left-liberals that a female exodus from full-time work is good news.

How Obamacare will raise wages. "If (as CBO predicts) the decline in work is driven almost entirely by a decline in labor supply, the upshot will be very different. Employers will be left holding the bag economically. Workers will choose to work fewer hours; since firms won't be any less interested in hiring, they'll have to pay more per hour to get those workers in the door. The positive wage effect should be concentrated among low-skill workers, who will face the greatest discouragement to work from Obamacare, and therefore will be able to command the greatest wage increases in order to keep working." Josh Barro in Business Insider.

House GOP may try to link debt-ceiling approval to changes to health-care law. "House Republicans were still struggling Tuesday to find consensus on how to handle their upcoming debt-limit negotiations with the White House, but they seem increasingly determined to avoid any kind of dramatic showdown with the president this time...Much of the caucus, however, seemed to be coalescing around the idea of linking a one-year extension of the debt ceiling to another effort to repeal some provisions of the Affordable Care Act. But there was strong support -- even among some of the most conservative members -- for avoiding a dramatic partisan standoff on the debt limit, signaling a break from the combative fiscal politics of the recent past." Robert Costa and Ed O'Keefe in The Washington Post.

Republicans question surgeon general nominee over advocacy for health-care law. "Republican lawmakers questioned President Obama's pick for surgeon general, Vivek Murthy, at a Senate confirmation hearing Tuesday, expressing reservations about the nominee's past roles as an Affordable Care Act advocate and gun-control proponent. Murthy, 36, who would be the first Indian American to become chief U.S. doctor, works at Brigham and Women's Hospital in Boston and is an instructor at Harvard Medical School." Josh Hicks in The Washington Post.

@jonathanweisman: CBO Nos on ObamaCare: will markedly increase insured by about 13 m in 2014, 20 m in 2015, 25 m in each of subsequent years through 2024

IP: The return of the supply side. "The fact that Obamacare has negative supply-side effects is not a new discovery. In 2010, though, the CBO reckoned these effects would be only half as big, and mostly from the expansion of Medicaid. Now, most of the effect comes from subsidies on the health-care exchanges, which shrink and then disappear as income rises. This creates a very high implicit marginal tax rate, and thus a disincentive to work...What is puzzling, however, is to hear the administration and Obamacare's defenders say it's a good thing that Obamacare means fewer people will be working. Of course, by reducing the price of leisure, Obamacare encourages some people to consume more of it, so they must be better off. What is harder to understand is why subsidising leisure should be a goal of public policy." Greg Ip in The Economist.

@JustinWolfers: All this talk about employment effects of the ACA ignores the big one: If it cuts growth in healthcare costs, it lowers labor costs, a lot.

HILTZIK: Why the CBO report is good news. "The CBO projects that the act will reduce the supply of labor, not the availability of jobs...As economist Dean Baker points out, this is, in fact, a beneficial effect of the law, and a sign that it will achieve an important goal. It helps "older workers with serious health conditions who are working now because this is the only way to get health insurance. And (one for the family-values crowd) many young mothers who return to work earlier than they would like because they need health insurance. This is a huge plus." The ACA will reduce the total hours worked by about 1.5% to 2% in 2017 to 2024, the CBO forecasts, "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."" Michael Hiltzik in The Los Angeles Times.

BARRO: How the debate over this report works. "There's been a sort of annoying conversation about the report today, with conservatives saying "see? Obamacare kills jobs," and liberals insisting the reduction in labor supply is a good thing, because it reflects people choosing to work less once they're no longer tied to their jobs for health insurance. The truth is more complicated: The law will reduce work hours through several mechanisms, some of which are desirable and some of which aren't." Josh Barro in Business Insider.

COHN: Who is cutting their hours? "More important, CBO says, most of the people working fewer hours will be choosing to do so. And that's a very different story from the one Obamacare critics are telling. Some of the people cutting back hours will be working parents who decide they can afford to put in a little less time with their co-workers and a little more time with their kids. Some will be early sixty-somethings who will retire before they reach 65, rather than clinging to low-paying jobs just to get health benefits." Jonathan Cohn in The New Republic.

