CBO Report Shows Impact of Obamacare

August 29, 2014 - National Center for Policy Analysis

The Congressional Budget Office (CBO) is out with a new economic outlook report for the next decade.

One of its projections, reports Kevin Glass at Townhall.com, concerns the number of Americans in the labor force. The CBO expects that the labor force participation rate (the ratio of Americans who are employed or are seeking a job, compared to the total number of working-age people in the country) will continue to fall over the next few years. The agency expects an 0.5 percentage point drop in the participation rate due largely to baby-boomer retirements but also due to "federal tax and spending policies."

More specifically, the CBO points to Obamacare as one of the reasons behind the falling labor force participation rate: "[C]ertain aspects of the Affordable Care Act will tend to reduce labor force participation, with the largest effect stemming from the subsidies that reduce the cost of purchasing health insurance through the exchanges." The report explains that subsidies rise as incomes fall, and fall as incomes rise, meaning that some people will be incentivized to work less, in order to obtain or retain the health care subsidies. The report continued, "[T]he structure of the tax code -- in which rising income pushes some people into higher tax brackets -- will reduce labor force participation slightly."

Obamacare's impact is not only on the job market. As NCPA Senior Fellow John Graham discusses at the NCPA Health Policy Blog, between 2014 and 2024, health care spending among government health care programs (Medicare, Medicaid, the Children's Health Insurance Program and health insurance exchange subsides) will rise. The report estimates that annual net outlays for these programs will rise by more than 85 percent, growing from 4.9 percent to 5.9 percent of GDP.

Graham shows just how much spending has changed over the last 40 years. Federal spending on major health programs was just 1 percent of GDP in 1974, while defense spending was 5.4 percent of GDP. By 2024, the CBO estimates that defense spending will be just 2.7 percent of GDP, less than half of the amount that the federal government will spend on health care.

Source: Kevin Glass, "CBO Report: Obamacare Denting Labor Force," Townhall.com, August 27, 2014; John R. Graham, "Federal Medicare, Medicaid, Obamacare Subsidies to Increase 85 Percent in Ten Years," NCPA Health Policy Blog, August 28, 2014.