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Affordable Care Act could shrink workforce by 900,000

By   /   July 18, 2013  /   12 Comments

By Eric Boehm | Watchdog.org

HARRISBURG, Pa. — If you’re single, earning less than $22,000 annually and are getting health insurance through your employer, the federal Affordable Care Act may make you reconsider showing up for work in 2014.

That’s one of the conclusions from a study released this week looking at another of the unseen consequences of the Obamacare.

If low-income workers are able to buy reduced-price health insurance through the new federal exchanges, there may be less of an incentive for those workers to keep or find a job, according to three researchers at the National Bureau of Economic Research, a national think tank.

LOOKING FOR WORK?: As many as one million Americans may stop working or trying to find jobs once they can get subsidized health insurance through the Obamacare exchanges, one study says.

“Our results appear to indicate that the soon-to-be-enacted health-care reform may cause substantial declines in aggregate employment,” conclude researchers Craig Garthwaite, Tal Gross and Matthew Notowidigdo.

In the paper, the three academics examine the so-called “employment lock” phenomenon. That’s what happens when employees continue working at their current job primarily so they can earn and keep health benefits. That “lock” will be loosened by the new health insurance exchanges set to begin operating in 2014.

There are between 850,000 and 1.5 million childless adults in the United States who earn less than 200 percent of the federal poverty line – about $22,000 per year – and have employer-provided health insurance.  They do not qualify for public health benefits because they earn too much and have no dependents, but under the rules — which take effect in 2014 — those workers will be able to buy insurance on federal or state-based health insurance exchanges.

Because of their low-income status, they can qualify for subsidies to cover part or all of the cost of their health insurance premiums.

The new study suggests that at least some of those workers are only maintaining their jobs to keep their employer-sponsored health plans. Given the option to buy cheaper insurance through the exchanges, many may cut back on their hours or drop their jobs entirely.

“Applying our labor supply estimates directly to this population, we predict a decline in employment of between 530,000 and 940,000 in response to this group of individuals being made newly eligible for free or heavily subsidized health insurance,” the authors wrote. “This would represent a decline in the aggregate employment rate of between 0.3 and 0.6 percentage points from this single component of the ACA.”

Unemployment was at 7.6 percent in June.

John Davidson, a health care policy analyst at the Texas Public Policy Foundation, said there is no doubt some people will drop out of the labor force once health insurance coverage is decoupled from employment. But it may not be all bad news, he added.

“Freedom from ‘employment lock’ could also have the effect of encouraging people to take economic risks, such as starting a small business or some other entrepreneurial venture,” Davidson said.  “If they can get health insurance elsewhere, they are likely to engage in economic activity in some other way rather than drop out of the workforce entirely.”

The federal Department of Health and Human Services on Thursday declined to comment on the study.

But employers —already concerned about the costs associated with the Affordable Care Act — say this could be another bad blow.

In manufacturing heavy Wisconsin, the economic recovery from the worst recession in decades is well under way. With already tight labor markets and employers struggling to find qualified workers, Badger State business advocates say the last thing the manufacturing sector needs is a shallower labor pool.

Jeff Zriny, president and CEO of the Wausau Region Chamber of Commerce, says employers would be forced to drive up wages even higher, a scenario that could ultimately be costly for Wisconsin’s economic recovery.

“There would be an hourly wage creep that would spread through the organization, which probably could not be absorbed by the company,” Zriny said.  “That’s what happens when you interfere with the free market.”

Paul Gessing, president of the Rio Grande Foundation, a free market think tank based in Albuquerque, N.M., says he’s not particularly surprised by the study.

“For decades, the political left in this country has been fighting to expand Americans’ dependency on government,” he said. “it is no surprise that the massive expansion of government’s role in the health care sector — an expansion that has been coveted by the left since the Truman Administration — would result in fewer workers and increased dependency on government.”

The authors of the study also suggest “far larger increases in Medicaid enrollment than are currently expected,” due to a ripple-effect of some workers leaving their jobs. Depending on what state an individual lives in, a reduction in annual income from $22,000 to $11,000 could make them eligible for Medicaid.

Boehm is a national reporter for Watchdog.org and can be reached at Eric@PAIndependent.com. 

Jon Cassidy, Rob Nikolewski and Matt Kittle contributed to this article.

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Eric is a reporter for Watchdog.org and former bureau chief for Pennsylvania Independent. He lives in Minneapolis, Minnesota, where he enjoys great weather and low taxes while writing about state governments, pensions, labor issues and economic/civil liberty. Previously, he worked for more than three years in Harrisburg, Pennsylvania, covering Pennsylvania state politics and occasionally sneaking across the border to Delaware to buy six-packs of beer. He has also lived (in order of desirability) in Brussels, Belgium, Pennsburg, Pa., Fairfield, Conn., and Rochester, N.Y. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and elsewhere. He received a bachelor's degree from Fairfield University in 2009, but he refuses to hang on his wall until his student loans are fully paid off sometime in the mid-2020s. When he steps away from the computer, he enjoys drinking craft beers in classy bars, cheering for an eclectic mix of favorite sports teams (mostly based in Philadelphia) and traveling to new places.

  • http://www.facebook.com/justforius.ninegagius Justforius Ninegagius

    Wow… So we are now assuming that all other capitalist free market measures also go into a coma once free/subsidised healthcare is in place? No one aspires for better food, better housing, better clothing, better futures for their kids, better protection, better retirement support, better cars, better lives? The corporate sector spends billions in advertising, and they can’t think of how to better utilise the suddenly freed-up spending capacity from all these people?

