Jonathan Gruber's Analysis of "ObamaCare"
By David Henderson
Last month, MIT economist Jonathan Gruber published an NBER Working Paper, “The Impacts of the Affordable Care Act: How Reasonable are the Projections?” WP No. 17168. Gruber points out in a footnote that he was a paid advisor to Governor Mitt Romney when Romney and the Massachusetts legislature imposed “RomneyCare” and that he was a paid consultant to President Obama when Obama and Congress imposed “ObamaCare.” This is contrast to his failure to disclose, in a WaPost op/ed during the health care debate, substantial amounts of money he received from the Obama administration.
It’s actually a fairly nice summary of the major provisions of the Patient Protection and Affordable Care Act (ACA). Beyond that, though, given that the paper is supposed to be about how reasonable the projections are, it’s a disappointment because he never really answers the question he poses in the title. One gets the feeling that he thinks the Congressional Budget Office’s projections of spending and taxes under the ACA are reasonable, but it’s just an impression. He doesn’t ever take a stand. The paper seems hastily done, and that impression is reinforced by the fact that on pages 2 and 24, the editor’s queries to the author remain.
Some highlights and omissions.
1. He claims that there are “enormous disparities in access to health care” in the United States and his Exhibit A to support that statement is, “For example, the infant mortality rate for whites in the United States is 0.57 percent, while for blacks it is more than twice as high, at 1.35 percent.” So note that rather than giving evidence about access per se, he gives evidence of outcomes, which are, of course, dependent not just on access but also on other things.
2. In listing the ACA’s new regulations of insurance–he claims that “these reforms are viewed by most as long overdue.” This is the problem with the passive voice. It doesn’t specify who views them that way. Most economists? Most people? Most people he talks to? He doesn’t say and so his claim is difficult to evaluate.
3. He points out that the government, with guaranteed issue combined with not allowing insurance companies to price for risk, has set up an adverse selection problem. In an op/ed in the St. Louis Post-Dispatch in 1994, I called this “adverse selection on purpose.” That’s why, writes Gruber, an individual mandate is required. Otherwise, he argues, some people would free-ride, going without health insurance until they get sick and then getting health insurance. He points out that by 2016, when the law is fully phased in, most people will have to have health insurance or pay a fine equal to the larger of 2.5% of income or $695.
One might think that most low-income people would pay the fine because doing so is way cheaper than buying health insurance. But Gruber points out that that’s why ACA subsidizes health insurance so heavily for low-income people.
What I found interesting, though, is simply his admission that regulation creates adverse selection. He notes that in the 1990s, five state governments regulated their non-group insurance markets with guaranteed issue and restrictions on pricing for risk and by 2006 those five states were among the states with the most-expensive non-group insurance.
4. In discussing budgetary implications, Gruber never mentions that the phaseout of the subsidies for health insurance will raise implicit marginal tax rates for modest-income people by over 20 percentage points. I would expect an effect on labor supply to the above-ground economy. This implies less federal income tax revenue and payroll tax revenue than otherwise. He doesn’t mention it.
5. Gruber hedges at the end by saying that the ACA “may, however, provide a first step towards controlling costs.” That cautious tone is justified. It’s hard to reconcile that, though, with this letter that he signed on January 26, 2011. Just 5 months earlier, Gruber was so sure that the ACA was a good idea that he signed a letter that stated, among other things:
[T]he Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending.
. . .
Taken together, these provisions are likely to reduce employer spending on health insurance. Estimates suggest spending reductions ranging from tens of billions of dollars to hundreds of billions of dollars.
. . .
The budgetary impact of repeal also would be severe. The Congressional Budget Office concludes that repealing the Affordable Care Act would increase the cumulative federal deficit by $230 billion over the next decade, and would further increase the deficit in later years. Other studies suggest that the budgetary impact of repeal is even greater. State and local governments would face even more serious fiscal challenges if the Affordable Care Act were repealed, as they would lose substantial resources provided under the new law while facing the burdens of caring for 32 million more uninsured people. Repeal, in short, would thus make a difficult budget situation even worse.
What changed in Gruber’s thinking in just 5 months?