Published on 23 Sep 2015
In this video, we discuss asymmetric information, adverse selection, and propitious selection in relation to the market for health insurance. Health insurance consumers come in a range of health, but to insurance companies, everyone has the same average health. Consumers have more information about their health than do insurers. How does this affect the price of health insurance? Why would some consumers prefer to not buy health insurance at all? And how does this all relate to the Affordable Care Act? Let’s dive in.
September 15, 2016
November 20, 2015
Megan McArdle on the plight of some health insurance companies as they try to offer healthcare policies and still make some sort of profit in the current American market:
… UnitedHealth abruptly said it expected to lose hundreds of millions of dollars on its exchange policies in 2015 and 2016, and would be assessing whether to pull out of the market altogether in the first half of next year.
This was part of a terrible, horrible, no good, very bad news cycle for Obamacare; as ProPublica journalist Charles Ornstein said on Twitter, “Not since 2013 have I seen such a disastrous stream of bad news headlines for Obamacare in one 24-hour stretch.” Stories included not just UnitedHealth’s dire warnings, but also updates in the ongoing saga of higher premiums, higher deductibles and smaller provider networks that have been coming out since open enrollment began.
It now looks pretty clear that insurers are having a very bad experience in these markets. The sizeable premium increases would have been even higher if insurers had not stepped up the deductibles and clamped down on provider networks. The future of Obamacare now looks like more money for less generous coverage than its architects had hoped in the first few years.
But of course, that doesn’t mean insurers need to leave the market. Insurance is priced based on expectations; if you expect to pay out more, you just raise the price. After all, people are required to buy the stuff, on pain of a hefty penalty. How hard can it be to make money in this market?
What UnitedHealth’s action suggests is that the company is not sure it can make money in this market at any price. Executives seem to be worried about our old enemy, the adverse selection death spiral, where prices go up and healthier customers drop out, which pushes insurers’ costs and customers’ prices up further, until all you’ve got is a handful of very sick people and a huge number of very expensive claims.
Some commentators, including me, worried a lot about death spirals in the early days of the disastrous exchange rollout. Some commentators, also including me, have eased off on those fears in recent years. Why the change? Because when the law was passed, I was mostly focused on whether the mandate penalty would be enough to encourage people to buy insurance. Over time, as the exchanges evolved, the subsidies, and the open enrollment limitations, started to look a lot more important than the penalty.
An earnings call like today’s can also be a bargaining tactic. Health insurers are engaged in a sort of perpetual negotiation with regulators over how much they’ll be allowed to charge, what sort of help they’ll get from the government if they lose money, and a thousand other things. Signaling that you’re willing to pull out of the market if you don’t get a better deal is a great way to improve your bargaining position with legislators and regulatory agencies.
That said, strategic positioning is obviously far from the whole story, or even the majority of it. UnitedHealth really is losing money on these policies right now. It really is seeing something that looks dangerously like adverse selection. And frankly, there’s not that much the company can get out of regulators at this point, because the Congressional Republicans have cut off the flow of funds. So while Obamacare certainly isn’t dead, or certain to spiral to its death, it’s got some very worrying symptoms.
September 18, 2015
Okay, perhaps the headline is a bit strong, but Warren Meyer explains why even “small” businesses need to be bigger than ever in order to be able to file all the appropriate government forms, rather than concentrating on serving their customers and growing their client base:
Over the last four years or so we have spent all of this capacity on complying with government rules. No capacity has been left over to do other new things. Here are just a few of the things we have been spending time on:
- Because no insurance company has been willing to write coverage for our employees (older people working seasonally) we were forced to try to shift scores of employees from full-time to part-time work to avoid Obamacare penalties that would have been larger than our annual profits. This took a lot of new processes and retraining and new hiring to make work. And we are still not done, because we have to get down another 30 or so full-time workers for next year.
- The local minimum wage movement has forced us to rethink our whole labor system to deal with rising minimum wages. Also, since we must go through a time-consuming process to get the government agencies we work with to approve pricing and fee changes, we have had to spend an inordinate amount of time justifying price increases to cover these mandated increases in our labor costs. This will just accelerate in the future, as the President’s contractor minimum wage order is, in some places, forcing us to raise camping prices by an astounding 20%.
