The economics profession is famous for its balance—as the joke goes, we always need more hands to express all the caveats to our conclusions. (“On the other hand … and on the other hand … and on the other hand…”) That is why arguments about last week’s report from the Congressional Budget Office have become so frustrating, even when accomplished scholars are the ones doing the arguing. Instead of addressing a subtle and complicated issue with (at least!) two sides, the law’s critics keep turning it into a single-sided moral diatribe about the work ethic and the supposed damage Obamacare is doing to it. A perfect illustration is a recent New York Times Economix column by Casey Mulligan, a University of Chicago economist whose own research has become part of the debate — and who, in the course of dismissing the Affordable Care Act’s virtues, took a swipe at me, as well.
The genesis of Mulligan’s article is the surprisingly famous appendix to that CBO report—the part where the agency predicts that the Affordable Care Act will be associated with a reduction in the workforce of the U.S. The bottom line of that report is that the ACA will result in 2 million fewer jobs by 2017. And, as is typical of the generally excellent CBO studies, this report is careful in describing the genesis of this conclusion. The CBO highlights that there are essentially two different sources of the reduced labor supply. The first is voluntary job leaving by those who have been “locked” into their jobs by fear of losing health insurance. Some of these individuals would happily turn down their wage to be retired or caring for children, but were previously unable to do so because they had no other insurance options; now they are able to pursue those preferred approaches. The second is those who are deterred from working by higher marginal tax rates. In particular, since the Affordable Care Act’s financial assistance phases out as income rises, the incentive to work more also declines at higher incomes. In other words, the law’s financial assistance is an implicit tax on earnings—and the tax gets higher as people earn more.
Mulligan’s article, and a number of his recent papers, are focused on the effects of these tax rates. He performs detailed computations which show that, for some individuals, that the tax rates can be quite high. In his recent post, Mulligan implies that these high tax rates are the reason for the CBO conclusions on reduced labor market participation. He dismisses the job lock effects as “a completely different issue…and far less prevalent.” He even cites the sentence on page 119-120 which ends with a footnote citing his work as evidence that CBO’s report is focused on high tax rates.
But Mulligan doesn’t mention that, in the very next paragraph, CBO dismisses his argument. According to the report, his suggested effect doesn’t impact labor supply, but rather health insurance offering (which they model elsewhere). Mulligan claims that CBO was “aware of instances of 100% tax rates,” which may be true, but the entire Appendix doesn’t mention this fact even once. It is not surprising that, unlike Mulligan, CBO economists did not harp on examples of 100% tax rates. They are uninterested in calculations that highlight extreme cases. They are more interested in modeling the overall impact on the workforce. Showing that tax rates might be high for a small number of workers is not as important as assessing what happens to aggregate labor supply.
More important, though, is Mulligan’s casual dismissal of the other reason why the labor market is shrinking, which was highlighted by a broad array of analysts. The CBO explicitly states that at least some of the labor supply reduction that they measure is from loosening “job lock,” and they never say anything which would lead the reader to conclude that job lock concerns are “far less prevalent” as an issue. That is simply Mulligan’s editorializing with no substantive basis.
Moreover, the CBO also includes a lengthy discussion of the potential positive productivity effects of loosening job lock. Since the CBO is cautious, and there is no consensus evidence on the productivity effects of job lock, they do not provide any estimates of the countervailing benefits of loosening job lock in their labor supply modeling. But at least they don’t ignore the topic, as Mulligan’s article would lead you to believe.
Mulligan says that the Obama administration “spun the high marginal tax rates as a policy achievement,” when, in fact, the post he cites is about job lock—not implicit marginal tax rates. Mulligan then goes on to misuse a quote of mine (as well as of Paul Krugman’s) that implies that we applaud the reduction in labor supply due to high marginal tax rates. Nothing could be further from the truth. My quote came from a Los Angeles Times opinion column. In it, I laid out clearly both of the effects documented by the CBO. Since this was, after all, an opinion piece, I also offered my view that—on balance—the CBO report was positive, because the benefits of the first labor supply effect (ending job lock) would be larger than the costs of the second (the implicit marginal rates). But I don’t claim that I know for sure that this is the case. Krugman’s quote came as part of a series of posts he wrote, describing the economics case for allowing those who are better off not working to leave their jobs rather than to continue to work just to get health insurance. Krugman also gave a more balanced view, acknowledging the downside of implicit marginal tax rates but arguing that, in the end, the upsides were greater.
