PLANK JULY 9, 2012
-
Read Later
READ LATERAvailable only to subscribers. SUBSCRIBE TODAY
-
Listen
ARTICLE AUDIO
- Font Size
Forget death panels. Lately critics of the Affordable Care Act have been promoting a different claim—that “Obamacare” is a job-killer. Specifically, they say, it will stifle the economy with regulations and taxes. But the economic literature doesn’t support this claim. If anything, it suggests the opposite: The Affordable Care Act will boost the economy.
By now, most people who follow politics know that the law will result in more than 30 million additional Americans getting health insurance. But what few realize is that, by expanding insurance coverage, the law will also increase economic activity. These newly insured individuals will demand more medical care than when they were uninsured. And while it takes many years to train a family physician or nurse practitioner, it doesn’t take much time to train the assistants and technicians (and related support staff) who can fill much of this need. In many cases, these are precisely the sort of medium-skill jobs that our economy desperately needs—and that the health care sector has already been providing, even during the recession.
More immediately, the increase in economic security for American families will also mean an increase in consumer spending. Many uninsured consumers are forced to set aside money in low interest liquid accounts to make sure they have enough to cover unexpected medical costs. With the security provided by health insurance, they can free that money up for consumption that is much more valuable to them. When the federal government expanded Medicaid in the 1990s, my own research has shown, the newly insured significantly increased their spending on consumer goods. More purchases of consumer goods will provide short-run stimulation to the economy and more hiring.
But what about the financing—and all those “job-killing taxes”? The law does indeed apply new taxes, primarily on three sources. The first is on parts of the health care industry—medical devices, pharmaceuticals, and insurance. But these taxes are effectively asking those sectors to “kick back” some of the revenue increases that the law will provide, by creating so many new paying customers. On net, these sectors are major winners from health care reform.
The second is an extension of the Medicare tax on the wealthiest Americans, those with incomes above $250,000 per year. There is now a large body of literature examining the impact of tax changes on the highest income taxpayers. This literature finds that those taxpayers will avoid some of those taxes by re-categorizing their incomes in ways that minimize taxes. But there is no evidence that they will actually work less hard, invest less, or do anything which reduces their “real contribution” to the economy.
The third major tax provision is a “free rider penalty” of $2000 to $3000 (per employee) on medium and large businesses that fail to provide workers with affordable coverage, forcing those workers to get subsidized insurance via the new insurance exchanges. This will indeed impose a new financial burden on businesses that, unlike competitors, do not pay their fair share of health insurance costs. But the overall impact is likely to be very small. Only 2.6 percent of businesses will pay this assessment, and the revenue raised will amount to 1.4 percent of existing spending on health insurance in the U.S.—and only 0.1 percent of wages. The amount of stimulative spending that is put in place by the ACA is sixteen times as large as the revenues raised by this equity assessment.
Opponents of the ACA have frequently cited a Congressional Budget Office projection that the ACA will lead to a small reduction in the labor force. But it’s the explanation for that reduction that matters. CBO believes the reduction will be largely voluntary, among workers holding onto jobs primarily to keep their health benefits—the wife who holds down a job to provide health insurance for her self-employed husband, rather than staying home to raise the kids; the 62-year-old who hates her job and would happily retire but for the fact that she would be uninsured until age 65. Economics research has shown clearly that when health insurance is available, both secondary earners and older workers will take advantage of this new opportunity by moving out of the labor force to opportunities which make them happier.
This same research has shown that a major cost of our employment-based health insurance system is “job lock”—that is, individuals clinging to jobs, rather than switching employers or starting their own businesses, because they fear losing their existing health benefits. Extensive research shows that job lock reduces the mobility of those with health insurance by as much as 25 percent, reducing their ability to move to positions where they could be more productive and happier. The Affordable Care Act will address job lock by providing protection Americans don’t have right now: A promise of comprehensive coverage, at affordable prices, no matter what their source of employment. For the first time, Americans with pre-existing conditions or other barriers to the discriminatory individual insurance market will be free to pursue the job opportunities where they can be most productive and happiest.