- Several states have mandated we use e-Verify on all new employees, which is an incredibly time-consuming addition to our hiring process.
- In fact, the proliferation of employee hiring documentation requirements has forced us through two separate iterations of a hiring document tracking and management system.
- The California legislature can be thought of as an incredibly efficient machine for creating huge masses of compliance work. We have to have a whole system to make sure our employees don’t work over their meal breaks. We have to have detailed processes in place for hot days. We have to have exactly the right kinds of chairs for our employees. We have to put together complicated shifts to meet California’s much tougher overtime rules. Just this past year, we had to put in a system for keeping track of paid sick days earned by employees. We have two employee manuals: one for most of the country and one just for California and all its requirements (it has something like 27 flavors of mandatory leave employers must grant). The list goes on and on. So much so that in addition to all the compliance work, we also spent a lot of work shutting down every operation of ours in California, narrowing down to just 3 contracts today. There has been one time savings though — we never look at any new business opportunities in CA because we have no desire to add exposure to that state.
Does any of this add value? Well, I suppose if you are one who considers it more important that companies make absolutely sure they offer time off to stalking victims in California than focus on productivity, you are going to be very happy with what we have been working on. Otherwise….
September 16, 2015
At Gods of the Copybook Headings, Richard Anderson comments on a story about Chinese drivers ensuring that pedestrians they hurt in traffic accidents don’t survive to sue them … because incentives matter:
Smelling a story that was too interesting to be true, I texted a friend who lives in China. He read the article and texted back that every word was correct. This behaviour was so common that it was a kind of dark joke. The phrase “drive to kill” was considered practical life advice for young and old alike. These are not members of some obscure and barbarous cult. China is one of the oldest and most accomplished of human civilizations.
The legal explanation for this — a moral explanation I suspect is impossible — is a combination of a weak insurance system and easily bribable courts. An injured pedestrian can become a lifetime financial liability for the driver. Murder convictions, even in cases with clear video evidence, are still unusual. Faced with a choice of becoming a bankrupt or a murderer the popular choice seems to be the latter.
Homo homini lupus est. Man is wolf to man.
Mainland China is, of course, a dictatorship. It seems likely that in a functioning liberal democracy, such as those of the West, very basic legal reforms would long ago have been implemented to remove these quite literally perverse incentives. The rulers of China have deigned it beneath their notice to make such minor improvements.
June 29, 2015
In the comments to this post, Tom Kelley provided a worthwhile digression on the topic that I felt deserved a wider audience, so with his permission, here’s Tom’s response:
Given that the trucking industry has been my sandbox for quite some time, I can safely extend Megan’s prognosis to also include the low long-term risk of job losses due to self-driving vehicles.
Frankly, I have to be wary of any “expert” who can’t even get the name of his source (the American Trucking Associations — yes, plural — not the American Trucker Association) transcribed correctly.
Apart from the myriad technical issues standing in the way of driverless trucks, the insurmountable barrier is anti-competitive trucking regulations passed on behalf of the government’s favorite white elephant, the rail industry. Invariably, these regulations are tarted up under some guise of safety (Let’s see, was it a truck or a train that blew the town of Lac-Mégantic off the map??? Hmm).
The bottom line is that any change that would have the slightest possibility of making trucking more productive is quickly met with massive dis-information campaigns, and even more massive lobbying from the rail industry. Even the most minor dimensional changes designed to reflect the current realities of truck freight transportation stand little if any chance of making it past regulators with a permanent disdain for free enterprise.
We can’t have electronically actuated brakes on trucks because the regulators have no grasp of brakes or electronics, and somebody wants to replace the driver with electronics? Seriously? Of course these same folks seen to have no problem flying cross-country at 500 MPH in a commercial jetliner that is literally flown by wire.
And even if the government types were perfect actors in this little tale, then you have the American tort law system, run/regulated by, for, and about the trial lawyers. Even with professional truck drivers who can deftly avoid putting incompetent car drivers on their way to a Darwin award, hundreds of four-wheeler drivers still manage to commit suicide-by-truck every year, followed quickly by their otherwise destitute estates suing innocent trucking companies for millions.
