Bank Of America Asks "Do Obamacare Costs Exceed The Benefits?"

Tyler Durden's picture

Authored by Ethan Harris of Bank of America Merrill Lynch,

Healthcare and the economy

Few laws cause as much high blood pressure as the Affordable Care Act (ACA). Supporters of the law consider it the signature legislation of the Obama administration. Yet, in 2011 the House of Representatives passed the “Repealing the Job-Killing Health Care Law,” one of more than 40 attempts to scuttle the legislation. Public opinion polls are ambiguous: most Americans are against the law as a whole and yet most support many of its provisions. Here we try to slice through the partisan debate and show what serious research says about how the ACA will impact the labor market.

Plugging holes

The US has a very expensive, incredibly complicated healthcare system. On a positive note, we have the most advanced technology and innovation in the world. If you have a complicated medical condition, there is no better place to be. On a negative note, the US is the only developed market economy that does not have universal healthcare. This is one reason the US ranks so poorly on health among industrialized countries for metrics such as life expectancy and infant mortality. If you can’t afford health insurance and are above the income threshold for Medicaid, emergency rooms are your primary caregiver.

ACA takes the existing system and tries to patch up a variety of holes, while avoiding a variety of perverse incentives. The end result is quite complicated.

Here are the key provisions:

Employer mandate: Companies with 50 or more full-time employees will have to offer affordable health insurance or face a penalty. This mandate has already been delayed twice. In the latest ruling, mid-sized businesses (50 to 99 full-time workers) will have until 2016 to offer insurance while larger businesses will have to phase in coverage in 2015.


Individual mandate: Workers meeting certain income thresholds will have to purchase insurance on exchanges or face a penalty. Insurers must cover workers regardless of pre-existing conditions and rates are set in a way that subsidizes older workers relative to younger workers.


More subsidies: Lower-income workers will get subsidies for insurance and Medicare is expanded to cover more workers.

Short-term impact

For the last couple of years, critics of the ACA have been arguing that it is already hurting the economy. In particular, they point to the high share of part-time workers in total employment as well as anecdotal evidence of companies converting employees to part-time. We think the law has had little impact so far.

Companies that switch workers to part-time now hurt themselves in competition with other employers; better to change employment status later when many other companies are doing the same. In a San Francisco Fed paper, Valletta and Bengali argue that the persistently high number of part-timers is what we would expect given a major recession and slow recovery. Chart 3 shows that the share of part-timers today is not very different than in the last major recession in 1982. (Note the data are adjusted for a change in survey methodology). Looking at the breakdown of part-time workers, in the past year voluntary part-time employment is up 3.3%, while involuntary part-time is down 9.1% — this also contradicts the idea that companies are already forcing workers to take part-time jobs.

A more credible argument is that uncertainty about the law is hurting business confidence. Even here we see a limited impact. 96% of companies have fewer than 50 workers and are therefore only impacted by the law if they plan to expand beyond 50 full-time workers. The law also has little impact on big companies that already offer health insurance. Finally, smaller companies that already offer insurance will now get a subsidy. The law is creating uncertainty, but we doubt the impacts are close to what we have seen with repeated budget battles in Washington.

CBO takes a mulligan

Over the longer term, however, the law is almost certain to have a negative impact on the supply of hours worked for low-income workers. Under the ACA some workers risk losing some or all of their government subsidy if they take a job or earn too much income. This has always been the case for Medicare, but the new law adds additional disincentives to work.

In our view, three studies offer a good estimate of the likely range of impact from the law. On the low end, a 2011 study from the Congressional Budget Office estimated just an 800,000 reduction in full-time equivalent jobs once the economy has fully adapted to the law. At the high end, Casey Mulligan argues for about a 5 million reduction in labor supply.2 Note that Professor Mulligan is a well-respected economist, but his research on the impact from taxes and subsidies is at the very high end of the literature. Finally, partly in response to Mulligan’s work, the CBO has developed a new estimate of full-time equivalent job loss: 2.0 million by 2017 and 2.5 million by 2024.3 The CBO paper cites a wide range of literature, and they strive to represent nonpartisan, mainstream economic thinking. We think these are the most realistic estimates to date.

