The New CBO Report, Explained
It would be perfectly understandable if you are confused about the latest news swirling around the Affordable Care Act.
In the past two days, a media firestorm has erupted over the Congressional Budget Office’s (CBO) updated budget forecast projecting that the Affordable Care Act will reduce the number of full-time workers by 2.3 million in 2021. Many outlets initially–and incorrectly–reported this figure as “job losses.” Today, CBO Director Douglas Elmendorf testified before the House Budget Committee and explained why those claiming the CBO report said ACA would kill jobs were wrong:
“The reason we don’t use the term ‘lost jobs’ is there is a critical difference between people who like to work and can’t find a job — or have a job that’s lost for reasons beyond their control — and people who choose not to work…If someone comes up to you and says, ‘The boss says I’m being laid off because we don’t have enough business to pay,’ any other person feels bad about that and we sympathize for them having lost their job. If someone says, ‘I decided to retire or stay home and spend more time with my family and spend more time doing my hobby,’ they don’t feel bad about it — they feel good about it. And we don’t sympathize. We say congratulations.”
Even House Budget Chairman Paul Ryan (R-WI) had a moment of clarity with Elmendorf on this issue:
Paul Ryan: “Just to understand, it is not that employers are laying people off.”
Doug Elmendorf: “That is right.”
Here are three reasons why the CBO report is positive news for the Affordable Care Act:
1. Individuals Are No Longer Trapped In Their Jobs Because Of Health Coverage. For too long, people stayed in jobs because they feared losing their health insurance, or having to live at the mercy of insurance companies where they could be denied coverage because of a pre-existing condition. Those days are over. The Affordable Care Act gives people the freedom to choose jobs or career that’s right for them. That might mean an older person who stayed in a job because s/he could not afford insurance – or could not get covered – in the individual market can retire sooner and have a better quality of life. It could mean a person, like this couple in Arizona, could start a small business. It could mean that a person could pursue a job more relevant to their skills or goals, because the fear of not having access to affordable coverage is gone.
That phenomenon, known to economists as “job lock,” is something that conservative policymakers have long supported.
2.The Unemployment Rate Will Actually Decrease. Here’s the key exchange on this issue between Elmendorf and Democratic Rep. Chris Van Hollen at today’s hearing:
Van Hollen: “[The report] says, and I quote, ‘On balance the CBO estimates that the ACA will boost demand for goods and services over the next few years’…and then you go on to say, ‘the net increase in demand in goods and services will in turn boost demand for labor over the next few years.’ …So when you boost demand for labor in this kind of economy, you actually reduce the unemployment rate because those people who are looking for work can find more work, right?”
Elmendorf: “Yes, that’s right.”
3. Wages Will Increase. The CBO Report says that the 2.3 million reduction in the workforce by 2021 will come “almost entirely” from individuals choosing to leave the workforce–the demand for workers from businesses will remain the same. And when the supply of labor goes down but the demand of labor stays the same, wages will rise in order to find an equilibrium.
BOTTOM LINE: Conservatives may continue to misrepresent the CBO report’s findings, but the facts are the facts. The report offered good news for the economy and for supporters of the ACA. The law frees up individuals to leave the workforce, look for other work, or start new businesses who had previously been too scared to lose health coverage. And because of the increased demand for labor, it will reduce unemployment and raise wages.