NCPA - National Center for Policy Analysis

Health Reform No Cure for Economic Woes

July 28, 2011

The economy is recovering at an unusually slow pace.  Typically, employment grows strongly after a severe recession.  Not this time.  Unemployment remains stuck above 9 percent more than two years after the recession officially ended, says James Sherk, a senior policy analyst at the Heritage Foundation.

Initially, the economy appeared on track for a steady recovery.

  • The economy went from losing 841,000 jobs in January 2009 -- the recession's low point -- to gaining 229,000 jobs in April 2010.
  • By the spring of 2010, the Obama administration confidently predicted a "Recovery Summer."

But that spring, Congress also passed President Obama's health care legislation.  The law does not exactly encourage hiring, says Sherk.

  • Businesses with more than 50 workers will see their costs for health coverage rise -- they must purchase more expensive government-approved insurance or pay a penalty.
  • Businesses with fewer than 50 workers have a strong incentive to maintain this size to avoid these higher costs.
  • Employers face considerable uncertainty about what constitutes qualifying health coverage and what it will cost. They also do not know what the health care market or their health care costs will look like in four years, making planning for the future difficult.

Within two months of health reform's passing, the recovery stalled.

  • Private-sector job creation improved by an average of 67,600 jobs per month before April 2010.
  • In May 2010, job creation dropped to just 48,000 net private sector jobs, and private-sector hiring took a new course.
  • From May 2010 onward, private job growth improved by only 6,500 jobs per month -- less than one-tenth the previous rate.

The fact that the job market ground to a halt after Congress passed the health reform bill does not prove that the law caused it.  It does, however, lend strong weight to the voices of businesses who say the law is strangling them.

Source: James Sherk, "ObamaCare: No Prescription for Economic Recovery," Heritage Foundation, July 20, 2011.

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