Will Health Care Reform Hurt the Economy and Increase Unemployment?

Few debates are more fever-pitched than the one about government spending and the economy. In the past year, a significant amount of this debate has centered on the Patient Protection and Affordable Care Act (PPACA), with many saying that it will lower the federal budget deficit over the long-term, and others contending that it will inflate the deficit and national debt.

A report funded by the Robert Wood Johnson Foundation looks at how the deficit will be affected by PPACA. According to Urban Institute author John Holahan, the legislation is unlikely to have a major aggregate effect on the U.S. economy—primarily because the changes in spending and taxes are quite small relative to the size of the economy. Moreover, most of the effects offset each other. Increased spending will increase the demand for health services and the demand for labor in health sector. Cuts in Medicare and cost-containment provisions will have opposite effects. The net effect on employment is likely to be slightly positive, because the health sector is labor-intensive.