How the AHCA Could Cause an Economic Downturn

A new report argues that the Republican health law would slash jobs and perhaps trigger a recession.

If there’s any single binding policy narrative for the first five months of Donald Trump’s presidency, it’s that the president is against regulations that kill jobs. In his June 1 Rose Garden speech announcing the U.S. withdrawal from the Paris climate agreement, Trump bemoaned it as a policy that “could cost Americans as much as 2.7 million lost jobs by 2025.” He’s touted his success in making deals to keep factory jobs in the country, and has claimed that his work “includ[es] a record number of resolutions to eliminate job-killing regulations.”

So how would Trump and his job-creating party feel about a law that costs a million jobs over the next decade and decreases total business activity by hundreds of billions over the same time period? They have a chance to decide just that as the Senate deliberates a reconfigured American Health Care Act, the Republican plan to replace Obamacare.

A new report from the Commonwealth Fund and George Washington University researchers Leighton Ku, Erika Steinmetz, Erin Brantley, Nikhil Holla, and Brian K. Bruen finds that the AHCA would slash total jobs by about a million, total state gross domestic products by $93 billion, and total business output by $148 billion by 2026. Most of those jobs would be shed from the health-care industry, which would contract severely over that frame. Most of the losses in economic activity would come in states that have expanded Medicaid to low-income adults under the Affordable Care Act.

The structure of the House bill that passed in May would lead to an interesting whirlwind of economic effects, according to this report. The AHCA repeals most of the taxes that supported the Affordable Care Act just about immediately, which might even act as a short-term stimulus. Between 2018 and 2020, authors predict the economy would actually grow by over 800,000 jobs, which notably would buoy jobs reports for two straight elections. The health-care industry, however, would begin sloughing jobs immediately.

Things get dicier after 2020. Reductions in federal funding for coverage through massive cuts to Medicaid and reduction of private-insurance subsidies all but reverse those gains by 2021, and begin what the researchers call “a period of economic and medical hardship in the U.S.” after that. Federal Medicaid funds and under the ACA themselves currently act as a stimulus to state governments, and the AHCA would cut those funds even below pre-ACA levels, and cap them.

Since that stimulus has multiplicative effects on businesses and total output, the AHCA slashes state outputs by amounts far greater than the amount of federal funds divested. In New York alone, the Commonwealth Fund report indicates the state gross domestic product would decrease by $10.5 billion by 2026 over current projections, and total business output by $16 billion. And similar losses would come across every state in every sector.

Of course the most dramatic effects would be in the health-care industry. Per the Congressional Budget Office estimates, 23 million fewer people are expected to be insured under the House’s draft of the AHCA. The industry will simply have to contract in the face of such losses of eligible patients, and in the face of increases in uncompensated care. This report suggests a net loss of about 700,000 jobs in the health-care sector alone. And while the president and his allies have worked hard to ensure the job security of rather small numbers of factory and coal-mining jobs in the Midwest and Appalachia, losses in the health-care industry (which employs millions of blue-collar workers) would hit those areas hard too. Kentucky and West Virginia would lose 16,000 combined jobs in the health-care sector alone.

Through their amendments, House Republicans have pulled off a rare policy feat: Their version of the AHCA invests much more federal money than the pre-Obamacare government ever did to insure fewer people and cuts taxes for small business owners and the wealthy while also killing jobs and economic activity. Their program is neither entirely austere nor a big-government boondoggle, yet manages to incorporate the pitfalls of each approach. Those contradictions might not matter for the prospects of the law’s passage, though, since it is front-loaded with economic sweeteners that should benefit Republicans in the all-important next two elections.

The version of the AHCA currently being advanced under a shroud of secrecy in the Senate is expected to be different from the House version, and might include provisions like a delay of Medicaid cuts and a restructuring of tax credits that will soften the long-term economic blow of the law. But, as previous analyses by Ku and others suggest, any repeal of Obamacare that leads to coverage losses and large-scale reductions in Medicaid will have larger direct economic effects and “feedback effects” on the economy and jobs. Some clever maneuvers in the Senate might delay the cliff and make the AHCA more politically palatable, but if it does pass the chamber and Trump’s desk, the losses will come.