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ObamaCare: 1 Million from Work to Welfare

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.

James Pethokoukis

James Pethokoukis is the Money & Politics columnist-blogger for the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews. Pethokoukis has written for many publications including USNews & World Report, The New York Times, The Weekly Standard, Commentary, USA Today, and Investor’s Business Daily.