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Mary Mazzoni headshot

Reports: Obamacare Repeal Could Kill Jobs, Hurt Local Economies

By Mary Mazzoni

As the Senate continues confirmation hearings for President-elect Donald Trump's incoming cabinet, a familiar conversation is back in the headlines: the repeal of the Affordable Care Act (ACA), more commonly known as Obamacare.

The court of public opinion is fairly split on the plan, but many Americans receiving coverage under ACA remain disappointed by rising premiums -- which spiked by an average of 25 percent this year, according to the Department of Health and Human Services.

While the president-elect and members of Congress often insinuate that flaws inherent to the plan are to blame for hefty premium hikes, supporters of ACA point to a scantly-reported legislative action as the main cause for price increases.

We'll break it down quickly: The ACA initially included a provision, called the risk corridors program, to offset insurer losses in the first three years of the exchange. The program was intended to give insurers wiggle room as they figured out how to price plans on the marketplace. Insurance companies that made profits above a certain level paid into the program, while those with higher-than-anticipated medical claims received payouts.

The program would have expired at the end of last year. But a provision added to the federal budget in 2014 -- which required risk corridors to be revenue-neutral -- significantly limited their function long before that. Because the program could only pay out what it received, the Department of Health said it would pay only 12.6 percent of the risk-corridor requests for 2014, a funding gap that persisted in the following years, reports Modern Healthcare.

If you're interested in the broader backstory on risk corridors and ACA premiums, the Modern Healthcare piece is a must-read. But most of us can imagine the effect of paying insurers less than 13 percent of what they anticipated at the beginning of the fiscal year. Many insurers closed down. Several sued to recoup overdue payments. And almost all warned of potential premium upticks due to increased financial uncertainty.

Such hikes are certainly upon us now. But despite high prices, even some Republicans in Congress are reticent to repeal the ACA without settling on an effective replacement -- inferring that such a move could incite chaos in the insurance market and leave millions without coverage.

A trio of studies released since the election point to yet another unintended consequence of repealing Obamacare without a replacement: lost jobs and revenue for local economies. And given the incoming administration's focus on jobs and "common sense" economics, the findings could throw a serious wrench in plans for an ACA repeal.

Could an ACA repeal cost jobs?

Vann R. Newkirk II of the Atlantic profiled the studies in an analysis published on Tuesday. Two of the research teams hypothesized the economic effects of a law similar to H.R. 3762, an ACA-repeal measure passed by Congress and vetoed by President Barack Obama in 2015.

The measure -- which would have eliminated employer and individual insurance mandates immediately, and cut Medicaid expansion and exchange subsidies over two years -- is fairly similar to the so-called "repeal and delay" plan making its way through Congress today.

In December, Laurel Lucia and Ken Jacobs of the University of California, Berkeley, examined how a law similar to the 2015 resolution would affect California. Their findings were unsettling: "The net effect of partial ACA repeal would be the loss of 209,000 jobs" in the state, if no replacement is introduced.

Although the majority (135,000) of those jobs are in the healthcare industry, the risk also extends to other sectors. "Suppliers of the healthcare industry, such as food service, janitorial and accounting firms, would experience reduced demand, leading to job loss. The lost jobs also include those lost due to the 'induced effect' of healthcare workers spending less at restaurants, retail stores, and other local businesses," the team concluded.

Last week, researchers from George Washington University and the Commonwealth Fund expanded this analysis to all 50 states. Their conclusions are equally disturbing:

"Repeal results in a $140 billion loss in federal funding for health care in 2019, leading to the loss of 2.6 million jobs (mostly in the private sector) that year across all states," wrote the research team headed by Leighton Ku of Georgetown.

"... If replacement policies are not in place, there will be a cumulative $1.5 trillion loss in gross state products and a $2.6 trillion reduction in business output from 2019 to 2023."

The knee-jerk reaction for many who look at these numbers is to ask: Okay, but how do those financial losses stack up with what the federal government would have spent on ACA for those five years? Wouldn't most of those dollars come from the federal government anyway?

It turns out, not so much, say the researchers. According to their findings, federal investment in ACA actually yields a pretty solid return. States could expect to receive a little over $800 billion in Obamacare funds from 2019 through 2023 -- which is certainly a sizable sum, but the numbers above put it into perspective when it comes to ROI.

It's also worth noting that almost all of these at-risk jobs are in the private sector. And on average across all 50 states, according to the Georgetown study, only a third are in the healthcare field -- with the others coming from industries spanning construction, real estate and finance.

The ACA as an economic stimulus

The Berkeley researchers spoke of the "induced effect" ACA spending has on the economy -- a factor also noted by the Georgetown team: "Health care will comprise almost one-fifth (18.5 percent) of the nation’s economy by 2019," they insisted. "As such, major changes to health care will reverberate across other parts of the economy."

In other words, inferred Newkirk of the Atlantic, "Federal funding for the Affordable Care Act works as a general economic stimulus." That's why the employment and business output that can be traced back to ACA funding extends far beyond the healthcare sector.

But does this argument have teeth? A study published last week in the New England Journal of Medicine takes a look, using Michigan's Medicaid expansion as an example.

Under ACA, the federal government now pays the full cost of Medicaid expansion in Michigan and 31 other states -- a total that will drop to 90 percent by 2020. Researchers from the University of Michigan, Ann Arbor, estimate this increased Medicaid spending created 39,000 new jobs in Michigan as of last year, a number expected to stabilize at about 30,000 jobs by 2021. Two-thirds of these jobs are outside the healthcare sector, and all could be at risk if funding is cut.

And, according to the Georgetown research, ending Medicare expansion could carry financial repercussions even for the 19 states that did not choose to expand Medicaid.

“Our initial guess was that obviously most of the effect was going to occur among the 32 states that expanded Medicaid,” Ku of Georgetown told the Atlantic. “We were surprised at the fact that there were large effects for the non-expanding states.”

Again, Ku cited the broader stimulus of ACA spending, saying funding changes would affect "people in expansion states working in, working for, and purchasing goods from businesses in non-expansion states," Newkirk reported. This would result in the loss of over 300,000 jobs in non-expansion states in 2019 alone if the funding is cut.

The bottom line

It's important to note that these are just hypotheses.

As the Georgetown researchers underscored: "Other health policy changes, or even changes to tax policy, could modify our projections" -- meaning a replacement plan from Congressional Republicans, if one is ever put forth, could change the employment and financial landscape outlined above.

But the findings certainly give Congress a gristly bit of fat to chew as they consider rushing a repeal of ACA without a replacement. And as Americans prepare to rally at demonstrations across the country on Sunday, organized by Congressional Democrats to oppose an ACA repeal, the spotlight illuminating their decision shows no signs of dimming any time soon.

Image credit: Flickr/U.S. Embassy Kabul Afghanistan

Mary Mazzoni headshot

Mary has reported on sustainability and social impact for over a decade and now serves as executive editor of TriplePundit. She is also the general manager of TriplePundit's Brand Studio, which has worked with dozens of organizations on sustainability storytelling, and VP of content for TriplePundit's parent company 3BL. 

Read more stories by Mary Mazzoni