Bryan Caplan  

Sins of Omission: What's Wrong With Gruber's Health Care Reform

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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 increase the 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 mandate mitigates 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.



TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/5874
The author at Trusted.MD Network in a related article titled Bryan Caplan tears apart Jonathan Gruber's graphic novel on health care reform writes:
    Jonathan Gruber is a major player in the health care wonk games and has recently written a graphic novel ( aka comic book) on health care" reform", an area in which he has written and worked extensively. See here for GMU economist Bryan Caplan's detailed [Tracked on January 5, 2012 6:00 PM]
COMMENTS (15 to date)
Brian writes:

"Gruber says 98%, but I'll go with Wikipedia"

So the day has finally come when Wikipedia is more trusted than a printed source.

GlibFighter writes:

Along with the link to Robin Hanson's "healthcare is vastly overrated" diatribe, pointing out the associated CATO UNBOUND companion piece to your readers would be useful:

http://www.cato-unbound.org/2007/09/12/david-m-cutler/use-a-scalpel-not-a-meat-cleaver/

David R. Henderson writes:

@Bryan,
One of your best ever. I was talking about something else with health economist John Goodman this a.m. and he mentioned how much he liked it.

Mike Rulle writes:

You are correct completely.

People do not understand the concept of incentives. They do not make an association between "food purchasing satisfaction" and "healthcare purchasing dissatisfaction". Healthcare is "different". The illusion comes from the fact we do not use it every day. No one has noticed that free market Lasik surgery has declined in nominal dollars by 75% since 1998 (Alex Tabarrok quoted in 2004 that the average 1998 Lasik price was $2200 per eye. Now it is $900).

The cause of incentive blindness was convincingly made by Milton Friedman already. Employees learned to believe healthcare was a free good.

Free is hard to give up---one man's expense is another man's free good---particularly when few understand or believe in opportunity costs---thats just rip off talk from the right and business in general.

steve writes:

"Medicare and Medicaid vastly increase demand for health care. "

Agreed. No more health care for the poor and elderly will decrease costs.

"There's no discussion of the regulatory barriers to low-cost, high-deductible policies."

Very small. Any business can do this. If only there were evidence that this decreases total spending.

"Gruber studiously avoids the most remarkable health care system on earth: Singapore's."

You kind of have to take the whole package, meaning you also need to take the mandatory retirement contributions. However, even though most left wing pundits like Singapore's system, I am not sure how you generalize a system that covers what is in essence one big city to our large country.

"In reality, cost control is simple. Everyone knows how to do it"

Adopt the medical system of almost any other OECD country?

Steve

Greg Scandlen writes:


Steve writes --

"There's no discussion of the regulatory barriers to low-cost, high-deductible policies."

Very small. Any business can do this. If only there were evidence that this decreases total spending.

There is overwhelming evidence, Steve, including a recent Rand study that it reduces spending by 30%. Go to John Goodman's blog to find more.

RN writes:

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Gepap writes:

I am sorry, but #1 is nonsense. Medicare and Medicaid increase the SUPPLY of medical services (in the sense they give people the money they otherwise lacked to get services they want), not the DEMAND (pain and illness always abound, and people always want to treat them).

Andrew' writes:

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John J. writes:

Great points and I totally agree. However, I would have expected you to mention the price distortions, both to the health and labor markets, that occur because health care is tied to employment.

JS writes:

This, really, doesn't do justice to the book. I agree the rah-rah, cheerleading tone, at times, was irritating & could have done with plenty more tackling of the negatives (or perceived negatives) of the new healthcare law & paradigm, but this review just falls apart at even a slightly elevated level of scrutiny.
Examples:
#1 -- As Steve above writes, Medicaid & Medicare serve the 2 most vulnerable sections of society, the poor & the old, hence obviously they would have higher costs. But even so, Medicare has succesfully cut costs, & if allowed, would further cut costs if allowed to negotiate with drug companies.
#2 -- This point is a mess...Private insurers save costs by adverse selection & dropping/restricting coverage when somebody gets sick. Gruber suggests that the new law would save costs by CER, & reforms to the payment/administrative systems, where there are vast inefficiencies. And there is no disputing that, especially when you compare the price of US healthcare, to other advanced nations.
#s 3, 4 & 5 are a further mess...the libertarian ideal might sound acceptable in theory, but no decent society would allow people to die on the streets, however irresponsible they've been with their finances or health. Further, I would hazard that most people don't want to die(!), or harm themselves, & they might look after themselves better, if they had good coverage & a family doctor who educates them about healthy lifestyles.

And so it goes on & on...insurance, especially for health, is becoming a basic social good that all societies need to ensure it's citizens can afford, both for moral & civic reasons. Coupled with cost control, it really it really seems there's no way out except for some form of strong central role, that leaves a lot of scope for private enterprise, which this law/reform does promise.

rmv writes:

Gepap,

One of the determinants of DEMAND is income of consumers.

steve writes:

"There is overwhelming evidence, Steve, including a recent Rand study that it reduces spending by 30%. Go to John Goodman's blog to find more."

I read Goodman's blog everyday. I know the studies he cites. I have read most of them, not just taken his word for it. I believe he is wrong.

Steve

NormD writes:

Steve,

Why is it my moral obligation to pay for:

Drug user comes in with endocarditis caused by injection drug use, receives hundreds of thousands of dollars of care and goes right back to injecting drugs?

The thousands of "patients" who besiege ERs every day with vague non-specific complaints insisting that their "sickness" can only be cured with some narcotic drug.

500-600 lb people who show up at ER demanding care and complaining about anyone and anything.

Follow some ER blogs

AP writes:

For #3 through #5:

Addressing these points is the key to reducing costs.

Someone posted that no modern society would let people die on the streets because they made poor decisions. Then, I guess archaic societies conversely valued individual responsibility and judgement. And maybe the minority should just continue to fund the idiocracy and not "leave anyone behind." Why should a majority of our species become idiots?

Grade and high schools need to have a mandatory course on end of life issues. People need to learn about death versus the latest app on their phone. Yes, it is morbid somewhat, but I don't understand this need for an emotional shelter created by liberals mostly.

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