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Obamacare countdown: How will reform affect the economy?

The health-care law could strain household budgets, but drastic impacts on the US economy over the coming decade are unlikely, experts say.

By , Staff writer

For all the people who view Obamacare in extreme terms – as either a big economic boost or a disaster – here's another scenario to consider: Maybe the law's impact on the economy will be something more incremental.

That's not to say the law's effects will be only marginal in scope. The Affordable Care Act (ACA) calls for a major expansion in the number of Americans with health insurance, requiring some people to purchase it who otherwise wouldn't.

But more than a few policy experts argue that, when you add up all the changes, the result will be neither a firm containment of the health-cost spiral nor a deeper financial mess.

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Some even predict that the US economy will be about the same size, 10 years from now, as it would have been without Obamacare.

"[The law] should shift resources into the health-care sector and in a small way reduce the spending that can occur elsewhere" in the economy, says John Holahan of the Urban Institute, a research group in Washington. But the overall effects on gross domestic product appear likely to be modest, he says.

One main goal of the law is to expand access to insurance, so that people with preexisting conditions, for example, aren't denied coverage.

Conservative critics point to the risk of a new unpaid-for entitlement. But Mr. Holahan says the law has a range of cost-control efforts that promise to hold medical inflation below where it would go if Obamacare were repealed.

At the same time, neither he nor other forecasters envision the law magically reducing US health costs to the share of GDP seen in other advanced nations.

That question – what happens to the arc of medical costs in coming years? – may be the one that looms largest in assessing how the ACA affects the overall economy. If those costs keep rising far in excess of nonmedical inflation, then the result could be a burgeoning national debt that drags down economic growth.

For now, though, the nonpartisan Congressional Budget Office pro­jects that federal deficits will be little changed by the ACA over the coming decade and that the effects on GDP will be modest.

Similarly, forecasting firm Moody's Analytics didn't change its outlook for GDP up or down when President Obama signed the law in 2010.

Still, the ACA appears set to have some big ripple effects for different groups within the economy:

Employers. Some employers will choose to keep their staffing below 50 full-time workers, the threshold for the law's requirement that firms offer insurance or pay a fine starting in 2014. Already, some businesses with low-wage workers have announced plans to shift toward part-time staffing to stay under that 50-person cap.

Middle-class families. Those who lack employer-based coverage face a mandate to buy insurance or pay a fine starting in 2014. Many families will qualify for subsidies, but the process could still strain household budgets.

The near-poor. Under the law, as many as 17 million additional Americans may be eligible for Medicaid coverage, with a new income threshold as much as 1.33 times the poverty level.

Holahan and his colleagues at the Urban Institute expect the ACA to have some effects that offset one another economically.

For example, a tax on medical device-makers could hurt those industries, but the expansion in overall health insurance should mean more revenues for those firms.

Some employers may drop health coverage, but competition for skilled workers could create pressure to offer health benefits. In Massachusetts, a state that already has an ACA-style law, employer coverage didn't erode.

Although many economists see important virtues in the law, they also cite gaps or potential shortcomings. These include:

Medicare costs. The law presumes Medicare savings from hospital productivity gains. If these aren't seen, what then?

• The role of hospitals and health professionals. Given a trend of hospital consolidation, monopoly-style pricing power may thwart the law's cost-control efforts. The ACA also doesn't include licensing reforms, which could open the door to more lower-cost care by nonphysicians. Moreover, it remains unclear how much the law will nudge the nation away from "fee for service" medicine, a model that in effect rewards doctors for doing numerous tests and procedures.

• Consumer choice. Conservative critics of the ACA would like to see health reform emphasize more of a consumer-driven setup. A controversial example is the idea of shifting Medicare toward a voucher system.

For these or other reasons, health experts expect the law to be modified over time, as Americans wrestle with how much medical care they want and how to pay for it.

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