Mulligan—like so many of the law’s critics, in and out of the economics profession—gives a more one-sided view. He talks only about the marginal tax rates. A reader who relied exclusively on his column would have no idea the CBO cited multiple reasons for the shrinking workforce—and that some of these reasons were utterly defensible. Ironically, while making a surprisingly moral case against examples of 100% tax rates, he ignores the moral case for leveling the playing field by breaking the link between work and insurance, so that workers are not chained to jobs where the value of their compensation is well below their disutility of working.
The Affordable Care Act, like any major reform, has its virtues and its flaws. The best economists, like the best public officials, are the ones who deal with both.
By: Jonathan Gruber, The New Republic, February 13, 2014
Oh dear. The Republican Party’s worst nightmare is coming true. Obamacare is working.
The news that nearly 1.2 million people signed up last month for insurance through the Affordable Care Act exchanges is highly inconvenient for GOP candidates nationwide. It looks as if the party’s two-word strategy for the fall election — bash Obamacare — will need to be revised.
Wednesday’s status report on the health-insurance reforms was by far the best news for Democrats and the Obama administration since the program’s incompetent launch. January was the first month when new enrollments surpassed expectations, as the balky HealthCare.gov Web site began functioning more or less as intended.
Cumulatively, 3.3 million people had chosen insurance plans through the state and federal exchanges by the end of January. That is fewer than the administration had originally hoped but well above the predictions of critics who believed — or hoped — that the program would never succeed. The Congressional Budget Office projects that 6 million people will have chosen plans through Obamacare when the initial enrollment period ends March 31, down from a pre-launch estimate of 7 million. Not bad at all.
The numbers are even more encouraging when you look more closely. The proportion of young people — from 18 and 34 — who chose insurance plans through the exchanges increased slightly to 27 percent, compared with an average of 24 percent in previous months. This is important because premiums would have to rise if not enough young, healthy people enrolled.
The administration had hoped the percentage of young enrollees would reach about 40 percent. But the January figure — and the rising trend — should put to rest any notion that the whole program could go down the drain in an actuarial “death spiral.” Administration officials are convinced this won’t happen.
According to the January report, about 80 percent of those signing up for Obamacare are eligible for subsidies to help them pay for insurance. The administration believes, but does not have the data to prove, that most of the new enrollees were previously uninsured.
These figures do not include the additional people who have been determined newly eligible for insurance under the federal-state Medicaid program. Overall, the program appears to be doing exactly what it was designed to do: make health insurance accessible and affordable for those who truly need it.
The Affordable Care Act could be doing even more if Republican governors such as Rick Perry of Texas and Rick Scott of Florida were not doing all they could to sabotage the program. But even in states that refused to set up their own health-insurance exchanges or to expand Medicaid eligibility, growing numbers of the uninsured are obtaining coverage.
Politically, this is terrible news for Republicans who hoped that the botched Web site launch and President Obama’s misleading “you can keep your insurance” pledge would be the gifts that kept on giving.
Bashing Obamacare will always have resonance for the GOP’s conservative base. But if you’re trying to win the votes of independents, it’s more profitable to target a failed program than a successful one.
Critics will doubtless try to blame Obamacare for anything bad that happens to anyone’s health insurance before the November election. But all of this is just noise without the central narrative of a “failed program.”
Attack ads against vulnerable Democratic senators, such as Kay Hagan of North Carolina and Mary Landrieu of Louisiana, are already trying to paint Obamacare as a character defect — the president and his supporters “lied” when they said everyone could keep their insurance. The response from Democrats should be to shift the focus to the actual program and its impact. Imperiled incumbents can point to constituents who are benefiting from the Affordable Care Act in life-changing ways.
