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Obamacare remakes the economy--and it's not all that bad

Rick Newman
The Exchange
WASHINGTON, DC - JUNE 28: A man protests against the Obama administrations health care plan during a protest in front of the U.S. Supreme Court, on June 28, 2012 in Washington, DC. Today the high court is expected to rule on the constitutionality of the sweeping health care law championed by President Barack Obama. (Photo by Mark Wilson/Getty Images)


Recriminations are flying now that the Congressional Budget Office seems to have confirmed GOP claims that the Affordable Care Act, President Obama’s landmark health-reform law, will be a job-killing monstrosity. In an updated analysis, the nonpartisan CBO says Obamacare, as the law is known, could cut the size of the U.S. workforce by 2 million people within 3 years, and by 2.5 million within 10 years. That’s roughly double the CBO’s prior estimate, from 2010, so it seems as if Obamacare is turning out to be even worse than critics warned.

But it’s not, exactly. Those 2 million jobs don’t represent people who will be fired or denied work because of Obamacare. They represent people who hold a job primarily for the healthcare benefits provided by their employer, and might choose not to work it they could get coverage some other way. “The ACA will reduce the total number of hours worked,” the CBO explained in its report, “almost entirely because workers will choose to supply less labor.”

Part of the reason for that is, in fact, an expansion of the welfare state, which conservatives generally object to. Some lower-income workers will cut back on their hours or stop working altogether to assure they get the largest subsidies under Obamacare, which go to those with the lowest incomes. In that regard, Obamacare does create the kind of perverse incentive—giving people a reason not to work—that upsets a lot of taxpayers.

But the expanded availability of healthcare coverage will also give workers more flexibility to find work that suits them instead of prioritizing jobs that offer health insurance. That could make some workers more productive, benefiting employers as well. It could also benefit some families with two working parents, allowing one of them to stay home instead of going to a job every day just to obtain insurance that covers the whole family.

Besides, there’s hardly a labor shortage in the United States right now, which is why the CBO notes that “if some people seek to work less, other applicants will be readily available to fill those positions.” That might help drive the unemployment rate lower, sooner. Finally, lower out-of-pocket costs for healthcare will “allow low-income households to redirect some of the funds that they would have spent on that care toward the purchase of other goods and services—thereby increasing overall demand,” as the CBO points out.

None of that means the ACA is any kind of miracle cure. The CBO now says enrollment in 2014 will be about 1 million people less than its last estimate, due to ongoing problems with the cursed government Web site. It’s still possible enrollments will end up far below levels needed to make the whole scheme economically viable, necessitating reforms of the reforms.

But Obamacare isn’t nearly as destructive as critics have claimed, either. In terms of the law actually killing jobs, the CBO predicts that some firms may hire fewer people due to costs imposed under the law, but other firms will hire more people because overall demand for products will go up. For now, that side of the ledger appears to be a wash.

The ACA may also help reduce income inequality, a growing problem that even some conservatives feel is getting out of hand, as the incomes of the rich outpace those of everybody else. New research by the Brookings Institution finds that by 2016, the ACA will boost average incomes of the bottom 20% of earners by nearly 6%, mostly through subsidies meant to make coverage more affordable. For the other 80%, average incomes will fall slightly.

That’s not exactly an ideal outcome, since the calculations show the middle class will end up with slightly less income under the ACA. And it’s not as if the money transfer goes straight from the rich to the poor; it also goes from the less-poor (the second-lowest quintile of earners) to the more-poor (the lowest quintile). That’s one reason Obamacare is likely to be controversial for years to come.

But the ACA is also likely to do less damage to the overall U.S. economy than attention-seeking headlines suggest. Every time you hear how Obamacare is gutting the economy, it’s a good idea to check the fine print.

 Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.