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Opinion

Obamacare: The big job creator?

The Affordable Healthcare Act has received much criticism, but few have yet to realise one of its significant benefits.

Last Modified: 21 Oct 2013 11:43
Dean Baker

Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research.
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"Most of the complaints that have been levied against Obamacare donít hold water," writes Baker [Reuters]

For the last three-and-a-half years opponents of Obamacare have blamed everything from the weak economy to Hurricane Sandy on the Affordable Care Act (ACA). The media have been full of stories about how Obamacare caused businesses to lay-off workers or cut back hours even if many of these companies were too small to be affected by the mandates in the law.

There also have been numerous accounts of how Obamacare was causing insurance costs to skyrocket. This is in spite of the fact that the last three-and-a-half years have seen the slowest rate of healthcare cost growth in more than half-a-century. The ACA may not deserve credit for the slower pace of growth in healthcare cost, but it is more than a bit far-fetched to blame it for sky-rocketing insurance premiums in a context where the rate of increase has slowed sharply.

On closer inspection, most of the complaints that have been levied against Obamacare don’t hold water. For example, my colleague Helene Jorgensen looked at the percentage of employees who worked less than the 30-hour work week specified as the cutoff for being subject to employer mandate. She compared the first six months of this year, when employers expected the sanctions to be in effect, with the first six months of 2012. It turns out that the percentage of employees working less than the 30-hour cut-off was actually lower in 2013. So much for the part-time nation story being circulated by opponents of the law.

As a result of exorbitant premiums, many older workers had no choice but to work at a job that provided them with health insurance, until they reached age 65 and qualified for Medicare.

However, there is one area in which the law’s critics are on the mark. Some of them have worried about the disincentive for work since low and moderate income people will be eligible for subsidies under ACA. The result is that when a moderate income earner, for example a mother of two earning $30,000 a year, sees an increase in her pay, this will be offset in part by reduced insurance subsidies. For this reason the schedule of subsidy phase-outs in the ACA acts like a tax, causing the net gain to workers from a pay increase, or putting in more hours, to be substantially less than the rise in before-tax wages.

For most younger workers the disincentive from the loss of insurance subsidies is not likely to have much effect on work. The existing structure of subsidy phase-outs already created a large gap between increases in before-tax pay and the gains workers take home. Yet, most people facing these tradeoffs still work nearly full-time.

Older beneficiaries

However, there is one group of workers who are likely to change their behaviour in response to the incentives created by ACA. Most workers between the ages of 55 and 64 will now be able to get affordable insurance in the individual market.

Under the old system, these workers would likely be paying more than $10,000 a year for insurance even if they were in good health. If they had a history of heart problems, arthritis, or any of the other diseases that are common for people of this age, they could be facing premiums of tens of thousands of dollars a year in the individual market.

As a result of exorbitant premiums, many older workers had no choice but to work at a job that provided them with health insurance, until they reached age 65 and qualified for Medicare. In some cases, these older workers would struggle with bad health at jobs they hated because there was no other way to be able to pay for healthcare.

Obamacare changes this. When the main part of the law first takes effect in January of 2014, many of these workers will be able to quit their jobs and get insurance through the exchanges. For these workers, Obamacare does provide a real disincentive to work. As a result, in the new year we may see a substantial number of older workers, especially those with health problems, quit their jobs.

Bright side

Those who are obsessed with the idea that we should want everyone to work as much as possible may see this as bad news. But those thinking of the well-being of these older workers may consider the possibility that the ACA will allow them to leave their jobs. This is one of the most important features of Obamacare.

But there is another side to this story that can also be viewed as positive. When these older workers leave their jobs it will create openings that can be filled by younger workers. Given the continuing weakness of the economy, this is good news for younger workers.

We really would just be guessing at this point as to how many jobs are likely to open up because older workers taking advantage of insurance through the exchanges. There are roughly 24 million people between the ages of 55 and 64 who are currently employed. If 5 percent of these workers decide to quit their jobs because of Obamacare  that would open up 1.2 million jobs for younger workers.

That number may prove to be too high, and it certainly would not happen immediately, but in a slow-growing economy, the decision of more older workers to quit could be an important source of new jobs for younger workers. If that proves to be the case, job creation will be another major benefit of the ACA.    

Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research.

Follow him on Twitter: @DeanBaker13

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The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

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