The recent Congressional Budget Office report on healthcare reform has lots of good news. Insurance premiums are lower than anticipated, the Affordable Care Act will cost $9 billion less than previously estimated and the provision designed to buffer insurance companies from risk will actually raise revenue, not function as any sort of federal government bailout.
But the good news has not gotten much attention because the CBO also projected that, within the next several years, healthcare reform may reduce employment and worker hours by the equivalent of about 2 million full-time positions. We told you so, critics declare: Obamacare is a job killer!
But actually the CBO did not project lost jobs at all. Job leaving is not the same as job losing. Many Americans who may eventually leave jobs or reduce their work hours will do so by choice to make themselves and their families better off. Voluntary reductions are not a cost of the healthcare reform law, they are a benefit.
Consider the 62-year-old worker who hates his job and who would happily retire on his Social Security benefits. Unfortunately, this worker cannot do it if he is married to a 55-year-old breast cancer survivor who does not work, and who in most states has been uninsurable in the individual insurance market before the new law. If that worker left his job, he and his uninsurable wife would face catastrophic medical bills. Now, with healthcare reform ensuring his access to affordable coverage, this man is no longer trapped. This is a good outcome.
Rather than make the untenable claim that everyone's current job is a moral duty, our aim should be to level the playing field in the labor market so people can make decisions to work or not — or how many hours to put in — for good personal and economic reasons, not because they are fettered to an employer health insurance plan.
But the likelihood of voluntary reductions in work is not the only issue. The CBO also projects work reduction by individuals who cut back on hours or avoid moving up the job ladder because they don't want to lose Medicaid eligibility, or because they don't want to make so much in wages that they would lose tax credits to help pay insurance premiums. Unlike voluntary job leaving, this second kind of work reduction would entail real economic distortions and be a cost, not a benefit.
Even so, the disincentive perturbation will be slight, amounting at most to a fraction of 1% of total U.S. wage compensation. And we need to bear in mind that any government program that targets benefits to lower-income people has this kind of disincentive effect. Hundreds of programs costing billions work like that. The only way to avoid disincentives is to make social benefits universal — not in any way targeted toward people who need help more. But that would explode costs and force huge tax increases.
Moreover, the Affordable Care Act has additional effects on the economy. The CBO projects that healthcare reform will reduce the federal budget deficit by $100 billion over the first decade and by more than $1 trillion over the second decade. Healthcare costs are also rising more slowly, in part because of provisions in the law. The economic gains from reducing the deficit and slowing healthcare spending likely outweigh any losses from slightly reduced labor compensation.
Crucially, the CBO report notes, but does not quantify, the new efficiencies we can expect in the job market from the reduction of job lock. With ways to ensure affordable health coverage no matter where they work, many Americans will be able to start small businesses or take new positions where they can be more productive.
Before reform, the best research suggests that job mobility among workers with health insurance was reduced by one-quarter because of fears about losing that coverage. By freeing workers from that fear, healthcare reform promises not only to make individual lives better but also to boost innovation and efficiency in the U.S. economy.
The effects on the job market and economy aside, critics calling for repeal of the Affordable Care Act would, according to CBO enrollment projections, deprive at least 25 million Americans of health insurance coverage. Millions of people would face possible financial catastrophes and suffer the adverse health consequences of being uninsured.
If naysaying politicians really believe it is worth throwing 25 million Americans off the rolls of the insured to avoid a fraction of a percent of reduced labor market compensation, then they should stand up and say so. Otherwise, they are simply scare-mongering without presenting a constructive solution to our national health insurance crisis.
Jonathan Gruber is a professor of economics at the Massachusetts Institute of Technology and a member of the Scholars Strategy Network.