A recent Urban Institute report provides the “news” that Obamacare’s employer mandate has negative labor market effects, particularly for low-income Americans. Even think tanks that support Obamacare have realized it broke the labor market, particularly for low-skilled workers.

This revelation shouldn’t be news to anyone, but the report does provide a set of important reminders:

  • In the short term, research suggests removing the employer mandate will not reduce insurance coverage substantially. The Urban Institute estimates employer coverage will be reduced by 500,000, but coverage gains of 300,000 in Medicaid and exchange coverage will result in a net loss of 200,000. This falls in the middle of estimates from the Congressional Budget Office and the RAND Corporation, both of which provided similar estimates in the past.
  • Ending the employer mandate would eliminate revenues the government could collect from penalty payments. The uncertainty of employers dropping coverage ties directly into how much federal revenue collection is reduced. Under the CBO’s estimates, revenues are reduced by $130 billion between 2014 and 2023. Under the Urban Institute estimates, revenues are reduced by approximately $46 billion, and “new revenue sources will be required to replace that anticipated to be raised by the employer mandate.” This means that without replacing the funds collected through penalizing employers, part of the Obamacare bill is left unpaid. Any replacement of funds, under the same logic, therefore will be detrimental to hiring as well.
  • Finally, this study serves as a reminder that Obamacare still distorts labor markets. According to the Urban Institute, “Creating arbitrary thresholds (e.g., potential penalties for firms of 50 or more workers not providing coverage for employees working 30 or more hours per week) for financial requirements will change the employment decisions in some firms, and at least some workers will be adversely affected by them.” Urban also states that costs could affect the hiring decisions of some firms. These points have been made many times before and should come as no surprise.  Additionally, Urban states that costs are likely to be passed back to workers in the form of lower wages, and these costs will be placed disproportionately on low-wage workers. The CBO made this point recently, and I estimated exactly what this wage reduction would look like for low-wage workers.

This study is added confirmation Obamacare creates distortions in labor markets, something academics, the Congressional Budget Office and Heritage analysts have been pointing out for a long time.