This paper examines how the recent expansions in Medicaid change labor supply. The Affordable Care Act gave federal funding for states to expand public health insurance coverage to population segments, which had never before qualified for these benefits on a large scale. Among the newly covered populations are adults without dependent children. This paper finds that though these expansions have the potential to reduce the uninsured rate, they also tend to reduce labor supply, reduce coverage via employer sponsored insurance (ESI) and increase job mobility.
Medicaid was introduced in 1965 and since then, it has undergone major growth (Tumin et al. 2016). The government has expanded coverage eligibility, which led to more individuals getting health coverage through Medicaid and a rise in federal and state funding on the program. As government reforms encourages more expansive coverage and the costs of healthcare rises, Medicaid expenditure is projected to continue growing at an even alarming pace than in the past. Medicaid is primarily meant to offer affordable healthcare insurance. However, such expansive changes have generated repercussions in the labor market. Traditionally, there has been a direct link between health insurance coverage and employment in the United States (US). As of 2015, an estimated 50% of the US population got medical cover via their employers (Kaestner et al. 2017). Medicaid accounted for the second largest (20%) insurance provider of the population. This suggests that any changes concerning public health insurance affects people’s decision to enter or quit the labor market.
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The Affordable Care and Patent Protection Actshave expanded Medicaid to cover adults earning up to 138% of the government poverty level (Hamersma & Kim, 2009). The aim of this expansion was to increase health insurance nationwide among low-income adults. Before this expansion, only employed parents earning below the government poverty level were eligible for Medicaid. A major change in Medicaid was the eligibility for childless adults. Before the reforms, only non-disabled adults without dependent children could get Medicaid. Therefore, this law introduced a new set of beneficiary to the program nationwide.
Medicaid has introduced numerous elements, which conceivably affect the employment and work decisions of both employers and employees. Employer health insurance mandate, expanded access to private coverage for young adults, health insurance exchange subsidies and widened eligibility criteria are some of the newly introduced provisions. These new elements affect the U.S. labor market in the perspectives of labor supply and demand, the structure of jobs, and compensation.
Since its inception, Medicaid has expanded exponentially, increasing the availability of insurance via many mechanisms. The Young Adults provision was adopted in 2010 to enable people aged up to 26 years to be covered under their parents’ healthcare plans (Tumin et al. 2016). This provision affects the labor market in various ways. It altered young adults’ employment in the sense that it changes their motivation to work in jobs which provide employer-sponsored coverage. Also, it reduces the labor supply of the young people because they can now work fewer hours and still have the same living standards because they do not pay their own health coverage. Further, it increases wages of many young adults since they do not need employer-sponsored coverage, the employers may compensate by raising their salaries.
Income-based expansion provision was introduced in 2014, in order to expand Medicaid eligibility criteriato people earning below the government poverty level (Kaestner et al. 2017). Also, it expanded the availability of private coverage by introducing cost sharing subsidies and income-based premium for those with individual insurance. These insurance expansions motivated people to lower their labor supply and salaries to either increase their subsidies or qualify for Medicaid coverage (Ayanian et al. 2017). Moreover, due to improved access to coverage separate from the employer-sponsored program, employees now have greater flexibility and mobility, such as the options of self-employment or work at small companies that are not likely to provide health coverage.
The Medicaid expansions have disentangled employment from access to insurance coverage (Tumin et al. 2016). This has made it much easier for employees to become self-employed, change jobs or even quit working because after all, they will retain their employer-sponsored health insurance. Just as many other social safety programs, for instance, those offering wage assistance, housing and food, the Medicaid expansions have created a disincentive to work for some people. This disincentive emerges from two aspects. For one, some benefits have lost their value due to income raise hence discouraged more work hours per week or more weeks of work annually. From an economic point of view, this is known as the substitution effect. An important point is the expansion of Medicaid eligibility to 138% of the government poverty level (Kaestner et al. 2017). This increased job incentives for people living in areas where Medicaid eligibility was capped to a lower poverty level. These programs provide free health insurance, which eventually makes eligible households wealthier. The result is that it discourages work, and this is referred to as the income effect.
Employer incentives provisions have been included in Medicaid in order to expand or maintain the current employer-based system (Hamersma& Kim, 2009). The system of employer shared responsibility requirement (ESRR) hedges against the potential of employers to drop their insurance and send the employees to the marketplace. To be precise, companies with at least 50% full-time employees confront an annualized fine of $2,000 per one full-time worker getting a premium tax credit (Leung et al. 2018). Also, the ESRR includes fiscal penalties for large companies offering improper coverage based on the calculation of the out-of-pocket premiums versus an employee’s household pay. This ESRR was later revised in terms of large and mid-sized companies with over 100 employees (Ayanian et al. 2017). Medicaid was expanded to incorporate small business tax credit aimed at encouraging insurance offers among small companies and low wage employers. Though the aim of these expansions was to economically motivate employers to provide insurance, they led to two other major changes. For one, they changed employers’ demand for labor meaning that employers reduced the number of employees and the company’s size. Secondly, they modified the structure of jobs meaning that employers shifted from using full-time to preferring part-time workers or even contract workers (In Fichtner & Mercatus Center, 2014).