If you assume that Affordable Care Act enrollment remains on its current trajectory, the February numbers should look even better. Polls consistently show that even if voters have mixed views about the health-care reforms, most do not want to see them repealed. By the fall, the whole Obamacare-is-a-disaster line of attack could sound stale and irrelevant.
Republicans may even have to take the drastic step of saying what they advocate, rather than harping on what they oppose. Is there a GOP plan to cover those with preexisting conditions? To cover the working poor? Is expanding access to health insurance really such an awful thing?
Sorry, I didn’t catch what you said.
By: Eugene Robinson, Opinion Writer, The Washington Post, February 13, 2014
Since I wrote about postal banking this morning, I’ve decided to continue the day’s shameless, lowest-common-denominator clickbaiting by talking about a new Congressional Budget Office report and the Affordable Care Act. Hang on to your hats.
With all the hype of a new Beyonce album, the CBO dropped its latest report on government finances and other related topics, which includes the news that the deficit has dropped to its lowest level since Barack Obama took office. This may prove inconvenient for Republicans still invested in fomenting deficit panic, but they’ll be helped by the fact that most Americans actually believe the deficit has gone up in the Obama years. According to a new poll from the Huffington Post, not only do 54 percent of people think so, but 85 percent (!) of Republicans think so.
In any case, the part of the CBO’s report that’s getting more attention is their projection that as a result of the ACA, the labor force will be reduced by 2 million in 2017, rising to 2.5 million in 2024. Unsurprisingly, Republicans rushed to the trumpets to shout that “Obamacare is going to cost 2.5 million jobs!!!” even though that’s not actually what the CBO said. Even news organizations who ought to know better made the mistake; earlier today, a headline at the Washington Post‘s web site read, “CBO: Health Law to Mean 2 Million Fewer Jobs” (it has since been corrected to read, “CBO: Health Law to Mean 2 Million Fewer Workers”).
The important thing to understand about the reduction in the labor force is that this is exactly what was supposed to happen. When you eliminate “job lock,” where people who’d like to leave their jobs can’t because if they do they won’t have health insurance, a certain number of people are going to take advantage of their newfound mobility. In some cases you might be able to construe it as a loss to the economy, say if a productive full-time worker cuts back to part time because she can. But in many cases it’s something to celebrate: an American exercising their freedom.
Imagine, for instance, a couple. The wife is a lawyer in private practice; the husband is an accountant at a large firm. Since she’s a cancer survivor, he has stayed at his job for the health insurance it provides, because if he didn’t they wouldn’t have been able to get coverage, what with her pre-existing condition. But now, he can make a different choice. And it happens that her business is doing pretty well, and he’d rather stay home with the kids and work on his novel than be an accountant. So he has the freedom to quit his job, and they can still get covered. When he does so, he’s no longer in the labor force. But that doesn’t mean there’s one fewer job in the economy. His firm will just hire someone else.
That isn’t to say there will be zero net loss to the economy; without his income, the couple will probably spend less. But their children may also grow up happier and more well-adjusted, and who knows, he might write the next great young-adult dystopian fight-to-the-death trilogy with the extra time he has between 9 and 3 every day. These are good things.
That’s just one kind of person who leaves the labor force because of the ACA; there will also be lots of people who leave jobs to start their own businesses, and some who decide to retire early because now they can. If people are making those decisions freely—just like people have the freedom to do in every other advanced economy in the world—it would be crazy to think of it as something to be lamented.
By: Paul Waldman, Contributing Editor, The American Prospect, February 4, 2014
The Congressional Budget Office today released the latest update of its projections for the economy and the budget, including Obamacare. And a fair reading would be that not a ton has changed since last time. CBO now expects the law will lead to 25 million people getting health insurance, while some 31 million people will remain uninsured. It will require a lot of new government spending but, because of offsetting revenue and cuts to other programs, it will actually reduce the deficit.
But CBO revised one finding and, all day long, critics have been seizing on the revision as proof that the law is a boondoggle.
The real story, as usual, is a lot more complicated.
