Obamacare May Cause Some Workers to Quit, But That’s OK

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“The United States is unique among industrialized countries in its tight linkage between health insurance and employment,” began a National Bureau of Economic Research working paper, regarding the effects the Affordable Care Act could have on the labor market. “Government health insurance programs cover the disabled, low-income parents, and those older than 65, but few other adults qualify for public coverage. Americans without access to public or employer-provided insurance can purchase health insurance through the individual, nongroup market, but that market is believed to face adverse-selection pressures. As a result, many Americans can only access affordable health insurance through their employer, and thus expansions of public health insurance can have large effects on the labor market.”

Some analyses have indicated that the Affordable Care Act would create a “pathway from work to welfare.” The fear is that employers will cut workers’ hours to part-time so that the number of hours worked per week fall below the 30-hour-per-week cutoff designated by the employer mandate of Obamacare; thirty-hours-per-week being the point in which companies with 50 or more full-time employees must provide insurance coverage.

That fear is well-based, given the fact that companies like Wal-Mart (NYSE:WMT) have been hiring just temporary workers in recent months, but the health care reform may have have other, more beneficial effects, on the labor market. Craig Garthwaite of Northwestern University’s Kellogg School of Management, Tal Gross of Columbia University’s Mailman School of Public Health, and Matthew J. Notowidigdo of the University of Chicago’s Booth School of Business said in their NBER paper that while approximately 800,000 low-income Americans may quit their jobs after the health care reform is fully implemented, that might not be a problem.

“Overall, our results demonstrate that public health insurance eligibility can have large effects on the labor market,” they wrote. The 2010 Affordable Care Act — the largest public health insurance expansion since the creation of the “Great Society” programs of the 1960s — “may cause large reductions in the labor supply of low-income adults” because those individuals who work only to receive employer-provided health insurance will quit and sign up for Medicaid or subsidized coverage on the newly-created insurance exchanges. Garthwaite, Gross, and Notowidigdo calculated that the Obamacare-related decrease in the labor supply among this group of low-income workers could reduce the employment rate by between 0.3 and 0.6 percentage points.

“Importantly, this predicted reduction would be driven by changes in labor supply and therefore would not necessarily imply a welfare loss for individuals choosing to exit the labor force,” they added.

In an interview with Bloomberg, Garthwaite further explained why this decrease in employment is not a negative consequence of the health care reform, but the end of the so-called “employment lock” — a phenomenon that occurs when individuals decide to work primarily to access affordable health care. According to him, jobs are only “killed” when there is a reduction in the demand for workers. In the case of the Obamacare-related decrease in employment, it is a reduction in the supply of workers that is the issue. Low-income employees, who choose to work for health benefits, may find it tough to work because of their poor health or because they are needed at home to take care of the family. Therefore, if they have the option to leave their jobs and do so, then they are in a better situation, he added. Also, given the current high unemployment, the supply of workers looking for employment is sufficiently high so that the vacated jobs will be filled.

“We’re really taking the shackles off a lot of people in that they can make the choice of employment that’s best for them,” concluded Garthwaite.

The problem that should be kept in mind is that not all states will be expanding Medicaid. If all states implemented the Medicaid expansion, Garthwaite, Gross, and Notowidigdo calculated that approximately 4.2 million of the current privately insured individuals would move into public coverage. Already, the Congressional Budget Office has calculated that if all states expanded Medicare, as the Affordable Care Act assumed when it was first written, then there would be 16 million additional Medicaid enrollees. Expanding Medicaid might have been essential to Obamacare’s two-part strategy for covering the uninsured, but, the Supreme Court ruled that the requirement was unconstitutional. Because many states have not expanded Medicaid coverage as President Barack Obama requested, nearly two out of three uninsured, low-income Americans who would qualify for subsidized coverage under the Affordable Care Act might just be out of luck.

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