Economic Impacts of Obamacare

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Economic Impacts of Obamacare Sample Essay


At a time when economic growth is mild and the employment outlook is mixed, determining the impacts of Obamacare can be significant. Obamacare, also known as the Affordable Care Act (ACA), is the most popular social legislation of the 21st century (Haislmaier & Blasé 25). The legislation has been anticipated to provide health insurance to approximately 30 million Americans. The proponents of the legislation maintain that it will undo certain unfair aspects of healthcare system, including the capability of health insurers to deny coverage to people with pre-existing conditions (Woodlock 19). Conversely, the opponents of this legislation have always claimed that it creates unemployment by offering families more alternatives for acquiring cheap healthcare coverage outside the workplace.  The most significant issue relates to its effects on the economy. However, the widely anticipated impacts of Obamacare are yet to materialize, regardless of the fact that it has been in place for about three years. Thus, this paper discusses the positive economic effects of Obamacare – the Affordable Care Act.

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Decreased Unemployment

According to Manchikanti & Hirsch (640), the endowments of Obamacare make it easier for families to gain access to health care services, and address other pressing needs, which in turn will raise the demand for services and goods throughout the economy at a time when the level of unemployment is low. Consequently, Howard (25) argued that the Affordable Care Act would decrease unemployment over the next few years. The Obamacare is therefore assisting in ensuring that every US citizen finds a job. The graphs will show the number of people benefiting from tax credits and the average subsidy per individual.

Slow Growth of Health Care Costs and Job Creation

The US is presently experiencing a slowdown in the growth of healthcare costs. From 2010 to 2012, health care spending per capita increased at an average annual rate of about 1.1% (Haislmaier & Blasé 5). Preliminary projections and data suggest that this slowed growth continued in 2013. Within the last few years, the US has witnessed the slowest rates of growth in healthcare spending ever recorded. The graph below shows the trends in national health care spending (Manchikanti & Hirsch 640). From 2000 to 2010, the health care costs have been decreasing. In fact, the diagram shows that the slowest growth in national health care expenditure was in 2010. This was because of the inception of Obamacare.

According to the Council of Economic Advisers, Obamacare is significantly contributing to these tendencies through reforms to Medicare, which decrease unnecessary payments to health care providers and private insurers. The ACA achieves this by using groundbreaking new forms of payment models, which incentivize high quality, and more effective health care (Manchikanti & Hirsch 641). An increasing body of research findings indicates that, besides decreasing health care costs and enhancing Medicare quality, the reforms by Obamacare might be creating the same benefits system-wide.

The slowdown in health care costs also decreases the growth of the health care insurance premiums paid by employers (Westfall 5). This has significant benefits for employers. Low health insurance premiums decrease the costs associated with hiring of additional employees, which makes it easier for employers to add jobs. Economic studies indicate that a large portion of the premium savings is passed along to employees in the form of higher salaries.

Reduction of Deficits

The Congressional Budget Office approximated that the Affordable Care Act will decrease the deficit by approximately $109 billion between the fiscal years 2013 and 2022 (Woodlock 20). The reduction effects of the Affordable Care Act are also approximated to grow over time. The Congressional Budget Office estimated that over the decade from 2023 through 2032, the Affordable Care Act will decrease the deficit by average of 0.5 % of the Gross Domestic Product every year, corresponding to the total deficit reduction of about $1.6 trillion over that decade. According to Woodlock (20), lower long-term deficits due to Obamacare will imply higher national savings that will in turn increase capital accumulation and decrease foreign borrowing. As a result workers will be more productive, while national income and living standards increase over time.

