David R. Henderson  

Gruber on Romney and Obama

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I found this 33-minute PBS interview of Jonathan Gruber, one of the architects of both Romneycare in Massachusetts and Obamacare for the United States, interesting.

I've posted about Gruber earlier in these 14 posts.

The interviewer is lobbing softballs throughout, which isn't necessarily a bad way of extracting information. It works in bringing out Jonathan's views about the issues and about Romney and Obama. Sometimes I like those interviews because too much "gotcha" can fail to bring out interesting things. It was extreme, though, in that the interviewer didn't at all mention some of the amazing things Gruber was caught saying on tape. The interviewer also didn't ask any tough questions about Obamacare.

Parenthetically, I know I shouldn't say this, because you're supposed to hate people you disagree with, but I found the Jonathan in this interview a sincere passionate man: for all his talk about tricking the voters, here's someone who thought things through (within a very limited framework--see my reference to his graphic novel below) and followed up by actually acting on what he thought. This was the man I sat beside and testified with in 1994 when we were on opposite sides of Hillarycare.

Some highlights:
26:30: In discussing the tax exclusion for employers' expenditures on employees' health insurance--health insurance paid for by the employer is not taxed as employee income whereas wages and salaries are taxed--Jonathan says, "It's regressive: the richer you are, the bigger tax break you get." That doesn't make is regressive. For a tax to be regressive, it has to be the case that the higher-income you are (what Jonathan meant by "richer"), the bigger the break you get as a percent of income. But since the employer's contribution to the employee's health insurance is a much higher percent of income for the low-income person than for the high-income person, the exclusion is progressive, not regressive. Here's what a Commonwealth Fund study found in 2009:

Claims that the current tax treatment of health insurance benefits is regressive are typically based on changes in absolute tax dollars rather than changes in tax rates. In economics, tax increases are defined as "progressive" if they represent a greater share of income for higher-income households. Defined as a share of income, the value of the current tax exemp- tion is larger for low- and middle-income households with employer-provided coverage than for high- income households. Elimination of the exemption would thus introduce a much greater increase in fed- eral tax liability for households with incomes below $50,000 than for those with incomes above $200,000, and increase the tax rate of lower-income households with employer coverage more than those higher- income households. Therefore, a cap on the tax exemption of health benefits would represent a regres- sive--not progressive--change in tax policy.

27:20: "There is not one single health expert in America, who, if setting up a system from scratch, would have this employer subsidy in place." It's mainly an employee subsidy--if you can call the untaxing of something a subsidy, and, in some respects you can--but his point remains.

Gruber talks throughout about how he was highly impressed both with Romney while working on Romneycare and with Obama while working on Obamacare.

28:35: "If you really want to see publicly how Obama works, the key thing to do is watch that Blair House meeting." Gruber concludes that he's "a smart guy." I think that's true. I haven't watched the whole 6 hours, but I watched a couple of them at the time. Gruber is referring to to the February 26, 2010 6-hour Blair House meeting with Congressional representatives from both major parties.

But I never think of that meeting without thinking about one Obama statement that had me gasping about Obama's lack of understanding of one basic aspect of insurance. It was this segment at 1:40:02 of the morning session:

When I was young, just got out of college, I had to buy auto insurance. I had a beat-up old car. And I won't name the name of the insurance company, but there was a company -- let's call it Acme Insurance in Illinois. And I was paying my premiums every month. After about six months I got rear-ended and I called up Acme and said, I'd like to see if I can get my car repaired, and they laughed at me over the phone because really this was set up not to actually provide insurance; what it was set up was to meet the legal requirements. But it really wasn't serious insurance.

It was serious insurance, but it didn't insure everything. If he wanted collision insurance, he needed to buy it. I'd bet dollars to doughnuts that what he bought was the minimal liability coverage to handle the externality from the accidents he might cause.

I remember thinking, "Of course Obama could make that mistake as a young person, but he doesn't seem to have figured out yet that it was a mistake in his own thinking about insurance rather than simply a feature of his insurance policy."

So maybe at other points in the day Obama was impressive, but this one really made me wonder if he gets insurance. Some of the actual features of Obamacare don't cause me to wonder less. Specifically, Obamacare requires the insurance company to cover, with zero copayments, certain procedures. This would have been like making him, as a young man, buy collision insurance for a "beat-up old car."

32:20 "It is so unfortunate, the misunderstanding of this law. I've actually written a comic book, a graphic novel, to try to explain the health care law."
Yes, and it was awful. To see why, read my co-blogger Bryan Caplan's analysis, which I would rank in his top 20 of the thousands of posts he has written.

Comments and Sharing

COMMENTS (10 to date)
Pierre Lemieux writes:

Interesting point about the progressiveness of the employer health insurance deduction.

acarraro writes:

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CHN writes:

If he got rear ended, wouldn't it be the other guy's insurance that had to pay to fix the car?

Floccina writes:

That quote of Obama is startling. Most people do not understand insurance but one would think, he is too smart to believe that.

MikeP writes:

Most people do not understand insurance but one would think, he is too smart to believe that.

And one would be right.

If you follow the link and read the transcript, he's just using that story -- perhaps embellished beyond the actual experience -- as a jumping off point to discuss mandatory minimum coverage. He doesn't want people surprised that something that happens to their health isn't covered.

MikeP writes:

But to be sure, Obama exhibits a poor understanding of insurance in many other ways.

For one, the pools in Obamacare are actuarially indefensible, hence do not represent insurance. Having men's and women's premium be the same is one obvious one. But the premiums are also compressed across age, so the young pay more than the actuarial premium while the old pay less.

For another, expected health maintenance is required to be covered by Obamacare. That is not insurance either. If Obama's college car needed a new water pump, I trust he would not have gone to the insurance company and been surprised that a new water pump wasn't covered.

To be fair, Obama may or may not understand that these are not insurance. He is simply taking a common political position that he will call prepaid, government specified health care "health insurance" when it is not health insurance.

MikeP writes:

"There is not one single health expert in America, who, if setting up a system from scratch, would have this employer subsidy in place."

It is true that this is more an employee subsidy than an employer subsidy: the taxation of the benefit would appear on the employee's W-2.

But it is mostly a health industry subsidy, as it induces the purchase of more health insurance and health care than would be purchased without it.

Granted, if the alternative isn't employees' buying their own health insurance, but rather a prepaid health care purchase mandate such as that in Obamacare, it is less of an industry subsidy than the alternative!

LK Beland writes:

About that quote from President Obama.

The general point, I think, is that some (young) people purchase the cheapest insurance legally available, without actually checking if the coverage truly corresponds to their needs.

In the case of a car accident, especially involving a cheap vehicle, the consequences are minimal. In the case of a health problem, the consequences can be far more problematic.

ColoComment writes:

Beating the dead horse until it's nothing but skin and bones: more on that Obama auto insurance story.

Does he not realize that, even if he had collision coverage, no insurance company is going to pay more to repair the vehicle than the actual cash value of the vehicle? It was a "beater." They'd pay up to that ACV and "total" it.

Dick White writes:

Gruber was candid and forthcoming in the interview that MA needed the "third leg" of the stool to make Rommneycare work, i.e., substantial funding he attributed to Senator Kennedy's efforts on behalf of MA; funding that wasn't available to most, perhaps all, other states.
There was no discussion in the interview regarding the extent of the "substantial funding" required at the national level for Obamacare to provide that third leg. His view as the "numbers man" (his term) would have been helpful so that citizens could then have compared those expected costs to then current levels of what was being spent on healthcare.

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