The CBO does not break down the composition of the drop in hours, but we can take a rough guess. Suppose a quarter of the reduction in hours worked comes from people shifting to part-time work. After all, firms that employ low-wage workers will have a strong incentive to keep their full-time staff below 50. Thus by 2017 we would expect the labor supply to fall by 1.5 million and for about 1.5 million full-time workers to cut their hours by a third. This lowers the participation rate by 0.9% and increases the share of workers that are part-time by about 3%. It is important to look at these moves in the context of the broader economy. The labor force participation rate has already fallen about 3% from its 2007 peak. If there is a cyclical bounce back in participation in the next couple years, the -0.6% impact from the ACA may be hard to see in the data. It is also worth noting that law mainly impacts low-wage earners. Hence, according to the CBO, labor income falls by only one percent as a result of the drop in labor supply. Finally, these changes in work incentives impact the supply side of the labor market, not the demand side. From a social welfare point of view, there is a big difference between a person voluntarily reducing hours due to government incentives and someone involuntarily losing a job and seeking work.

No free lunch

Stepping back, the controversy over the new healthcare law is just the latest in a long simmering debate. Government subsidies and taxes change economic behavior. There is a trade-off between hurting economic incentives and growth on the one hand and providing a social safety net on the other hand.

At one extreme, we could go to a pure free-market system, eliminating Medicaid (and Medicare) and denying emergency room service to anyone without health insurance. This would have a dramatic impact on labor supply. It would eliminate the very high “tax” on people whose income is just above the threshold for Medicare eligibility. (Eliminating Medicare would have a similar impact on the incentive to retire at 65, raising the participation rate significantly among the elderly.) Second, it would eliminate the “free-rider” problem, where people don’t purchase health insurance because they know that emergency rooms cannot deny service. The pure free-market approach would likely cause a big increase in labor force participation rates among low-skill workers, stimulating economic growth. This stimulus would be offset by an increased incidence of serious health problems. Clearly, as a society, we have decided not to go down this route.

At the other extreme the US could go to a “single-payer” system where the government offers a minimum standard of healthcare to everyone regardless of income. Virtually every developed market economy in the world has adopted this approach. Shifting to a single-payer system would require a tax to fund the additional cost to the government. Judging from the experience in other countries, however, the increase in taxes would be moderate. For example, consider what it would cost for the US to adopt Canada’s healthcare system. According to the World Health Organization, in 2011 healthcare spending was 11.2% of Canadian GDP compared to 17.6% for the US. Indeed, Canada’s spending share is typical; the US is in a class of its own in healthcare spending. The US government already spends more than 10% of GDP on healthcare so, as a rough calculation, switching to a Canadian system would require increasing that funding by about one percent of GDP.

Of course, there are pros and cons in shifting to such a system: Canada has much better health outcomes according to many metrics such as life expectancy. On the other hand, there would presumably be less innovation, more rationing of expensive procedures and longer waiting times. Moreover, the government, rather than big insurance companies, would dictate what expenses are covered.

The CBO estimates that the ACA will cut in half the share of the nonelderly population without insurance. There are currently 55 million uninsured people, about 20% of the nonelderly population. By 2017 they expect the uninsured to drop to 30 million. If CBO estimates are correct, a 25 million increase in the number of insured workers is being purchased at the expense of a one-percent hit to national income.

Of course the reduction in hours worked is not the only side effect.

Among its other effects, the law tends to shift resources into the healthcare sector and out of the rest of the economy.

The law is supposed to be deficit neutral, but some of the funding assumptions are unrealistic and we expect the law to bump up the annual budget deficit by about 0.2% of GDP.  

It also involves a transfer of resources from the younger, healthier people to older, lesshealthy people.

It reduces the free-rider problem of people using emergency rooms even though they don’t have insurance. And it adds to paper work and government data collection.

Do the costs exceed the benefits? We will let the reader decide.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
QQQBall's picture

Sure Sign that BAC has settled DOJ claims

AlaricBalth's picture

Bank Of America Asks "Do Obamacare Costs Exceed The Benefits?"

