Obamacare Is Going To Change The Way You Work And Retire

by Business Insider | September 17, 2013 7:00 am

Obamacare Is Going To Change The Way You Work And Retire

The biggest effect of Obamacare is obvious: Starting this winter, it will make it easier for tens of millions of Americans without health insurance to get it.

But Obamacare will also lead to big changes for workers who do have health insurance and for the firms that employ them.

Workers will find it easier to change jobs, and to enter and leave the labor force at will, without worrying that doing so will cause them to lose access to health insurance.

In other words, Obamacare will tilt power in the labor market away from employers and toward employees.

This is a big deal, and it’s a sleeper issue that animates the left-right fight over Obamacare even though it is rarely discussed in the open. Conservatives concerned that we are turning into a nation of “takers” see employer-provided health care as one of the few remaining forces that keeps Americans working.

Liberals don’t just want health coverage for all; they want workers to be able to press their employers for higher wages and better conditions, which they can more easily do if they’re less afraid of losing health insurance if they lose their jobs.

That change in the balance of power will affect the economy in a few ways, some good and some bad, but the effects look likely to be more favorable to workers than employers.

1. Obamacare might lead to fewer people working. As the Congressional Budget Office noted in a report[1] months before Obamacare passed, “Increasing the availability of health insurance that is not related to employment could lead more people to retire before age 65 or choose not to work at younger ages.”

There’s been a lot of discussion of employer-side effects on employment under Obamacare. Will businesses decline to hire so they can remain eligible for favorable rules under Obamacare for small businesses? Will they shift workers to part time to avoid coverage mandates? Will small business owners facing tax increases due to Obamacare be less inclined to invest?

But these employee side effects are also important: Workers who aren’t dependent on a job for access to health insurance should be less inclined to take job offers, more willing to quit, and more likely to demand higher wages.

2. Freed from the search for health insurance, people might do better and more productive work. Economists call the current phenomenon “job lock”: people decline to take more appropriate job opportunities or start their own businesses because they do not wish to lose their current health coverage.

It’s unclear how important this effect is: Some studies find that workers without alternative access to health coverage are much less likely to change jobs, while others find no effect. (Brigitte Madrian’s 2006 paper[2] provides a good overview.)

Here is a key observation for understanding the debate over Obamacare: point (1) describes a way the law might hurt the economy, and (2) describes a way in which it might help. But both (1) and (2) are bad for employers, and will force them to work harder to attract and retain workers. That helps explain why employer complaints about Obamacare don’t necessarily mean that it is bad for the overall economy.

3. Early retirement may become more prevalent. Some employers that currently provide health coverage to retirees under age 65 are talking about dropping that coverage. These include large private firms like Time Warner and IBM and governments such as Chicago, Detroit and Rhode Island. Obamacare’s exchanges and subsidies will make it suddenly much easier for retirees under 65 to get their own coverage, making it less economical for employers to provide it.

But most workers currently do not have access to pre-Medicare retiree health benefits through work. Only about 20%[3] of private sector employees currently have access to such benefits; in the public sector, the figure is likely about 2/3. For the majority without such generous employers, Obamacare will be a boon, making it easier to retire before Medicare age, or to shift into a different kind of work that doesn’t come with health insurance.

The question is how many will do so. In 2008, CBO analyzed a proposal to let people aged 62 to 64 buy Medicare coverage at full price, and they thought the effects would be tiny: just 20,000 added retirements out of a population around 10 million. But Obamacare’s offering to young retirees is much more generous: prices would be lower, because Obamacare’s premium structures favor older people, and many retirees would be eligible for subsidies that further cut the price they pay.

Even if retirement behavior doesn’t change that much, the change in who pays for health care will matter a lot to taxpayers. State and local governments have over a trillion dollars in accrued and unfunded liabilities for retiree health care. Unlike pension benefits, they usually are not guaranteed, so elected officials can change their terms at will. Cities like Chicago are realizing that Obamacare provides an opportunity to offload much or all of those liabilities onto the federal government.

4. Work and health care will be severed. Uncertainty about future employer and employee behavior is a source of uncertainty in the overall cost estimates for Obamacare. If more employers than expected drop insurance coverage and send employees to buy subsidized coverage in the exchanges, the law’s costs will rise. If union-sponsored Taft-Hartley multiemployer plans lose their rationale[4], and many of their 20 million participants shift to buying subsidized plans though exchanges, the law’s costs will rise. If easier availability of health insurance outside work further reduces labor force participation, the law’s costs will rise.

One of the key problems[5] with Obamacare’s design is that it tries to simultaneously get health insurance to lots of people who don’t have it while discouraging employers from dropping the (very expensive) plans they currently offer. Once we have separated the availability of health insurance from employment, it is likely to prove untenable to expect employers to keep offering it. That shift will be a mixed bag for employers: They’ll be relieved of rising health insurance costs, but they’ll have to pay added taxes and they’ll lose power over their employees. But for workers, the added freedom should be mostly positive.

Endnotes:
  1. in a report: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/104xx/doc10435/07-13-healthcareandlabormarkets.pdf
  2. 2006 paper: http://www.nber.org/papers/w11980.pdf?new_window=1
  3. Only about 20%: http://www.ebri.org/pdf/FFE156.24Feb10.Final.pdf
  4. lose their rationale: http://www.politico.com/story/2013/09/questions-about-unions-obamacare-96738.html
  5. key problems: http://www.bloomberg.com/news/2013-05-28/obamacare-s-original-sin.html

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