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Obamacare study bodes well for health insurance market

AS THIS year’s congressional elections approach, voters are sure to hear ads about a recent Congressional Budget Office study about the potential effects of the Affordable Care Act. The authors of the report computed that Obamacare, by 2024, would reduce the size of the workforce by perhaps 2.5 million people. Critics have seized on the study as evidence of the health law’s destructive power, which among some executives has become an all-purpose excuse for layoffs and cutbacks in employee benefits; last week America Online CEO Tim Armstrong blamed Obamacare — coupled with “two AOL-ers that had distressed babies” — for his long-troubled company’s decision to scale back 401(k) matches. (Armstrong later reversed himself.)

But in fact, the budget office’s report foretells something that corporate America ought to applaud: Over time, workers will be less likely to look to their employers as the only route to obtaining health coverage.

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It’s an accident of history that most Americans gained access to health insurance through their jobs. In certain ways Obamacare reinforces that link: Employers with 50 or more full-time employees must offer health coverage to employees who work more than 30 hours per week. (The administration just delayed that requirement to 2015.) Some companies either have or will cut employee hours to fall below that line. But the law does something much more important: It forces the creation of more affordable insurance plans that are available to independent contractors, unemployed people, and those without coverage at work. This change has a powerful real-world effect: People will no longer stay at jobs that they dislike just to keep their coverage. Indeed, the Congressional Budget Office finds that voluntary decisions to leave the workforce account for most of the predicted employment decline.

This change is hardly an unqualified boon. The health plans chosen by many or most of the people quitting their jobs will be subsidized by the federal government. In the short term, it’s better for public finances if the costs of Americans health care fall on the private sector. But the existing system, in which employers set the terms of most Americans’ health coverage, has retarded the development of a normal consumer market for health insurance and health care. To the extent that Americans begin to see it much as they see car insurance or housing — as a necessary product but one that necessarily involves shopping around for lower costs — health insurers will be in a better position to demand lower prices from providers.

As more individuals buy policies on Obamacare exchanges, there will be more flexibility in the labor market — and more innovation in insurance coverage. It’s already happening: From Washington state to New Hampshire, insurance companies are experimenting with plan design and limiting their networks in order to create lower-cost options.

For all its complexity, Obamacare offers the possibility of addressing the ways in which employer-based health care has distorted the economy. Over time, everyone should benefit.

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