Side Effects and Complications: The Economic Consequences of Health-Care Reform

715 Pages·2015·3.54 MB·English

by  Casey B. Mulligan

Side Effects and Complications
SIDE EFFECTS AND
COMPLICATIONS
The Economic Consequences of Health-Care Reform
Casey B. Mulligan
The University of Chicago Press
Chicago and London
Casey B. Mulligan is professor of economics at the University of Chicago. He is the author of The
Redistribution Recession: How Labor Market Distortions Contracted the Economy and Parental Priorities
and Economic Inequality.
The University of Chicago Press, Chicago 60637
The University of Chicago Press, Ltd., London © 2015 by The University of Chicago All rights reserved.
Published 2015.
Printed in the United States of America 24 23 22 21 20 19 18 17 16 15 1 2 3 4 5
ISBN-13: 978-0-226-28560-3 (cloth) ISBN-13: 978-0-22628574-0 (e-book) DOI:
10.7208/chicago/9780226285740.001.0001
Library of Congress Cataloging-in-Publication Data Mulligan, Casey B., author.
Side effects and complications : the economic consequences of health-care reform / Casey B.
Mulligan.
pages cm
Includes bibliographical references and index.
ISBN 978-0-226-28560-3 (cloth : alk. paper)—ISBN 978-0-22628574-0 (e-book) 1. Health care
reform—Economic aspects—United States. 2. United States. Patient Protection and Affordable Care
Act. I. Title.
RA395.A3.M86 2015
330.973—dc23
2015011404
♾ This paper meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper).
To Maeve!
With thanks to the others enrolled in the University of Chicago Maroon plan in the year she was born.
Contents
Preface
1 The Paradox of Affordability
2 Too Good to Be True: The Health Reform’s Hidden Taxes
3 Some Unpleasant Penalty Arithmetic
4 Some Unpleasant Subsidy Arithmetic
5 Exchange Subsidies and Their Implicit Income Taxes
6 Consequences for Employee Work Schedules
7 Adam Smith’s Equalizing Differences: More Hidden Taxes and More Health
Coverage
8 The ACA’s Productivity Distortions
9 Other Significant Causes of Economic Change, 2007–2017
10 Romneycare Times Eleven
11 Conclusions
Notation Directory
Abbreviations
Notes
References
Index
Preface
In a way, this book is an unplanned sequel to the 2012 The Redistribution
Recession, where I looked at new assistance programs primarily for the
unemployed and poor and their effects on labor market aggregates. Most of the
programs were supposed to be temporary measures to help people endure the
recession. I was writing shortly before their sunset, looking back at labor market
dynamics as the programs came on line and making projections for the path of
the labor market through the end of 2013 as the last of the temporary provisions
expired. Sure enough, by the end of December 2013 the final expiration occurred
with the termination of the last long-term unemployment benefit package. Also
as expected, the labor market had only partly recovered, more by some measures
than others.
But last year it became clear that safety net programs were not getting back to
what they used to be. The Affordable Care Act is going ahead with relatively
little modification, and it is going to be a lot more than a Medicaid expansion.
The generous middle-class premium assistance provision in the 2009 federal
stimulus law is reemerging larger, permanent, and more ambitious as a
combination of health insurance assistance and employer penalties that help not
only people laid off from work but also early retirees, part-time workers, and
people who quit their jobs.
New and better data are always welcome, but having seen and analyzed the
2009 premium assistance provision as well as several other safety net measures,
I felt there was little reason to wait before seriously analyzing the labor market
incentives in the health reform. Moreover, in writing and talking about the first
book I learned a lot about clearly explaining the basic labor economics and
public finance without sacrificing the numerical accuracy of the conclusions.
Anyone interested in economic performance over the next several years has to
understand the contents of the Affordable Care Act from a labor market
perspective—it’s vastly more important than, say, the interest rate on fed funds—
and the first half of this book is, so far, the only comprehensive and user-friendly
introduction to the topic. It is about recognizing a tax as economics does,
regardless of what politicians call it. It is about detecting the difference between
large taxes and small ones. None of this is technical: it just requires data about
the structure of our labor market, which I present in a sequence of tables and
charts, and arithmetic. But it is conceptual in that the reader sometimes has to
dispense with conventional terminology and look at what provisions in the law
actually do to create rewards and punishments. Withholding benefits from
people because they work and earn is hardly different from telling them to pay
taxes on their work and earnings.
The second half of the book looks at the economic consequences of all of the
new taxes, also with attention to distinguishing small effects from large ones.
Sometimes, as with the application of Adam Smith’s equalizing differences,
arithmetic and measurement can be enough to do the job. Other times, as in
chapter 6, more mathematical analysis is required. The rewards are several
surprises about our economy, regardless of the reader’s level of technical
sophistication.
I thank my family, Tsega Beyene, and Mekdes Yohannes for helping me
dedicate the time needed to write a book—yet again! I would understand if they
