Health Care Reform Costs – Fact or Fiction?

Oh dear. I think I’ve just wasted a morning. Here’s the story: a friend of mine points me to an article in the New York Post by someone called Paul Sperry. I don’t read the Post, so I have no idea who that is. The article turns out to be the usual far right series of complaints about Obamacare. This one is almost a perfect  summary of all them. So I thought I would get into the details and try to understand the epic grumpiness of it all. Anyway, one full morning later all I have learned is that highly selective statistics, cheeky calculations, and some outright fibbing are all it takes to get published in the NY Post.

But I knew that anyway. Hence the waste of time.

Since I’ve done the work here’s the result.

Perry starts early with the notion that 20% of fourth quarter GDP growth came from health care, and that the majority of that was Obamacare subsidies.

Well, he’s kind of right. He obviously read the Bureau of Economic Analysis news release from last week. On page 7 it breaks the economy down and gives the contribution that each category made to the headline 2.6% growth. Down there on line 17 we find that health care spending contributed 0.51% of that 2.6%. Some simple arithmetic tells us that .51 out of 2.6 is around 20%.

Thus Perry is correct for total health care. Just for reference, the health care contribution in the first quarter of 2014 was -0.16. Those quarterly numbers tend to jump about a bit. The BEA report doesn’t break out the Obamacare subsidy effect though, so we have no way of telling what share it contributed. So Sperry’s throw away comment that ‘the majority of that spending was taxpayer-funded subsidies from Obamacare’ is entirely unsubstantiated in the report. For all we know Sperry just made that up

He probably did. He needed to. Because his next sentence is one he wants to emphasize:

“In other words, the stimulus never ended”

Really?

I assume he is referring to the stimulus of the early crisis years. The one that has completely ended.

We can check that by using the same table on page 7 of the same report. On line 53 it helpfully tells us the contribution of Federal budget spending on the same headline growth figure of 2.6%. It turns out to be -0.54%. In other words, not only did the stimulus vanish, but the Federal budget is now acting as the complete opposite. It is a drag in GDP, it isn’t a stimulus at all.

But let’s not allow facts to ruin the story.

So we move on.

Next Sperry alerts us to the fact that:

“Health care is what Americans are spending most of their money on today – far more than they spend on housing and utilities combined ..”

OK. Let’s take a look.

The very next page of our BEA report gives us the details. Line 2 tells us that personal consumption expenditures in the fourth quarter were $12,112.3 billions. And on line 17 it tells us that health care spending was $2,034.3 billions. Now, I agree that’s a lot of health care spending, but it isn’t ‘most’ of total spending – it’s only 17%.

Handily on the line above health care spending we find the details for housing and utilities. It happens to have been $2,188.6 billions. So how can Sperry say that health care spending was ‘far more’ than housing and utilities, when it was actually less? Beats me.

But let’s not forget: he’s trying to tell us a story.

Next he’s on to arguing Obama misled us all in his State of the Union speech by ignoring that:

“… health care accounted for a whopping two-thirds of the uptick in consumer spending and much of the overall economic improvement.”

That’s terrible. If it’s true. Is it?

Well. No.

Here are the facts: personal spending grew $110 billions in the fourth quarter. Health care spending grew $26 billions. So health care accounted for 24% of the growth, not ‘a whopping two-thirds’. Where he came up with that whopper, I have no idea.

He doesn’t stop. He sweeps on by the Congressional Budget Office estimate that Obamacare enrollment will rise to 34 million people by 2016, and launches his next missile: health care spending will continue to outpace GDP growth over the next few years.

Yes it will. At least according to the Government actuaries projecting Medicaid and Medicare costs, which is where, I think, he gets his numbers. he uses a forecast of 6.1% annual growth in health care spending between 2016 and 2023 – he calls that ‘whopping’ too. According to the CBO the economy will grow about 4.2% a year over that same period [not adjusted for inflation].  Sperry wants us all to believe this faster rate in health care spending is due to the evils of Obamacare, so he neglects to tell us that the more important factor is the upcoming bulge in the number of retirees qualifying for Medicare. That plus the expected rising cost of medical services are the greater source of growth than Obamacare. At least to the same ‘government actuaries’ that Sperry appears to be quoting.

Let’s not worry about this though. Sperry’s story beckons.

And here we are getting to the nub of his article:

“Over time, higher taxes and spending act as a drag on the economy, crowding out private investment. Almost 90% of Obamacare users get federal aid. As a result, a new CBO report projects Obamacare subsidies will balloon to nearly $2 trillion over the next decade, only partially paid for by the more than $640 billion in taxes and fines, which means more government spending and more upward pressure on interest rates.”

That’s quite a mouthful. Let’s unpack it slowly.

First we get the usual criticism of deficit spending: it will ‘crowd out’ private investment. Maybe if the economy was running at full tilt, and its arguable even then. But whilst we are still in crawl-out-of-the-hole mode it is very much not true. The government can’t crowd out something that doesn’t want to exist.

Second, we hear that 90% of all Obamacare ‘users’ get federal aid. Well, duh! The entire operation is targeted at people who are poor and who cannot afford health care without some ‘aid’. There’s no news in this.