Of course, the long-term goal of the Affordable Care Act is to reduce spending on health care. And the best projections suggest that it will. Although the law will boost spending initially, the effect is likely to be modest. The official Medicare Actuary projects that, by 2019, the ACA will raise health spending by 1 percent, or 0.2 percent of GDP; this is less than one-sixth of one year’s growth in national health expenditures. Over time, however, the multiple initiatives in the ACA will kick in to help “bend the cost curve,” through increasing consumer incentives to shop for low-cost insurance, moving towards prospective payment methodologies that reward value rather than treatment intensity, and assessing which strategies are cost effective for managing illness. The reforms in the ACA represent the most ambitious initiatives to control health care costs that we have seen in federal legislation. If successful, these can ultimate provide the most important stimulus to job growth in this legislation—by freeing up resources for other, more efficient uses
In sum, we know that the ACA will increase jobs in the medical sector in the short run, above and beyond any partial offsets from new excise taxes on that sector. We know that the ACA will improve the functioning of our labor market in the medium run, by allowing workers to move to the positions in which they are most productive and satisfied. We know that there will be little economic drag from taxes on the wealthy or the small equity payments imposed on employers. And there is a good chance that the ACA will greatly improve the economy in the long run by controlling the rate of health care cost increase. The choice between protecting our most vulnerable citizens and improving our economy is a false one—fully implementing the ACA will make both our citizens and our economy more secure.
Jonathan Gruber is a Professor of Economics at MIT. He was a technical consultant to the Obama Administration during the development of the ACA.
15 comments
You guys have a typo: "But it’s not the explanation for that reduction that matters." The "not" doesn't belong.
- hsny
July 9, 2012 at 9:20pm
Ah, the dreams I've had for my sons realized at last---long careers as medical records specialists, health care claims adjusters or maybe even physicians (i.e. underpaid employees) at medical center behemoths. Thanks a ton, Professor.
- SteveJudd
July 9, 2012 at 11:11pm
It's been argued that WW II was what really ended the depression. Both my father and a brother-in-law worked in rather "Dr. Strangelove" well-paying Cold War defense industry jobs for many years. More recently, the War on Terror has kept many people employed in high salary jobs. As long as we are going to keep people employed with unwinnable wars, let's go all out and declare a "War on Death." As someone who has been healthy most of my life, and just got out of hospital after a bout with a serious illness, I am all for it. In fact, make me the poster child for eternal life rather than Kurzwell or Vernor Vinge. After all, it definitely should be an atheist who gets to live forever. Except...eternal life would undoubtedly be a Hell of boredom after a few million years. Scratch the idea. [Thump.]
- skahn
July 10, 2012 at 12:22am
SteveJudd, A job is a job and food on the table is food on the table. If we give the economy back to the Republicans, we could end up in soup lines like we did under Hoover. Under Obama and the ACA it will at least be our own food on our own tables. And probably some pretty tasty food at that. Medical employees get paid well.
- magboy47.
July 10, 2012 at 12:26am
The advantage of crafting an inefficient solution for a complex problem is that it provides economists with a laboratory to study the problem, the inefficient solution, and more efficient alternatives. Not that we will actually adopt an efficient alternative, but the research will employ economists who might otherwise sit idle. ACA's beauty is that it combines two inefficient systems, health care and employment taxes, exacerbating the inefficiency of the former but, quite possibly, accelerating the end of the latter (there's always hope). Today, health care is divided by groups, one system for elders, another for employees of relatively large employers, another for employees of small employers and the self-employed, another for the unemployed, another for children from families with low incomes, another for public employees, and another for those who slip through the cracks of the others. Now, after ACA, we have another for the near poor who otherwise slip through the cracks of all the others. And each group is further divided into subgroups (for example, straight Medicare and Medicare HMOs for elders). But even the inefficiency of health care can't compare with payroll taxes, which penalize employers for hiring employees! Who dreams up these "solutions"? Maybe Americans prefer inefficiencies, our constitution being filled with them. I mean, North Dakota and New York having the same number of representatives in the Senate. So it's true, ACA should increase employment, at the least for all those economists who will study the inefficiencies and craft more efficient alternatives. Not, mind you, that we will actually adopt an efficient alternative. [Professor Gruber cannot be blamed for what he was given to work with, and not even he can make a silk purse out of a sow's ear.]