@ByronYork: Some news organizations working hard to transform a 'negative effects of Obamacare' story into a 'Republicans pounce' story.

PORTER: Obamacare's goals face antitrust hurdles. "[I]n a remote courthouse in Idaho, less than two weeks ago a district judge sided with the Federal Trade Commission and ordered the unwinding of the merger between one of the state's biggest hospital systems and its biggest independent network of doctors. The ruling against St. Luke's Health System's 2012 purchase of the Saltzer Medical Group underlined a potentially important conflict between the nation's antimonopoly laws and the Affordable Care Act. The new law has encouraged the creation of big, broad accountable care organizations, which are paid to keep patients healthy rather than for individual services." Eduardo Porter in The New York Times.

Music recommendations interlude: Laura Gibson, "La Grande," 2012.

Top opinion

DALY AND MCELWEE: Drop GDP and adopt a genuine indicator of progress. "Americans have become cognizant of the fact that GDP bears little connection to their well-being, and many states are working together to implement alternative measures that more accurately reflect the progress of human well-being. One such measure is the Genuine Progress Indicator (GPI), which assesses 26 variables related to economic, social, and environmental progress. Economic indicators include inequality and the cost of unemployment. Environmental indicators include the cost of water pollution, air pollution, climate change, wetlands depletion, forest cover change, and non-renewable energy resources. Social indicators include the value of housework, higher education and volunteer work as well as the cost of commuting and crime." Lew Daly and Sean McElwee in The New Republic.

WOLF: If robots divide us, they will conquer. "There are good reasons why people should be disturbed by this. First, the lives of those at the bottom might get worse: the authors note that the life expectancy of an American white woman without a high school diploma fell five years between 1990 and 2008. Second, if income becomes too unequal, opportunities for young people dwindle. Third, the wealthy become indifferent to the fate of the rest. Finally, a vast inequality of power emerges, making a mockery of the ideal of democratic citizenship." Martin Wolf in The Financial Times.

DAYEN: The farm bill, still a handout to farmers. "[T]he farm bill, far from "reforming" the process of well-heeled agribusinesses living off corporate welfare, actually locks that support in place through misdirection. It's easier to denounce a farmer getting paid not to plant their field than to decry an overly generous insurance payout." David Dayen in The New Republic.

EDSALL: Can free trade and democracy get along? "More recently, warnings over the problems of trade negotiations, especially over the lack of transparency, are coming from unexpected quarters. Bhagwati described the procedures governing the TPP negotiations as "ludicrous," noting that the secrecy surrounding the talks makes it difficult for the administration to win critically important congressional approval of voting on the TPP under special ("fast track") rules barring any amendments or filibusters. Joseph Stiglitz - an economist at Columbia and a contributor to these pages - provided a particularly illuminating list of policies that he argues negotiators should explicitly reject" Thomas B. Edsall in The New York Times.

WADE AND VESTERGAARD: The IMF needs a reset. "To unblock the stalemate, the board of governors should agree to amend the fund's constitution to delink the reallocation of quotas and votes from increases in total financial subscriptions. The I.M.F.'s constitution says that a member state can veto any loss of quota and votes. In practice this means that a reallocation can only occur when there is also a large net increase in financial subscriptions. By separating the two issues, the fund could institute a routinized adjustment of voting power as countries' relative economic weight changes, without the changes always being held hostage to governments' willingness to make new capital contributions." Robert H. Wade and Jakob Vestergaard in The New York Times.

Urban policy interlude: Using snow to design safer streets.

2. The dismal science strikes back

CBO: Expect slower growth this decade -- and, as a result, higher deficits. "[T]he CBO now expects federal budget deficits between 2014 and 2023 to be about $7.3 trillion in all, which is $1 trillion larger than the agency predicted they'd be last year...Keep this in mind when you look at the deficit forecasts. Small changes in growth can make big differences in the budget: For example, if the growth of real GDP and taxable income was 0.1 percentage point higher or lower per year than in CBO's baseline projections, revenues would be roughly $270 billion higher or lower over the 2015-2024 period." Brad Plumer in The Washington Post.