asked Congress to take a break from creating big social programs for a while.
And not to repeal any, either! As readers will notice, Sherwin Rosen did a lot to
make Adam Smith’s equalizing differences ready for quantitative policy
analysis. Gary Becker taught economists at the University of Chicago and
elsewhere to pay attention to what economics has to say, regardless of how
inconvenient or ignored it might be, and encouraged me to finish this book.
Matt Kahn, Glen Weyl, Jorge Garcia, and Saachi Gupta carefully read early
drafts of the manuscript. I benefited from comments by Trevor Gallen, Josh
Archambault, Jeff Brown, James Broughel, John Cherf, John Cochrane, David
Cutler, Bill Dougan, Merle Erickson, Diana Furchtgott-Roth, John Goodman,
Robert Graboyes, Paul Gregory, Joe Jackson, Pamela Kelly, Dan Kessler, Arnold
Kling, Amanda Kowalski, Eddie Lazear, Kristen Lepore, John McDonough,
Bruce Meyer, Jared Meyer, Magne Mogstad, Jack Mulligan, Derek Neal, Matt
Notowidigdo, Tomas Philipson, Yona Rubinstein, Rob Shimer, Kosali Simon,
Don Taylor, Kevin Tsui, Rob Valletta, Paul Winfree, several economists at the
Congressional Budget Office, several anonymous referees, and graduate
students, undergraduate students, and seminar participants at the University of
Chicago; Hoover; Suffolk University; Texas A&M; UNC-Chapel Hill; the
Federal Reserve Banks of Atlanta, Chicago, Minneapolis, and St. Louis; and
Western Kentucky. Clemson University even held a seminar while I was absent.
Kevin McKenna and Josh Mills also helped with their comments and
suggestions on my posts at nytimes.com about related topics. I also appreciate
the assistance of Ada Barbosa and Getfriday’s Nithin, the financial support of
the George J. Stigler Center for the Study of the Economy and the State, and
support from the University of Chicago’s Division of Social Sciences during a
part-year leave of absence that allowed this book to get started.
A technical version of this book was completed in May 2014 and released as a
self-published e-book three months later. In preparing the manuscript for the
University of Chicago Press, I rewrote much of the prose to include more
examples and cut out technical derivations. Chapter 6 was especially
transformed from an algebraic analysis to a graphical presentation (readers
wanting the algebra should look back to the 2014 e-book). However, I did not
change any of the datasets, impact calculations, or quantitative conclusions about
the ACA. An anonymous referee recommended that I present alternative
demographic adjustments (i.e., labor market changes that would occur even
without the ACA). Following that recommendation, and auditing the forecasting
formulas, slightly changed a couple of entries in table 7.4, table 7.5, table 9.3,
table 9.4, table 9.5, figure 9.3, and figure 11.2. The final manuscript preparations
were finished in November 2014.
Additional appendixes, updates, and bonus features related to this project are
available at www.acasideeffects.com.
1
The Paradox of Affordability
In our unbelievably rich land, the quality of health care available to many of our people is
unbelievably poor, and the cost is unbelievably high.
—Senator Edward M. Kennedy (December 9, 1978, speech at the Democratic National
Committee midterm convention)
As the nation has become richer and health technologies have advanced, health
care has become capable of delivering results ranging from new knees and hips
for the elderly to a good chance at a long life for premature babies, to peace of
mind for patients and their families. At the same time, spending on health care
has grown faster than the economy itself. Millions of people pay a significant
portion of their income, often in the form of voluntary deductions from their
paychecks that go toward health insurance premiums, so that they and their
families can access good doctors, hospitals, pharmaceuticals, and medical
devices when needed. Many people take jobs solely for the purpose of paying for
their health insurance. The magnitude of their sacrifices demonstrates the
importance that people ascribe to health care.
Take Mike Smith, who was working long hours in California as a district
manager for a national auto parts retailer. Despite wanting to help care for his
grandchild and elderly in-laws, Mr. Smith kept the manager job into his 60s
because he and his wife wanted the health insurance that came with it.
In order for the Smiths and others to receive the health-care results that they
value, society has to dedicate workers to diagnose illnesses, administer
treatments, think of and experiment with ways to improve health care,
manufacture medical devices, adjudicate disputes, administer payment systems,
and produce structures, equipment, and software to assist with these tasks. Those
working in health care and supporting industries are workers who cannot instead
be producing goods and services such as food, transportation, and entertainment.
Because people differ in terms of their income, health status, family situation,
and priorities, invariably a segment of the population is unable or at least
unwilling to pay for their own health care. After Senator Kennedy’s speech, the
share of the population without health insurance continued to grow, at least in
part because health care continued to get more expensive (Cohen et al. 2009).
In many other markets, it is tolerated and maybe even welcomed when a
customer segment stops buying in response to high costs. Many households, for
example, have stopped subscribing to cable television as the monthly cable bill