CBO Report: ACA Will Trim Workforce by Equivalent of 2 Million

By Ilyse Wolens Schuman, © Littler Mendelson Feb 5, 2014
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The Congressional Budget Office (CBO), on Feb. 4, 2014, issued an updated report on the Affordable Care Act’s (ACA) impact on the labor market and insurance coverage. In its February 2014 budget outlook, the CBO estimates that the ACA could lead to a loss of about 2 million full-time equivalent jobs in 2017, rising to about 2.5 million in 2024.

Although the CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA. According to the CBO, the decline in full-time equivalent employment stemming from the ACA will consist of some people not being employed at all, and other people working fewer hours. This is a substantial increase from its prior 2010 projection. The CBO previously estimated that the ACA would reduce household employment in 2021 by about 800,000 individuals. The CBO’s current estimate for 2021 is a reduction in full-time equivalent employment of about 2.3 million individuals.

The CBO attributes the impact on the labor supply on the following ACA provisions, in order of importance:

  • The subsidies for health insurance purchased through exchanges.
  • The expansion of eligibility for Medicaid.
  • The penalties on employers that decline to offer insurance.
  • The new taxes imposed on labor income.

In the CBO’s judgment, the costs of the employer penalty “eventually will be borne primarily by workers in the form of reductions in wages or other compensation—just as the costs of a payroll tax levied on employers will generally be passed along to employees.” Businesses also may respond to the employer penalty by seeking to reduce or limit their full-time staffing and to hire more part-time employees. The CBO found no compelling evidence that part-time employment has increased as a result of the ACA. However, the CBO noted that because the employer penalty will not take effect until 2015, the current lack of direct evidence may not be very informative about the ultimate effects of the ACA.

Relative to the May 2013 projections, the CBO now expects that about 1 million fewer people (a total of 6 million versus 7 million people) will obtain health coverage through the health insurance exchanges in 2014. The CBO attributes this decrease primarily to the significant technical problems encountered in the initial phases of implementing the ACA. Despite this initial decrease in projections, the CBO still projects that enrollment in the Exchanges will rise sharply in the next few years—reaching 22 million enrollments by 2016—as people become more familiar with the new insurance options and subsidies.

The CBO’s projections on the ACA’s impact on the number of people obtaining employment-based health coverage has not changed. In 2015, the first year the employer penalty becomes effective, 2 million fewer people will receive employment-based health insurance. In 2016 and 2017, the number jumps to 6 million fewer people per year. In each of the years from 2018-2024, employment-based health insurance will cover 7 million fewer people. Notably, the CBO estimates that the ACA employer penalty will cost employers a total of $151 billion from 2015 to 2024. The excise tax on high-cost employment-based health plans will total $108 billion from 2018 to 2024.

The latest CBO report is certain to fuel more criticism of the ACA by the law’s opponents, and explanations by its defenders. This report comes as challenges to the ACA continue in Congress. The House Ways and Means Committee is considering legislation that would raise the threshold to be considered a full-time worker under the ACA employer penalty from 30 to 40 hours worked per week.

The CBO report also examines the impact of the “Cadillac” plan excise tax on high-cost employer-provided health plans beginning in 2018. The CBO expects that “the burden of that tax will, over time, be borne primarily by workers in the form of smaller after-tax compensation.”

Whatever the outcome of these legislative efforts in Congress, the CBO report confirms that the impact of ACA on employers and employees is both significant and uncertain.

Ilyse Wolens Schuman is a member of the government affairs practice at the law firm Littler Mendelson and works with employers in multiple industries. © 2014 Littler Mendelson. All rights reserved. Republished with permission.

Related Articles:

Post-ACA Workforce Management, SHRM Online Benefits, January 2014

What's "Affordable" Coverage Under the Affordable Care Act?, SHRM Online Benefits, January 2014

Legislation to Change 30-Hour Full-Time Threshold Debated, SHRM Online Legal Issues, January 2014

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