It’s Not Just About Supply And Demand For Labor – The ACA Makes Life Better, Increases Choices

Last week, the CBO released a report that sent the internet into paroxysms of spin.  Initially – and much to the delight of ACA opponents – numerous media outlets reported that the CBO was predicting a loss of more than 2 million jobs over the next decade as a result of the ACA.  Then they had to backpedal a bit when CBO Director Douglas Elmendorf spoke to the House Budget Committee the following day, explaining that the report had been misconstrued.  Yesterday, Elmendorf posted additional clarifications on the CBO website, clearly stating that

“Because the longer-term reduction in work is expected to come almost entirely from a decline in the amount of labor that workers choose to supply in response to the changes in their incentives, we do not think it is accurate to say that the reduction stems from people “losing” their jobs.”

Republican lawmakers have mostly backed off of the argument that the ACA will kill jobs, and have instead latched on to the horrors of people choosing to work less.  There is no doubt in my mind that both sides are picking the parts of the CBO report they like, ignoring the parts they don’t like, and assuming that Elmendorf’s acknowledgement that “our estimates are always uncertain” is the magic wand they need to create the picture they want voters to believe.

So what are some of the reasons that the labor force might grow at a slower rate over the next decade than it would have without the ACA?  Health insurance in the individual market is now guaranteed-issue and premium subsidies are available for households with incomes between 100% and 400% of poverty level (in People won't have to work as much!states that are expanding Medicaid, including Colorado, people with incomes up to 138% of poverty level are eligible for Medicaid).  But how does that translate into “a decline in the amount of labor that workers choose to supply”?

Over the years, we’ve worked with many people in their late 50s or early 60s – still a few years away from Medicare eligibility – who want to retire (ie, sharply reduce their supply of labor, voluntarily).  They’ve worked for several decades already, and have accumulated enough savings to feel that retirement is feasible.  Except for health insurance.  In some cases, pre-existing conditions prevented them from getting a policy in the individual market, leaving CoverColorado as their only option (the state’s high risk pool, which was significantly more expensive than a standard individual plan).  In other cases, they were offered a policy with a rate increase based on medical underwriting, and the resulting premium was just too much to swing on a fixed income.  And for some, even the standard premiums were just too expensive; before 2014, there was significantly more disparity in premiums, with older applicants usually paying five times as much as younger applicants (the ACA now limits that ratio at 3:1).  Sometime these potential early retirees decided to remain at their jobs, purely for the sake of health insurance.  Now that individual health insurance is available to them regardless of their medical history, premiums are capped at 3 times the premiums young people pay, and subsidies are available to help cover the cost if they qualify, more people will be able to chart their own course for retirement instead of having to plan everything around Medicaid eligibility.  That is a good thing.

We’ve also worked with families who would prefer to have a parent stay home with the children, or have both parents cut back their hours at work in order to spend more time with the kids (ie, reduce their supply of labor in terms of factors that are tracked by GDP – but anyone who has ever been a stay-at-home parent knows that there is plenty of labor involved – you just don’t get paid for it).  But sometimes when they compared the full cost of individual health insurance (especially if any pre-existing conditions were involved) with the subsidized benefits they were receiving through the parents’ employers, they realized that making the switch to a less harried lifestyle would be more than their budget could handle.  And so they decided to remain at their jobs purely for the sake of health insurance, despite the fact that in some cases, childcare expenses were eating up a significant portion of one parent’s income.

We’ve worked with people who want to take the leap into self-employment, but are daunted by health insurance barriers.  Sure, they can opt for COBRA (in cases where it’s available) and continue to have guaranteed-issue coverage, but how do you pay COBRA premiums when you’re in the early days of starting a business and living on a beans-and-ramen budget?  In many cases, these visionaries have opted to remain at their jobs instead, purely for the sake of health insurance.  Thankfully, the ACA provides subsidies that are ideal for just that kind of scenario.

people who have big dreams that have been weighed down by practical limitations like health insuranceACA opponents apparently view poor and middle class Americans as couch-potatoes-waiting-to-happen; if we’re given any incentive to not work, we’ll obviously take it, and that can’t be tolerated!  Why not look at the glass half full instead, and have a little faith in people?  Instead of assuming that people are inherently lazy and scheming, why not look at all of the people who have big dreams that have been weighed down by practical limitations like health insurance?

The idea that ACA subsidies will incentivize people to not work – specifically so that they can receive premium tax credits to pay for health insurance – seems to follow along the same lines as the arguments that were making their way around the internet last year claiming that welfare benefits were so generous that it made more sense for families to rely on welfare than to work (nicely debunked here).

Sure, there may be some people who choose to work fewer hours in order to get themselves under 400% of poverty and qualify for subsidies.  But they are the people who would otherwise have been just a little bit above that threshold, and they almost certainly have other reasons for wanting to cut back on work or not take on additional work.

In most cases, the drop in income would be far more than the decrease in health insurance premiums.  People are not going to cut back from 600% of FPL to 300% just for the sake of a few thousand dollars in health insurance subsidies.  The math just doesn’t make sense.  Consider a hypothetical American family of four (two 40-year-old parents, two kids), earning $97,000 per year.  Their estimated health insurance premiums are $9,700 per year (silver plan), and they don’t qualify for a subsidy.  If they reduce their income to $85,000, they’ll qualify for a $1,625/year subsidy.  That doesn’t really seem to make up for the twelve thousand dollar reduction in income, even after you factor in additional taxes.  If they reduce their income by another $10,000, their subsidy grows to $2,575 per year.  Again, not really a good trade off when you consider that they’ve given up $22,000 in income.  If that family chooses to work less and buy a subsidized health insurance policy in the exchange, they are motivated by factors other than money.

Spend more time with family and volunteer in the communityThe same argument can be made for households that are receiving subsidies and are faced with the possibility of additional opportunity for work and higher income.  If a family of three (two 40-year-old parents and one child) has an MAGI of $50,000, they would be eligible for a subsidy averaging $3,978/year.  If their MAGI grows to $60,000, their subsidy would shrink to $2,390.  They would be giving up less than $1600 in subsidy, in trade for $10,000 in additional gross income.  Even after taxes, they come out ahead financially by working more.  Again, families that choose to forego additional income for the sake of health insurance subsidies are motivated by factors other than just money.  Maybe they want to spend more time with their families.  Maybe they want to lead a less-stressed life.  Maybe they want to volunteer in their communities or focus on turning a hobby into a business.  Whatever the reasons, they are varied and complicated.  And they cannot simply be boiled down to a strictly financial explanation.

I have no doubt that the CBO’s prediction is as accurate as we can get right now.  But I think we have to look more closely at the big picture.  Much has been said about the ACA’s impact on jobs and the economy, because we all know that “it’s the economy, stupid.”  But what if it’s not?  What if there’s more to life than an ever-increasing GDP?  Maybe we could focus on quality of life a little more, and consider that the ACA’s reforms in the individual health insurance market mean that people have more choices than they did in the past, period.  What people do with their choices varies from one person to another.  But it is undeniably a good thing that health insurance is available now regardless of medical history, and subsidies are helping to make an essential product affordable to people who would otherwise struggle to purchase it.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for,, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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