Can’t you just hear the jury summation now: “The eeevvilll trucking company wanted to save a few pennies by outsourcing the driver’s job to a microchip! The must be punished! My client, a fourth cousin of the homeless man who jumped off a bridge in front of a truck MUST be awarded $10 million for the pain and suffering from losing a relative he never met. No justice, no peace!”
No insurance company in their right mind would insure a driverless truck for real-world operation.
There’s no question that the technology is available to make the concept work, I was on-board numerous autonomous vehicles of all sizes back in 1997.
It will take several major societal shifts before any serious degree of autonomy makes it into real world trucking operations.
June 26, 2015
I’m far from being a Luddite, but I find Megan McArdle‘s analysis of the low short-to-medium term risk of job losses due to self-driving vehicles to be pretty convincing:
… my objections are actually to the understanding of the trucking industry works and of self-driving vehicles. Fully automated trucks, with no drivers at all, are probably going to arrive later than Santens thinks, take longer to roll out than he projects, and displace fewer workers than he thinks they will. I’m not saying it will never happen. I’m just skeptical that this is going to be a major policy problem in the next two decades.
Start with what truckers do, and how many of them there are. Santens quotes the American Trucker Association to get 3.5 million. The Bureau of Labor Statistics puts that figure a bit lower, around 2.8 million. More importantly, only 1.6 million of those are long-haul truckers. The rest are “driver/sales” employees or “Light truck or delivery services drivers.” Those are short-haul services that will not quickly be replaced by automated cars, both because chaotic urban roads are harder for autonomous vehicles to handle and because part of the job is loading and unloading the truck (something that long haul drivers may also do).
Also: Why would we assume that the advent of driverless trucks would be bad for trucking support jobs? Those folks are doing stuff like maintenance or loading that still has to be done. Moreover, other jobs will be created, in designing and maintaining the new systems. Someone has to map all those roads.
But I think it will be a while before we get to a fully autonomous vehicle with no people in it. The “driverless truck” that Santens links is not actually driverless; it’s partially autonomous. If it foresees something it can’t deal with, such as heavy snow, it signals to the driver to take over; if the driver doesn’t respond, it slows to a stop. That’s an improvement in the lives of truck drivers, not a job killer.
June 22, 2015
At The Intercept, Juan Thompson talks about a burgeoning insurance scam that not only rips off the victims for their insurance premiums but then makes it worse through police action:
Martin was taken in by a widening scam in which crooks, posing as auto insurance agents, prey on working people struggling to find affordable policies. Under the scam, the perpetrator offers auto insurance for a low price — low because the scammer, posing as a broker, will buy an authentic policy using fraudulent means of payment, keeping the policy just long enough to collect a proof of insurance card.
The racket is a growing problem in New York City and South Florida, according to an insurance industry group, but seems most prevalent in Michigan, where premiums are inflated by a state mandate that drivers purchase insurance plans that have unlimited lifetime medical benefits, among other features. Victims in Michigan are thrown even deeper into crisis when police, as is common there, accuse victims of being in on the scam and seize their vehicles and other assets under civil forfeiture laws.
The scam and seizures show how crooks and cops can end up working in concert to further imperil those already on the economic brink. Indeed, in this case, low-income residents are pinched at every turn. They start off with especially high insurance premiums, consumer advocates argue, because insurance companies sometimes charge people in low-income communities more for auto insurance in a practice some have labeled modern redlining.
Bogus agents exploit the need for cheaper policies by selling insurance that’s too good to be true, leaving victims financially exposed, for example, in the case of an accident. As if all that weren’t enough, the police then turn on the victims of the fraud, who are far easier to track down than the original perpetrators.
“You have a blend of crooked agents selling innocent, squeezed drivers bogus policies and insurance cards, and high insurance premiums,” said James Quiggle of the Coalition Against Insurance Fraud, a group that receives funding from insurance companies.
February 22, 2015
Megan McArdle on just what externalities are and why we pay attention to them:
For those who might not know the term, “externality” is economist-speak, and it means about what it sounds like: an effect that your action has on others. An externality can be positive or negative, and obviously, we as a society would like to have as many as possible of the former and as few as possible of the latter. In other words, “Your right to swing your fist stops at the end of my nose.”
