UMBC study called an incomplete look at Affordable Care Act by some analysts

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By Mike Licht, Notions Capital

By Dana Amihere

Policy analysts are criticizing UMBC’s Hilltop Institute for a health care reform study released earlier this month that showed economic growth from the Affordable Care Act because they said it was too narrowly focused on spending and job creation.

As reported here two weeks ago, the study conducted by researchers at the University of Maryland, Baltimore County provides a detailed simulation model of the Affordable Care Act’s impact on Maryland’s economy. But Marc Kilmer, Maryland Public Policy Institute senior fellow on health care, called it an “incomplete look” at the ACA’s effects because it “focuses [only] on the benefits.”

Hilltop’s study concluded that the new legislation would reduce Maryland’s unemployment rate by almost 1% by 2020, creating nearly 27,000 jobs across all sectors. In addition, system reforms including expansion of Medicaid coverage would funnel more than $18 billion into the state’s economy over six years.

Simulation model projects jobs

Hamid Fakhraei, Hilltop Institute’s economic analysis director and the study’s lead author, says that the input-output model he used estimates job creation based on federal and state spending in the health care industry.

While Kilmer doesn’t find fault with the specific model used, he says that he’s wary of job creation simulations in most cases.

“There’s no way to go back later and say we were right or we were wrong by ‘X’ amount of jobs,” Kilmer said. “It’s impossible to quantify.”

Fakhraei, however, argues for the reliability of the Nobel prize-winning IMPLAN model he used to make projections.

Furthermore, he suggests that he’s not the only one to have done this kind of research with positive results. While the Urban Institute study released in June doesn’t specifically model job creation, it found that 2006 ACA-like health care reforms implemented in Massachusetts didn’t have a negative effect on private-sector employment. In fact, in the 2006-2010 post-health reform period, the state was slightly more insulated than four comparison states and the rest of the nation from joblessness of working-aged adults.

Higher taxes and labor costs

Kilmer said that the study doesn’t take into account the myriad of factors which come into play with job creation and economic growth.

“When you look at the variety of other things in the new law, you think all this money is going to be pumped into the economy by ACA, but the new money has to come from somewhere,” Kilmer said. “It’s not falling out of the sky, it’s coming from taxes and borrowing which impose a dead-weight loss on the economy.”

Moreover, the costs $1 in taxes doesn’t translate into a $1 benefit to the economy, Kilmer said. It’s always lower.

Kilmer isn’t alone. John Goodman, president of the National Center for Policy Analysis, told a U.S. House Government Reform Committee July 10 that 73 million taxpayers earning less than $200,000 will see their taxes increase as a result of health care reform and the cost of labor –– especially low-cost labor –– will rise.

“Ten-dollar-an-hour workers and their employers cannot afford $6-an-hour health insurance,” Goodman said. “If they bought it, only $4 would be left for cash wages and that would violate the minimum wage law. This is not a small problem. One-third of uninsured workers earn less than $3 above the minimum wage.”

Reduced incentives to work

Overall, Goodman and Kilmer agree that the ACA reduces incentives to work for low-income workers, whose primary motive for working may be employer-sponsored health insurance.

Kilmer said that more low-income workers will seek out Medicaid as opposed to employment for health insurance. Congressional Budget Office director Douglas Elmendorf said the same thing at a House budget committee hearing in February 2011.

A CBO report published last August said that employment could shrink as much as 0.5% or by about 800,000 jobs by 2021.

“There are some aspects of the law which may help job creation, but I have a hard time seeing it,” Kilmer said. The focus, he says, should be on the kinds of incentives the law provides to small businesses with 51 or more employees. They are fined for not offering health insurance, so the marginal cost of that 51st versus that 49th employee is significant, Kilmer said.

“By its penalties and mandates (the ACA) increases the cost of labor per worker, and for people whose labor isn’t that valuable in the workforce, they’re not going to be employed,” he said.