In contrast, the adversaries of Obamacare have constantly maintained that the reform will upsurge deficits rather than cut them (Woodlock 20). According to Woodlock (20), the Affordable Care Act creates a new middle class entitlement for the purchase of heavily subsidized private health insurance, and doubles the size of the Medicaid program. According to Manchikanti & Hirsch (26), this is not the best way to reduce health care spending. This is because it results in new large constituencies for increased health care spending. Additionally, the increased demand is likely to put considerable pressure on the health care cost (Woodlock 20). The provisions of the ACA are underpowered; therefore, they are likely to be short-cut. The focus of this health reform on top-down planning also ignores the myriad unintended effects, which follow when bureaucracies attempt to control the behavior of physicians and hospitals that have powerful financial incentives. (Woodlock 20)

Despite considering the face value of Obamacare, it has not achieved nearly enough to address the present and projected entitlement spending (Haislmaier & Blasé 642). Two months after its ratification, the CBO noted that health care costs will add immense pressure on the federal budget during the next few decades. Even though the CBO scores the ACA as reducing the deficit, it also notes that the federal government will spend approximately $400 billion more on the ACA’s programs within the first decade (Haislmaier & Blasé 641). Within the same decade, these programs will also increase federal revenues through taxes and fees by a greater amount of about $525 billion.

Subsequently, approximately half a trillion dollars will be moved out of the private economy and injected in the new health care spending (Haislmaier & Blasé 640). This will not only reduce the funds available for employment growth and innovation in the private sector, but the funds are also lost for any future initiatives aimed at reducing deficit.

Productive Employees

According to Haislmaier & Blasé (640), Obamacare is improving the health of people who would otherwise not have had health care coverage. By expanding health insurance, Obamacare will expand the accessibility to health care. Woodlock (19) pointed out that increased accessibility to health care, because of being insured, is likely to reduce mortality, improve self-reported health status, and improve mental health. For many US citizens who had health insurance prior to Obamacare, the reform guarantees access to various preventive services, such as those recommended by the US Preventive Services Task Force without cost-sharing, and those that enhance health and save lives (Howard 5). A study conducted by the CBO indicates that at least 71 million Americans have received at least one preventive service without cost sharing since 2010.

Additionally, the Affordable Care Act is assisting in enhancing the efficiency and quality of healthcare for all Americans. This substantially contributes to improved health care outcomes while reducing costs. One striking example comes from an ACA’s initiative, which provides health care providers with incentives to reduce the number of returning patients after discharge. Health care providers can offer this incentive by ensuring high quality health care during the preliminary hospital stay, or by making necessary arrangements about where patients will receive care after discharge. Obamacare has also funded community-based organizations, which help patients move smoothly from a hospital stay to care at home. Health care providers and hospitals have responded to these programs, and rates of Medicare 30-day hospital readmission dramatically reduced over the last three years (Kaplan 56). The Medicare readmission rates are not more than a percentage point below their average level from 2007 to 2011. The decrease translated to about 130,000 avoided hospital readmissions.

These benefits of Obamacare translate to long-living and healthier population. Long-living healthier persons miss fewer work days, and they are less likely to become disabled (Kaplan 6). In addition, they are likely to spend more years in the workforce, and will be extremely productive on the job. Studies have also indicated that persons reporting better health are more likely to get employment than those reporting diseases or disabilities, despite the quest to ensure equity during the recruitment process (Kaplan 6).

Improved Job Mobility and Entrepreneurship

Prior to the ratification of Obamacare, the only avenue of securing health care insurance coverage for many US citizens was through their jobs (Haislmaier & Blasé 89). For people with preexisting health conditions purchasing of health insurance coverage was frequently unaffordable or even impossible. This was because insurance firms could refuse to provide coverage. For others, purchasing health care insurance coverage implied living with the fear that the insurer would increase premiums without any warning, or even cancel their policy. This could have the effect of locking employees into jobs, hindering labor mobility. Woodlock (20) referred to this health insurance obstacle as ‘job lock’.

Due to the ban on discrimination against individuals with preexisting conditions imposed by Obamacare, and its robust consumer protections, all US citizens have secure access to health care coverage, whether or not they can acquire coverage through their jobs (Manchikanti & Hirsch 640). According to Manchikanti & Hirsch (640), this assurance of accessibility to health care coverage has various economic impacts. Accessibility to health care coverage outside the workplace enables most people to organize their careers in a manner that makes sense to them. (Manchikanti & Hirsch 65) For instance, employees can take time off to raise their family, or retire at any time because they health coverage is guaranteed.

