Estimating the Impact of the Affordable Care Act on Labor and Insurance Markets

The effect of any legislation on prices and quantities in the marketplace is a complex problem and the effect of ACA on input and output prices in the health care sector is no exception. The expected increase in demand for health services under the Affordable Care Act (ACA) will lead to an expansion of the demand for inputs to services. This change may drive up the price of inputs, depending on how much demand for the input increases and how responsive prices are to changes in demand. We examine the impact of the ACA on labor market prices using a simulation model of proposed economic activity resulting from the ACA. We used the U.S. microsimulation model ARCOLA (Adjusted Risk Choice & Outcomes Legislative Assessment) to predict the impact of the 2010 Affordable Care Act on the change in provider wages that will result from the 2014 implementation of the law. For modeling ACA, we revised ARCOLA to take into consideration that certain states might opt out of the Medicaid expansion prescribed in the law. We complete the wage projections in four steps. First, we use insurance claims to identify health insurance plan choice. Second, we connect insurance expansion to demand for health care services. Third, we map input labor and technology categories to health care service demand. Fourth, we use input demand and supply elasticities from the literature to connect input demand growth to projected changes in prices for those inputs from 2014 to 2021. Our initial findings show that if ACA is implemented perfectly in 2014, physician wages in hospitals could jump as much as 7% or as little as 2%. Following implementation, we project downward pressure on wages. A more realistic three-year implementation phase-in (2014 – 2016) shows physician wages increasing 1.5% in 2014, 4.6% in 2015 and 2.1% in 2016. After 2016, there will be downward pressure on physician wages. Much of this change will be similar in scale and timing to nurse and technical services rendered in hospitals. We find that most of the labor wage impact of ACA will occur in 2015 and then a new equilibrium state will be reached that will likely be sustainable and provide sufficient incentives for new labor market entry.