Urban Institute: ‘Obamacare’ won’t stunt economic growth

The GOP’s claims that ‘Obamacare’ will kill jobs and stunt economic growth aren’t true, according to a recent report by the Urban Institute.

The report refuted assertions by Republican politicians that the 2009 health care reform law would lead to higher unemployment and slower economic growth because the law requires large employers to provide health coverage and imposes taxes on high-income individuals, insurance companies, and medical device and pharmaceutical manufacturers.

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Echoing those claims, Republican presidential nominee Mitt Romney, who pushed a similar health care reform in Massachusetts, has vowed to repeal the Affordable Care Act on “day one”.

The Republicans’ fears are unfounded because the Affordable Care Act (or ACA) has “spending and revenue effects that are essentially offsetting,” according to the Urban Institute.

“The coverage expansion means these funds will be infused into the economy and result in increased spending and employment in health care and insurance sectors,” the report stated.

In other words, the taxes collected under Obamacare would fund the health coverage expansion, which would lead to increased spending and more jobs created in the health care and insurance sectors. So the tax revenues are returned back into the economy.

In addition, the report pointed out that the employer coverage mandate and tax increase would affect only a small number of companies and wealthy individuals.

For instance, 3 out of 4 businesses are exempt from the employer coverage requirement because of their size.

Small businesses with fewer than 50 employees are not required to pay the “employer responsibility fee” if they don’t provide health coverage. (In fact, the ACA actually offers small businesses tax incentives to provide health coverage.)

Furthermore, 96% of the larger firms that are not exempt from the mandate already offer health coverage to their employees, according to the report.

Republicans have also decried the health care law’s tax increase on high-income individuals, which is expected to generate around $439 billion in tax revenues between 2014 to 2019. The tax hike, Republicans argued, would kill jobs because people will have less money to buy things.

Not so, according to the Urban Institute.

“These taxes will only have a small effect on demand for goods and serves because a very small share of the population will be affected and higher income people are the least likely to change their consumption in response to a payroll tax,” the report concluded.

The Urban Institute’s report also looked at the economic impacts from the Massachusetts health care reform, which imposed similar employer mandates and tax penalties as the Affordable Care Act, and concluded that the health care reform did not damage jobs or the economy in the Bay State.

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“There is no evidence that Massachusetts employers have cut back on hiring because of health reform. This is consistent with the assessment of business leaders from across the state, including the Associated Industries of Massachusetts, the Greater Boston Chamber of Commerce, the Massachusetts Business Roundtable, and the Massachusetts Taxpayer Foundation,” the report stated.

Although some employers dropped health coverage during the recession, fewer Massachusetts companies did so than employers nationwide.

“Contrary to the notion of harming workers in Massachusetts, health reform may have mitigated the full impact of the recession on employer-sponsored coverage in Massachusetts relative to the rest of the country,” according to the report.

Secondly, Massachusetts’s economy grew faster than the national average after the health care reform went into effect. In 2001 to 2006, the Bay State’s GDP grew by 6.2% – about half the national GDP growth rate of 13.5%. After the health care reform was enacted, the Bay State’s GDP grew by 2.4% – about twice the national GDP rate of 1.1%.

The Urban Institute also found that Massachusetts is recovering faster from the Great Recession than the rest of the country.

“Despite claims that the Affordable Care Act will lead to job loss and slower economic growth, economic theory and the evidence from the 2006 health reform in Massachusetts suggests otherwise,” concluded the Urban Institute.


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