Third we see the CBO estimates for subsidies and taxes. The numbers Sperry gives us come straight from the CBO report on page 117. They are for the entire period 2016 – 2025. They are: costs of $1,993 billions, offset by $644 billions of revenues, producing an apparent budget loss of $1,349 billions. Never mind that the CBO warns us that these estimates are in the process of being revised, and that they don’t take into account the CBO’s more recent estimates of the economy in general. So Sperry is being correct, but the CBO wants us to put an asterisk against the numbers.

Lastly comes the consequence: this extra spending will put upward pressure on interest rates. Possibly. Possibly not. That rather depends on a host of other factors. And need I remind you that we have just navigated five years or so of vastly expanded deficit whilst interest rates have been near zero. The connection between government spending and interest rates, if it ever existed, has been non-existent during the crisis.

Wait, there’s more: we next are pointed towards a University of Chicago professor – Casey Mulligan – who has calculated that Obamacare will damage growth because it costs jobs and slows productivity growth.

Let me ignore my normal aversion to anything produced by the University of Chicago and pretend that Mulligan has done serious research. Sorry, that doesn’t work. He hasn’t. He has cherry-picked the data in order to ‘prove’ the usual Chicago point that government is a very bad thing. I don’t think I ought to spend much time on Mulligan. He has been a star for the far right since he started to publish analyses building off of the CBO report of last February. In that report the CBO highlighted the effects that Obamacare would have on the supply of labor. Specifically the CBO pointed out that many low wage workers keep a job not because they want to work, but because they need health insurance. To the extent that health care reform such workers now have the choice of opting out of work. Additionally, some full time workers might now choose to drop down to part-time employment for the same reason.

The upshot of this supply impact is that there will be a slight drop in the employment to population ratio, and slight drop in the hours worked. Both these would normally have the effect of slowing GDP growth.

The question that Mulligan sweeps imperiously past, is exactly how do we estimate this impact given that we have no reliable history?

Let me not dwell on it. Both Paul Krugman and Paul Gruber have demolished Mulligan. I see no need to pile on.

Besides, my target is Sperry.

So, back to his article.

After our detour through the Mulligan maze, we are told that there has been a large decline in adult employment measured as a ratio as the adult population. Apparently:

“[it] is at an alarmingly low 44%. In fact, ‘The number of full-time jobs as a percentage of the total population is the lowest it’s ever been,’ Gallup CEO Jim Clifton warns.”

That 44% number is sourced from the Gallup polling organization. It measures the number of people who say they are employed at least 30 hours as a percent of the total population over 18 years old.

The problem is that the total population figure includes retirees – people who don’t want work anymore. This renders it rather meaningless. As the population ages we ought to expect that the Gallup metric would produce ever smaller percentages. This is a familiar issue and has nothing to do with health care reform. Then there’s the issue I have with Clifton’s statement [as quoted by Sperry] that the Gallup metric is now at its lowest in history. It isn’t. The equivalent figure for January 2014 was 42%, and it was 41.7% in January 2011. Oh, and the ‘history’ for this particular measure is since 2010, when Gallup decided it could make a buck by producing an alternative to the official numbers for its right wing clientele.

By the way: Clifton has withdrawn his more aggressive statements. Apparently Sperry sees no need to update us on that.

Phew. We are nearly there.

Let’s leave aside the comments about part time work. It’s clear that health care reform is having an effect: many employers are cutting hours per employee to below 30 per week because that allows them to avoid paying for insurance. This is the infamous ’29-er’ problem the right wingers keep on about. They never seemed to care about the long term trend towards reduced hours before, but now it is a national disgrace. I agree. Employers ought to be taken to task for such a transparent effort to avoid providing their employees with basic health care coverage.

Sperry, however moves on quickly to one last zinger: Obamacare also depresses wages. The source? A recent poll conducted by the national Federation of Independent Businesses. That poll tells us that, of 900 firms polled, 26% have held wages flat because of the added costs of Obamacare.

Umm. That means 74% didn’t. So the vast majority of businesses have not adjusted wages despite having a higher cost. I would have thought that would be the real news.

Further, the long term and very large run-ip in health care costs, especially private insurance costs, are a major reason why wages have been flat for years. This issue existed long before Obamacare. As long as health care is viewed as some sort of optional ‘benefit’ to workers its cost will always enter into the total compensation calculations run by business. If that cost is rising rapidly, as it has for a decade or more, there will be less left to pay workers a wage increase. And since private health care insurance costs are expected to rise more quickly than public costs are, the wage/benefit trade-off is more pressing outside of Obamacare than it is within.

OK. That’s it. As I said I wasted a goodly amount of time on this.

In sum: people like Sperry, and Mulligan for that matter, make no attempt to inform the public or to undertake balanced research. They are single minded in their efforts to create a false aura around Obamacare in order to undermine the public’s support for it.

That’s a shame because we need to improve the reform and learn from its weaknesses. To do that the public needs good, not distorted, information. Clearly the New York Post sees no need to provide such information. It prefers to bend the truth as far as it can. And, periodically, fib.

One last thing: lost in all this is any reference to that fact that our society now has far fewer uninsured people that it ever did. That was the reform’s big objective. It has succeeded.

So, to that extent, reform’s opponents have lost the battle.

Good.