American Journal of Law & Medicine

Obamacare's Impact on Labor Markets: Limits on the Predictive Value of Romneycare

I. INTRODUCTION

There has been great debate about the potential labor market impact of the Affordable Care Act ("ACA" or "Obamacare"). Some have pointed to Massachusetts as the harbinger of what is to come nationally, (1) while others have predicted massive dumping of employer-based insurance. (2) An extension of this labor market debate was on lull display during the summer of 2012. (3) Critics seized on a McKinsey & Co. survey that found that Obamacare could result in thirty percent of companies dropping employer-sponsored insurance (ESI). (4) Meanwhile, proponents of the ACA quickly and continually referred to the experience of companies in Massachusetts as a way to push back on this narrative. (5)

Surprisingly, there is bipartisan agreement that Massachusetts's own health reform efforts ("Romneycare") does in fact serve as an accurate model for what to expect under the federal law: this has complicated a lucid discussion of the ACA's potential labor market impact. (6) The parties just happen to draw opposite conclusions. For Republicans, the state with the nation's highest premiums embodies many of the worst elements of what happens when government gets even more involved in healthcare. (7) For Democrats, the state experiment that expanded coverage is worthy of national emulation. (8)

This Article argues that Massachusetts holds very limited lessons for the expected labor market impacts under the ACA. Unfortunately, both parties have arrived at an incorrect assessment of the lessons to be learned from Massachusetts because of politics, oversimplified talking points, the lack of a nuanced understanding of the two laws, and a failure to comprehend the Commonwealth's unique characteristics that have shaped employer and employee behavior.

II. WHY DOES IT MATTER?

ACA advocates, such as Jonathan Gruber of the Massachusetts Institute of Technology (MIT) who sits on the governing board of Massachusetts's state-based exchange (the "Connector") and served as a paid contractor for both former Governor Romney and a paid advisor to the United States Department of Health and Human Services (HHS) during Obama's presidency, have pushed an "expect the same" narrative, implying that the impact of the two laws will be essentially the same. (9) For example, Gruber has stated that "our understanding of the impacts of the ACA can be [] informed by the experience of Massachusetts." (10)

Both the White House and HHS have repeatedly released statements to the media pointing to Massachusetts as an example of what is ahead nationally. (11) In one such statement, HHS argued that "[t]he experience in Massachusetts, along with projections from the Congressional Budget Office [CBO], suggest that the health care law will improve the affordability and accessibility of health care without significantly affecting the labor market." (12)

This sentiment made its way into early official projections by the non-partisan CBO. The CBO stated that "[o]ne piece of evidence that may be relevant is the experience in Massachusetts, where employment-based health insurance coverage appeared to increase after that state's reforms, which are similar but not identical to those in the ACA, were implemented." (13) In other words, many of the assumptions used in CBO's black box of cost modeling for "scoring" the cost of Obamacare were based on data drawn from Massachusetts. (14)

But there is one problem: the two laws are too unalike to allow for such a comparison. (15) Consequently, the variations in incentive structures placed on individuals, employers, and diverse sectors of the economy make it near impossible to draw meaningful comparisons. In addition, the starting lines from which states are beginning implementation run the gamut in terms of population characteristics, geography, and regulatory regimes. (16) Any comparison should be done with extreme caution.

We should start with CBO's original projections, under which CBO estimated that:

   [Nineteen] million residents would receive subsidies to the tune of
   $450 billion in the first ten years. [17] Now CBO estimates that
   the subsidies will cost $809 billion between 2013 and 2022 (the
   $645 billion estimate in a January 2012 report [18] increased by
   $164 billion [19] after the SCOTUS ruling), costing well over $137
   billion per year by 2021, [20] becoming the 4th largest
   non-discretionary program after Social Security, Medicare and
   Medicaid. [21] As Douglas Holtz-Eakin and Cameron Smith have
   estimated, [22] in a now outdated paper from 2010, given the
   growing estimates coming out of CBO and the incentives in the law,
   upwards of an additional 38 million individuals could access
   subsidies. (23)

Conversely, based on the experience in Massachusetts, the CBO forecasted only three million fewer would be on ESI by 2019. (24)

If CBO's labor market projections turn out to be incorrect, taxpayers may end up paying two to three times more for the law's implementation. (25) Some of the

comparisons laid out below could help to forecast labor market impacts the federal law will engender.

III. OBAMACARE ALLOWS FOR EASIER ACCESS TO SUBSIDIZED INSURANCE

Romneycare includes an extremely high employer firewall to thwart employer "dumping" of employee insurance coverage requirements, and even though most are unaware of the difference, Obamacare does not include such a robust measure. (26) Put a different way, Romneycare reinforces employer's sponsorship of their employee's insurance options, Obamacare chips away at this arrangement. (27)

As I have explained in a previous news article,

   [i]n the Commonwealth, if an individual is offered employer
   insurance, they cannot access the exchange or subsidies. (28) The
   only way around this firewall is for the company to drop coverage
   altogether, and for employees to go uncovered for six months before
   they can access subsidized coverage. (29) This is highly unlikely
   given the industry mix in the state. (30)

Even with the high firewall for subsidies in Massachusetts, there has been some erosion of ESI. From 2006 to 2010 there was an almost 7% decrease in ESI coverage, a 2.5% increase in Medicaid enrollment, and a 3% increase in government subsidized coverage on the exchange. (31) It is reasonable to expect that the law accounts for some of the crowd-out of private coverage toward public insurance. (32)

As I have written:

   The federal law allows employees to access a tax credit in an
   exchange if they make under 400% FPL, and once an employer's
   insurance plan costs exceed more than 9.5 percent of the employee's
   household income or if its actuarial value is less than 60 percent.
   (33) Under the federal law, it is quite easy to imagine a situation
   in which a low-income employee can't afford an employer's insurance
   and will turn instead to the exchange. A few years ago,
   Massachusetts considered switching to a similar lower threshold for
   those on ESI, but quickly decided against it because of the cost
   implications (it was estimated around $500 million of additional
   cost a year to the state). (34)

In states where close to 80% of the population has an income below 400% of the federal poverty level (FPL), such as Arkansas or Mississippi, this means that a majority of the population could sign up for publicly subsidized coverage. (35) This coverage would either be Medicaid, (36) or for those without "affordable" employer insurance, a federal tax credit.

Future exchange enrollment could be even higher if companies or governments decide to dump insurance all together. Some state and local governments are considering shifting current employees and/or retirees onto a public exchange. (37) Chicago Mayor Rahm Emanuel has examined the possibility for municipal retirees, (38) and Massachusetts Governor Deval Patrick has floated the idea of terminating a Medicaid ESI "wrap" for the working poor, moving these individuals onto the insurance exchanges or onto Medicaid. …

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