The projection is about how the Affordable Care Act will affect labor output—that is, the number of hours Americans work every year. From the get-go, CBO assumed that Obamacare would slightly reduce labor output, relative to what it might have been without the law in place. Why? The CBO gave a bunch of different reasons.
For one thing, CBO reasoned, the financial assistance Obamacare provides depends on income. The more money you make, the less assistance you get. CBO argued that this would discourage some workers from putting in more hours, since the reward for working harder would be more income but less assistance on health insurance. In addition, CBO noted, historically some people have taken or held on to jobs exclusively to get health insurance. Obamacare makes it possible to get coverage without a job. As a result, CBO predicted, some of these people would stop working—or, at least, work fewer hours.
These weren’t the only ways that Obamacare will affect jobs, according to the CBO. And sometimes Obamacare will lead to people working more hours—for example, by giving people with chronic medical problems more freedom to switch jobs or start their own firms.
Overall, the CBO had said previously, Obamacare’s net effect would be a reduction in total labor compensation of about 0.5 percent. Now, citing new research on the effects of taxes, CBO is predicting that the net effect will eventually be twice as large—a full 1 percent reduction in compensation, or the rough equivalent of what we’d expect if two million fewer people were in full-time jobs.
That sounds like a big deal—and Obamacare critics certainly treated it like one. Here’s the conservative publication Newsmax: “Simply put, the new analysis from the nonpartisan agency suggests the 2010 Affordable Care Act is driving businesses and people to choose government-sponsored benefits rather than work.” Here’s Republican Congressman Tom Price: “This independent analysis by the Congressional Budget Office confirms that Obamacare will destroy economic opportunity and with it financial security for many American families.” And here’s a spokesman for the National Republican Congressional Committee: “There is no way to spin this. Because of #ObamaCare, there will be 2.5 million less jobs in our economy.” (If you want more quotes, Glenn Kessler and Greg Sargent of the Washington Post have nice roundups—and some good analysis of their own.)
But CBO didn’t actually say Obamacare would lead to 2 million fewer jobs. It said that Obamacare would lead to the “equivalent” of 2 million fewer jobs. In reality, CBO expects a much larger group of people to reduce their hours by a much smaller amount. Only a relative few will stop working altogether.
More important, CBO says, most of the people working fewer hours will be choosing to do so. And that’s a very different story from the one Obamacare critics are telling. Some of the people cutting back hours will be working parents who decide they can afford to put in a little less time with their co-workers and a little more time with their kids. Some will be early sixty-somethings who will retire before they reach 65, rather than clinging to low-paying jobs just to get health benefits. “This is what we want in a fair society,” says Jonathan Gruber, the MIT economist and Obamacare architect. “We don’t want to enslave the old and sick to their jobs out of some sense of meanness. If they are dying to quit/retire, then let them. That’s a good thing, not a bad thing.”
Of course, some able-bodied Americans will cut back on hours for reasons that conservatives, in particular, might not like. To put it crudely, they’ll work fewer hours simply simply because they don’t feel like working so hard. But whether or not that’s so problematic, it’s also the inevitable by-product of any program that makes assistance conditional on income. The Earned Income Tax Credit works that way. So do food stamps and Medicaid.
And so, by the way, would the new health care proposal from three Republican senators, which makes subsidies available to people with incomes at 299 percent of the poverty line but not those with incomes at 300 percent. The only question with programs like these is how big the disincentive to work is—and whom, exactly, it affects. The only alternatives are to give help to everybody (which requires much more government spending) or to give help to nobody (which leaves many more people struggling).
Ironically, the CBO report included two other findings that should, if anything, make most people more optimistic about Obamacare’s future. First, the CBO found that the law will reduce the deficit by a little more than initial projections suggested. Second, it found that the now-infamous “risk corridor” program, in which government and insurers share gains and losses, will result in net payments from insurers to the government, rather than the other way. (Jonathan Chait has the details on that drama.)
