The Affordable Care Act may encourage nearly one million low-income workers to leave their jobs and and the nation’s welfare rolls, according to a working paper distributed by the non-partisan National Bureau of Economic Research. The study, “Health Insurance, Labor Supply, and Employment Lock,” concludes that Americans employed primarily to gain private insurance coverage may leave the workforce when they become eligible for free or heavily subsidized health insurance. The authors, Craig Garthwaite, Tal Gross, and Matthew J. Notowidigdo, write that the Affordable Care Act, which “affects adults not traditionally eligible for public health insurance, may cause large reductions in the labor supply of low-income adults.”
Using CPS data, we estimate that between 840,000 and 1.5 million childless adults in the US currently earn less than 200 percent of the poverty line, have employer-provided insurance, and are not eligible for public health insurance.
Applying our labor supply estimates directly to this population, we predict a decline in employment of between 530,000 and 940,000 in response to this group of individuals being made newly eligible for free or heavily subsidized health insurance. This would represent a decline in the aggregate employment rate of between 0.3 and 0.6 percentage points from this single component of the ACA.
Garthwaite, Gross, and Notowidigdo find “strong evidence that public health insurance affects labor supply decisions” — in particular, they conclude public health-insurance provides a “strong work disincentive” to those who qualify for it.