From a report issued by the Congressional Budget Office yesterday comes some disturibing news about the effect the ACA is expected to have on employment.
Principle #2: People respond to incentives.
The Affordable Care Act (ACA) will tend to reduce participation, with the largest impact stemming from new subsidies that reduce the cost of health insurance purchased through exchanges. Specifically, by providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to choose to work less.
This New York Times story notes:
The report did say that the law would reduce hours worked and full-time employment, but not because of a crippling impact on private-sector job creation. With the expansion of insurance coverage, the budget office predicted, more people will choose not to work, and others will choose to work fewer hours than they might have otherwise to obtain employer-provided insurance.
See, economists' claims that the ACA will reduce unemployment because firms would not hire as many people were incorrect. Employment will fall not because firms won't hire as many people, it's because people will reduce the number of hours they want to work, if they want to work at all. This is a supply issue, not a demand issue. In either case, economists were correct in their assertions that incentives would change and fewer people will be employed as a result of the ACA.
And from Senator Harry Reid:
The report “rightfully says that people shouldn’t have job lock,” said Senator Harry Reid of Nevada, the Democratic leader. “We live in a country where we should be free agents. People can do what they want.”
Agreed. Let's not lock insurance coverage of any kind with employment. But that last sentence?!?! "People can do what they want." At whose expense? I can see many baby boomers thinking that they can now retire five or ten years earlier than anticipated given others will now subsidize their retirement even more.
I'm not saying that our health care system is not in great need of correction, but that we have to pay attention to simple economic principles before we pass any bill, much less a bill that overhauls 1/7th of our national economy.
Additionally, from the NY Times article:
The budget office also estimated that about a million fewer Americans than expected would receive health insurance coverage this year through the marketplaces established by the Affordable Care Act, primarily because of the troubled rollout of the exchanges. It also revised its estimates of the number of people receiving coverage through Medicaid and Children’s Health Insurance Plan coverage, lowering it by about one million.
This is a few weeks dated, and is something I wanted to post earlier, but this op-ed by Linda Bilmes (Harvard prof and official in the Clinton Administration) and William Daly (former Chief of Staff to President Obama) published in the Washington Post provides an outstanding public choice explanation of the incentive problems inherent with public provision of goods and services such as the rollout of the ACA web site. The problems were a product of incorrect incentives (power rather than profits), not of incompetent programmers.
Over the past three decades, fierce global competition has forced corporate America to modernize how it manages projects so that they can be delivered as efficiently as possible. The federal government, insulated from market pressures, has fallen badly behind. In government, managerial jobs — such as chief financial officers, technology officers and procurement executives — are considered the least glamorous, a poor second to policymaking and politics.
Civil servants who manage government programs are judged by their ability to expand their departments, in terms of the number of employees and the size of their budgets. Most people who work in government are committed to their mission, so they naturally want their programs to grow bigger and do more. There is seldom much personal benefit, in pay or promotion, for a manager who delivers services at the same quality for lower cost. There are few thank-yous for simplifying Web sites or delivering faster, better service. Managers are actually penalized for being more efficient: If an agency saves money, its budget will most likely be reduced the following year.