David Cutler of Harvard testified about the Baicker-Chandra results and asserted that the Affordable Care Act would reduce average health care costs by about 5 percent by 2015, reduce the health care cost implicit tax on employers and thereby increase nationwide employment more than it would have grown had the Affordable Care Act not been enacted.
He also organized and signed an economists’ letter to Congress asserting that “repealing the Affordable Care Act would produce job reductions of 250,000 to 400,000 annually.” The Affordable Care Act was cutting employer costs and Congress needn’t worry that it would contract the labor market, they wrote…
The Affordable Care Act’s explicit taxes on employers, subsidies for layoffs and implicit taxes on employees, together amount to a five or six percentage point addition to the average marginal tax rate on labor income (this includes the fact that many people will not take part in programs for which they are eligible, the tendency of the act to move people off means-tested uncompensated care and the fact that the act implicitly taxes unemployment benefits, as I noted in testimony before the Human Resources Subcommittee of the House Ways and Means Committee). By these calculations, the tax effects that Professor Cutler left out are about 10 times greater than, and in the opposite direction of, those he conveyed to Congress.
Professor Cutler projected that the Affordable Care Act’s cost reductions by themselves will increase employment in 2015 by about 400,000, or about 0.3 percent of total employment (see Figure 2 in his testimony). If his estimate of the cost-savings channel is accurate, and I am right that the overall labor market effect of the act is about 10 times larger (in the other direction) than the cost-savings channel, we might then expect the act to contract the 2015 labor market by about 3 percent rather than expand it. [Ed: that’s a loss of 4 million jobs!]