June 18, 2012
That’s what he told us in a column that purported to show why Obamacare is bad for the economy. While he gave a list of reasons as to why the bill is bad policy, since his list doesn’t hold much water, we are primarily left with the conclusion that Samuelson simply doesn’t like the bill.
Reason #1 is that the Affordable Care Act (ACA) “increases uncertainty and decreases confidence when recovery from the Great Recession requires certainty and confidence.”
I know this is a Republican talking point, but I really don’t have a clue what it means. Employers who currently offer insurance are in a situation where insurers can raise costs by almost any amount for the following year or drop plans altogether. (I have seen both — extraordinary price increases and the elimination of a health care plan in my years as co-director of CEPR.)
The ACA will lead to considerable more government oversight of insurers which presumably means they will be less able to have erratic increases in prices or drop plans arbitrarily. Employers also have the option of dropping insurance and paying the penalty (2.5 percent of wages for employers with more than 50 employees). In this case they would know exactly what their costs would be.
If the uncertainty created by the ACA is really slowing recovery we should expect to see weaker job growth concentrated in the firms that would be most affected, those with 45 or more employees (they could cross the 50 employee cutoff in the not distant future) who do not currently offer their workers’ insurance. The data do not indicate that employment growth among these firms has been notably slower than for other firms in the recovery.
Reason #2 is that the ACA raises the cost of labor and therefore will reduce hiring. Samuelson tells us:
“This is basic economics. If you increase the price of labor, companies will buy less of it. Requiring employers to buy health insurance for some workers makes them more expensive, at least in the short run.”
The basic economics we always used to teach our students was that benefits come out of wages. If an employer offers a more generous pension or health care package than other employers then this is assumed to be in lieu of higher wages. This means that if the government requires that a portion of the pay package be composed of health care insurance, then we should expect that wages would decline by a corresponding amount, leaving little change in costs to employers.
Furthermore, it is worth noting that the cost to an employer who does not want to provide coverage and has more than 50 employees, is 2.5 percent of wages. There is a large body of research that finds that much larger increases in the minimum wage (@ 20 percent) have no measurement effect on employment [Thanks BT]. Based on this research, even if a small fraction of these costs actually were born by employers, any job loss would be minimal.
Reason #3 is “uncontrollable health costs is the U.S. system’s main problem — and the ACA makes it worse.”
The first part is debatable. Our costs are ridiculous, but sick people being unable to get care is also ridiculous. So is the enormous amount of red tape that even well-insured people must endure to get their care covered when they have a serious illness.
But we’ll give Samuelson his preference here, how about part II, that the ACA increases cost growth. That is not what the projections from the Centers for Medicare and Medicaid Services say. He tells us:
“By their latest projection, total health spending — government and private — rises from 17.9 percent of the economy (gross domestic product) in 2010 to 19.6 percent in 2021. In 1980, health care was 9 percent of GDP.”
This projection of cost growth is correct, but the missing part of the story is that CMS projected even more rapid growth before the passage of the ACA. In 2009 it projected that health care costs would hit 19.3 percent of GDP in 2019 (the last year in its 10-year window). The share was rising at the rate of 0.4 percentage points annually, implying a 20.1 percent share by 2021.
We absolutely need to do more to control costs. I have recommended increased trade in health care services, but because Washington is dominated by hard-core protectionists this does not seem to be on the agenda. In any case, the projections suggest that the ACA will have some impact in slowing cost growth, not raising it.
Reason #4 is “Obama’s program worsens the federal budget deficit.”
This one is just silly. The bill raises taxes and has cost controls that, if left in place, reduce costs for Medicare. Samuelson dismisses these tax increases and savings, saying:
“But these tax increases and cuts could have been used to shrink the huge budget deficits that pre-existed Obamacare. Now they can’t; moreover, the Medicare cuts might be repealed or reduced.”
This is positively bizarre. If we raise taxes to cover additional spending, it somehow adds to the deficit because if we didn’t have the additional spending we could have used the taxes to cover the deficit? Come on, this is just saying that the ACA increased spending, it did not increase the deficit.
As far as the fact that the cost saving provisions could be “repealed or reduced,” yes, but are we talking about the ACA or are we talking about something else? The ACA has cost saving provisions. If a future Congress and president decide to spend more money they can, but why is that the fault of President Obama and the ACA?
Reason #5 is “the ACA discriminates against the young in favor of the old.”
This is more than a bit tricky. Samuelson tells us:
“Government policy already does this through payroll taxes that have young workers subsidizing Social Security and Medicare benefits. The ACA compounds the effect by forcing some young Americans to buy insurance at artificially high premiums that would pay for the care of a sicker, older population.”
The trick here is that the old in this story are not the people getting Social Security and Medicare, as Samuelson’s comment implies, but rather workers between the ages of 55 and 65. The ACA limits the ratio of insurance premiums from older workers to younger workers to 3 to 1, whereas a true actuarial basis might be closer to 4 to 1. That does imply a modest subsidy by age, but that hardly seems the sort of thing that would get folks really worked up. If someone is going to get upset about cross-subsidies, the subsidy from the healthy to sick is many times larger.
It’s also worth noting that the cuts to Medicare in the ACA, assuming that they are not changed, will hit the old. Hopefully this will come out of waste, but if the scorekeeping is just what we spend (and not what anyone receives) then the ACA will be a step towards generational equity in the Samuelson accounting of these matters.
Anyhow, those are Samuelson’s big five reasons for saying the ACA is bad policy. The ACA is very far from perfect, but rather than see a serious policy case against the ACA Samuelson has basically told us that he just doesn’t like it. Now we know.
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