According to Howard (56), the guaranteed access to health care coverage also allows people to take risks that advance their careers and benefit the economy as a whole. For instance, employees can take part-time jobs in order to go back to school, or leave a job in order to establish a business or change career without losing coverage (Westfall 19). There is no doubt that job lock poses an economic challenge. By enabling the mobility of workers across jobs, the guaranteed access to health care coverage assists them in finding another job that is appropriate. As a result, the guaranteed health care coverage increases overall wages and productivity (Westfall 20). The reduction of job lock significantly contributes to the development of entrepreneurial culture, which is a crucial ingredient for job creation and economic development.

Increased Insurance Costs

According to the opponents of the ACA, the reform imposes various obligations on insurers, such as extension of health coverage to adult dependent children up to the age of 26; elimination of lifetime cap on health care coverage; pre-existing conditions exclusions prohibited for children; and elimination of cost-sharing for preventative services in private and Medicare plans (Manchikanti & Hirsch 25). According to Manchikanti & Hirsch (25), these obligations might lead to high operational costs for companies. As a result, employers and companies are likely to offset the high costs through decreased employees` salaries (Manchikanti & Hirsch 26).  New taxes on insurance companies, medical device companies, and pharmaceutical companies are all likely to be shifted to employers and employees in the form of higher insurance premiums. Some costs might also be shifted to consumers in the form of higher prices for commodities (Manchikanti & Hirsch 26).

Improved Financial Security

By increasing the accessibility to health care coverage, Obamacare is making sure that illness do not to financial ruin (Manchikanti & Hirsch 26). Recent studies assessing the expansion of Medicaid coverage in the State of Oregon confirmed the significant role that having health care coverage plays in guaranteeing financial security. This study used a randomized research design, and revealed that gaining access to health care coverage through Medicaid almost entirely eliminated catastrophic medical costs.

Besides the expansion of coverage, Obamacare is improving financial security for families who have coverage (Kaplan 25). Because of Obamacare, almost all insurance plans sold in the US must cover enrollees` annual out-of-pocket spending, and health insurance providers can no longer sell low-quality policies with lifetime or annual limits on coverage. According to Haislmaier & Blasé (56), Obamacare is also improving financial security for seniors by making the Medicare Part D obsolete. Since its ratification, these provisions of the ACA have saved about 7.3 million Medicare beneficiaries, which is an average of approximately $1,200 per individual on drug prescription (Kaplan 58). In general, better financial security makes a significant contribution to the families’ well-beings and therefore the overall health of the economy.

Effect on Small Business Insurance Exchanges

The health exchanges linked to Obamacare, particularly the Small Business Health Option Programs (SHOP) exchanges, are aimed at addressing certain inherent disadvantages for small businesses in order to enhance access to health care plans (Haislmaier & Blasé 25). Similar to individuals, small firms that have individuals or families whose health care is relatively costly will be able to purchase insurance easily via the SHOP exchanges. For certain small companies, the capability of purchasing  insurance through the SHOP exchanges might allow them to provide coverage at lower cost than they would have been provided in the private small-group market. This is the case for small firms employing workers with a higher risk profile. According to Kaplan (52), the cost of these plans is low because the additional costs of covering comparatively riskier companies will be spread across other companies. However, companies with healthier employees could witness an increase in cost. According to Manchikanti & Hirsch (56), the SHOP exchanges should also decrease costs of premium costs because of reduced administrative costs from pooling more businesses under one policy.

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Obamacare is one of the most popular social reforms of the 21st century. However, its effects encompass several spheres of lives of the Americans, including economy and politics. Economic impacts, on which this paper focused, included decreased unemployment rate, higher wages, reduction of deficits, improved labor mobility, productive employees, improved financial security, and increased costs of health insurance. In the face of employment, Obamacare enables families to gain accessibility to health care services, while addressing other pressing needs, which in turn will raise the demand for services and goods throughout the economy at a time when the level of unemployment is low. In light of wages, low health insurance premiums decrease the costs associated with hiring of additional employees, enabling employers to add jobs. In the face of deficits, the lower long-term deficits due to the ACA will imply higher national savings, which, in turn, will increase capital accumulation, and decrease foreign borrowing. In light of labor mobility, the guaranteed access to health care insurance allows workers to take risks that advance their careers and benefit the economy as a whole.