7/16/2013
Another wrinkle to the greatest legislative disaster in modern history is revealed in a new report called “Public Health Insurance, Labor Supply, and Employment Lock,” excerpted by James Pethokoukis at the American Enterprise Institute. The “employment lock” concept is of particular interest. It seems that the desire to acquire health insurance is a significant factor in prompting many low-income people to seek employment, and by relieving that incentive, ObamaCare could prompt a lot of marginal employees to give up and slide into welfare dependency. It doesn’t help that entry-level labor is not exactly a seller’s market these days.
With all due caution about the difficulty of extrapolating their findings over a large population, the authors of the study extrapolated away, and the results were not pretty:
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.
They’re also predicting a far more massive exodus into Medicaid than previously anticipated, which will vindicate the caution of state governors who have resisted ObamaCare implementation.
These projections are not a matter of abstract theory, because a solid real-world test case was available: the Medicaid expansion in Tennessee, which was discontinued in 2005, prompting a “large and immediate labor supply increase.” This was a clear example of how the quest for health insurance can be a surprisingly strong motivator for employment.
