Economics, Health Care, Pethokoukis

Study: Obamacare could cause 1 million low-income Americans to move from work to welfare

Image Credit: Shutterstock

Image Credit: Shutterstock

A new study suggests President Obama’s Affordable Care Act might have yet another huge and negative unintended consequence: if low-income adults can get health insurance through Obamacare’s Medicaid expansion, they are less likely to try and get a job — or keep a job. As Public Health Insurance, Labor Supply, and Employment Lock by Craig Garthwaite, Tal Gross, and Matthew J. Notowidigdo puts it:

Our results suggest a significant degree of “employment lock” – workers employed primarily in order to secure private health insurance coverage. The results also suggest that the Affordable Care Act – which similarly affects adults not traditionally eligible for public health insurance – may cause large reductions in the labor supply of low-income adults. … One must exercise considerable caution when directly applying our results to the ACA, but our results appear to indicate that the soon-to-be-enacted health care reform may cause substantial declines in aggregate employment.

How substantial might the shift from work to welfare be?

Using CPS data, we estimate that between 840,000 and 1.5 million childless adults in the US currently earn less  than 200 percent of the poverty line, have employer-provided insurance, and are not eligible for public health insurance.

Applying our labor supply estimates directly to this population, we predict a decline in employment of between 530,000 and 940,000 in response to this group of individuals being made newly eligible for free or heavily subsidized health insurance. This would represent a decline in the aggregate employment rate of between 0.3 and 0.6 percentage points from this single component of the ACA.

And the other big finding here is Obamacare could cause an even bigger and costlier move into Medicaid than current forecasts:

Our results suggest a far larger increase in Medicaid enrollments from the ACA than is currently estimated. In 2011, approximately 8.9 million Americans with incomes below 139 percent of the poverty line were covered by employer-provided health insurance. If all states implement the Medicaid expansion, our estimates suggest that approximately 4.2 million of these privately insured individuals will move into public coverage.

To place this number in perspective, the Congressional Budget Office estimated that if all states implemented the ACA Medicaid expansion, there would be 16 million additional Medicaid enrollees. In an earlier analysis, the CBO estimated that only 10 percent of the new Medicaid enrollees will previously have had private coverage. Our results suggest much larger crowdout among childless adults, which may result in a 16 percent increase in public health insurance enrollees under the ACA.

The researchers arrive at these numbers by examining the labor market impact of Tennessee’s 2005 decision to discontinue its expansion of TennCare, the state’s Medicaid system. They found that the TennCare disenrollment caused “a large and immediate labor supply increase” as folks who lost coverage starting looking for work. More:

 Indeed, we find a similarly large increase in private health insurance following the disenrollment, suggesting that public health insurance had been “crowding out” private health insurance When we explore the dynamic effects of the disenrollment, we find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage. The pattern of changes in labor supply and the crowdout behavior suggest that disenrollees entered the labor market and gained employment in order to procure health insurance. This finding is consistent with both.

And Obamacare would cause the reverse effect, pushing those getting subsidized coverage to leave the labor force. The result is especially worrisome for the health of working America if you combine it with Obamacare’s possible nudge toward more part-time workers in place of full-time workers.

8 thoughts on “Study: Obamacare could cause 1 million low-income Americans to move from work to welfare

  1. Government interference has already severely distorted medical goods and services pricing to the point that prices don’t reflect useful information or reality. Obamascare makes this thousands of times worse, so the fact that it will also to some degree incentivize and raise unemployment is completely expected.

    Medicare and Medicaid will both explode, more than they have to date:

    http://www.chcf.org/publications/2012/08/data-viz-hcc-national

    The unintended consequences to this terrible piece of legislation are staggering.

    Obamascare will go down as the worst piece of legislation in American history.

  2. Low income workers don’t typically receive medical insurance benefits. I know plenty of folks with careers in certain industries that have never had access to employer-subsidized insurance. I think that, with the expansion, more of these low-income workers would just keep working, but now qualify for subsidized coverage. Where am I wrong?

    FWIW, I’d rather have the government out completely and not have subsidized insurance tied to employment.

  3. I am wondering what all of these people who give up their jobs so they can get Obamacare will do after the Progressives convert Obamacare into a Single Payer System and the government runs everything. Something’s got to be given up when the government cannot come up with the funds. That’s why Obamacare has Death Panels.

    • There will be rationing by queue. That’s how government health systems operate all over the world.

      Think of how the airline system would operate if government ran it and everyone was entitled to fly as often as they wished for one low price. Instead of raising prices on the most popular routes so that supply and demand equalized, you would take a number and maybe in a few months you could fly to your destination. Someone who needed to close a multimillion dollar business deal would have the same priority as someone who wanted to visit some friends.

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