Investors switch from optimism to gloom. "A series of sudden, unfavorable events has in just a matter of weeks changed bright optimism about the pace of growth in the global economy this year to a deepening sense of doubt. The warning signs are plentiful: Tumbling stock prices around the world, disappointing economic reports in the U.S. and China, hasty interest-rate increases in major developing countries including Turkey, India and South Africa, and whispers of disappointment in corporate earnings conference calls. They are combining to send a signal that the global economy might not be on the strong footing it appeared to be at the start of 2014. Another closely watched indicator will arrive Friday, when the Labor Department releases its estimate of U.S. job growth in January." Jon Hilsenrath in The Wall Street Journal.

Senate committee likely to hold hearings for Fed nominees in the last week of February. "The U.S. Senate Banking Committee will likely hold a hearing for three Federal Reserve Board nominees in the last week of February, a Senate aide said. The nominees are Stanley Fischer for Fed vice chairman, Lael Brainard to the Fed's board and Jerome Powell, to another term on the board." Nell Henderson in The Wall Street Journal.

Another try at extending unemployment insurance? "Democrats believe they can bolster GOP support for the unemployment bill if they can address the military COLA as well, Democratic aides said. They could attach it as an amendment to the bill or vote on a standalone bill repealing the COLA, perhaps early next week...Democrats are increasingly aware that the COLA issue must be dealt with sooner or later, which could create an opportunity forward on both provisions considering Republicans support for repealing the military COLA changes." Burgess Everett in Politico.

Researchers from the New York Fed try to explain away lower employment. "The study, by two economists at the Federal Reserve Bank of New York, asserts that workforce participation is in long-term decline. If the recession had never happened, or the economy had since returned to complete health, the authors estimate 59.3 percent of adults would have jobs, instead of 58.6 percent...The implication is that, in effect, there were too many jobs before the recession - that the labor market was overheating - and, as a result, that some of the recent losses should be seen as a return to health." Binyamin Appelbaum in The New York Times.

Why you shouldn't get wedded to the idea that marriage can cure poverty. "[E]ven if Washington got rid of all its dumb and ineffective policies to promote marriage and implemented a number of smart ones to do so, it might all be for naught. Some researchers think that marriage -- or a lack thereof -- is not the real problem facing poor parents; being poor is...In an economy that offers so little promise to those at the bottom, family planning in the name of upward mobility doesn't make much sense." Annie Lowrey in The New York Times.

Officials press for quicker action on Fannie Mae and Freddie Mac. "They fear that over time, as the bottom lines of the mortgage-finance giants look increasingly robust and memories of dysfunction in the housing market fade, it will become harder to pass measures strong enough to address the problems that triggered the 2008 government bailout of the troubled firms. White House advisers are pressing the Senate Banking Committee to introduce comprehensive and bipartisan legislation in the coming weeks, giving enough time for the legislation to at least move through the Senate...he upshot is that the next few months could determine whether legislation reaches Mr. Obama's desk before he leaves office in January 2017." Nick Timiraos in The Wall Street Journal.

Small banks face a hit from TARP. "Small banks across the U.S. are facing a crunchtime decision over federal aid received during the financial crisis: repay the funds soon or face a steeper interest-rate bill. While most banks that accepted government funds paid them back long ago, some 80 lenders still owe a total of roughly $2 billion disbursed under the U.S. Treasury's Troubled Asset Relief Program. Under TARP rules, if the banks don't reimburse taxpayers soon, they will face an increase in the quarterly dividend on the amount borrowed from the government. That dividend payment is set to rise to 9% of the loan balance outstanding from 5%, for some banks as early as the end of next week." Saabira Chaudhuri, Michael Rapaport and Alan Zibel in The Wall Street Journal.