I’m a libertarian, and libertarians love talking about externalities. They give us a (relatively) clear way to define what are and are not legitimate scopes of public action. Whatever you’re doing in the privacy of your own bedroom with another consenting adult is really none of my business, even if I think you oughtn’t to be doing it. On the other hand, if you’re breeding rats and cockroaches in there, and they’re coming through the shared wall of our respective row houses, then I have the right to get the law involved.
Framing things as “externalities” is therefore a good way to get a libertarian, or someone who leans that way, on your side. And such frames have come up over and over in the debate over Obamacare, which has been variously justified by the cost to the state of emergency room care; the cost to society of free-riding young folks who don’t buy insurance until they get sick; the public health cost of people who don’t go to the doctor and get really, expensively sick; an unhealthy workforce that is less productive; and the cost to friends and relatives who have to chip in to cover uninsured medical expenses.
I didn’t find any of those arguments particularly convincing. The third can just be dispensed with on the grounds of accuracy: In general, preventive medicine does not save money. Oh, it may save money in the particular case of someone whose diabetes or cancer went long undiagnosed. The problem is, you can’t just look at the cost of sick folks who would have been a lot cheaper to treat if their conditions had been caught earlier. You also have to include the cost of all the healthy people you had to screen in order to catch that one case of disease. And with limited exceptions, the cost of screening the healthy generally outweighs the cost of treating the chronically ill. Now, you can certainly argue for preventive care on other grounds — for example, that it makes people healthier (though even then you have to add the cost of unnecessary medical procedures, such as biopsies following a false positive on a blood test, which is why we do not, say, give annual mammograms to every American woman). But it’s not generally a money saver, so this particular externality doesn’t exist.
The rest of the arguments have some weight, but in the end, I don’t think they’re weighty enough. Let me explain.
January 10, 2015
Megan McArdle explains why healthcare costs more than you think it should:
Milton Friedman famously divided spending into four kinds, which P.J. O’Rourke once summarized as follows:
- You spend your money on yourself. You’re motivated to get the thing you want most at the best price. This is the way middle-aged men haggle with Porsche dealers.
- You spend your money on other people. You still want a bargain, but you’re less interested in pleasing the recipient of your largesse. This is why children get underwear at Christmas.
- You spend other people’s money on yourself. You get what you want but price no longer matters. The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Neiman Marcus.
- You spend other people’s money on other people. And in this case, who gives a [damn]?
Most health-care spending in the U.S. falls into category three. In theory, the people who are funding our expenses — the proverbial middle-aged men in Porsches, except that they’re actually insurance executives and government bureaucrats — have every incentive to step in, cut up the charge cards, and substitute a gift-wrapped box of Hanes briefs with the comfort-soft waistband. In practice, legislators frequently intervene to stop them from exercising much cost-control. The managed care revolution of the 1990s died when patients complained to their representatives, and the representatives ran down to their offices to pass laws making it very hard to deny coverage for anything anyone wanted. Medicare cost-controls, such as the famed Sustainable Growth Rate, fell prey to similar maneuvers. The only system that exhibits sustained cost control is Medicaid, because poor people don’t vote, or exit the system for better insurance.
The result is a system where everyone complains that we spend much too much on health care — and the very same people get indignant if anyone suggests that they, personally, should maybe spend a little bit less. Everyone wants to go to heaven — but nobody wants to die.
Unfortunately, this is what cost-control actually looks like, which is to say, like people not being able to spend as much on health care. Oh, to be sure, we could achieve this end differently — instead of asking patients to pay a modest share of their own costs (the article suggests that this amount is less than 10 percent, in the case of Harvard professors) — we could simply set a schedule of covered treatment, and deny patients access to off-schedule treatments, or even better, not even tell them that those treatments exist. But people don’t like that solution either, which is why medical dramas are filled with rants about insurers who won’t cover procedures, and the law books are filled with regulations that sharply curtail the ability of insurers to ration care. And the third option, refusing to pay top-dollar for care, would be a bit tricky for Harvard to implement, given that they run exactly the sort of high-cost research facilities that help drive health-care costs skyward. Nor do I really think that the angry professors would be mollified by being given a cheap insurance package that wouldn’t let them go see the top-flight specialists their elite status now entitles them to access.
