How Will The Affordable Care Act Affect Jobs?

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How Will the Affordable Care Act Affect Jobs?
Timely Analysis of Immediate Health Policy Issues
March 2011
John Holahan and Bowen Garrett

Opponents of health reform have made strong claims about the effect of the Affordable Care Act (ACA) on jobs. Supporters of legislation to repeal the ACA, the so-called “Repealing the Job Destroying Health Care Law Act,” argue that the law will increase unemployment in an already fragile economy.1 The argument is that the requirement to provide health insurance or improve benefits will increase the costs of labor to employers. In cases where wages or other benefits can be reduced as an offset, firms can absorb the increased cost of providing health insurance and there should be no employment effects. But if wages cannot be cut because of collective bargaining agreements or the fact that wages are already close to minimum wage levels, the demand for labor, and thus employment, would likely fall. Those making the job destroying claims often cite a study released before the details of the reform legislation were known, which found a loss of as many as 1.6 million jobs.2 This view implies that repealing the ACA will increase employment. This argument falls short for several reasons. First, the overall economic effects of the law are simply too small relative to the overall size of the economy to have much of an effect on employment. Second, there are many offsetting effects. The tax provisions in the law will reduce the demand for labor in many sectors and the Medicare cuts by themselves would reduce employment in the health sector, but the expansion of coverage through Medicaid and income-related

subsidies in the exchanges would have the opposite effect on spending and employment. Third, the new law will not affect most firms, either because they already provide health insurance meeting the new federal standards, or they are exempt from the new requirements (firms with fewer than 50 workers). This paper draws heavily on an earlier paper that looked at the impact of health reform on the economy and employment but updates that effort.3 The basic conclusion is that the ACA will not have a noticeable effect on net levels of employment.

a different modeling approach and considering spending from all sources, the Center on Medicare and Medicaid Services (CMS) actuaries estimated the increase in national expenditures attributable to reform to be $311 billion over 10 years—0.17 percent of GDP over the same period.5

Offsetting Effects
This does not mean that there will not be important effects on individual sectors of the economy. The expansion of health insurance coverage through new Medicaid coverage and incomerelated subsidies will increase federal spending on health care ($938 billion over 10 years, mostly from 2014 through 2019). This will result in increased demand for labor in the health sector, including increasing use of medical equipment, new technologies and pharmaceuticals and could lead to wage and salary increases in the health sector. At the same time, spending reductions in Medicare and other government programs will partially finance health reform ($511 billion).6 These reductions will have the opposite effect, reducing the demand for labor and the purchase of services and equipment in the health sector. The net effect, however, will be positive—higher net spending on health care services and more employment in the health sector. On the other hand, the net new spending will be financed through various taxes on insurers, medical device and pharmaceutical manufacturers and the earned and unearned income of individuals with incomes over $200,000 ($250,000 for couples). The increased taxes on health care providers and insurers could mean

Spending and Financing Provisions Are Very Small Relative to the Size of the U.S. Economy
It is almost impossible for the ACA to have a significant effect on the overall economy or on unemployment simply because the effect