What small business owners should know about the new Obamacare report

Despite some media reports, the health care law isn’t killing 2.5 million jobs.

Congressional budget analysts on Tuesday released revised estimates concerning the economic footprint of the health care law, spawning another round of headlines declaring that Obamacare will take a massive bite out of workers’ hours and eliminate millions of jobs.

Thing is, that’s not what the report said at all. In fact, the nonpartisan group’s predictions actually refute some of the warnings from small business leaders — namely, that the law will force employers to trim hours for their current workers and think twice about hiring new ones.

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Still, there are some other areas of the law that the group says may indeed have unwanted side effects for companies.

So, before skimming the headlines and sounding the alarm, here’s what business owners should know about the report and what it does (and does not) say about Obamacare.

No, the law isn’t cutting 2.3 million jobs

In the most glaring figure in the report, CBO analysts predict that the Affordable Care Act will reduce the number of full-time workers in the labor force by 2.3 million by 2021, nearly tripling its previous estimate of an 800,000-worker reduction over the same period.

Critics of the law (and several media outlets) were quick to latch onto that number and frame the law as a job killer. However, the predictions actually have little to do with companies firing or not hiring workers. As our resident Fact Checker Glenn Kessler explains, “this is not about jobs. It’s about workers — and the choices they make.”

What the report says is that the reduction in the number of hours worked will result from individuals choosing to work fewer hours or not at all, not employers cutting their hours or their jobs. Or, in CBO speak, the “estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in business’ demand for labor.”

Why? Analysts say new health insurance subsidies in the law will encourage some low-income individuals to work fewer hours in order to continue earning the credits to help them pay for health care.

As a result, the decline in labor participation tied to the health care law would likely have some negative side effects; for instance, it may drive down the country’s economic output, the report says. However, it would not take a toll on the unemployment rate, as those working less would generally be doing so voluntarily.

The law has not created a part-time workforce

The CBO report specifically addresses one of the most common warnings from small business lobbyists concerning the law — that is, that new rules requiring employers to provide health insurance to employees who work more than 30 hours per week will prompt business owners to cut hours to below that threshold to limit the number of workers they must cover.

House Republicans are currently marking up legislation that would increase the cutoff for part-time workers under the law to 40 hours per week, hoping to alleviate some of that pressure on employers and avoid cultivating what some have referred to as a “part-time workforce.”

CBO officials aren’t convinced the law would have such an effect, writing in this latest report that “there is no compelling evidence that part-time employment has increased as a result of the ACA.”

And while the analysts acknowledged that “there have been anecdotal reports of firms responding to the employer penalty by limiting workers’ hours and the share of workers in part-time jobs has declined relatively slowly since the end of the recent recession,” they say there is little evidence to connect the entire trend to the health care law.

“The share of workers in part-time jobs generally declines slowly after recessions, so whether that share would have declined more quickly during the past few years in the absence of the ACA is difficult to determine,” they added.

The employer mandate penalty could hit wages, labor supply

One area in which the report suggests the health care law could have a troubling effect on businesses is its penalty on companies are required to but elect not to provide coverage for their workers. Originally slated to take effect at the start of this year, enforcement of the so-called employer mandate has been pushed back to the beginning of 2015.

“In CBO’s judgment, the costs of the 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,” according to the report.

By extension, because labor supply is responsive to changes in worker compensation, the implementation of the penalty could indirectly lead some workers to opt out of the labor force or choose to work fewer hours. Still, it’s important to note that only a small fraction of U.S. companies have enough workers (50 full-timers) to be subject to the penalty, and even smaller fraction of those do not already provide health insurance.

In addition, the report notes that employee turnover may accelerate in some cases as a result of the Affordable Care Act, under which individuals’ access to health care is less closely tied to their jobs. If so, analysts say employers may start investing less time and resources into training and grooming their workers for the long-run.

“Whether any of those changes would have a noticeable influence on overall economic productivity, however, is not clear,” the report says.

Obamacare may bolster consumer spending

One of the leading factors slowing the rate of recovery on Main Street over the past few years has been sluggish consumer spending.

For the past couple years, small business owners have blamed weak sales and sluggish consumer demand as much as any other factor for slowing the economic recovery. Under the ACA, officials say Americans may actually be inclined to start spending a little more.

“On balance, CBO estimates that the ACA will boost overall demand for goods and services over the next few years because the people who will benefit from the expansion of Medicaid and from access to the exchange subsidies are predominantly in lower-income households and thus are likely to spend a considerable fraction of their additional resources on goods and services,” the report says.

That increase in demand “will in turn boost demand for labor over the next few years,” counteracting some of the downward pressures on labor participation in the law.

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