Gruber Responds To Economix Critique Of Health Reform

Massachusetts health reform in general and its advocates in particular were the target of a pretty harsh critique yesterday in The New York Times’ blog, Economix.

The post, by University of Chicago Economics Professor Casey Mulligan, argued, among other things, that the U.S labor market is “in for a shock” when health reform takes full effect despite how “smoothly” things may have appeared when Massachusetts carried out its own health reforms starting in 2006. Mulligan writes:

Beginning next year, millions of Americans will be eligible for generous subsidies in the form of cash assistance to pay for their health insurance premiums and out-of-pocket health expenses pursuant to the Affordable Care Act. The subsidies will sharply reduce the financial reward to working because they will be phased out with household income.

Jonathan Gruber of MIT

Jonathan Gruber of MIT

Mulligan then goes on to trash MIT economics professor Jon Gruber, a key adviser on both state and national health reform, for his defense of the Bay State’s reform efforts:

When it comes to quantifying the new federal law’s penalty on employment, Professor Gruber and Health and Human Services are incorrect to take comfort in the Massachusetts experience since 2006. As I explained last week, the federal law’s employer penalty is more than tenfold the Massachusetts penalty. In other words, if the Massachusetts penalties pushed down workers’ wages by 16 cents an hour, the federal penalties would push them down $1.67.

Professor Gruber is also incorrect that the federal law is introducing less generous subsidies than the Massachusetts law did. Federal subsidies will be available for people laid off from their jobs, but the new Commonwealth Care subsidies in Massachusetts are not, because Commonwealth Care excludes people eligible for the Medical Security Program (a longstanding program providing health benefits to Massachusetts people receiving cash unemployment benefits).

I asked Gruber to respond to Mulligan’s critique. Here, unedited, is what he sent over via email:

Problems with Mulligan argument:

1) He cites as supporting evidence a 1994 article that referred to a completely different policy

2) He ignores the fact that the disincentives to income increase in MA are massively larger than in the federal program. When individuals cross the 300% of poverty threshold in MA they see a huge reduction in subsidies and increase in their out of pocket insurance payments and this dwarfs anything in the federal law.

3) He tries to argue that MA is irrelevant because the unemployed are on the MSP [Medical Security Program].  But the MSP is an income-targeted program as well, which has exactly the same incentives! There is a waiver of costs below 150% of poverty, and eligibility ends at 400% of poverty.  Moreover, only a minority of uninsured are on the MSP since they have to quality for UI.

4) He is correct that the employer penalty is much larger at the federal level.  This will cause a reduction in the wages for those whose employers pay the penalty.  But that is offset by the higher demand for insurance among the mandated population, as argued in the recent paper by Kolstad and Kowalski.  They find that workers, in the face of the mandate, demand insurance from their employers and that employers are able to pay lower wages as a result.  This offsets the employer cost and there is no reduction in employment.

5) Finally, he ignores the large body of economic research which shows that there are not strong responses on the supply side to these kind of incentives.  For example, work on the EITC has repeatedly shown that the high marginal tax rates put in place by that program don’t distort labor supply by low income workers.  Given this research, it seems that we are better guided by the Massachusetts example than by a theoretical presumption of major labor market distortions.

Touche.

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  • Dennis Byron

    Mulligan’s article does not appear to be as much a critique of the so-called Massachusetts RomneyCare reform as you state. Mulligan hypothesizes a likely affect on the national labor market because of Obamacare. As I read it, as kind of an aside at the end of the article, Mulligan says don’t depend on the results of so-called healthcare insurance reform in Massachusetts as any kind of indicator of how Obamacare healthcare insurance reform will turn out.

    Not depending on Romneycare results to predict Obamacare results is pretty good advice in general, not just in terms of labor market mechanics. For example:

    – Premiums for individually purchased healthcare insurance policies. The rest of the country has no merged market issue like Massachusetts had between 1997 and 2005. The Massachusetts merged market mechanics that were coincidentally in the RomneyCare law caused a one-time 20% decrease for 25,000 policy holders of individually purchased healthcare insurance proportional to a one-time 3% increase in healthcare insurance purchased for 500,000 people covered in small groups. But altogether the two groups accounted for less than 10% of the people in Massachusetts; no one else’s premiums in Massachusetts were affected at all by the merged market mechanics because 90% of us are not in the merged market.

    – Premiums in general going down. That was an Obama promise. I think Romney only promised stability. Whatever, neither happened but at least in Massachusetts there are a lot of other factors other than the RomneyCare law. We all have to keep reminding ourselves that the RomneyCare law only directly affected about 2% of the population (it affected about 10% if you take the broad point of view described in the merged market discussion above)

    – Access to health care providers. Much is written positive and negative about the access to healthcare under RomneyCare. But approximately 200,000 of the newly insured in Massachusetts under RomneyCare received Medicaid, not Romneycare. All that theoretically happened (and there is some research that it didn’t actually happen) was that payment of these services to which this 200,000 cohort always had access moved from the Massachusetts uncompensated care pool to MassHealth. The other approximately 200,000 of “newly insured” is actually net of around 300,000 people who “signed up” for free (most), highly subsidized (some), and full-price (a very few) RomenyCare. Over 100,000 of this group lost employer sponsored insurance (ESI) and theoretically decreased the demand for healthcare services. Many of the remaining Massachusetts residents already had access to healthcare but they paid for it themselves (but — hey — why not take free insurance). Because only such a small number of people relatively were affected by RomneyCare (and because most of them were neither senior citizens nor children, the people who consume most health care), access should not have been affected either way

    – Reduction in the use of ERs. I’ve seen research that goes both ways but common sense tells you that those that previously used ERs as their healthcare provider because it was in the neighborhood are not going to all of a sudden go cross town to the high priced Medical centers, even if the service is theoretically free. The MTA isn’t free.

    – Morbidity. The Deval Patrick administration puts out a lying report about this subject every year, claiming RomneyCare cut the mortality rate. Then it has to retract the lying report and tell people the truth: no affect (again neither positive or negative)

    – Effect on the state budget. No comparison with Obamacare other than as with Obamacare funding Medicaid expansion in some states, CMS funded most of Massachusetts’ Medicaid expansion. Still — because people kept using the ERs and Community Health Centers instead of their shiny new RomneyCare cards — the cost of RomneyCare was something like a billion dollars more than predicted.

    – If you like your insurance company you can keep it.

    – If you like your doctor you can keep him or her

    – The list goes on

    Given all these ways in which you can’t look at what happened in Massachusetts after the 2008 implementation of RomneyCare and draw a conclusion of what might happen in the rest of the country after the 2014 implementation of Obamacare, Mulligan seems reasonable in drawing that conclusion relative to labor market mechanics.