Transcript: Q&A w/ Rep. Alan Nunnelee on the CBO’s 2014 budget & economic outlook

Partial transcript of Q&A with Rep. Alan Nunnelee (R-Mississippi) on the Congressional Budget Office’s (CBO) 2014 federal budget and economic outlook. The House Budget Committee hearing was held on Feb. 5, 2014:

Rep. Alan Nunnelee (R-Mississippi):
…The Chairman asked questions related to this issue about 2 million equivalent lost jobs, and I think that the best way I could explain back…that the equivalent of 2 million full-time jobs are people look at the benefits that they’re getting under Obamacare and say, “Look, it’s better for me to stay and not work because I get those benefits.” Is that right?

Douglas Elmendorf, Director of the Congressional Budget Office:
It’s not not work; it’s work fewer hours. Yes.

Rep. Alan Nunnelee (R-Mississippi):
If we look at that in isolation, what effect does that have on total tax revenues to the federal government?

Douglas Elmendorf, Director of the Congressional Budget Office:
So reduction in employment, whether it is voluntary or not – and it is in this case – either way that will reduce the – all else equal – reduce the amount of income being earned in the country and thus reducing the amount of tax revenue collected.

Rep. Alan Nunnelee (R-Mississippi):
People working less or choosing not to work mean they’re not paying taxes, revenues going down. I think I read in your report, it estimates that there’s about $1.2 trillion over the 10-year budget window that are used to subsidize the exchanges, and about $792 billion for Medicaid expansion. So roughly a total of $2 trillion over the 10 years to pay for exchange subsidies and Medicaid expansion under Obamacare.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, we call that the gross cost of the coverage provision, taking the account of some of the other effects on tax revenues and so on and we end up with a net cost of the coverage of provisions of $1.5 trillion over the next decade.

Rep. Alan Nunnelee (R-Mississippi):
All right. So we’re spending $1.5 to $2 trillion more. We’re taking in less revenues because people are choosing to work less or stay home. Looks to me like that’s adding to the problem of our debt. Is that right?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, again, Congressman, when we evaluate the Affordable Care Act as a whole, including not just the coverage provisions that you’ve been referencing but also the explicit cuts in Medicare payments and increases in tax revenues, the last time we did the analysis the law as a whole we found that it would reduce budget deficits.

But you’re right, this piece of the law that expands subsidies for insurance coverage costs the federal government money on balance.

Rep. Alan Nunnelee (R-Mississippi):
All right. Now, Obamacare also includes a bail out for insurance companies in case things go bad…Since enrollment started in the fall, it looks like we’ve had fewer people that actually enrolled in Obamacare than we thought they were going to. Have you looked at – the insurance companies call this adverse selection – that it’s the sicker people, those that are going to need more expensive coverage, that are actually getting in. What’s that going to do to the subsidies for insurance companies?

Douglas Elmendorf, Director of the Congressional Budget Office:
Congressman, by our estimates, the risk corridor program in the Affordable Care Act will actually reduce government deficits, will lead to net savings in federal government, because it is a program in which if insurers’ costs significantly exceed their expectations, the federal government is on the hook for some of that. But if insurers’ costs fall short of expectations, then the government can share those savings.

The closest analogue that we’re aware of is the risk corridor program in Medicare Part D – the drug benefit – which has in fact yielded savings for the federal government consistently.

Our estimate is that the risk corridor program in the Affordable Care Act will also yield savings, although we noted in our report that that’s a very uncertain estimate.

Our original projections for the Affordable Care Act take account exactly the adverse selection that you’re talking about. We thought that enrollment this year would be about a third of what it would be a few years from now as people gradually learn about the program, and we thought the people who enrolled this year would be sicker on average than people who would enroll over time, and we presume that insurance companies understood that as well and incorporated that understanding into their setting of premiums.

Neither we nor the insurers know now how many people they wound up for this year or how sick or healthy they will be. So that’s why their estimates in setting premiums and our estimates now are highly uncertain.

Rep. Alan Nunnelee (R-Mississippi):
…I think the report indicates over the 10 year window we anticipate the unemployment rate to actually go down, which in my mind is a good thing.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes.

Rep. Alan Nunnelee (R-Mississippi):
But it says labor participation is also going to decrease. We’ll have fewer people working and unemployment going down.

Douglas Elmendorf, Director of the Congressional Budget Office:
We think that employment will rise…Participation rate is the share of the total population over age 16 that is working. We think that share will decline primarily because a lot of people who are in their 50s and 60s now will be in their 60s and 70s when participation rates are much lower. So most of that is just the aging of the population.

Of the people who choose to participate in the labor force, we think a slightly smaller share over time will not be able to find work. They’re the unemployed. But the rest – a growing share – will be able to find work. So we think employment will rise over the next decade but not as fast as it would if we didn’t have this aging of the population underway at the same time.

###

Learn More:

Leave a Reply

Your email address will not be published.