Modeling the Impact of the Affordable Care Act on Labor Market Supply in the United States
This paper develops a simulation model to predict the labor market effects of the 2010
Affordable Care Act (ACA). Two provisions of the ACA—the expansion of state Medicaid programs and the creation of public health insurance exchanges—are likely to have significant
effects on individual labor supply. This paper incorporates these new provisions into the budget constraint of the individual labor-leisure choice model in order to predict optimal work hours in response to the ACA. Using Central Population Survey (CPS) and premiums data to empirically estimate model parameters, I predict an 11.8% decrease in work hours after the ACA, and bunching before Medicaid and exchange subsidy eligibility thresholds. I also predict
heterogeneous results for different demographic groups, with retirement age workers predicted to exhibit the largest decrease in work hours, and low-income workers previously eligible for Medicaid predicted to increase work hours. The model serves as a base for future policy simulation and complements a growing empirical literature base on the Affordable Care Act.