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In one short post Bryan Caplan lays out in 5 minutes what usually takes me an hour to describe to people when they ask, “what do I need to know about the US Health Care system in order to be an informed critic?” It is his obliteration, rightly, of Jonathan Gruber’s missal on government health care (ObamaCare). I shamelessly and thankfully reprint the entire thing.

Given my interest in health economics and graphic novels, I was initially hopeful about Jonathan Gruber‘s graphic novel, entitled Health Care Reform: What It Is, Why It’s Necessary, How It Works.  But in all honesty, the book is awful.  Gruber crafts his argument like a salesman, not an economic educator.  He’s careful to avoid outright mistakes, and makes a couple of awkward disclosures.  Yet he omits a long list of crucial, damaging points.

1. Gruber explains the basic facts about health care costs: they’re rising, and government picks up much of the tab.  But he almost totally neglects the connection between the two.  Medicare and Medicaid vastly increase demand for health care.  There’s no denying it.  Imagine how much more affordable health care would be if these programs had never been adopted – or if they were abolished.

2. Gruber doesn’t just ignore the indirect effects of Medicare and Medicaid on health costs.  He repeatedly panders to the populist view that near-total insurance is good.  He brags that Obamacare will close the “enormous gaps” in many private insurance policies.  He frowns on insurance policies that place any ceiling on annual or lifetime payouts.  He even reassures readers that, under Obamacare, the government’s “comparative effectiveness research” cannot legally be used by private insurance companies to restrict health insurance coverage.  Gruber’s happy to blame “Cadillac” health insurance policies for raising medical costs.  But private insurers’ many efforts to restrain spending earn nothing but criticism from him.

3. More generally, Gruber ignores almost everything government does to increasethe cost of health care.  There’s no discussion of medical licensing versus certification.  There’s no discussion of the regulatory barriers to low-cost, high-deductible policies.  There’s no discussion of medical liability.  He mentions the high cost of “free” emergency room care, but fails to mention that this is a side effect of long-standing populist policy: government forces emergency rooms to treat people even if they certainly won’t pay.

4. There’s zero discussion of moral hazard – the unhealthy lifestyles that many people choose despite the risks.  For Gruber, or at least Gruber the graphic novelist, bad health is something that “just happens to you.”  Sigh.  Insurance companies aren’t omniscient, but they could do a lot more to tailor rates to risks – if it were legal to do so.  And maybe people would respond to those incentives by living healthier lives.

5. Gruber fails to counter “You can’t put a price on safety” populist rhetoric with the basic economic logic of risk.  Namely: There’s a trade-off between risk and other goods – and no person or society can afford perfect safety.  Indeed, he panders to the populists.  Gruber mentions people who “think they don’t need insurance because they are healthy” – then condescendingly adds, “They don’t realize that if they do get sick, they won’t be able to afford the care they need.”  Yes, or maybe they’ve weighed the risks and reasonably decided to take their chances.

6. Gruber never mentions health economists’ consensus that health care is vastly overrated.  Differences in medical treatment explain at most a tiny fraction of (a) why we’re so much healthier than we used to be, and (b) why the rich are so much healthier than the poor.  Gruber does admit that a lot of health care spending is pure waste.  But he neglects one of the best explanations: We waste a lot of health care because patients overrate its effectiveness.

7. Gruber is quick to praise the wonders of Romneycare in Massachusetts.  But he doesn’t mention the fact that Massachusetts already had extremely high coverage: coverage increased from 94% to 96%.  (Gruber says 98%, but I’ll go with Wikipedia).  Achieving Massachusetts-level coverage at the national level, where coverage rates are markedly lower, will be far more expensive.

8. Gruber studiously avoids the most remarkable health care system on earth:Singapore’s.  While it’s far from laissez-faire, it’s amazingly cheap and effective, and relies very heavily on individual incentives.  Why should anyone “learn from Massachusetts” when they can learn from Singapore?

9. Gruber praises the CBO’s “evidence-based estimates of how legislation will impact our nation,” including its estimates of the budgetary effects of Obamacare.  But he never mentions the crucial caveat: the CBO takes politicians at their word.  If legislation says that it’s going to reduce Medicare reimbursements, CBO assumes those cuts will actually happen – even though Congress habitually reverses its cuts before the day of reckoning arrives.  CBO’s estimates are about as “evidence-based” as the statement “If my father was a king, I’d be a prince.”

10. To his credit, Gruber carefully explains (a) the indirect consequences of banning pre-existing conditions clauses, and (b) how the individual mandatemitigates these indirect consequences.  Unfortunately, he doesn’t take this chance to explain that, contrary to most economists and econ textbooks, insurance companies are quite good at solving adverse selection problems – unless regulations prevent insurers from charging riskier people higher rates.

11. Gruber ignores the disemployment effects of fining employers who fail to provide coverage for their employees.  He just panders to populist prejudice: Obamacare gives small firms a tax credit, and big corporations can easily afford to pay.  (“Companies of that size should be offering insurance, or contributing to their employees’ coverage.”)  Never mind the unemployment rate – or nominal wage rigidity.

12. Gruber’s book begins and ends with the high cost of medical care and what to do about it.  But what does Obamacare really do about costs?  Not much.  Right now the Medicare Payment Advisory Commission gives “nonbinding” recommendations to Congress.  Under Obamacare, the new IPAB gives recommendations that Congress legally has to “respond to.”  In my book, that’s still “nonbinding.”

13. Gruber emphasizes how “complicated” cost control is.  But we should support Obamacare anyway:

To not support this bill because it doesn’t “do enough” on cost control is like criticizing a baby for not going directly to long-distance running.

In reality, cost control is simple.  Everyone knows how to do it: Austerity and incentives.  Government needs to spend less, and stop using regulation to discourage frugality.  Alas, these realistic solutions are extremely unpopular.  Gruber is too technocratic to go full populist and say, “We should spend as much as it takes to give the best possible health care to every American.”  But in the end, that’s the philosophy behind Obamacare: Do whatever it takes to cover everyone, and hope the American public one day sees the wisdom of austerity and incentives.

I need to print this onto a notecard, along with a few other posts and just hand them out at dinner parties when I am about to get myself uninvited. Just grab my drink, hand out the card and then be on my merry way. It will save a lot of frustration.

2 Responses to “The Benefits of a Liberal Intellectual Property Regime”

  1. jb says:

    This is truly a gem, a great summary.

    I especially loved this:

    ” 9. Gruber praises the CBO’s “evidence-based estimates of how legislation will impact our nation,” including its estimates of the budgetary effects of Obamacare. But he never mentions the crucial caveat: the CBO takes politicians at their word. If legislation says that it’s going to reduce Medicare reimbursements, CBO assumes those cuts will actually happen – even though Congress habitually reverses its cuts before the day of reckoning arrives. CBO’s estimates are about as “evidence-based” as the statement “If my father was a king, I’d be a prince.” ”

    jb: maybe someone should propose a BET to Nancy Pelosi: $1,000 says Medicare reimbursements will be higher in 2020 (pick a year) than they are today. From what I understand she likes to play the stock market, expecially when she has inside information, and hey, as long as she’s in Congress she can influence the outcome. How could she turn it down?

  2. jb says:

    Oops, that’s “especially”

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