People change their behavior in response to incentives. That is what economics is all about. So no one should be surprised that when a new law makes health care more accessible, some people will change their behavior, perhaps by working less. Whether that makes our society as a whole better or worse off varies with the circumstances in each case.
This, of course, is in reference to a Congressional Budget Office study, released last week, which found that by 2021, the Affordable Care Act will reduce the number of employed people by some 2 million compared with what it would have been without the act.
Most of this change will come on the labor supply side — workers in or seeking jobs. In other words, with access to health insurance not tied specifically to employment, and in some cases because such insurance is subsidized by the government, people will choose to work less. There is a much smaller effect on the labor demand side — potential employers opting to hire fewer people.
Such estimates are not new, but the most recent numbers are sharply higher than ones calculated earlier. Opponents of the act jumped on the study as evidence of how “Obamacare is destroying jobs.” Many, including the head of the Congressional Budget Office, jumped in to point out that was a misrepresentation.
Supporters argued that the new system was instead freeing people from jobs they would be better off leaving, except for needing the health coverage access. The new law thus was making such households better off and might even be improving the efficiency with which we allocate labor.
Hold on, opponents countered, such voluntary job-leaving is only due to the subsidy involved. As columnist Charles Krauthammer put it: “The taxes of the American factory worker … will be subsidizing the voluntary unemployment of the artiste.”
Who is right here? The answer is complex.
Start by remembering that the act was meant to address multiple failings in the existing system.
One was access. There were some people who, due to factors such as pre-existing conditions, could not buy individual health coverage at any price or only at extremely high prices. Another problem was that even when coverage was available at rates that reflected some level of group usage, the cost was prohibitive relative to people’s income.
If people chose to reduce the hours they work because of coverage made possible by the new law, some may do so because subsidies paid by others make it possible. But many others will bear the full cost themselves.
I have a friend who has a physically demanding job with the postal service. He is well past retirement age, is eligible for a pension and qualifies for Medicare. But his wife is several years younger and, for a variety of reasons, was simply uninsurable for individual coverage before the Affordable Care Act. Her own employer did not offer coverage.
My friend keeps his job because its family coverage benefit has been the only way to get health coverage for her. Now, at least when the small-business mandate goes into effect, there is a greater likelihood that she will be covered at her own work. Or she will be able to buy an individual policy on Minnesota’s state exchange. I don’t know their finances, but I doubt they will be eligible for any tax credit. So no one will be subsidizing his well-earned rest.
From an economic point of view, efficiency will have increased. For a variety of reasons, we had not had a well-functioning market for individual coverage. That is why, when Senate Republicans devised a market-friendly alternative to Hillary Clinton’s plan two decades ago, they included “state exchanges” and most of the other elements of what they now condemn as “Obamacare.”
The critics are right, however, that some people will choose to work less because they qualify for a tax-credit based subsidy. If not for this government program, they would have to work harder and employment numbers would be higher. So might total output or gross domestic product. This aspect of the Affordable Care Act distorts economic efficiency. But don’t kid yourself that this is anything new.
Social Security has the same effect. About 41 million people currently get Social Security retirement benefits. Many still do work, at least part-time. But most do not. If not for their monthly checks, which had been promised for generations of workers over the past 75 years, many of these retirees would still be in the labor force.
Before benefits were first paid in 1940, it was the lot of most people to work at least some hours as long as they were physically able. Only a fortunate economic elite had the means to stop working because they didn’t want to anymore.
If we abolished Social Security, we would increase the labor force. (I am skeptical about there being a net increase in GDP or national income, however.) But some retirees clearly are sitting around playing Hand & Foot or Rummikub because younger people are paying in FICA every month.
Ditto for Medicare. On average, Medicare recipients get two to three times as much in benefits as the actuarial value of that they paid into the system over their working lives. So there is a tremendous transfer from younger people to older ones, the largest welfare program in history.
If people 65 and older did not have this system or if they were limited to benefits related to what their generation had paid in, there would be lots of older people out working for a living. So should we call Medicare a job-killer?
If the federal government did not spend $10 billion or so a year subsidizing producers of wheat, corn, soybeans, cotton and rice, there would be fewer farmers drinking coffee at the local cafes or going down to Texas for the winter.
The crop insurance subsidies that reduce price and yield risk for a handful of crops reduce incentives to diversify. Without that insurance subsidy, more farmers still would have livestock and work more hours. They would spend more on veterinarians and other local inputs. But even the harshest critics of farm programs seldom raise their “job killing” aspect.
Other programs, including mandates to use ethanol or renewable sources of electricity raise prices and hence the value of land used in corn production or for wind turbines. A fourth or more of my personal net worth stems from these mandates.
For years, I have written two columns a week and taught a full load at a local college. Now I only write, in part because I don’t have to worry about my retirement because I own farmland and a share in a wind operation. That dropped “non-farm payrolls” data by one.
But I don’t hear many people arguing that the ethanol mandate is turning farmland owners into a bunch of lazy bums. Why not?