Patient Protection and Affordable Care Act’s Impact on Job Lock

Friday, December 23, 2011

On December 15, 2011, Government Accountability Office released a seven month study on the Patient Protection and Affordable Care Act (PPACA) and its potential impact on Job Lock. Job Lock is a phenomenon where employees decide not to separate from their employers due some employer provided benefit such as health care coverage. The study was initiated by two questions from three leading members of the Senate; Harry Reid, Majority Leader, Max Baucus, Chairman, Committee on Finance, and Tom Harkin Chairman Committee on Health, Education, Labor and Pensions.

The two questions were:

“1. What has research shown about whether and the extent to which workers stay in jobs they might otherwise leave out of fear of losing health care coverage and the impact of those decisions on the labor market?

2. What are expert views on the ability of PPACA to mitigate job lock?”

In a classical example of a double-edged sword, the Job Lock impact of PPACA has the potential to both encourage and restrict employee mobility among employers. While the 32 page study stopped short of any definitive conclusions of PPACA and Job Lock, the study did concede that certain provisions of the Act pose greater positive or negative influence on worker attraction and retention.

The primary reasons which employers offer health care coverage to their workers is to attract, retain, and motivate their workforce. Health care, along with other benefits, plus wages combine to make up a worker’s total compensation package. Employers utilize this total compensation (reward) package approach as one of several ways they hope to differentiate themselves from their labor market competitors. Anything that disturbs that differentiation could have potential impact on an employer’s ability to acquire and retain a stable, talented, and skilled workforce. On the other hand, anything that levels the playing field among otherwise equal competitors could allow employers to focus on their products and services as well as allowing talented and skilled worker to flow unimpededly among employers.

It is generally agreed that worker mobility among employers as well as in and out of the workforce has positive and negative value to both employees and employers. Thus anything that has the potential to remove health care coverage induced Job Lock as a barrier could be seen as beneficial to the overall economy. However, the law of unintended consequences is very fickle, while designers and developers of public policy believe they understand how complex systems such as a national workforce behaves, it is impossible to predict the long term impact of such systems over 10 or 20 years.

It would be hard to imagine that anyone in the early 1970’s could have foreseen the current significant decline in the defined benefit pension plan as the major retirement funding method for most American workers. Nor is it conceivable that the designers of tax reform intentionally constructed a system as complex as tax legislation in manner to achieve such a decline. The designers of the Patient Protection and Affordable Care Act indicate their reasoning behind this landmark effort to curb both private and public health care cost. Certainly, most would agree that health care costs are too large a component of employers’ cost of doing business as well as the national expenditure. What is not certain is the long term impact of such a groundbreaking measure as national health care reform on an economic system as complex and as inelastic as health care.