How the Affordable Care Act might transform the labor market

Are people leaving their jobs because of health care reform? 

On Aug. 1, the United States Department of Labor released estimates that suggest unemployment is falling, sparking a broader discussion about employment during post-recession recoveries. But most talking heads overlooked one factor that makes this year’s job market different from past years. This year, Americans can find affordable health insurance without an employer.

Health insurance in the U.S. has always been tightly linked to employment. Many Americans used to have a single source of affordable health insurance: their employer. As a result, many ended up facing “employment lock” — that is, they were afraid to leave their jobs for fear of becoming uninsured. But this year is different. Since January, the Affordable Care Act has provided another source of health insurance. And so it may gradually eliminate employment lock in the U.S. and change the way Americans approach their careers.

It’s not hard to find people who have faced employment lock. Think of a person who really wanted to freelance or consult, but whose pre-existing condition kept her at her day job. Think of a 67-year-old who kept working because his 63-year-old spouse did not yet qualify for Medicare. Or think of someone who wanted to start her own business, but was worried about losing her health insurance in the process.

I have spent the last year working with two other researchers to find evidence of employment lock. We wanted to test whether Americans behave differently once an employer is no longer the only means for them to have affordable health insurance. To do so, we studied a unique event that happened in Tennessee. Through the 1990s, Tennessee had one of the most generous Medicaid programs in the South. For years, state politicians debated whether the program was too expensive and whether too many Tennessee residents were covered by Medicaid. That debate ended in 2005, when the state removed 170,000 people from its Medicaid program. Those Tennessee residents had been covered by Medicaid for years, but woke up one morning in late 2005 and found themselves uninsured.

We focused on this event as a natural experiment, a setting that would allow us to measure how the loss of health insurance changes people’s behavior. The Tennessee residents who lost health insurance were primarily childless adults with average incomes slightly higher than the poverty level. In other words, the population that lost Medicaid in Tennessee was similar to the population gaining Medicaid coverage under the Affordable Care Act.

What we discovered was that roughly half of the Tennessee residents who lost Medicaid coverage entered the labor market. These were people who had not been working when they had coverage through Medicaid; once they were removed from Medicaid, they found jobs that would provide them with coverage.

Another team of researchers recently studied Wisconsin’s Medicaid program and found that Wisconsin residents who were given health insurance through Medicaid, similarly, became less likely to work. Both studies demonstrate that some people work solely for the health insurance; if they can be insured through Medicaid, then they will choose not to work.

The studies suggest that whether someone has access to health insurance plays a role in whether they work. And this means that the ACA may reduce the number of working Americans. In fact, the Congressional Budget Office recently reviewed (PDF) the existing research and projected that the ACA will induce more than 2 million Americans to quit working, reduce their hours or stop looking for employment.

But just because the ACA may encourage some people to leave their jobs does not mean that “Obamacare is a job killer,” as some political operatives have put it. People who leave their jobs once they are able to find health insurance elsewhere, do so voluntarily. The law is not forcing anyone to stop working. And by leaving the labor force, those Americans open their jobs to others who are hungry for the work.

Granted, past evidence from Wisconsin and Tennessee shouldn’t be the last word on the ACA’s effects on employment nationwide. Many social scientists are currently measuring just that — and only more research will be able to give us a clearer indication of the law’s larger-scale impact.

Still, many researchers’ working hypothesis is that the ACA will transform the country’s labor market. Some Americans may retire early. Others might shift to part-time work. Still others might start their own businesses. When people no longer need their employers for health insurance, their behavior might change in a number of ways.

There is no question that the ACA will profoundly affect both the country’s health care system and those who would otherwise be uninsured — and that is the primary goal. But, in a country that has never before had it, universal health insurance coverage will surely have a big effect beyond health care. The question is: How big?