Big Health Meets Big Labor: The Effect of the ACA on Labor Markets

With the beginning of the next open-enrollment period, millions of Americans will visit HealthCare.gov to buy insurance. The Affordable Care Act, though still contentious, has become part of daily life and monthly budgets. Soon researchers will begin to assess the ACA’s broader economic impacts. New research suggests that enrollment will affect more than just health policy; these changes will produce deep ripples throughout the labor market as well.

It will take years to produce the data and research necessary for a thorough analysis of ACA shocks. That said, two recent studies analyze how labor markets respond to changes to Medicaid policy similar to those changes in the ACA. Their results suggest that increased access to government health insurance might decrease employment rates.

In the article “Public Health Insurance, Labor Supply and Employment Lock,” Garthwaite et al. explore the impacts of a Medicaid policy change in Tennessee. In 2005, roughly 170,000 people in Tennessee lost access to TennCare, Tennessee’s Medicaid coverage, as the result of a policy change. Childless adults disproportionately lost coverage. The authors use multiple models to compare labor outcomes of childless Tennessee adults to the outcomes of other groups within Tennessee and other southern states.

Their findings suggest that the loss of Medicaid coverage caused an increase in labor supply. They find that employment rates increased by 2.5 to 4.6 percentage points for childless adults in Tennessee. Given the statewide employment rate, this change translates to a 6 percent increase in employment. This finding highlights both the importance of fringe benefits, such as health insurance for employees, and the potential for public insurance to crowd-out the private insurance market.

On the other side of the coin, a recent NBER working paper examines what happens when uncovered individuals gain public health insurance. In “The Effect of Public Insurance Coverage for Childless Adults on Labor Supply,” economists examine the effect of policy changes to government health insurance in Wisconsin. In 2009, Wisconsin introduced a government health plan called the Wisconsin BadgerCare Plus Core Plan. The plan covered low-income, childless adults. Demand quickly exceeded predictions, so the government cut off enrollment. The state maintained a waitlist of people who applied but were not covered.

Dague et al. use two different types of models to analyze differences in coverage: matching and regression discontinuity. Results from both models suggest Core Plan enrollment had a negative impact on employment. The matching model showed a decrease of 2.4 to 5.9 percentage points while the discontinuity model exhibited a 6.1 to 10.6 percentage point decrease.

These results come with two important caveats. First, they do not observe self-employment. In their data, researchers categorized self-employed Core Plan enrollees as unemployed. Second, unlike Medicaid, Core Plan was not an entitlement program. Individuals can disenroll and reenroll in Medicaid. Core Plan does not allow reenrollment if someone surpasses the income thresholds. This difference may have exacerbated unemployment effects.

Taken together, these papers examine two sides of the same coin. Garthwaite et al. study the way in which individuals respond to a loss of government health insurance, finding that the loss of health insurance increases employment. Dague et al. study the way in which individuals respond to enrollment in government health insurance, finding that obtaining health insurance decreases employment. Both articles convey a negative relationship between public health insurance and employment.

These articles are especially relevant to policy makers today. Both TennCare and Core Plan impact the same subgroup as ACA Medicaid expansion. These policies affect non-elderly, childless adults, a key component of the working population. Previous government health insurance programs only enrolled the elderly or adults with children. These two papers suggest that ACA Medicaid expansion may decrease employment rates. Policy makers concerned with employment policy should consider contingency plans for a possible decrease in the employed population.

Article Sources:  Public Health Insurance, Labor Supply and Employment Lock, Garthwaite et al. Quarterly Journal of Economics, 2014

The Effect of Public Insurance Coverage for Childless Adults on Labor Supply, Dague et al. NBER Working Paper, 2014

Feature Photo: cc/(EdTech Stanford University)