The Regulatory Environment changed as numerous new regulations were launched for the small employer and individual segments (Kaestner et al. 2017). These include standardized products, modified community ratings, essential health benefits, family compensation and prohibition on insurance companies denying coverage for people with pre-existing conditions. This new regulatory environment generated employment effect which span across employee compensation and labor supply. Of importance is the fact that they increased the chances that older employees opt to retire before attaining 65 years, when most of them qualify for Medicaid (Leung et al. 2018).In addition, these regulations affect wages given that small companies get higher premiums resulting from modified community ratings and a widened set of important health benefits. Finally, Medicaid introduced a new excise duty on high cost health programs commonly known as the Cadillac Tax (In Fichtner & Mercatus Center, 2014). This tax was aimed to prevent employers from providing greatly generous policies, which are argued to motivate overconsumption of medical care by the people. Though the Cadillac Tax was originally proposed to take effect in 2018, it has now been delayed until 2020(Leung et al. 2018).Economists argue that if the tax is implemented, affected employers could lower the generosity of health coverage offerings and probably raise other compensation forms like wages.
Employment and earnings changed completely (In Fichtner & Mercatus Center, 2014). The most significant ways that the economy influences the lives of the population is via job creation. The extra spending which occur due to Medicaid expansions have led millions of dollars from newly employed individuals into the healthcare docket. Most beneficial to the society is government’s commitment to cover most of the costs through Medicaid. The figure 1 below summarizes the employment changes resulting from the rise in demand for healthcare insurance and the ripple effects of these changes.
Figure 1 (Kaestner et al. 2017)
Majority of the available jobs today are in the healthcare industry and a few in other economic industries (Kaestner et al. 2017). This reflects the wide multiplier impact of the Medicaid expansions on various economic sectors. For instance, there is a high possibility that the healthcare facilities must expand to cover the newly insured patients. This would lead to new construction and real estate costs to boost employment in these fields.
These reforms have also altered the structure of jobs in the country (Leung et al. 2018). Much opposition has been based on the fear that increased employer costs would curb hiring or encourage some employers to prefer part-time employees rather than full-time job plans. There is enough evidence suggesting that employer costs related to health coverage are passed along to workers as low wages. Since employees place great value on insurance benefits, especially employer-sponsored programs, it is obvious that workers will bear the additional costs of health benefits as opposed to employers.
Figure 2 ( Burtless, 2015).
As the figure 2 above shows, the impact of the expansions on employee work plans is also clear. Before the implementation of the reforms, some individuals confronting huge medical bills could have worked on a full-time basis to qualify for the employer-sponsored coverage. Because the new Medicaid reforms widened the availability of affordable insurance to non-aged adults without full-time employment, it motivated some employers to prefer part-time employment and escape from providing employer-sponsored coverage. Therefore, there has been a rise in part-time employment, whichis driven by the changed incentive confronting employers rather than by employee preferences. It appears that all the job increases, which have happened since 2010, have been in part-time employment (In Fichtner & Mercatus Center, 2014). Moreover, there has been a significant rise in the number of employees who hold jobs, which are normally part-time.
The reforms have increased part time employment among individuals who would prefer full time employment. Currently, the percentage of employees who work part-time, but would like to have full-time employment has risen sharply in recent months. This has been attributable to the new employer penalties. Economists argue that this percentage will continue to go stubbornly higher in the coming years. Since the entire problem is traceable to the effects of the new Medicaid provisions, the reforms have increased the number of employees who are involuntarily in part time employment by over one million (Hamersma & Kim, 2009).
Overall, controversy and debate continue to surround the implications of the Medicaid expansions. Despite the fact that these expansions have led to massive gains in healthcare insurance, a large body of research affirms that these Medicaid expansions have widened the program far much past its original intent. Consequently, this has conceivably affected the employment and work decisions of both employers and employees.
References
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Burtless, G. (2015). Employment impacts of the Affordable Care Act. Retrieved from < https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health- policy/2015/03/20/employment-impacts-of-the-affordable-care-act/>
Hamersma, S., & Kim, M. (January 01, 2009). The effect of parental Medicaid expansions on job mobility. Journal of Health Economics, 28, 4, 761-70.
In Fichtner, J. J., &Mercatus Center,. (2014). The economics of Medicaid: Assessing the costs and consequences .
Kaestner, R., Garrett, B., Chen, J., Gangopadhyaya, A., & Fleming, C. (September 06, 2017). Effects of ACA Medicaid Expansions on Health Insurance Coverage and Labor Supply. Journal of Policy Analysis and Management, 36, 3, 608-642.
Leung, P., Mas, A., & Mas, A. (April 01, 2018). Employment Effects of the Affordable Care Act Medicaid Expansions. Industrial Relations, 57, 2, 206-234.
Tumin, D., Hayes, D. J., Washburn, W. K., Tobias, J. D., & Black, S. M. (January 01, 2016). Medicaid enrollment after liver transplantation: Effects of medicaid expansion. Liver Transplantation : Official Publication of the American Association for the Study of Liver Diseases and the International Liver Transplantation Society, 22, 8, 1075-84.