Instead, they persist in our mass delusion: that there is some magic pot of money in the health-care system, which can be painlessly tapped to provide universal coverage without dislocating any of the generous arrangements that insured people currently enjoy. Just as there are no leprechauns, there is no free money at the end of the rainbow; there are patients demanding services, and health-care workers making comfortable livings, who have built their financial lives around the expectation that those incomes will continue. Until we shed this delusion, you can expect a lot of ranting and raving about the hard truths of the real world.
November 23, 2014
At Mother Jones, Kevin Drum looks at some of the reasons Obamacare is not being embraced by the working and middle classes the way many expected:
Here’s an interesting chart that follows up on a post I wrote a few days ago about Democrats and the white working class. Basically, I made the point that Democrats have recently done a lot for the poor but very little for the working and middle classes, and this is one of the reasons that the white working class is increasingly alienated from the Democratic Party.
I got various kinds of pushback on this, but one particular train of criticism suggested that I was overestimating just how targeted Democratic programs were. Sure, they help the poor, but they also help the working class a fair amount, and sometimes even the lower reaches of the middle class. However, while there’s some truth to this for certain programs (unemployment insurance, SSI disability), the numbers I’ve seen in the past don’t really back this up for most social welfare programs.
Obamacare seems like an exception, since its subsidies quite clearly reach upward to families in the working and middle classes. Today, however, Bill Gardner points me to a Brookings paper from a few months ago that suggests just the opposite. The authors calculate net gains and losses from Obamacare, and conclude that nearly all its benefits flow to the poor. If I interpolate their chart a bit, winners are those with household incomes below $25,000 or so, and losers are those with incomes above $25,000.
October 25, 2014
In the Telegraph, Allister Heath makes a case for the looming end to the economically disastrous notion that certain entities are “too big to fail”:
Bank bail-outs have been a cultural catastrophe for those of us who support free markets, low taxes and enterprise. During the 1980s and 1990s, much of the British public came to accept and even embrace capitalism, in return for a simple deal: profits and losses would both have to be privatised. Clever entrepreneurs, savvy traders or brilliant footballers would be encouraged to make money; but companies and investors that placed the wrong bets would be allowed to fail, with no pity.
Not only did this trigger an explosion in prosperity, it also helped shift the British mindset towards a much more pro-enterprise position. The rules of the game felt fair: risk and reward went hand in hand. The government would serve as an umpire, not a supporter of vested interests.
But the crisis of 2007-09 put an end to this implicit bargain, at least in the eyes of vast swathes of the public. They saw large institutions bailed out at great public expense, and with substantial amounts of taxpayer money put at risk. It started to look as if — when it came to the banking industry at least — risk had been socialised while profits remained private. To many members of the public, it was a case of heads you win and tails we lose. Profits were retained by a small elite, while losses were spread much more broadly — or so it felt.
Needless to say, the reality was more complex. Shareholders of bailed-out banks often lost everything. But bondholders were rescued, institutions survived, staff contracts were not ripped up and the process of creative destruction was severely derailed. And while big beasts were kept afloat, many smaller firms went bust and many ordinary folk lost their jobs. This is one reason — together with an incorrect narrative of the causes of the crisis which wrongly absolves governments and central banks — for increased support for punitive tax and government meddling in prices and wages.
So why did governments turn their back on capitalism and suddenly refuse to let market forces do their work? The uncontrolled failure of a major financial institution has a much broader, system-wide impact than the uncontrolled failure of a hair salon. Under traditional bankruptcy law, however, both would be treated in the same way, which simply makes no sense. One needs a different approach to tackle the failure of major banks or insurers — a proper Plan B. With the right institutions in place, there need not be such a thing as “too big to fail”. With the correct planning and tools, even the largest of financial firms can be dismantled sensibly without wiping out millions of depositors and triggering another Great Depression.
