Obamacare to cost economy 2.3 million jobs? Not so fast.

A political firestorm erupted Tuesday over a report issued by the nonpartisan Congressional Budget Office (CBO), which said that the Affordable Care Act (ACA) will reduce “full-time-equivalent employment” by about 2.3 million in 2021. Last May, the CBO had estimated that figure at 800,000.

To opponents of Obamacare, the CBO was telling the world that President Obama’s health-care reform was an even bigger job-killer than previously thought. The report also gives Republicans a new weapon for the fall midterm elections, when they plan to use Obamacare as an argument to vote against Democrats.  

But the report doesn’t predict that businesses are going to dump workers because of Obamacare. It frames the issue in terms of worker choice. By giving workers more options for accessing health insurance, with possible subsidies, the ACA gives workers more freedom to work fewer hours – which could cause a reduction in labor force participation, the CBO report says.  

“The reduction in full-time-equivalent employment that CBO expects will arise from the ACA includes some people choosing not to work at all and other people choosing to work fewer hours than they would have in the absence of the law,” the report says.

For example, someone might choose to work fewer hours to lower their income and become eligible for federally subsidized insurance. Or someone with a health condition who felt stuck in a job that provided health benefits can now buy insurance through a government-run exchange.

The law will have an impact on employers, too, the CBO says – particularly when the mandate for them to provide insurance goes into effect in 2015. A business on the cusp of having 50 full-time-equivalent employees may decide to reduce employee hours to avoid the mandate. The law’s impact on full-time employment would be felt mostly after 2016, when the law has finished phasing in, the CBO says.   

Republicans seized on the CBO report as proof that Obamacare is harming the economy and threatening Americans’ jobs.

"The CBO’s latest report confirms what Republicans have been saying for years now. Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced,” House majority leader Eric Cantor (R) of Virginia said in a statement.

The White House fought the deluge of negative reaction with its own statement.   

“Over the longer run, CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods,” said White House press secretary Jay Carney.

At the White House briefing Tuesday, Jason Furman, chair of the White House’s Council of Economic Advisers, also emphasized choice and argued that lower labor force participation isn’t an automatic negative – just as higher participation isn’t necessarily a positive.

“Getting rid of Social Security and Medicare would cause more 95-year-olds to work,” Mr. Furman said. But “we don't think that would be an effective economic strategy for boosting the economy, or particularly wise policy.”

In its report, the CBO also lowered its estimate for enrollment in the exchanges for 2014 to 6 million, down from 7 million, because of the problems with HealthCare.gov and some of the state websites. The CBO reduced its projection for Medicaid enrollment this year to 8 million people, down from 9 million. The law required states to expand eligibility for Medicaid – a federal-state program to insure low-income Americans – but in 2012, the US Supreme Court ruled that states could opt out of Medicaid expansion. About half the states have done so.

Partisan wrangling over the ACA has been a fact of life since Mr. Obama signed it in March 2010: The Republican-controlled House has voted some 40 times to repeal it. Now House Republicans are talking about tying an increase in the debt ceiling to repealing a provision of the ACA that provides risk mitigation to insurers.

Under the provision, called “risk corridors,” a health insurer that takes in more in premiums than it ends up needing is to give some of the excess to the government. If the premiums end up being inadequate, the government is to cover some of the losses. Risk corridors are to be in effect for three years, 2014 through 2016.