Retailers to Congress: There's no end in sight for credit card breaches. "Real change would require all the actors in the payment card system--merchants, banks the issue credit cards and the card networks -- to work together to replace the plastic in our wallets with something more sophisticated, such as a card with a computer chip." Danielle Douglas in The Washington Post.

The Great Recession was terrible. But it did make us smarter. "According to the U.S. Census Bureau, the number of people in the U.S. with doctoral degrees jumped 40 percent between 2008 and 2013, while the number with master's degrees rose 18 percent and the number with associates degrees rose 33 percent - rates of growth faster than in the prior four year period...Among economists and social scientists who study recessions, that result is expected. One rational response to a poor job market or a layoff is to stay in school (or go back to it) and use the time to develop skills that are in demand." Howard Schneider in The Washington Post.

Last Frontier State interlude: Alaska's rape problem.

3. Existing power plants, the next regulatory focus

The EPA is struggling to write a crucial pollution regulation. "In marathon meetings and tense all-day drafting sessions, dozens of lawyers, economists and engineers at the Environmental Protection Agency are struggling to create what is certain to be a divisive but potentially historic centerpiece of President Obama's climate change legacy. If the authors succeed in writing a lawsuit-proof regulation that is effective in cutting carbon emissions from America's 1,500 power plants -- the largest source of the nation's greenhouse gas pollution -- the result could be the most significant action taken by the United States to curb climate change." Coral Davenport in The New York Times.

Government is said to undervalue coal leases. "The federal coal leasing program run by the Bureau of Land Management operates without sufficient oversight or a consistent means of ensuring that fair prices are paid for the leases, a report released on Tuesday said. The report, compiled by the Government Accountability Office, focused largely on the Mountain West, where coal companies have leased land from the federal government for decades. It noted that most coal lease sales since 1990 had only one bidder, and said that the bureau did not always adequately assess the market value of the leases or document reasons for accepting bids below that value...[Senator Edward J.] Markey said that based on an examination of the report, as well as coal leasing documents that have not been made public, recent leases could potentially have yielded an additional $200 million in revenue." Dan Frosch in The New York Times.

Keystone supporters, opponents increase pressure on Obama ahead of 2014 elections. "Environmentalists this week are flooding Secretary of State John F. Kerry's office with calls and e-mails after holding nearly 300 candlelight vigils across the country Monday night in opposition to the project. On the other side, four Democrats -- Sens. Mary Landrieu (La.), Heidi Heitkamp (N.D.) and Joe Manchin III (W.Va.) and Rep. John Barrow (Ga.) -- joined several Republicans, led by Sen. John Hoeven (N.D.), at a news conference Tuesday calling on the administration to approve a permit that would allow the project to move ahead." Juliet Eilperin in The Washington Post.

This is what happens when you ship super-flammable crude by train. "Federal regulators proposed civil penalties against three oil companies for allegedly failing to test North Dakota crude properly, which could have led to putting volatile oil into railroad tank cars too weak to handle it. The fines, while small, are the first penalties to emerge from a widening investigation into how the oil industry is testing the flammability of crude pumped from the Bakken Shale of North Dakota, and whether it is using tank cars strong enough to keep oil cargoes from exploding in case of a derailment." Russell Gold in The Wall Street Journal.

Bizarre ads interlude: Join the Royal Navy...because it's just like fixing your skateboard?

4. Is immigration reform still dead?

Senate Republicans seem unlikely to cooperate on immigration reform. "Senate Republican Leader Mitch McConnell (Ky.) said Tuesday that he doesn't see any way the Democratic-controlled Senate and GOP-led House will agree on immigration reform legislation in 2014. "I think we have sort of an irresolvable conflict here," he told reporters. "The Senate insists on comprehensive [legislation]. The House says it won't go to conference with the Senate on comprehensive and wants to look at [it] step by step." Alexander Bolton in The Hill.