    Removing concerns over health instead sends 9 million poor people to lie down on their backs and wait for food to fall from the sky?

    Why so many people do not see how successful government subsidised medical care is globally, is really beyond me.

    We rather have some people die on the streets from lack of care just to prove that free market is better?

  • roy

    “Why so many people do not see how successful government subsidised medical care is globally, is really beyond me.”
    You mean like England, where the taxes required to support the NHS are enormous, the medical boards set quotas for deaths of elderly at hospitals to reduce costs? If a hospital misses those quotas their funding is cut. Is this what you mean by “successful Government subsidized medical care”? I can see why it is beyond you.

  • wehkah

    I don’t deny that there are certain circumstances that would justify government intervention and help. However we are talking about a
    nation that is noted to be the land of the free and home of the brave
    right?? We are a free nation and that’s why we are so inviting for so MANY people in this world. There is opportunity to be had here as there
    isn’t in so many countries. We have free enterprise. People come here to make money to support their families. Just ask the millions of illegal immigrants that enter this country, work for cash and then send it back home. If someone wants to start a company/organization to feed the poor, help the sick and give shelter and clothes to the homeless… WE CAN! We also can start those companies to benefit ourselves as well without someone telling us that we need to give our money away and to whom.

    More government involvement is not the answer to everyone’s prayers. To quote scripture: Give a man a fish and he’ll eat for a day. Teach a man to fish and he’ll never go hungry again. Please tell me how
    having government handouts enable one to learn and continue to support themselves or their families?

  • scott

    “Why so many people do not see how successful government subsidised medical care is globally, is really beyond me.”

    Do you have any facts to back up this nonsense on how successful government subsidised anything is?

    I may have missed this, but I have yet to see the government do anything better than what the private sector can do.

  • Tabitha C.

    That is not happening. People who need assistance are already receiving it. 20 years ago, I had my first child and did not have health insurance that covered a pregnancy. I went in for delivery–after paying for all of my prenatal care and vitamins out of my pocket–and I was a waitress. After I needed a C-section, a government lady came to my hospital room and told me how I needed the government to pay for my hospital stay. She even said to me, “How do you expect to feed and care for this child?” My nurse mid-wife finally kicked her out of my room because she was upsetting me after I had major abdominal surgery. 5 years later (when I finally paid off my first child), I decided I wanted another baby, but could not add it to my major medical policy because my C-section was a pre-existing condition. I found a part-time job that would cover me–it was a benefit for them–and for me. This experience made me a stronger and more self-reliant person. I went to college, got a degree and have a good job now. The world is filled with good people who are willing to donate to good causes. My church had a fundraiser for a little boy who needed surgery that the family couldn’t afford. They even raised enough money for the family to stay at a hotel for the duration of the surgery and recovery. Having the government take our money, and give it to people that may or may not even be trying is quite different. We, as a society, are creating generations of people who don’t know how to take care of themselves. It is creating dependency, rather than empowering people.

  • Anne D.

    Yes, empowerment!

  • http://www.facebook.com/justforius.ninegagius Justforius Ninegagius

    Singapore.

  • http://www.facebook.com/justforius.ninegagius Justforius Ninegagius

    Honestly I’m more angry with the way this article was written. It throws out every concept of needs/wants.

  • http://www.facebook.com/justforius.ninegagius Justforius Ninegagius

    When your church raises funds – it does the same thing of creating dependency.

    The key point is that you still pool resources to help the needy. i.e. same as the taxes. It is not the concept of helping the less needy we are debating but rather the implementation: how you do not provide so much incentive that they stop fending for themselves.

  • http://www.facebook.com/justforius.ninegagius Justforius Ninegagius

    Because people keep thinking handouts are the only way to go to implement subsidies. That is bad policy. Countries around the world build in subsidies without actually giving a handout. They reduce the rental costs of hospitals, provide subsidies to purchase of equipment required for treatment of rare diseases, they loan money for medical degrees.

    Why giving people assurance on their health will create crippling dependence is beyond me. There are so many other reasons that push people to progress. Health still requires food and drink and shelter.

  • tabitha c.

    When my church raises money, it is a choice. I would not donate money, given the choice, to a never been married mother of six with six baby daddy’s. If you cannot care for your children, you should not be allowed to have more. I’m a recent believer that depo provero shots or norplants should be mandatory if you have one child and are receiving gov’t assistance. I’m not sure about the baby daddy’s, but they should be held accountable as well.

  • http://www.facebook.com/justforius.ninegagius Justforius Ninegagius

    Which brings us to the genesis of taxes – to systematically draw money from the general public to provide for services people and the private sector in their own mind would under-provide for. You volunteered when you decide to become or remain a citizen of the USA. You are very much welcome to exit. It is a choice.

    And if choice is your basis – you aren’t really giving people a choice when you tell them they are not allowed to have more kids. Wouldnt this be rather one-sided/biased? What if it is a hardworking family who fell on hard times, needing slight support to avoid being stuck in the poverty cycle? (i.e. 2008?) You inject them with drugs that more than 1/2 the world avoids just because you want to discourage octo-mums? How many such cases exist? Are they a majority or just a statistical blip?

    The point about government is that it isn’t meant to be perfect. There will always be people who game the system. But when you underprovide or impose onerous conditions, people who truly benefit suffer or underconsume and oft other social issues arise. They turn to crime, underground borrowing facilities, sell organs, etc. You aim to provide for the truly needy and minimise, not eradicate the issues that come along.

    More importantly, higher emphasis should be placed on better education. You increase education levels, you minimise bad planning.