If they have to ask, we can't afford it.

Skateboarder's picture

That question.... reminds me of this:

"Does the pope help paedophiles get away with their crimes?"

"Is the pope catholic, and making the world safe for paedophiles?"

"Does a bear crap in the woods, and does the pope crap on the broken lives and dreams of two hundred deaf boys?"


It costs us our jobs and our lives, and the insurance companies benefit from it.

NoDebt's picture

Obamacare was never intended to "fix" healthcare.  It was passed almost purely for political reasons (get as many people on the dole as possible and, therefore, further dependency on government).  That it is a disaster should not be a surprise to anyone who was paying attention.  



boogerbently's picture

It's a sad fact of life, anymore, but ANY article I read, I find myself asking "How accurate/reliable are these numbers" and "what is the agenda of the author" ?

Stackers's picture

Much misinformation in this analysis.

1st one worth mentioning is the false assumption that the US does not rank as highly as other developed nations in life expectancy and mortality due to our lack of socialized universal health system

One: the US has much higher rates of immigration both legal and illegal and Two: European countries game their health stats the way everyone games unemployment. e.g. selective counting. The US is slightly more honest .... for now

Offthebeach's picture

No country has the sit on the gradchild baby-pavement whales, Wal-Mart scooter trailer trash, meth, heroin, pink slime gobbling beer drunks that we do.

Every savings of Obamacare will be less, zero or even a cost. Every cost will be greater, by multiples. As the law settles down, everyone, every business, every union, every politician will, 24/7 be trying to game everything they can out of the pig till money pile. We're a welfare trash hustlers now or you are a tax chump.

GetZeeGold's picture




Deficit neutral bitchez!


Takeoff and nuke Obamacare from's the only way to be sure.


So far I've qualified for 5 different guys?

Boris Alatovkrap's picture

Funny when you are trade freedom (freedom to chose health insurance, buy or not buy) for security (every one is MUST have insurance, no one is sick!), you are end up with neither, and lose million of job for boot.

lordylord's picture

The question to ask is WHO BENEFITS.

Boris Alatovkrap's picture

You are refer to World Health Organization or Rock Band ("Won't be fooled again!")...?

IridiumRebel's picture

"Over the longer term, however, the law is almost certain to have a negative impact on the supply of hours worked for low-income workers."


That is happening now, no?

fonzannoon's picture

Health care advice from a zombie.

NoDebt's picture

This ultimately benefits that zombie.  Obamacare increases dependency on government, government runs more deficits, the government becomes more dependent on the Fed to monetize.... and the fed feeds the banks, whom they work for.

TeamDepends's picture

Hmnm, if he's not gonna put gas in my car, maybe he ain't gonna give me the breath of life?

anefarious1's picture

Of course the costs outweigh the benefits. Just calculate them at:

There you can compare the cost (your fine) and versus the benefit (death panels for useless eaters) oh wait.. maybe it isn't so bad.

boogerbently's picture

Given that "fact", I'm surprised all you "boomer blamers" aren't ALL FOR O'care !

RaceToTheBottom's picture

I miss the days when banks only did banking

nmewn's picture

Fuck you BAC.

texas sandman's picture

Current leader for Captain Obvious dumbass rhetotrical question of the year.  What next...Does Rain Make Pavement Wet?

q99x2's picture

Long live Charles Darwin.

ThroxxOfVron's picture

"The law is supposed to be deficit neutral, but some of the funding assumptions are unrealistic"


We know how to cook the books and mark to fantasy better than almost anyone and this shit isn't even remotely viable under any of our 'models'.  Prepare to bite the BIG ONE.

pods's picture

I love those forecasts. They make weatherman look good.

Wasn't Medicare supposed to only cost us like $12 billion a year now, as forecast when enacted?


nmewn's picture

Its not even worth screwing with anymore pods.

Burn it to the ground with them in it, fuck em.

Element's picture

Just when you thought it was safe to go back into the water ...

