Courtesy of Occupy Democrats, with over 16,000 likes and 13,000 shares. This meme claims there’s a new study that determines Republicans repealing Obamacare will kill millions of jobs, harm the economy and add to the deficit. To see if this has merit, let’s dive into the study.
This meme refers us to a recent study from the Commonwealth Fund, which is a private foundation geared toward health care issues. Indeed, the study does claim that in 2019 there would be a loss of 2.6 million jobs and a $1.5 trillion loss in economic activity between 2019-2023 ($256 billion in 2019). The graphic is shown below.
However, upon closer examination there are significant issues with this study as it relates to giving us an accurate depiction of the economy after a hypothetical Obamacare repeal.
First, it’s not a comprehensive study of “repealing Obamacare” as the meme suggest, it only focuses on the repeal of two components, the federal premium tax credits and federal payments to the states for Medicaid eligibility.
- Federal Premium Tax Credits- these are the subsidies to those with lower incomes who buy insurance through the Obamacare exchanges. They pay for portions of the health insurance premiums depending on the income of the buyer.
- Federal Payments for Medicaid- this is money to aid people who are newly eligible for Medicaid under the Obamacare law.
It’s important to keep in mind that the Affordable Care Act (aka Obamacare) encompasses far more than these two items. Some other aspects of the law include:
- Vast regulations for insurance plans, like what they must cover, who they must cover and how much they can charge. For example, no one can be denied insurance, everyone must have maternity coverage, premiums for older adults can only be 3 times more than younger adults, smokers can be charged only 1.5 times as much, and there can be no lifetime limits.
- Vast regulations on businesses, like mandated coverage for all full-time employees for companies with over 50 employees, and a 40% tax on “Cadillac health plans”.
- 20 new taxes, including the Medicare hike, the 3.8% investment surtax, a 2.3% tax on medical device manufacturers, and tax on drug companies.
- Regulations on individuals, most famously the individual mandate, which financially penalizes those who don’t buy insurance.
A comprehensive analysis of repealing Obamacare would include all of these things. The study says they only focused on those two aspects because the political “plans for replacement are unresolved”. Fair enough, but it’s also unlikely any repeal would just include those items without dealing with the taxes and regulations. Thus, the study isn’t really too relevant in telling us about a likely repeal, and it certainly doesn’t factor in a full repeal. In addition, there are larger problems with the Commonwealth Fund study, even on its own terms.
The study claims that the US economy would lose almost 3 million jobs per year and $1.5 trillion for the 5 years of their analysis. Just from repealing parts of Obamacare. This is an extraordinary claim, so what’s the evidence?
Looking at the study’s “Summary of Methods” (at the bottom of the page) reveals a flawed methodology of economic analysis. In essence, they took the loss of projected federal funding ($140 billion per year) and plugged that loss of money into an economic forecasting model, which spat out the numbers we saw in the meme. But this is an improper method of economic analysis, as it assumes the loss of federal funding exists in a vacuum. Federal dollars are not manna from heaven! The only way the government gets money is from the private sector, through taxation or borrowing. Thus, the loss of $140 billion in federal funding doesn’t mean it’s disappeared from the economy. It’s just not being spent by the federal government. No one knows exactly how it would be used otherwise, but most likely it would be spent and invested in other areas of the economy, including healthcare.
The best example of this flawed economic thinking comes from after World War 2, when many economists in the US, including Nobel Prize winner Paul Samuelson, predicted disaster if the government stopped their massive war spending. After all, think of all the factories and employees making bombs and tanks. If spending was cut, what would happen to them, and the implications to the greater economy? According to Samuelson, “the greatest period of unemployment and industrial dislocation which any economy has ever faced”. In reality, the opposite happened. The US slashed spending by 75% between 1944-1948, and the economy thrived as capital was freed up from the war effort to be used in other areas. This example shows us that we can’t treat government spending in a vacuum. Decreasing it doesn’t mean that money disappears from the economy, it’s just used differently, usually with better results.
This alone should give us reason to discount this study entirely, or at least be highly skeptical of its claims. At a minimum, shouldn’t we look to see if someone else has studied the potential effects of an Obamacare repeal? Well, it just so happens there is another study! One with far more clout.
The CBO Study
The non-partisan Congressional Budget Office (CBO) has its own analysis on the repeal of the Affordable Care Act (ACA). As with anything so complex, there’s a huge caveat that this analysis is also prone to error, but on the whole it’s a much more comprehensive look at a hypothetical repeal. The CBO at least attempts to look at both the positives and negatives to the economy, and they consider the entire law. In 2014, the CBO made this pronouncement about Obamacare in its report:
CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor-given the new taxes and other incentives they will face and the financial benefits some will receive…The reduction in CBO’s projections of hours worked represents a decline in the number of full-time equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024.
Instead of the repeal losing jobs, the CBO claims it’s Obamacare that will cause job losses. In their updated report on analyzing the repeal of Obamacare we also find these items:
- They found repealing the ACA would actually raise economic output, with an expected average increase in GDP of .7% from 2021-25. This is due primarily to boosting the supply of labor in the economy, which the ACA hampers.
- This increase in output would reduce federal deficits by $216 billion over the 2016-2025 period.
- However, the overall result to the budget would be an increased deficit of $137 billion (13.7 billion per year) from 2016-2025. This is fairly minor, and substantially less than the $350 billion this meme claims, but it is an increase.
Why Would Repeal Increase the Deficit?
It might strike some as odd that repealing a program that costs a trillion dollars would increase the deficit, so why is this? In short, it’s because the ACA is projected to raise more in taxes than it spends. While some ACA taxes might be cheered as “soaking the rich”, most aren’t aware of all the methods of revenue, some of which are much more dubious. Here are some examples from the CBO:
- The CBO projects $55 billion over 10 years to come from individuals who don’t get insurance and pay the individual mandate. Keep in mind, these people don’t have health insurance and are being taxed, which is lose lose.
- $106 billion is projected to come from employers who decide to not provide insurance, instead paying the $3000-4000 fine per employee. Again, this is lose lose, a tax penalty in exchange for no insurance provided.
- $111 billion from the “Cadillac plan tax”. This comes from employers who provide insurance that’s too generous.
- $216 billion from changes in how workers are compensated. For instance, some employers will cancel their Cadillac plans because of the tax, and instead increase wages and provide cheaper insurance. Since employer health insurance isn’t normally taxed, and wages are, the worker is now paying more taxes on their compensation. Probably not something they’ll cheer.
A complete repeal of Obamacare would repeal these taxes too, which means less revenue for the government (but also more money in the private sector economy). Whether or not these taxes are worth the deficit reduction is a matter of opinion. On one side, Obamacare slightly reduces the deficit (by about 13 billion/year). On the other side, it levies a projected $1 trillion in taxes over its first decade.
While the meme correctly states the numbers in the study, it also sinks or floats on the strength of the study. It’s been shown that the study is not a comprehensive analysis of Obamacare repeal, and it doesn’t apply a methodology that can be taken seriously. In fact, the more comprehensive CBO study reveals the opposite of the first two claims from the meme. That Obamacare itself results in net job losses and less GDP growth. While the ACA does reduce the deficit, it’s far less than the meme claims, and has significant caveats. In using a dubious study that clearly contradicts a more established, relevant study, this meme is misleading its viewers.
Note: for a more in-depth look at Obamacare’s economic effects, as well as healthcare in general, check out The Primal Prescription. The book is co-authored by economist Dr. Robert Murphy and ER Physician Dr. Doug McGuff, and gives great information from a perspective of both economics and medicine.