One Day After CBO Report, It's Time To Start Your Spin Cycle

On Tuesday, economists with the Congressional Budget Office announced findings that indicated the new health care law may result in hundreds of thousands leaving the workforce. The findings spurred new debate on the merits of the law and its economic impact. NPR's Scott Horsley has more on the reactions to the report.

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The political spin cycle is in high gear this week over a new budget forecast. It says nearly three times as many people will leave the U.S. workforce because of the Affordable Care Act than previously expected. The findings offer ammunition to both supporters and opponents of the law. And today, the head of the Congressional Budget Office was grilled about the forecast in a hearing before the House Budget Committee.

Here's NPR's Scott Horsley to pull a little black and white out of all the gray.

SCOTT HORSLEY, BYLINE: To White House economist Jason Furman, the Affordable Care Act spells freedom: millions of Americans no long stuck in jobs they don't want, just so they can qualify for health insurance.

JASON FURMAN: The Affordable Care Act provides people with new options and people, who today are doing a set of things because they don't have options and choices, will be able to do new things.

HORSLEY: Republican Congressman Paul Ryan sees something very different: a smothering safety net that discourages work at a time when participation in the labor force is already on the wane.

REPRESENTATIVE PAUL RYAN: What this is doing is it's adding insult to injury because of government policies. As the welfare state expands, the incentive to work declines; meaning grow the government, you shrink the economy.

HORSLEY: Both men tried to back up these arguments by pointing to the same report from the Congressional Budget Office. And they're both partly right.

CRAIG GARTHWAITE: It's a really complicated bill, so all of these things are going to be in play.

HORSLEY: Craig Garthwaite is an economist at Northwestern, whose research helped inform the CBO forecast. He and his colleagues looked at what happened in Tennessee, when that state eliminated an insurance program that's similar to the ACA. Tens of thousands of people who had not been working started to, in many cases just to get health coverage.

GARTHWAITE: And this suggests there really could be quite a large number of people who, given a non-employer option that's fairly priced, would actually leave the labor force far more than we might have thought beforehand.

HORSLEY: If so, the Affordable Care Act can be seen as fixing an economic distortion: people who are working more than they'd otherwise like to just to qualify for health insurance.

At the same time, though, the ACA creates a new distortion. The government subsidies that help low and middle-income families buy insurance phase out as their incomes rise. Harvard economist Greg Mankiw says that's effectively an additional tax on higher income, which will discourage some people from working additional hours.

GREG MANKIW: If we want a society that's more equal and, in this case providing health care for everyone, there's going to be efficiency costs as we're going to distort people's incentives and shrink the size of the economic pie a little bit.

HORSLEY: Mankiw and others say there's no way to provide subsidies to people without creating this problem, unless you subsidize everyone's insurance, and that would drive up the government's cost.

Dean Baker, of the Center for Economic and Policy Research, says it's important to remember that the labor and insurance markets weren't exactly free of distortions before the Affordable Care Act. And if the law prompts some workers to leave the workforce voluntarily, Baker sees a silver lining.

DEAN BAKER: That's going to open up jobs for other workers which, in my view, is all for the good. You'll have a somewhat tighter labor market so workers will be better positioned to push for their wages.

HORSLEY: Economists across the political spectrum also see an advantage in ending the shotgun marriage between health insurance and the workplace, which may be the biggest distortion of all. The Affordable Care Act takes at least a baby step in that direction.

Scott Horsley, NPR News, Washington.

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