Obamacare: Work Disincentives add $200 Billion to the Cost

ObamaCare work disincentives will add at least $200 billion to the law's cost in the coming decade — including a hit of more than $100 billion to Social Security, Congressional Budget Office estimates imply.

The CBO only tallies ObamaCare's direct effects on revenue and spending in assessing its net budget impact, but this indirect economic cost can be roughly estimated using the figures in the agency's latest budget and economic outlook. 

The key data point: The Affordable Care Act will reduce employee compensation by more than $1 trillion from 2017 to 2024. 

That will cut payroll tax and federal (not to mention state) income-tax revenue, while boosting outlays for the refundable Earned Income Tax Credit. Interest expense also will rise.

Making Work Not Pay 

The nature of Affordable Care Act subsidies — they rise as income falls and decline as income rises — will make work "less attractive" by "creating an implicit tax on additional earnings," the CBO said. 

That disincentive will lead some people to choose to work less, or not at all, in part because subsidized health care will let some get by with less work.

In addition, the CBO expects ObamaCare to depress wages for lower earners as employers pass along the cost of the law's employer insurance mandate by holding back on wage increases. Lower wages, in turn, will provide another reason for some to opt for less work, the CBO says. 

While compensation is expected to be lower "almost entirely" because people will choose to supply less work, the CBO also expects that some employers "will respond to the penalty by hiring fewer people at or just above the minimum wage."

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