May 21, 2014
April 14, 2014
The RSS feed that used to track Megan McArdle’s posts at Bloomberg View has been on the fritz for a couple of weeks, so I missed this article when it was posted earlier this month:
The argument for unlimited liability isn’t just a libertarian evergreen; it’s also something you occasionally hear from the far left, because it would basically make the corporate form untenable. Imagine, if you would, that by buying and holding the share of a firm for 10 minutes, you thereby subjected yourself to seizure of all your goods to satisfy potential lawsuit judgments — even if those judgments involved behavior that involved no legal liability at the time of the acts.
Not possible? That’s basically what happened with asbestos liability. Firms that had had no legal liability under the doctrines of the times in which the asbestos was sold or used suddenly found themselves driven into bankruptcy by massive settlements. Moreover, after the first wave of lawsuits exhausted the funds available to pay asbestos claims, plaintiffs’ lawyers started pushing to expand the number of pockets that could be dipped into.
A company that had never manufactured asbestos could be sued and have to spend hundreds of millions of dollars on lawsuits and settlements because it had once bought a company with an insulation division that had formerly manufactured asbestos — even though it had immediately sold off that division in the process of completing the merger. Insurers could be forced to pay out for the whole of a company’s liability if they had sold a company insurance for even a year between the time a company started making or using asbestos and the time that the plaintiff discovered the harm. And “harm” wasn’t limited to getting sick; you could sue for the emotional distress of worrying that you might get sick.
Kind of hard to imagine becoming a shareholder under those circumstances, isn’t it? Maybe you’d better put your money in the bank — a small, privately held bank, of course. Commerce would look something like it did in medieval Italy, where all economic activity was basically organized by the family or the partnership.
Growth would have to be financed by debt or by retained earnings. That’s how British firms financed expansion in the early days of the Industrial Revolution. It’s how small businesses tend to finance expansion now.
The traditional libertarian answer is “insurance”, but that’s a non-starter as well.
To which I answer: What insurance company?
Insurers are also corporations, and their owners get the same valuable shield from liability that everyone else gets from the corporate form. They may have shareholders, or they may be mutually held by their policy holders, but either way, someone is getting protection from lawsuit by the same laws that protect General Motors Co. This sort of liability shield is vital for any large aggregation of capital requiring lots of contributors — which is basically the definition of an insurance company.
April 6, 2014
Peggy Noonan attempts to look at Obamacare apart from the daily battles over details:
As I say, put aside the argument, step back and view the thing at a distance. Support it or not, you cannot look at ObamaCare and call it anything but a huge, historic mess. It is also utterly unique in the annals of American lawmaking and government administration.
Its biggest proponent in Congress, the Democratic speaker of the House, literally said — blithely, mindlessly, but in a way forthcomingly — that we have to pass the bill to find out what’s in it. It is a cliché to note this. But really, Nancy Pelosi’s statement was a historic admission that she was fighting hard for something she herself didn’t understand, but she had every confidence regulators and bureaucratic interpreters would tell her in time what she’d done. This is how we make laws now.
Her comments alarmed congressional Republicans but inspired Democrats, who for the next three years would carry on like blithering idiots making believe they’d read the bill and understood its implications. They were later taken aback by complaints from their constituents. The White House, on the other hand, seems to have understood what the bill would do, and lied in a way so specific it showed they knew exactly what to spin and how. “If you like your health-care plan, you can keep your health-care plan, period.” “If you like your doctor, you can keep your doctor, period.” That of course was the president, misrepresenting the facts of his signature legislative effort. That was historic, too. If you liked your doctor, your plan, your network, your coverage, your deductible you could not keep it. Your existing policy had to pass muster with the administration, which would fight to the death to ensure that 60-year-old women have pediatric dental coverage.
The program is unique in that the bill that was signed four years ago, on March 23, 2010, is not the law, or rather program, that now exists. Parts of it have been changed or delayed 30 times. It is telling that the president rebuffed Congress when it asked to work with him on alterations, but had no qualms about doing them by executive fiat. The program today, which affects a sixth of the U.S. economy, is not what was passed by the U.S. Congress. On Wednesday Robert Gibbs, who helped elect the president in 2008 and served as his first press secretary, predicted more changes to come. He told a business group in Colorado that the employer mandate would likely be scrapped entirely. He added that the program needed an “additional layer” or “cheaper” coverage and admitted he wasn’t sure the individual mandate had been the right way to go.