- rayward
July 10, 2012 at 7:48am
If there is one spokesperson for the ACA that arouses my anger, it's Jonathan Gruber. He has been going about the country shilling for the act but every time someone asks about controlling costs and sustainability, the MIT economist fumbles, saying we'll get to that later. He knows the Massachusetts plan has serious problems. Now he's touting the ACA as a job creator in fields that have little to do with medical care. Just watch the MCOs descending like vultures on the state Medicaid programs. Gruber was a consultant for Taiwan's single payer plan, likewise Vermont. He knows a Medicare-for-All single payer plan is the solution to our US mess--that's why his advocacy for a system that is unnecessarily costly, that can also be downright inhumane, is so disturbing. The high cost of private insurance is as immoral as usury. I suggest Gruber and TNR readers use the Kaiser Fdn Calculator to estimate the cost of a family plan in the private insurance market: http://healthreform.kff.org/Subsidycalculator And to think the taxpayer-funded ACA subsidies will pass though the insurers to Wall St. And where was the "economics research" done that indicates workers feel free to change employer when health insurance is readily available"? I'll bet that was done in a single payer country where everyone from musician to miner, stay-at-home parent to self-employed plumber is covered. Bill Clinton told Reuters last summer that we could be saving a trillion per year if we had the health care system of any other advanced industrialized nation. Gruber knows it. Gruber does Jesuitical dancing on the head of a pin in order to defend the ACA debacle. And --oh, I almost forgot--the "respected academic" was a little late admitting to conflict of interest while being paid by the Obama administration. Don't get me started.
- hmseil01
July 10, 2012 at 10:01am
Except, rayward, that the ACA offers the possibility slowly reducing those groups to three: the poor, the elderly, and those who get their (subsidized) insurance through the exchanges, as employers gradually lobby to shift their employees into the exchanges. Add a public option and we can even begin to move towards single payer. Be patient: Rome, built, day, yadda yadda.
- timteeter
July 10, 2012 at 10:07am
"And while it takes many years to train a family physician or nurse practitioner, it doesn’t take much time to train the assistants and technicians (and related support staff) who can fill much of this need. " I am sure that when Mr. Gruber is ill and needs a doctor, he will be happy to settle for a lab technician. What rubbish!
- NHRDS
July 10, 2012 at 10:11am
strange thread. my wife is a nurse, precisely that type of support staff job that the ACA will help build upon, yet people here make light of it as being somehow undignified. Damn, there is nothing ignoble about being a medical records specialist.
- blackton
July 10, 2012 at 11:37am
I do not understand why the argument isn't made that the current health care system is a tremendous drag on our economy by limiting the mobility of labor. I have a job, I have health insurance, I can't quit (and, thus, I can't move; aka a frozen housing market) because I could lose my health coverage. If I wanted to start my own business, forget it. I must take into account the health of myself and my family. Our economy is hugely inefficient because of our health care system. Has anyone seen any data on these costs?
- poldpf
July 10, 2012 at 11:59am
poldpf, Good point. We need something even beyond the ACA. We need national health insurance, like every other civilized nation has. But the Right doesn't want civilization. They want war, where we have to fight for even the smallest of human rights. That's one of the ways they keep us in our places. Your accurate description of the confining aspects of our current health care system reminds me of the internal passport system in Tsarist Russia and the Soviet Union.
- magboy47.
July 10, 2012 at 2:09pm
You've got to be deluded. What gov't organized project ever turned out to be economically successful-the post office, Amtrak? Why do you believe that Obamacare will work better than private solutions? Catastrophic cheap health ins available to be purchased in any state, without a ton of attached mandates for coverage, would be affordable and let individuals own their own ins, not just employers provide it. That's one possibility using private mechanisms. You think giant affordable care organizations will be consumer friendly and save money. I highly doubt it. You can sit there and analyze economic variables all you want, but first find examples of successful large government controlled projects that don't cost more and more and run huge deficits. I guess you can argue the social value of expanding health care, but economically it will result in huge cost overruns and inefficient service. Why does Amazon use UPS and FedEx and not the US Post Office? I need an example of cost effective government devised and run programs.
- robertsk
July 10, 2012 at 8:16pm
Robertsk, The interstate highway system, the internet, the building of the railroads in the 19th Century, the military, Hoover Dam, the St. Lawrence Seaway, The Public University System, the moon shot, civil rights, almost every bit of health care research...and I could go on. Every single one of these accomplishments was funded in part or in whole by the Government. (BTW the post office was specifically mentioned in the Constitution and was considered an essential feature of a democracy in the 18th Century.) And what did private industry give us? Obesity, pollution, urban sprawl, and the Avengers. What planet are you from?
- poldpf
July 10, 2012 at 11:06pm
Robertsk, I apologize for that last wisecrack. I have a rule to keep it civil and I broke my own rule.
- poldpf
July 11, 2012 at 9:35am
robertsk: Not to mention the Lincoln Tunnel, Washington National Airport, La Guardia Airport, Golden Gate Bridge, Triborough Bridge, Grand Coulee Dam, Fort Knox, Cincinnati Public Water Works, Aircraft Carrier Yorktown, to name a few of the facilities from the New Deal. Were (are) all these works unviable? Ok, maybe Yorktown--it was sunk in World War II.
- ballston
July 11, 2012 at 4:32pm