Immigrant-rights group files petition asking Obama to halt deportations. "The National Day Laborer Organizing Network submitted a 41-page rule-making petition to the Department of Homeland Security that argues President Obama has the legal authority and moral imperative to stop deporting otherwise law-abiding immigrants who entered the country illegally." David Nakamura in The Washington Post.

Can Obama legalize 8 million immigrants on his own? "So how would this deferred deportation actually work? Back in 2012, the administration was able to stop the deportation of hundreds of thousands of undocumented young adults under a deferred-action program known as DACA. Obama could, in theory, expand that program, allowing even more current immigrants to work legally in the United States without fear of getting expelled from the country. But, legal experts say, it would be very difficult to expand this program to cover all (or even most) of the country's existing 11 million undocumented immigrants. And Obama only has the power to defer deportation -- he can't fully "legalize" immigrants on his own." Brad Plumer in The Washington Post.

Immigrant youth leaders say they're willing to compromise with Republicans. "[B]ehind the demands were signs of a willingness to consider something less than a direct path to citizenship for all the estimated 11.7 million immigrants in the country illegally, given that many Republican lawmakers remain reluctant even to take up the thorny issue this year, and that deportations by the Obama administration continue to be felt in immigrant neighborhoods...But this month, Cesar Vargas, the co-director of the Dream Action Coalition, another youth group, started a furious debate among immigrant organizations with an open letter signed by more than 100 activists. "Focus on a practical legislative solution for immediate relief for families, even if it doesn't include a special path to citizenship," he wrote." Julia Preston in The New York Times.

Sesame Street interlude: With an appearance from Benedict Cumberbatch.

5. Snowden's story, as told by the NSA

How Snowden got to do top-secret NSA work at Booz Allen. "Edward Snowden, the former National Security Agency contractor who leaked information about the agency's surveillance program, targeted Booz Allen Hamilton Inc. for employment because of its access to national security contracts, a company vice chairman said Tuesday...Mr. Snowden was a security guard with the NSA, moved into its information-technology department and was sent overseas, Mr. McConnell said. He then left the agency, joined another company and moved to Japan. But Mr. Snowden wanted back in with the NSA. He then broke into the agency's system and stole the admittance test with the answers, Mr. McConnell said. Mr. Snowden took the test and aced it...The NSA then offered Mr. Snowden a position but he said didn't think the level--called GS-13--was high enough and asked for a higher-ranking job. The NSA refused. In early 2013, Booz Allen hired Mr. Snowden." Rachael King in The Wall Street Journal.

Republicans don't agree on whether they are defense hawks or civil libertarians. "House Republicans on Tuesday offered sharply divergent views about secret government surveillance programs and the leaks that made them public, underscoring the unsettled nature of a political debate that has scrambled the usual partisan lines. Representative Mike Rogers of Michigan, the chairman of the House Intelligence Committee, suggested at a hearing that reporters who published articles based on leaked National Security Agency documents may be criminals "fencing stolen material." At a parallel hearing on surveillance matters related to the leaks by Edward J. Snowden, the former N.S.A. contractor who disclosed the documents, Representative Robert W. Goodlatte of Virginia, the chairman of the House Judiciary Committee, expressed skepticism about the agency program that collects records of all Americans' phone calls" Charlie Savage in The New York Times.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

Study: Deregulation is why you're fat. Lydia DePillis.

AOL is leading the way to make 401(k)s worse for everyone. Jia Lynn Yang.

Defense contracts are hard to kill. Does that show up in lobbying totals? Lydia DePillis.

Can Obama legalize 8 million immigrants on his own? Brad Plumer.

The Great Recession was terrible. But it did make us smarter. Howard Schneider.

Retailers to Congress: There's no end in sight for credit card breaches. Danielle Douglas.

The good, bad and ugly of CBO's new Obamacare projections. Sarah Kliff.

CBO: Expect slower growth this decade -- and, as a result, higher deficits. Brad Plumer.

Et Cetera

Farm bill passes after three years of talks. Ed O'Keefe in The Washington Post.