Tuesday, July 10, 2012

Jonathan Gruber’s Incoherent Claptrap on Obamacare and Jobs

Writing in the New Republic, paid Obamacare consultant Jonathan Gruber puts forward a series of arguments about how the law will help jobs and the economy – several of which contradict each other.  First, Gruber says Obamacare will create jobs in the health care sector:

The Affordable Care Act will boost the economy.  By now, most people who follow politics know that the law will result in more than 30 million additional Americans getting health insurance.  But what few realize is that, by expanding insurance coverage, the law will also increase economic activity.  These newly insured individuals will demand more medical care than when they were uninsured.  While it takes many years to train a family physician or nurse practitioner, it doesn’t take much time to train the assistants and technicians (and related support staff) who can fill much of this need.  In many cases, these are precisely the sort of medium-skill jobs that our economy desperately needs—and that the health care sector has already been providing, even during the recession.

Several paragraphs later, he claims the law will reduce health costs:

Of course, the long-term goal of the Affordable Care Act is to reduce spending on health care. And the best projections suggest that it will. Although the law will boost spending initially, the effect is likely to be modest.  The official Medicare Actuary projects that, by 2019, the ACA will raise health spending by 1 percent, or 0.2 percent of GDP; this is less than one-sixth of one year’s growth in national health expenditures.  Over time, however, the multiple initiatives in the ACA will kick in to help “bend the cost curve,” through increasing consumer incentives to shop for low-cost insurance, moving towards prospective payment methodologies that reward value rather than treatment intensity, and assessing which strategies are cost effective for managing illness.

Let’s unpack these claims one by one:

  • The op-ed claims Obamacare will “boost the economy” – the New Republic’s website went so far as to say the article demonstrates “Why Obamacare Can Cure Unemployment.”  But Gruber himself claims the law will lead to only “modest” increases in spending in its first few years, which raises an obvious question: How can “modest” increases in health spending “cure unemployment?”  At minimum, the law will either result in skyrocketing costs or minimal job growth – but Gruber attempts to argue both sides of this equation.
  • Former Speaker Pelosi’s claim at the White House health summit that Obamacare would “create 4 million jobs – 400,000 jobs almost immediately” was based on a Center for American Progress report that claimed the law would create jobs by slowing the growth of health care costs – i.e., by taking away those fast-growing health care jobs Pelosi said made Obamacare a “jobs bill.”  Yet Gruber is now arguing the inverse proposition – that Obamacare will “help” the economy by leading to more hiring for health care jobs, which will RAISE, not lower, overall health care spending.
  • Gruber also claims that CBO said Obamacare’s reduction in the labor force “will be largely voluntary.”  What he didn’t mention is that CBO also said that the law’s “phaseout of the [health insurance subsidies] as income rises will effectively increase marginal tax rates, which will also discourage work.”  In other words, people will “voluntarily” choose to work less – because in some cases, earning an extra $1,000 of income could cause a family to lose thousands of dollars in insurance subsidies.  If Gruber thinks these perverse incentives will somehow boost the economy – or that it’s “voluntary” for a family to keep its income flat for fear of incurring thousands of dollars in effective penalties by working additional hours – some may say he’s spent too much time in the ivory tower.
  • Finally, Gruber admits that “newly insured individuals will demand more medical care than when they were uninsured.”  What he and other Obamacare supporters have failed to acknowledge is that this demand could well “bid up” the cost of health care services – leading to higher medical inflation.  On that count, the non-partisan Medicare actuary agrees about the threat of higher prices after 2014:

In estimating the financial impacts of the PPACA, we assumed that the increased demand for health care services could be met without market disruptions.  In practice, supply constraints might initially interfere with providing the services desired by the additional 34 million insured persons.  Price reactions—that is, providers successfully negotiating higher fees in response to the greater demand—could result in higher total expenditures or in some of this demand being unsatisfied….Either outcome (or a combination of both) should be considered plausible and even probable initially.

As with Secretary Sebelius’ op-ed this morning, some may argue that Gruber’s feeble and inconsistent claims once again demonstrate the need for repeal – because the fact that the law’s supporters have to take both sides of an argument about Obamacare’s impact on jobs and the economy shows they really don’t have an argument at all.