Finally, the program’s supporters have gone on quite a rhetorical journey, from “This is an excellent bill, and opponents hate the needy” to “People will love it once they have it” to “We may need some changes” to “I’ve co-sponsored a bill to make needed alternations” to “This will be seen by posterity as an advance in human freedom.”
February 5, 2014
This New York Times editorial tries valiantly to make the case that the recent prediction by the Congressional Budget Office of 2.5 million full-time job losses is a good thing for the affected workers and the economy as a whole:
The Congressional Budget Office estimated on Tuesday that the Affordable Care Act will reduce the number of full-time workers by 2.5 million over the next decade. That is mostly a good thing, a liberating result of the law. Of course, Republicans immediately tried to brand the findings as “devastating” and stark evidence of President Obama’s health care reform as a failure and a job killer. It is no such thing.
The report estimated that — thanks to an increase in insurance coverage under the act and the availability of subsidies to help pay the premiums — many workers who felt obliged to stay in a job that provided health benefits would now be able to leave those jobs or choose to work fewer hours than they otherwise would have. In other words, the report is about the choices workers can make when they are no longer tethered to an employer because of health benefits. The cumulative effect on the labor supply is the equivalent of 2.5 million fewer full-time workers by 2024.
The new law will free people, young and old, to pursue careers or retirement without having to worry about health coverage. Workers can seek positions they are most qualified for and will no longer need to feel locked into a job they don’t like because they need insurance for themselves or their families. It is hard to view this as any kind of disaster.
Despite all the whistling as we stroll along the cemetery fence, the editorial does correctly point out that insurance benefits that are tied to particular employers do limit choices for many workers. I’ve made the argument a few times that this is something that unions should be pushing very hard for: to make benefits more portable for both unionized and non-unionized workers. The rest of the editorial isn’t quite as helpful … two and a half million current workers no longer working (and not through a voluntary switch to self-employment or retirement) isn’t the wonderful thing they claim it is. Those people and their families will still need income to provide themselves with food, shelter, and all the other necessities of modern life. Tough to do that without visible means of support.
Update: At the National Journal, James Oliphant rallies to the White House’s defence during what he calls “the worst day that Obamacare has had in weeks — and that’s saying something.”
To debate that point, the White House supplied as its first responder Jason Furman, the chairman of the Council of Economic Advisers, an academic and policymaker schooled in the intricacies of the labor market. Furman disputed any reading of the report that said the ACA was a net drag on the economy — but often doing so in head-scratching language of a Washington insider.
At one point, a reporter at Tuesday’s briefing asked Furman in frustration, “What the heck do you mean?”
Furman’s presence, however, outlined in neon the problem the Obama administration has been having since the ACA became law: a persistent inability to detail its benefits in language that resonates with the public. And in its defense, the ACA’s multiple mechanisms are not the easiest to explain. To that end, its critics, who often have relied upon hyperbole and scare tactics, have always held the political advantage.
But sometimes you just have to punch the bully in the nose — and Furman wasn’t the person for the job. That was the case Tuesday. The first takeaway from a complex CBO report was that the office had concluded that Obamacare is going to be a job-killer. Period. Full stop. It fell upon Furman — along with liberal bloggers — to attempt to explain that, no, it’s more complicated than that.
Follow along: The report doesn’t say that the ACA will result in 2 million jobs lost by 2017, but projects there will be 2 million fewer workers in the workforce, the White House says (a number it doesn’t necessarily agree with). It’s the difference, Furman underscored, between labor supply and labor demand. And they aren’t “jobs,” he reiterated, they are “FTEs.” (Full-time equivalents, if you are scoring at home.)
In other words, he explained, businesses will still want as many workers as ever, but the ACA will result in an increasing number of workers deciding to take themselves either entirely out of the job market or working fewer hours. Why? Because they may decide to keep their income below a certain level in order to qualify for government help to buy health insurance on the exchanges.
This is a good thing, Furman said, because the ACA will give workers more flexibility, whether they want to become entrepreneurs or take another, lower-paying job. And again, the press corps had some trouble with this concept. It’s good for someone to take a lower-paying job? And it’s good that the law encourages them to take it?