The Affordable Care Act and Jobs

This week it has been impossible to ignore the news about the Supreme Court’s upholding of almost all the provisions of the Affordable Care Act (ACA), the so-called Obamacare law. The ACA will affect our lives and the U.S. economy as a whole in many ways, but what particularly interests me is its impact on jobs.

Therefore, I took instant notice of an entry on The New York Times Economix blog by a regular contributor, Prof. Casey B. Mulligan of the University of Chicago. Prof. Mulligan argues that “the coming Medicaid expansion will reduce employment,” although he holds out hope that some of this can be prevented by the Court’s ruling that states can opt out.

The ACA expands Medicaid coverage to those earning up to 133% of the federal poverty level. Prof. Mulligan’s argument that the ACA will reduce employment is based on these premises:

• Able-bodied adults who are currently earning wages below 133% of the poverty level are working mainly to get employer-paid health insurance and will no longer need to work when ACA expands Medicaid coverage (unless governors block it in their states).

• Medicaid is a transfer, so even though it creates jobs where the funds are spent, it destroys jobs where the funds are obtained.

Now, here’s what’s wrong with this argument.

The first premise—that low-wage workers are holding jobs merely for the insurance—is based on the unrealistic assumption that all jobs come with health insurance as a benefit. My job does, and Prof. Mulligan’s does, but this benefit is much less assured for jobs held by the working poor. Keep in mind that, for a single adult, the 133%-of-poverty level is just under $15,000 per year. The Washington Post/Kaiser Family Foundation/Harvard University Survey of Low-Wage Workers (PDF), which covered workers earning as much as $27,000, found 27% of them without any health insurance. A 2001 survey by the Commonwealth Fund (PDF) found that, among those earning $10 or less per hour (equivalent to about $20,000 or less per year), only 30% working for a small employer and only 69% working for a large employer were eligible for an employer-offered plan. Still another study (PDF) found employer-paid health insurance in 2005 covering only 23% of workers earning less than $15,000 per year.

But even if some low-wage workers have employer-paid coverage and quit their jobs once ACA gives them Medicaid coverage, does that mean the jobs cease to exist? Especially in the present slow recovery from recession, other workers will happily take these vacated jobs. The Survey of Low-Wage Workers found that health care and health insurance came in fourth among the expenses that respondents had trouble meeting. Funds for their children’s education, transportation costs, and savings for retirement were greater concerns. In other words, low-wage workers need a paycheck for a range of necessities, and employer-paid health insurance clearly is not the only reason they stay in a job or would take one vacated by another worker for whom this is the only concern.

The second premise, that transfer payments are job-neutral, makes sense only on a theoretical level and comes crashing down once you apply it to the realities of health care and the ACA. First, the Medicaid funding is based on progressive taxation, which means that the funds are transferred from the high-earners, who would have spent some of it and saved some of it, in contrast to the low-earners who are spending all of it (on health care). Yes, savings would create investments, which would create jobs, but nowadays more and more of those investments are creating jobs overseas. In addition, those dollars that the high-earners spend would go to a mixture of goods (many imported) and services, whereas the bulk of health-care spending goes to American service workers. In fact, health-care spending supports a lot of low-skill jobs—for example, over 1 million home health aides, with a 69.4% growth projected between 2010–2020. In short, the job effect of a dollar is not identical no matter where it lands in our economy.

Expanded Medicaid spending will boost jobs. I’m still waiting to hear some actual specifics about the replacement plans of those who advocate repealing and replacing the ACA. I don’t find any reasons to expect expanded employment from the platitudes and generalizations I’ve heard to date.