When I was summoning the courage to quit my job and go freelance more than 12 years ago, my biggest concern wasn’t the uneven income or loss of office camaraderie.
It was health insurance.
My husband, who was striking out on his own at the same time, and I would be entering the treacherous realm of individual plans, in which insurance companies can deny coverage to whomever they choose, charge outrageous premiums, and exclude pre-existing conditions. We took the plunge anyway and accepted the insurance industry’s risky terms. But many Americans facing similar choices don’t. They’re in “job lock,” stuck in jobs they’d rather leave simply to keep their health care benefits.
Small companies typically have to pay more for insurance than large firms, and because of this, may offer weaker benefits, charge higher premiums, or provide no coverage at all.
That’s the hidden story behind the study released earlier this month by the National Bureau of Economic Research, which predicted that almost a million people might quit their jobs once the Affordable Care Act (ACA) gets fully underway. To make this prediction, researchers at Northwestern University, Columbia University, and the University of Chicago looked at a real-life example in reverse: What happened in Tennessee when the state eliminated Medicaid coverage in 2005 for 170,000 people, many of whom were considered uninsurable under individual plans.
Google searches for “job openings” in Tennessee spiked after the cuts, and about half of those who lost coverage subsequently found jobs that provided group health benefits. Extrapolating these findings nationally, the researchers concluded that many Americans work simply for health care, and if provided an alternative—such as expanded access under ACA—some 530,000 to 940,000 of them might just decide not to work at all.
This finding generated predictable responses from conservative pundits who view Obamacare as another form of welfare and a blueprint for bankrupting Medicaid. And regardless of your politics, almost a million people quitting their jobs sounds troubling, especially if all of those people were headed for the dole. They wouldn’t be; some, for example, would merely retire early.
But separating health care from employmenthas implications far beyond a subset of work-free wannabes. It affects millions of other Americans who want to continue working, but won’t move to a new job for fear of losing or weakening their current medical benefits. Economists have talked about job lock for more than two decades, ever since the health care debate began heating up in the 1990s. Harvard economist Brigitte Madrian was one of the first to examine this phenomenon then, and to explore its larger impact. Her work suggests that about 25 percent of working Americans who would like to switch jobs—to better match their skills and interests, increase their pay, or otherwise improve their lives—remain bound to their benefits and so don’t make the move.
Those chains don’t just drag down individuals, they can drag down broader economic productivity. According to Madrian, two things happen when people move to new jobs: "One is you become happier as you learn more about what it is you like and don’t like. The other is that you’re actually becoming more productive" as you acquire more skills, learn what you do well, and find jobs that match your talents—which helps employers. "If I can move LeBron James to the best basketball team," as Madrian puts it, "he’s not only making more baskets, he’s making everyone else on the team a better basketball player as well."
Economists haven’t done a very good job of quantifying the impacts of job lock on the overall economy. But it’s not hard to imagine the ripple effects. Consider, for example, a small firm seeking to grow by luring talented staff. Under the current system, small companies typically have to pay more for insurance than large firms, and because of this, may offer weaker benefits, charge higher premiums, or provide no coverage at all. Even if worker productivity and satisfaction might be higher in the small firm, many workers won’t make the switch. In other words, they never get to be LeBron, and the small firm stands no chance of winning the championship.
Matthew J. Notowidigdo, assistant professor at the University of Chicago and a co-author on the NBER study, notes that “(t)he fact that people are working solely to get health insurance signals a failure of the private health insurance market. That’s one of the reasons why the Affordable Care Act was created.”
Analysts at the Urban Institute think the ACA might help level the playing field. First, by making it easier for workers to access affordable health care separate from their work, including expanded Medicaid coverage for low-wage workers and health insurance exchanges for others. Second, by establishing the Small Business Health Options Program to help small businesses navigate through their options, stabilize premiums, and, in some cases, receive tax credits.
My husband John and I have been lucky. After initially being denied coverage, we moved on to rewarding work while managing to maintain an individual insurance plan. The premiums get more outrageous every year, and the plan doesn’t cover a pre-existing condition. But for us the risk has been worth it. John created a successful non-profit that played a major role revealing the extent of the BP oil spill, a contribution he couldn’t have made with his previous employers. I enjoyed a satisfying career as an independent consultant and used my greater flexibility to pursue another graduate degree.
But we don’t kid ourselves that our health care worries are over—the situation is just too fluid and the real life implications too unpredictable. As the Obama Administration and states struggle to revamp an immense industry under tight deadlines and strong political resistance, I suspect millions of Americans feel the same. Many of them undoubtedly will decide it’s safer to stay put than pursue their dream job. And in the so-called land of opportunity, that’s a shame.