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Life Health > Health Insurance > Health Insurance

Will PPACA cause another Great Recession?

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As key provisions of the Patient Protection and Affordable Care Act take effect next year, economists will be looking at more than just how it influences costs.

The law forces uninsured people to either buy insurance or pay additional taxes, and for some, individual rates will no doubt rise. Critics have wondered aloud whether PPACA will reduce employee work hours, drain earnings, or if it will cause fast-growing small businesses to slam the brakes on hiring as they near the threshold 50th full-time employee.

The ultimate question in 2014 will be whether billions of dollars will be diverted from the general economy to the feds and carriers — dollars that otherwise might be spent on homes, vehicles, appliances and other big-ticket items.

More pointedly: Will Obamacare cause another Great Recession?

Economists and health care experts agree it’s too early to tell what the rollout of the exchanges and the individual mandate will mean for the economy. But one early indication that a recession is unlikely, they say, is that part-time work isn’t expected to increase as a result of health care reform.

During the past two recessions, part-time employment rose, but such employment was either flat or falling after the end of the recessions. The employer mandate, which requires employers to provide insurance to those working more than 30 hours a week, does not take effect for another year – and there’s no reason why anticipation of it should increase part-time employment in the meantime, according to a report by the Washington-based Economic Policy Institute. Such part-time employment has been falling since Obamacare’s passage.

A small survey by the Federal Reserve Bank of Minneapolis in March found that only 4 percent of companies had shifted to more part-time workers in response to health reform.

Likewise, the Center on Budget and Policy Priorities released a similar study, saying the latest data provides scant evidence that PPACA is causing a significant shift toward part-time work.

“Many part-time workers have already gotten sponsored insurance, even without a mandate—maybe not necessarily at the bottom of wage distribution, but generally, large firms will offer this to all of their workforce and there is no sign that will change,” said Elise Gould, director of EPI’s health policy research.

The unsustainable rate of health care cost growth — that is, that spending’s growing faster than GDP and eating up budgets — is an area that might be raising concern for the overall economy, said Ceci Connolly, managing director of PricewaterhouseCooper’s Health Research Institute.

The first thing to consider, she said, is that there are aspects of PPACA that slow the inflation of health costs.

“First, when looking at the penalty for hospital readmissions, we’re seeing health systems taking action to reduce hospital readmissions because they’re costly and often either unnecessary or preventable,” Connolly said. “We believe that in 2014, that will continue in a significant way. Meanwhile, incentives and penalties within the new law to pay for value instead of volume are also starting to bring us savings. That can be seen particularly in bundled payments and accountable care.”

Bigger picture

In terms of the broader economic impacts, the insurance and health care industries will have more paying customers, and that could generate growth in those sectors— and could be beneficial for others.

“By and large, those who got care at the emergency room, who were in bad shape and essentially getting patched up, will now get more checkups, screenings and management of chronic conditions,” she says. “That’s all revenue for the health sector—premiums will be paid, providers will be paid and there will be new paying customers for the pharmaceutical industry.

“We hear from all sorts of employers that the reason they’re engaged in offering health care coverage is that they want a healthy, productive workforce, and there is a good deal of literature to support improved productivity—that is what is on the minds of the employers that we work with.”

See also: States experimenting with health cost programs

On the flip side, she says, there are new taxes within PPACA that will hit high-income Americans, such as the Medicare tax, and several industries — pharmaceutical, health insurance and hospital industry included. There’s a concern they might pass those tax and fees onto customers — but to what extent?

“Most of these taxes were negotiated as part of PPACA, as they were expecting eventually 28-30 million newly paying customers,” Connolly said. “So it was a trade-off, from their perspective.”

But some feel that trade-off will hurt consumers in the end and, by extension, the economy.

“What we now have is a huge bailout of insurance companies at the expense of the taxpayer,” said Clark Newhall, a physician and lawyer who is executive director of Utah’s Health Justice. “Will a health insurance bailout be good for the economy, or a health insurance system essentially run by the insurance companies? I don’t think so.”

One aspect of PPACA that will have a positive impact on the economy is Medicaid expansion, Gould says.

“In the states that are expanding Medicaid, a lot more people will be getting insurance, which will add to their economic security and help with their disposable income,” she said. “With some states opting out of the expansion, making comparisons between states will be an interesting study.”


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