A very timely and valuable study, The Economic Impact of The Affordable Care Act on California, was recently published by the Bay Area Council Economic Institute. Before and after the recent ruling by the U.S. Supreme Court that validated the Patient Protection and Affordable Care Act (ACA), the ultimate effect its prescription for healthcare reform will have on the national economy has been hotly debated. Authored by Jon Haveman and Micah Weinberg, this study provides a very credible analysis of how healthcare reform could benefit the California economy.
“the ACA will be an economic boon to the state of California, creating nearly 100,000 new jobs both inside and outside of the healthcare sector and increasing total state economic activity by $4.4 billion.”
The study uses actual 2010 economic conditions as a baseline and estimates how things would have turned out differently that year if all of the provisions of the ACA had been implemented. To estimate the Act’s impact, a detailed microsimulation developed by UCLA, and UC Berkeley and the IMPLAN 3.0 (IMpact analysis for PLANning) system are used to model a myriad of changes in economic behavior likely to be spurred by the act’s most significant elements.
Since the ACA is designed and expected to significantly expand healthcare coverage, its estimated impacts principally revolve around the extension of healthcare coverage to many now uninsured Californians. This is the principal reason that according to the analysis, the Act will have significantly different impacts across various regions of the state.
The impact of the ACA is estimated by putting numbers to principal effects it should have on medical care spending, consumer spending and on the workforce.
MEDICAL CARE SPENDING
The expansion of the state’s Medicaid program and the expanded purchase of private healthcare insurance by previously uninsured persons will lead to greater healthcare spending. Combined, these two developments could increase medical care spending in California by at least $5.1 billion annually.
Individual Mandate The requirement for currently uninsured individuals to obtain coverage will reduce their disposable income. The out-of-pocket expenses for this coverage could reach $4.3 billion (or 0.29% of California personal income). On the other hand, the Mandate also broadens the risk pool for health insurance and eliminates “free riders” which could reduce individual insurance premiums by over 12%. The net effect on consumer spending could be “negligible.”
Reduction of Job Lock The reliance on employer-supplied health insurance induces serious reluctance on the part of employees to switch to better jobs for fear of losing coverage. Various provisions of the ACA dramatically reduce this risk, which will lead to more job switches which will result in higher productivity and income.
“Evidence suggests that voluntary job switches increase income by an average of $1,500 per year for the job switcher.”
Employer Mandate The ACA requires that businesses with more than 50 employees that do not offer insurance make healthcare coverage available or pay a $2,000 fine. Companies could respond by raising prices, reducing profits, lowering wages, or reducing employment. The employer mandate could reduce statewide employment by about 55,000.
Small Business Tax Credit The ACA provides tax credits for small businesses that provide their employees with health insurance. Almost half a million businesses in California will be eligible for the credit which could generate nearly 30,000 additional jobs.
Labor Force Participation Broader health insurance coverage will boost labor force participation which could add over 47,000 people to California’s labor force.
TAXES AND FEES
The ACA will implement new fees and taxes on pharmaceutical manufacturers, health insurance companies, and medical device producers. Only the 2.3% tax on medical devises is likely to have significant impacts as it will probably be passed on to consumers. Most of the other taxes are so small relative to the prospective taxpayers’ income that they are unlikely to have a significant impact.