Policy Documents

Research & Commentary: Jobs and the Health Care Law

Benjamin Domenech –
November 9, 2010

There is little question that the key issue for most voters in November’s election was the economy.

In President Barack Obama’s first term, the principal piece of legislation affecting the jobs picture was not a budget or a tax package, but rather the health care law that bears his name and was clearly the major legislative accomplishment of his tenure thus far in the White House.

According to research conducted by respected analysts and nonpartisan groups, the effect of this law on the employment situation has been and will continue to be overwhelmingly negative. Under Obamacare, a business’s cost per employee will rise. What will come from that increased cost, especially in a time of overall belt-tightening, is clear. It is, as the authors of the first report cited below write, “a problem of math.”

The following articles consider the effects of the Patient Protection and Affordable Medical Care Act of 2010 on job creation.

Grim Diagnosis: A Check-Up on the Federal Health Law
http://coburn.senate.gov/public//index.cfm?a=Files.Serve&File_id=0d0b33ae-292e-42ba-ba94-43ff234961a2
Sens. Tom Coburn (R-OK) and John Barrasso (R-WY) report on the economic ramifications of Obama’s law. Among their findings:

* The law will kill 800,000 jobs over the next 10 years, perhaps even more.

* Eight in 10 small businesses could lose their current health plans.

* States face huge mandates ranging in the hundreds of billions of dollars—costs much greater than the supposed deficit reduction (which will result in budget cutbacks and further job loss).

* Real income will be depressed for millions of Americans.

The report quotes a figure provided by the nonpartisan Congressional Budget Office, which “estimates that the legislation, on net, will reduce the amount of labor used in the economy by a small amount—roughly half a percent—primarily by reducing the amount of labor that workers choose to supply,” which is more than 788,470 employees. The CBO report is available at http://cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf.

Obamacare’s Symptoms Include a Prolonged Recession
http://www.economics21.org/commentary/obamacare-recession
Avik Roy, Heartland Institute health policy expert and equity research analyst at Monness, Crespi, Hardt & Co., attempts to put in perspective the CBO estimate of nearly 800,000 jobs lost due to Obamacare: “[T]hink about the fact that about 550,000 people work for GM, Ford, and Chrysler combined.” Roy also notes, “There are a number of other job-killing aspects of PPACA. The law’s 2.3 percent excise tax on medical device companies will force marginally profitable companies to lose money. A ban on new physician-owned hospitals has forced the cancellation of dozens of construction projects. Most significantly, the law forces all businesses with more than 50 employees to offer generous health insurance to every worker: an expense that will incentivize those businesses to hire exactly 50 people, while farming out the rest of their work to independent contractors and part-time employees.”

Employer Health Insurance Mandates and the Risk of Unemployment
http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6296.2008.00133.x/abstract
A 2008 article by Harvard professors Katherine Baicker and Helen Levy illustrates a danger, as witnessed in a number of European countries, of insurance mandates: The first to lose their jobs are those least likely to be able to find another. “We find that 33 percent of uninsured workers earn within $3 of the minimum wage, putting them at risk of unemployment if their employers were required to offer insurance. Assuming an elasticity of employment with respect to minimum wage increase of -0.10, we estimate that 0.2 percent of all full-time workers and 1.4 percent of uninsured full-time workers would lose their jobs because of a health insurance mandate. Workers who would lose their jobs are disproportionately likely to be high school dropouts, minority, and female. This risk of unemployment should be a crucial component in the evaluation of both the effectiveness and distributional implications of these policies relative to alternatives such as tax credits, Medicaid expansions, and individual mandates, and their broader effects on the well-being of low-wage workers.”

Who Will Be Impacted by Employer Play-Or-Pay Mandates in the Congressional Health Care Reform Bills
http://www.appliedeconstrategies.com/pdf/Economic%20Analysis%20&%20Fact%20Sheets/07-08-AES%20Analysis%20of%20Pay%20or%20Play%20Mandate.pdf
Writing as the health care bill was being debated, D. Mark Wilson of The Heritage Foundation found that the mandates contained within the legislation would result in a major increase in the labor costs of hiring an individual employee. “The higher labor costs will put 5.2 million low-wage workers at risk of unemployment with the prospect of fewer job opportunities in the future. The costs will put another 10.2 million workers at risk of slower wage growth and cuts in other benefits. Up to 382,000 low-wage unskilled workers are likely to lose their jobs. Some of the cost of the mandates will be passed onto Americans in higher prices for the goods and services that they buy, which will have the greatest adverse impact on savers and those on fixed incomes.”

Stimulus by Spending Cuts: Lessons from 1946
http://www.cato.org/pubs/policy_report/v32n3/cp32n3-1.html
In a piece prepared for the Cato Institute by Professors Jason E. Taylor of Central Michigan University and Richard K. Vedder of Ohio University, the two clearly articulate the burden the new law places on employers and its job-killing nature: “When market processes lead us to see light at the end of the tunnel, the government sometimes adds more tunnel. Recent examples of this phenomenon can be seen in the newly passed health care legislation and the proposal for a cap-and-trade environmental regime. The new health care legislation will enormously increase labor costs, as would cap and trade. Nervous employers, wanting to avoid the possibility of taking on sharply rising labor expenses, demur in hiring workers that they would in a more neutral policy environment.”

Lack of Jobs Blamed on Uncertainty Created by Obama’s Policies
http://healthpolicy-news.org/article/27973/Lack_of_Jobs_Increasingly_Blamed_on_Uncertainty_Created_by_Obamas_Policies.html
Jon Ward, a reporter for the Daily Caller, documents the reaction of the business community to health care and other steps by the White House. “There is one word being mentioned by business leaders and economists more frequently when the conversation turns to why jobs are not returning more quickly to the U.S. economy: uncertainty. ‘By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses,’ said Verizon CEO Ivan Seidenberg at a speech in Washington in late June. Federal Reserve Governor Kevin Warsh said in a recent speech in Atlanta: ‘Owing to a less-than-assured economic outlook and broad uncertainty about public policy, employers appear quite reluctant to add to payrolls.’ Roberton Williams, senior fellow at the Tax Policy Center, said in an interview, ‘The whole tax situation is very much in flux, very uncertain. It makes it hard to plan. It’s clear that firms are not yet hiring. A lot of them are sitting on big bundles of cash,’ Williams said, citing the examples of Google and Apple, which are both hoarding about $30 billion in cash instead of investing it or using it to expand.”

Nancy Pelosi: Jobs Junkie
http://reason.com/archives/2010/03/24/nancy-pelosi-jobs-junkie
On national television at the president’s Blair House summit on health care, House Speaker Nancy Pelosi (D-CA) articulated a promise echoed by many of her Capitol Hill colleagues in support of the health care legislation: “So this bill is not only about the health security of America. It’s about jobs. In its life it will create four million jobs—400,000 jobs almost immediately; jobs, again, in the health care industry, but in the entrepreneurial world as well.” In this article, however, Reason senior editor Katherine Mangu-Ward notes, “in the case of those health care jobs, Pelosi’s claim relies on firms, old and new, finding it cheaper and easier to do business in the post-reform world, a point on which the jury is still very much out.”

 

For further information on this subject, visit the Health Care News Web site at http://www.healthpolicy-news.org or The Heartland Institute’s Web site at http://www.heartland.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Health Care News Web site, contact Managing Editor Ben Domenech at 312/377-4000 or bdomenech@heartland.org.