The change in projected deficits isn’t very large and the risk corridor prediction comes with more uncertainty than usual, so you wouldn’t want to bet a lot of money on either prediction coming true. But both findings call into more serious doubt two of the Republicans’ favorite talking points—that Obamacare will drive up the deficit and that, because of the risk corridor program, it’s a “taxpayer bailout” of insurers. As of today, those claims look even weaker than they did before.
Will Republicans stop making these arguments? Or will they at least acknowledge some uncertainty about them? Nope. And that’s a prediction in which you can feel very confident.
By: Jonathan Cohn, The New Republic, February 4, 2014
“Bette In Spokane”: Consumers Hear More About The Horror Stories Than The Follow-Up Reports Proving The Horror Stories Wrong
For the last several months, conservative opponents of the Affordable Care Act, including congressional Republicans, have encouraged Americans to contact the GOP with “Obamacare horror stories.” The more the right can highlight those adversely affected by the law, the argument goes, the more ACA critics can undermine public support for reform.
To that end, Rep. Cathy McMorris Rodgers (R-Wash.), the House Republican Conference chair, used her party’s official response to the State of the Union to highlight a woman in her home state who, she claimed, was better off before the law.
“Not long ago, I got a letter from Bette in Spokane, who had hoped the president’s health care law would save her money, but found out instead her premiums were going up nearly $700 a month…. No, we shouldn’t go back to the way things were, but this law is not working.”
Almost immediately, red flags went up among those who follow the health care debate closely. And for good reason: over the last several months, Republicans and their allies have put a spotlight on quite a few “Obamacare victims,” but the stories invariably fell apart after modest scrutiny.
With this in mind, it was only natural to wonder about the circumstances surrounding “Bette in Spokane,” who presumably represented the single best piece of anecdotal evidence McMorris Rodgers could find as part of her ACA indictment. Fortunately, we now have a better sense of the relevant details, which, like so many “Obamacare horror stories,” don’t help the Republicans’ case at all.
The local newspaper, the Spokesman-Review, tracked down Bette Grenier, who wrote the letter used in McMorris Rodgers’ remarks.
[T]he “nearly $700 per month” increase in her premium that McMorris Rodgers cited in Tuesday night’s GOP response to the State of the Union address was based on one of the pricier options, a $1,200-a-month replacement plan that was pitched by Asuris Northwest to Grenier and her husband, Don.
The carrier also offered a less expensive, $1,052-per-month option in lieu of their soon-to-be-discontinued catastrophic coverage plan. And, Grenier acknowledged the couple probably could have shaved another $100 a month off the replacement policy costs by purchasing them from the state’s online portal, the Health Plan Finder website, but they chose to avoid the government health exchanges.
In a familiar situation, the horror story isn’t as horrible as we’d been led to believe. In this case, “Bette in Spokane” didn’t have a health care plan so much as she had insurance that covered catastrophic coverage – and nothing else – with a $10,000 deductible.
Because the law transitions consumers from these bare-bones plans to actual coverage – plans that offer meaningful health care security – she had to choose real insurance. For reasons that are unclear, “Bette in Spokane” refused to check the exchange marketplace to see if she could find a good deal and instead chose an expensive plan from her existing insurer.
Also note, it’s not too late for “Bette in Spokane” – the state insurance commissioner said his office can help her and her family review the available options.
In the official Republican Party’s SOTU response, all of these relevant details were ignored. Viewers were led to believe the law forced higher premiums on this consumer as part of some kind of inherent flaw in the system, but that’s not at all what happened in reality.
And circling back to the last time we talked about a story like this, it’s worth emphasizing that there are Americans who’ve been adversely affected by health care reform. In a nation of 314 million people, it will be possible to find some who didn’t benefit as much as everyone else. In fact, it’s inevitable.
But in the rush to condemn the law, the public has been confronted repeatedly with anecdotal evidence that’s completely fallen apart. Worse, consumers invariably hear more about the horror stories than the follow-up reports proving the horror stories wrong.
If the Affordable Care Act were really as awful as the right claims, shouldn’t it be easier to find genuine examples of Obamacare’s “losers”?
By: Steve Benen, The Maddow Blog, January 31, 2014