Yes, Obamacare will probably downsize the workforce. Economists explain why.

February 5

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, or sign up here to receive it straight from your inbox. Read previous columns here.


(Photo by Daniel Acker/Bloomberg)

If you want to understand the newest Obamacare projection coming out of Washington -- the one that says health reform will convince millions of Americans to work less -- the best place to start might be Tennessee.

Back in 2005, Tennesse's Medicaid program was facing a shortfall, and the state abruptly halted coverage for 170,000 low-income adults, a population that the state was not required to cover. This dramatic coverage cut was a rare event. And it gave Craig Garthwaite, a health economist at Northwestern University's Kellogg School of Business, the opportunity to probe what's become an increasingly important question: Does the availability of government-funded insurance effect employment?

Garthwaite's findings suggest that it does, potentially to a strong degree. When Tennessee ended Medicaid coverage for tens of thousands of residents, Google searches for "job openings" increased. And Tennessee's employment rate began to tick up, in a way that was distinct from its neighboring states. The type of jobs they were finding, Garthwaite and his colleagues found in a recent National Bureau of Economic Research paper, were over 20 hours per week, suggesting they were more likely to provide health insurance benefits.


"Health insurance is the only good I can think of where you have to be working at a job to get a fair price," says Garthwaite. "It's not working to get the money to pay for it. It's working to get the price. The Affordable Care Act is going to change that."

Garthwaite's research on Tennessee is among the handful of studies the Congressional Budget Office relied on in its new budget outlook, which projects that the health care law will reduce the hours Americans work by the equivalent of 2 million full-time jobs. Unlike most Obamacare stories on jobs, this was not about companies slashing positions or reducing hours. This was about workers getting health insurance outside of their workplace -- and deciding not to work at said workplace as a result.

"This is not about the Affordable Care Act killing jobs," Garthwaite says. "This is about people making choices. We might not be happy if people are choosing to leave the labor force, but it's a reflection of the policies that we've set up."

Before the Affordable Care Act, buying health insurance on the individual market was hard, sometimes impossible. Insurers didn't have to sell every shopper a policy. They could pick the healthy people, who would likely submit few claims, or jack up the rates on people who were sicker.

kaiser premiums3

The health-care law changed all that in significant ways. It ended preexisting conditions, meaning that insurers cannot charge shoppers more because of their medical history. The federal government also added in subsidies for anyone who earns less than 400 percent of the poverty line (about $45,000 for an individual), capping their premium at a certain percent of their income.

The health-care law took down a lot of the barriers to purchasing health insurance in an individual market. This is typically the part of the law that Americans really like (as opposed to the mandate to buy insurance). All of a sudden, employment isn't such a key ticket to accessing affordable health insurance.

As to what that means for employment, Harvard University health economist Kate Baicker says, "There are reasons to think it could go either way."

"On the one hand, when you expand a program where eligibility is based on income, that means if people increase their income, they could lose eligibility. That may create a disincentive to find a job," says Baicker, who was a member of President George W. Bush's Council of Economic Advisers from 2005 to 2007. "But if health insurance makes people healthier, it might give them extra resources that could increase their ability to hold or search for a job. People have made arguments in both directions."

The body of research on how health insurance expansion affects labor force participation is far from complete, ecoomists say, mostly because there aren't that many health insurance expansions to study. Researchers don't know for certain how many people keep their jobs because they provide health insurance -- or how many would leave their jobs if they had access to affordable health coverage elsewhere.

But, on balance, most research seems to suggest that increasing access to insurance does not increase labor force participation, the second theory that Baicker gamed out. There is some evidence that greater insurance access doesn't change labor force participation or -- as the CBO projects -- that it does reduce the number of workers seeking jobs.

Baicker's own research focused on Oregon's 2008 Medicaid expansion, which the state conducted by lottery -- creating a random sample of people who wanted coverage but didn't get it and those who did get coverage. In an October 2013 paper, Baicker and her colleagues Amy Finkelstein, Jae Song and Sarah Taubman found no change in labor force participation when the state expanded Medicaid.

"We found that Medicaid has no detectable effect on employment, whether you had a job, your earnings or the probability of having income above the poverty level," she says.

This is different from Garthwaite's research in Tennessee, which was among a slightly higher-income population (people between 100 percent and 200 percent of the poverty line) and which did show increases in employment after the state cut its Medicaid program.

"We find that about half of these people enter the labor force and enter it in a way where they're working more than 20 hours a week," he says. "This suggests they were looking for health insurance."

Separate research on Wisconsin's Medicaid program (also cited by the CBO report) looked at employment differences between adults who gained access to a coverage expansion in 2009 and those who landed on the program's wait list. It found that gaining Medicaid coverage cut labor force participation somewhere between 0.9 percent and 10.6 percent, depending on the models used.

"These studies suggest there's at least some people whose primary motivation to get a job is health insurance," said Tom DeLeire, a labor economist at Georgetown University and co-author of the Wisconsin study. "That is consistent with a lot of anecdotes you hear, but none of these studies show conclusively that losing coverage is the reason people are entering the labor force."

Is it a bad thing for those who are in the labor market in order to get health coverage to now leave because they'll have more insurance options? "There's been a fierce debate among economists about whether this is a good thing or a bad thing," Garthwaite says. "I'd say people exiting the labor force reflects their preferences, and we're removing an inefficiency that stood in the way."

Many economists don't like the idea of tethering insurance access to employment; as Garthwaite pointed out earlier, it's pretty bizarre to have a product where employment is a precondition for purchase. Economists don't like the idea of the labor force shrinking, either, because of the risk of slower economic growth.

"If workers are choosing to work less because they're getting health insurance from Medicaid or the exchanges, it likely means they're better off doing that," DeLeire says. "It doesn't mean that we think, from a policy perspective, that's a good thing, because a reduced labor supply has implications for economic growth."

KLIFF NOTES: Top health policy reads from around the Web.
CVS will stop selling cigarettes by Oct. 1. "Pharmacy chain CVS said Wednesday it will stop selling tobacco products at its 7,600 locations across the United States, a move that public-health advocates hope will become a watershed and pressure other large drug store franchises to follow suit. CVS executives said the decision could cost billions of dollars in revenue because cigarettes draw so many customers to their stores. But by jettisoning tobacco products, CVS can further define its pharmacies as full-fledged health-care providers and strike more profitable deals with hospitals and health insurers." Sarah Kliff in Wonkblog.

Obamacare insurers may be forced to add more providers to their networks. "Insurers participating in Obamacare may have to expand their plans to include more federally funded health clinics, safety-net hospitals and other medical providers used by low-income people, under a U.S. proposal. Health plans offered through government-run insurance exchanges may be required to cover 30 percent of “essential community providers” in their areas in 2015, an increase from 20 percent this year, according to a letter to insurers issued today from the Health and Human Services Department." Alex Wayne in Bloomberg.

Obamacare enrollees hit snags at the doctor's office. "After overcoming website glitches and long waits to get Obamacare, some patients are now running into frustrating new roadblocks at the doctor's office. A month into the most sweeping changes to healthcare in half a century, people are having trouble finding doctors at all, getting faulty information on which ones are covered and receiving little help from insurers swamped by new business." Chad Terhune in the Los Angeles Times.

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