The Affordable Care Act is a big deal for the economy, as would be any federal policy that injects hundreds of billions of dollars into one of its biggest sectors. But one piece of the national political debate on repealing the ACA is the question of whether it is actually good for the economy. Does the law help or hurt families’ finances, and can the government afford to sustain it? Though there doesn’t appear to be a consensus among Republicans as to how exactly they should replace the health-care law, one point of agreement seems to be that removing or reducing the lion’s share of ACA spending—the Medicaid expansion and subsidies for private insurance—will improve micro- and macroeconomic conditions.
Existing data suggests this conviction is dubious. A collection of reports released in recent weeks indicates that repealing those pieces of the ACA, which contribute massively to state and local economies, would remove millions of jobs and contract economic activity across states—making ACA spending reduction a move that’s bad for both individual families and the broader national landscape. Although these studies cannot predict what form the Republican replacement plan will take, they do show that any plan that includes curbing Medicaid and private-insurance subsidies has a steep hill to climb when it comes to making up for those economic losses.
A study by Laurel Lucia and Ken Jacobs at the University of California, Berkeley, considered the hypothetical effects in California of a law similar to H.R. 3762, a Congress-passed measure for ACA repeal that President Obama vetoed in 2015. The “repeal and delay” plan currently being pursued by Congress—which would use the budget reconciliation process to defund critical pieces of the ACA, but keep them in place until a replacement health law is crafted—might be expected to look like H.R. 3762. That’s because that bill was the most comprehensive repeal effort yet, and was also realized through the budget reconciliation process. H.R. 3762 would have eliminated the Medicaid expansion to low-income adults and the exchange subsidies over a period of two years, and would have ended the employer and individual insurance mandates immediately.
Lucia’s and Jacobs’s work suggests that after the two-year sunset of the insurance and subsidy expansions, and with no replacement in place, such a bill would cost California over 200,000 jobs and over $20 billion in total gross domestic product. Most of these losses would occur within the health industry itself, but would also happen in other sectors, like the food and transportation sectors that provide vital services for hospitals.
Last week, a report from researchers at George Washington University and the Commonwealth Fund essentially repeated the Berkeley experiment for all 50 states. They came to the same conclusion: that repealing the ACA’s health-insurance subsidies and Medicaid expansion in an H.R. 3762-like plan would result nationwide in a loss of around 3 million jobs, $1.5 trillion in gross state products, and $2.6 trillion in total business activity between 2019 and 2023. Because hospitals often absorb the costs of patients who can’t pay, a plan stripping coverage from low-income people would also increase uncompensated-care costs by over $1 trillion for the decade after 2019.
These losses are significant, especially when one takes into account how much federal investment the ACA actually makes. Between 2019 and 2023, the federal funds these states could expect to receive total only about $800 billion, an indication that Obamacare’s investment carries a substantial economic return.
Lead researcher Leighton Ku noted that, as in the California study, many of the losses from repeal would come from outside the sector directly influenced by federal funding. “If you pay your workers, your workers are consumers, and they go out and buy things like food, transportation, housing, and other stuff,” Ku said, referring to employees in the health-care sector. In other words, federal funding for the Affordable Care Act works as a general economic stimulus.
A recent article in The New England Journal of Medicine illustrates the mechanisms by which that stimulus works, using Michigan as an example. Under the ACA, the federal government paid for 100 percent of the costs of each person eligible under Medicaid expansion through 2016. But that matching rate ratchets down to 90 percent of costs in 2020. Yet even with that decrease, the study found that the Medicaid expansion in Michigan, which took effect in 2014, would add 30,000 jobs by 2021 and create hundreds of millions of dollars in savings for the state. Most of those jobs would come from outside of the hospital and ambulatory health-care industries.
Ku’s research indicates that stripping Medicaid funding away from the states that expanded it—31 states plus the District of Columbia—would not only reverse the stimulus in those areas, but would also have negative economic effects for the 19 states that didn’t expand Medicaid. “Our initial guess was that obviously most of the effect was going to occur among the 32 states that expanded Medicaid,” Ku said. “We were surprised at the fact that there were large effects for the non-expanding states, because they don't receive a dime in extra federal money.” Ku explained that there are “feedback effects” from people in expansion states working in, working for, and purchasing goods from businesses in non-expansion states, and his research finds that more than 300,000 jobs would be lost from those effects.
None of these three studies can look into a crystal ball and estimate the impacts of a Republican replacement plan, if such a plan ever crystallizes. Issuing tax credits to people who buy health insurance—a measure that’s included in most nascent GOP plans so far—would have some effect in ameliorating economic losses, as would the creation of high-risk pools or health-savings accounts. But those plans share a common thread. They all involve lower investments of federal funding, and the body of health-policy work shows much economic ground they have to cover.
The repeal effects outlined in the three studies are conservative in nature and probably underestimate the consequences. The models in these studies cannot directly simulate a potential “death spiral” in exchange markets. That’s what could happen if a Republican “repeal and delay” plan leaves subsidies intact for an interim period but removes the individual tax mandate to purchase insurance—creating an incentive for only sicker and more expensive patients to seek insurance. The studies also don’t model some other tax and investment levers of the Affordable Care Act, including individual and employer mandate taxes, device taxes, and industry taxes.
In the middle of an economic recovery, when the rebound in employment still appears tenuous, the stimulus effects of the Affordable Care Act cannot be ignored in analyses of what comes next. The big concerns of the debate over health reform are how people can pay for and afford health coverage. But the employment effects of repeal and replacement also influence people’s ability to pay for coverage, as most people in the United States receive health insurance from their employers.
An Obamacare repeal could upset a fragile recovery, especially in states that need investment—and investment in health care the most. “There are a number of people who are saying we might be about to hit another downturn sometime soon,” Ku said. “I hope that’s not true, but in a state like West Virginia, which is suffering from a lot of issues, or Oklahoma, which is suffering from falling oil prices, when there are additional cuts it just makes a bad situation worse.”