Monday, December 22, 2014

Obamacare as a job-creator, not a job-killer

MIT economist Jonathan Gruber says the new law should spur midlevel job creation - just what the economy needs.

Obamacare as a job-creator, not a job-killer

MIT economist Jonathan Gruber has advised both major parties on health-care reform.  In fact, he enjoys the unusual distinction of having helped shape both "Obamacare" and "Romneycare," the sometimes-derisive nicknames for 2010's Patient Protection and Affordable Care Act and its Massachusetts predecessor. He's also one of the sharpest people I've ever interviewed, which is why I pay attention when he speaks or writes.

Gruber has argued repeatedly that if universal access to health care is achieved in a smart way, it can be a long-run economic spur - for instance, by eliminating a source of friction that discourages people from taking entrepreneurial risks. So-called "job lock" is an undeniable side-effect of the accidental system we have now, in which health-insurance coverage is generally provided through employers.  If you have a great idea and also have, say, a spouse with a pre-existing condition, you're at least a little more likely to stay put in your job and shy away from a risk.

In a new piece in the New Republic - Will the Affordable Care Act Kill Jobs? - Gruber says the economic literature shows that expanded coverage should provide several sources of economic boost, in part because the newly insured will demand more care.

"[W]hile 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," Gruber writes. "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."  He also suggests it will spur spending by consumers who would otherwise be paying or saving for uninsured care.

More coverage
 
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But what about the costs of expanded access - and all those new taxes? Gruber writes:

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.

Gruber's new piece also addresses the job-lock issue - acknowledging that the Congressional Budget Office predicts a small dip, initially, in employment as a result of the law, but arguing that it's the explanation 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.

As a columnist, I get an angry response every time I argue that the ACA's increased access to coverage will provide substantial benefits to society along with its costs.  The truth is that  policymaking is always a balancing act, and the ledger does include intangibles such as ensuring a more humane society (on my side of the argument) and limiting the role of government (on the opposite side).

Plenty of people are complaining about the costs of Obamacare, and about the potential for unintended consequences - such as a drop in the fraction of employers who provide health insurance, or, as an email I received this morning argued, the incentive for low-wage employers to avoid the new penalties by cutting workers to part-time.

But in the best tradition of his profession, Gruber has identified tangible economic benefits that should also be weighed as the country faces an election that may decide an important new law's fate.

Jeff Gelles Inquirer Business Columnist
About this blog

Jeff Gelles, who writes the Inquirer's weekly Consumer 14.0 and Tech Life columns, takes a broad look at the marketplace of goods, services, and ideas.

Reach Jeff at jgelles@phillynews.com.

Jeff Gelles Inquirer Business Columnist
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