How CBO Estimates the Effects of the Affordable Care Act on the Labor Market: Working Paper 2015-09. By Edward Harris (CBO) and Shannon Mok (CBO). December 7, 2015.

“The Affordable Care Act (ACA) will make the labor supply, measured as the total compensation paid to workers, 0.86 percent smaller in 2025 than it would have been in the absence of that law, the Congressional Budget Office estimates. Three-quarters of that decline will occur because of health insurance expansions, which raise effective tax rates on earnings from labor—for instance, by phasing out health insurance subsidies as people’s income rises—and thus reduce the amount of labor that workers choose to supply. The labor force is projected to be about 2 million full-time-equivalent workers smaller in 2025 under the ACA than it would have been otherwise. Those estimates were based mainly on CBO’s calculations of the effects of the law’s major components on marginal and average tax rates and on the agency’s analysis of research about the change in the labor supply resulting from a change in tax rates. For components of the law that were difficult to express in terms of changes in tax rates, CBO based its estimates on a review of the available literature about similar policy changes.”
Explaining the Basis of CBO’s Findings – “Today’s paper—part of a broad series of working papers providing technical information about our analyses—is just one way that CBO provides information about the methods and calculations underlying its estimates. CBO has long focused on the transparency of its analyses. We make a considerable effort to explain the basis of our findings so that Members of Congress, their staffs, and outside analysts can understand the results and question the methodologies used. Our cost estimates include descriptions of the basis for the estimates, and many of our reports provide substantial discussions of the relevant research literature and CBO’s modeling approaches. Given the particular interest in our approaches to analyzing health care policy and to dynamic scoring, we have created two special collections of methodological materials on our website:

• We recently added a new page—Methods for Analyzing Health Insurance Coverage—to make it easier to find explanations of CBO’s approaches to analyzing health insurance coverage and related proposals.
• Earlier this year—in light of the budget resolution’s requirement for CBO to incorporate the budgetary impact of macroeconomic effects into its 10-year cost estimates for certain legislation—we created a Dynamic Analysis page, which includes extensive explanations of our analytical methods to assess the economic effects of fiscal policies.”