9-11 discussion re-re-reply:

nmewn's picture

Element, if you're going to troll my every comment, we can do it right here.


I know you're fixated on ACARS Element...but I'm not.

Messages being sent from the ground (and not acknowleged by the crew) along a "projected flight path" mean nothing. The transponders operate in coordination with radar to help identify them. Then its a process of elimination of confirming them on radar, they were always seen, just not properly identified by ground control but I can damned well guarantee you that UAL175 was noticed when it passed within 200ft of Delta 2315 and Midwest Flight 7 over NYC!!!

Where did ACARS and 911 "pilots for truth" say UAL175 was at that point in time Element? In fucking Ohio, Pennsylvania, Kentucky?

I forget.

Three of the planes transponders were switched off, the fourth, was changed, twice by the hijackers. Betty Ong (and others) told us what was going on in real time, its her voice. Its also Sweeney's, Fangman's and Hanson's voice. Pilot Dahl also let his presence be known, in his own way (he reconfigured the cockpit mic to broadcast to the ground instead of the passenger cabin) as or before, he was being stabbed.

But all this means squat to you.

Robert Balsamo, Dylan Avery, Jason Bermas, Webster Tarpley etal are certifiable moonbats, making money from books & DVD's off the dead, who change their theories (in part or in whole) over time, as facts already known, are presented again in rebuttal. They can't explain it, so they ignore it and move on to some other wild ass theory but other pilots & crew taking evasive action damned well knew exactly where UAL175 was.

And where AA11 was too, which was essentially entering the air exit ramp for inbound traffic, that is to say, controllers were telling other pilots to deviate from their planned courses because they could see AA11 ON THEIR RADAR was heading for them and a potential mid-air collision.

But again, none of this means anything to you because of what...ACARS?

buzzsaw99's picture

Bank of America (and tbtf in general) costs definitely exceed the (nonexistent) benefits.

John_Coltrane's picture

There's only one thing history teaches about subsidies-they make things more expensive.  Thus, the very high rate of health care and education inflation compared to any other item (except taxes and fees by the government) in any other sector of the economy.  Just note the loss of purchasing power from the onset of the "great society" programs of the 1960s to date (or its correlary-the price of gold-on safest store of value for the last 2000 years).

Or, or paraphrase Reagan,  "the scariest words in the english language are: I'm from the government and I'm here to help you"

Please, please, just leave us alone you statist control freaks!  Remember the Hippocritic oath, "at least do no harm"

Ignatius's picture

A bargain at any price.

kchrisc's picture

Classic spin and misdirection. There are no benefits unless you are an insurance company, The whole thing is an Unconstitutional criminal and fascist scheme.


"What's the deductible Kenneth?!"

new game's picture

another minus sum game where someone is gamed by fear...

NoWayJose's picture

40 unsuccessful tries to stop Obamacare... it just shows how inept the Republican leadership is. It should have only taken one try, if it was done correctly. Instead they just want to say we voted against it 40 times -- instead of actually stopping it once. Now that the Republicans fold so easily in both Houses, all it does is encourage Obama to make and change laws at will because he knows Republican leaders will not challenge him.

monad's picture

Not inept, corrupt. Treacherous. Deceitful. Criminal.

WonderDawg's picture

And there you have it. While it is true they are inept, you couldn't fuck shit up this bad without trying to fuck it up. They are bought and paid for.

boogerbently's picture

They "came down to our level" with the "trust us, it's bad", and "death panels" plugs, instead of citing actual FACTS.......taxes, cancellations, job loss.....


John_Coltrane's picture

However, only one party voted to implement it!  Just as only one party implemented Medicare and Medicaid.  And if you don't control the senate and the house, you can't do shit to repeal anything.   The voters ensured this in 2012 and they can now reap the "benefits".  I hope they rectify this in 2014.

The rest of us will just ignore this law, its uncollectable "fines", and seek conceirge (cash for services) care in the unlikely event we need it.  Insurance is for suckers.

new game's picture

i trust you are doing as i have been doing. plus at least 25,000 dollars over last 10 years.

self "insured"! nobody to suck off except myself...

insurance is a game of fear, played on weak minds...

holdbuysell's picture

Rhetorical question.

