Question

Discuss with your classmates some possible economic effects of the healthcare legislation (original Affordable Care Act) passed by Congress. Some of its major provisions are listed and discussed in your textbook. Focus on the major provisions of the act, understanding that since the textbook was published, Congress has abolished the individual mandate. This is not to be a gripe session or an opinion session, but an evaluation of the provisions from an economics perspective.

Answer 1

The Affordable Care Act (ACA) of 2010 represents the most significant reform of the U.S. health care system in decades. It was enacted to increase access to health insurance, enhance the quality of care and moderate the growth in costs. The law, and recent and proposed changes to the law, are likely to have had far reaching social, economic and political effects beyond their direct effects on health insurance markets and health outcomes.

Below were the economic effects of this health care legislation:

1.Decrease aggregate demand (GDP) in the short-term, as low-income persons who tend to spend a large fraction of their additional resources would have fewer resources (e.g., ACA subsidies would be eliminated)

2. Increase the supply of labor and aggregate compensation the ACA's expanded eligibility for Medicaid and subsidies and tax credits that rise with income as disincentives to work, so repealing the ACA would remove those disincentives, encouraging workers to supply more hours of labor.

3. Remove the higher tax rates on capital income, thereby encouraging additional investment, raising the capital stock and output in the long-run.

4. The change in government spending includes the money entering the state for the Medicaid coverage and subsidies, and the money leaving the state for the various taxes, fees, and Medicare spending cuts.

5. An inflow of federal funds under the ACA provides income that will be spent in the broader economy. Thus, for every dollar spent by the government, there is a multiplier effect that will have a broader impact on the state Gross Domestic Product (GDP).