Jed Graham of Investor’s Business Daily has written a very insightful news article on the CBO’s assessment of how PPACA will shape work incentives. 

In a speech on ObamaCare’s economic impact outside the health care sector, Elmendorf said that those effects will primarily be related to the labor market and “will probably be small.”

Factoring in additional demand for workers in health care and insurance, CBO estimates that “the legislation, on net, will reduce the amount of labor used in the economy by roughly half a percent,” he said.

The reason: The expansion of Medicaid and new health insurance subsidies will reduce “the amount of labor that workers choose to supply.”

(For perspective, half a percent of current payrolls is 651,000 jobs, though the impact would show up in both fewer jobs and fewer hours worked.)

The conclusion isn’t a surprising one; any extra support from the government takes some pressure off of workers to provide for themselves. However, ObamaCare’s progressive subsidies, i.e. more generous for those who earn less, carry more of a disincentive than the flat, universal benefit favored by some Republicans. [Emphasis added.]

This small effect will be distributed unevenly. Because of the structure of the subsidies, older workers will have a particularly strong incentive to leave the workforce early.

For workers turning 62 and becoming eligible for Social Security, ObamaCare will make early retirement somewhat more likely because the total package of benefits at that age will be much more valuable starting in 2014 than it is currently. What’s more, health care benefits will be a bit richer for those who give up a higher paying salary for a more modest Social Security check.

Just how much of a difference this extra dollop of government transfers will make to retirement decisions is hard to know. But the reason it should be a concern is that even before ObamaCare and the recent recession, half of all workers claimed retirement benefits at age 62 and the average age of collection was roughly 63.

While Democrats argue that the new health care subsidies are a moral imperative, the risk is that they will work against one of the most constructive approaches to reining in unsustainable entitlement spending on seniors: getting them to work longer and rely on the safety net later.

Rather than raise the retirement age, Graham recommends his old-age risk-sharing model as an approach that might mitigate the new work disincentives. It’s an idea that should definitely be pursued.