Next question, please.

Uncle Sugar's picture

Must be one of their PhD's writing up their thesis.

monad's picture

The IRS is now the NKVD 2.0

Ned Zeppelin's picture

Leaving aside all of the anti-Obama "socialist" rhetoric (which i think seriously misses the true predator lurking here, although Obama and the Demoncrats certainly and willfully enabled this), it seems to me that the ACA is simply another manifestation of the regulatory capture of our government by not the bankers but yet another entrenched monopoly, the "Healthcare Industry," which, faced with the choice of reducing costs or going under, decided to simply require that another source of revenue be found - even better, a source of revenue as to which there would not be any significant "matching" costs incurred. Young, healthy people. I think the vampiric impulses of a certain Wall Street firm come to mind.

By the way, the "free riders in emergency rooms getting free care" is code for "minorities getting shit for free", which is supposed to get you all riled up enough to think the ACA will put an end to that sort of thing. Ha ha.

This is not socialism. This is government enabling vast monopolies to flourish. Gee, what is the name for this?

billw's picture

This is just a pirce of BS proaganda by BOA to continue in the good graces of the Obama regime. Obamacare was passed under the provision that it was going to cost less than $1 trillion, and already that figure has been revised to closer to $3 trillion. Also Obamacare was only supposed to cost 800,000 jobs, and now that has been revised to ~ 2.5 million lost jobs. These BOA clowns must really believe that we are all stupid out here.

TeddyBear's picture




If CBO estimates are correct, a 25 million increase in the number of insured

And how many new health workers will this take?

1 mil or more?


On the low end, a 2011 study from the Congressional Budget Office estimated just an 800,000 reduction in full-time equivalent jobs once the economy has fully adapted to the law.


Looks like a net gain in jobs and from low wage to healthcare,


Or did i get something wrong?



My health, biotech, pharma ETFs are flying, Get U some!


I am getting RSI sells on some gold ETFs. Retest 1300. I may not sell, This could come overnight.

1285 for the uptrend to break.


LetsGetPhysical's picture

Why didn't you ask that question 4 years ago dipshits?

Judge Crater's picture

The following statement is not true: "On a positive note, we have the most advanced technology and innovation in the world." The American hospital system is run by the Chargemaster billing system, so one aspirin can cost a patient $4.  Lately, the price of generic prescription drugs has in some cases gone from pennies each to several dollars each.  Check out the price increases on digitoxin. Recently, the FDA has warned of a nationwide shortage of saline solution IV bags.  Some advanced country we are, more like a third world country with drug shortages everywhere. 

All Obamacare had to do was lower the eligibility age for Medicare to 55.  CMS, which administers Medicare, hires outside contractors whos slash to ribbons excess hospital charges.  But if Obama had lowered the Medicare age to 55, those non-profit, price gouging hospitals would have stopped making big campaign contributions to politicians of both parties to preserve the crooked status quo. 

I Write Code's picture

All Obama had to do was lower the eligibility age for Medicare to zero.

That is exactly what he wants to do, aka "single payer".

However, have you SEEN the quality of care you get as a Medicare patient?  Don't be so eager for it.

I Write Code's picture

and rates are set in a way that subsidizes older workers relative to younger workers

In spite of hearing the claim often, this is not visible in the rates.  Nobody's policy costs have gone down.  At least, it is no more true now that younger subscribers fund old ones, than it has been in any past period.  In fact I think it is less true now than five or ten years ago.  It especially will be true in big corporate policies, as I suspect (!?) that the individual pricing is now the law even within groups, if this is true it will mean a HUGE increase for those over age 50 who were previously getting huge breaks on a corporate policy.

But in his finite wisdom Obambus has delayed the details of this for another year or two, and apparently nobody in the entire universe seems capable of reading the law and telling us in advance wtf it really means.


A Lunatic's picture

But 3 million people in America are now insured. Of course 30 million (give or take tens of millions) were totally fucked out of a preexisting plan of their choice and affordability but what the hell........