Saturday, April 1, 2017

The Obamacare Unraveling

I usually leave Brad DeLong and Paul Krugman alone. If you haven't figured them out by now, you are beyond my help.

In particular, Brad a few years ago made fun of me for "predicting" in 2013 that Obamacare exchanges would unravel due to adverse selection. I have so far  resisted the temptation to needle Brad about that as, well... the Obamacare exchanges unraveled due to adverse selection!

But, unbelievably, Brad is doubling down. While recommending again a snarky 2015 Krugman piece, in which even Krugman was not naming his snarks, DeLong writes:

Who is he talking about? John Cochrane, among others:
John Cochrane (December 2013): What To do When Obamacare Unravels: “The unraveling of the Affordable Care Act presents a historic opportunity for change….

…Next spring [2014] the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and ‘accountable care organizations’ will take their turns in the news. There will be scandals. There will be fraud. This will go on for years…
As you may have noted, there was no adverse-selection meltdown of the ObamaCare exchanges in the spring of 2014...
OK. Mea Culpa. I got "2014" wrong. Though not "this will go on for years." It took three years longer than I said. (And I will admit, I did not think hard about how long it would take before writing "2014")

The insurers pulling out of exchanges, the swaths of the country with only one insurer left, the policies that are nice cards in your pocket but don't actually pay for much, the skyrocketing premiums... it all took three more years.

But of all this, Brad seems completely unaware. What, Obamacare is going just swimmingly? People (other than those getting subsidies and medicaid) are just delighted with their nice low premiums and great coverage? Insurance companies are all swarming to provide exchange policies? Just what rock did Brad crawl out from under? He continues
And what has been Cochrane’s reaction to the failure of his confident prediction? The closest to an acknowledgement of error I can find is:
John Cochrane (July 2014): Ideas for Renewing American Prosperity: “ObamaCare and Dodd-Frank are monstrous messes…

…Long laws and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public-employee unions and the well-connected get subsidies and protection, in return for political support. And silence: No insurance company will speak out against ObamaCare or the Department of Health and Human Services…
Shorter John Cochrane: Never mind that all my predictions were false. ObamaCare is a disaster. And insurance companies are not happy with it–they have just been intimidated by fear that Obama will somehow come after them if they speak ou about what a disaster ObamaCare is for them.

Perhaps in a decade, there will be a column by Cochrane pretending that he always knew that on net ObamaCare was profitable for insurance companies—which would rather be in the business of making money by efficiently processing claims than by exploiting adverse selection.
One date is "all my predictions?" What insurance companies dare speak out against Obamacare or HHS? What insurance companies are finding exchanges profitable? What insurance company "efficiently processes claims?" And where do I sign up?

A strange affair. I don't mind at all it being pointed out when I'm wrong, especially about "predictions." Economics is not that good at unconditional predictions ("what will happen?" vs. "how will a policy change things?")   It's strange to be ridiculed when, for once, I was right! At least in the direction, if not the speed of events.

Update: My views on what should replace Obamacare are here, see especially "After the ACA" and "health status insurance." 


  1. If anything, today is April 1.

  2. As you point out, John, there is really no point in exchanges with Paul Krugman or his acolyte, Brad DeLong. Both long ago gave up any pretense of unbiased scholarship in favor of strident partisanship. The people who are open to a message like the one contained in this post can easily see this for themselves. The people who cannot see this, are beyond the power of persuasion. Still, we cannot deny you the opportunity to vent. It feels good sometimes.

  3. Would have been far more interesting if you had written about the fact that the American health care system has always been a mess (even more before there was The affordable care act) and about why the republicans are not willing to fix the system. As a capitalist I praise our socialist health care systems here in Europe and I hope you guys can make the transition to a more efficient system one day.

    1. You can find much on how American health care system has been a mess for a long time, and how ACA is really not new or radical, but just more of the same failed approach, in "after the ACA" and other writings here

    2. I wish I could find somewhere in the natterings, by everybody, some mention of the notion that insurance, and all the language that goes with insurance, has no place in basic medicine. There is a distinction, that has not been allowed to exist in the USA, between basic medicine that everybody needs and optional extras. Insurance, including self-insurance, has a valid place paying for the optional extras. Applied to basic medicine it only serves to make medicine less efficient and more expensive. Lots more expensive.
      My opinion is that "Obamacare" failed the instant those preparing it dropped "single-payer" off the table. It has not be worth discussing since.
      If Mr T is able to fulfill his promise to do something useful for ordinary folks (he did, didn't he?) by instituting "single-payer" basic health care I might even vote for him next time.

  4. Providing links to data would help people. Also a bit off topic but where can i find your opinion about the recently dropped house health bill?

    1. I haven't written about the house health bill. And it's moot now.


      "The original sin of American health insurance is the tax deduction for employer-provided group plans — but not, to this day, for employer contributions to portable individual insurance. Insurance then became a payment plan to maximize the tax deduction. It became horrendously inefficient as people were no longer spending their own money."

      "Cross-subsidies are a second original sin. Our government doesn’t like taxing and spending on budget where we can see it. So it forces others to pay — it makes employers to provide health insurance. It forces hospitals to provide free care. It low-balls Medicare and Medicaid reimbursement."

      "So far, the announced plans do not really overturn the original sins, but they were crafted in a different political landscape. We can now go big and really fix the government-induced health care mess in a durable way."

      Equalize the Tax Treatment of Health Insurance
      Equalizes the tax treatment of the purchase of health insurance for individuals and employers. By providing a universal deduction on both income and payroll taxes regardless of how an individual obtains their health insurance, Americans will be empowered to purchase insurance independent of employment. Furthermore, this provision does not interfere with employer- provided coverage for Americans who prefer those plans.

  5. Roger Barris may find your post self-evidently persuasive but I don't see any actual evidence.

    You say:"What insurance companies are finding exchanges profitable?" Perhaps you could take the time to find out. Delong lists several companies that do and ties them to past competence in related insurance. David Anderson has given a lot of detail, try actually reading what he has had to say for the last 5 or 6 years.

    You say:"What insurance companies dare speak out against Obamacare or HHS? " Well, the obvious example is Aetna. Perhaps you should read the news more.

    If you are going to argue that the market is collapsing you need to do better than vague statements on direction. I suppose you'll argue that you were also right about the FED's money policy after the crash causing rampant inflation because any year now there will be some inflation. This whole thing reads like a sophomore spiel on the virtues of capitalism you used to give in the MIT cafeteria.

  6. No point arguing with DeLong. You are too good for that. Keep writing good stuff. I also really liked your post last week on covered interest parity.

  7. If a large fraction of the population (especially the lower income part) thinks of healthcare as a right(or some basic utility), then is there any Republican plan compatible with that view? A related question: are there good surveys of how many Americans think of healthcare as a basic right?

  8. "I got "2014" wrong. Though not "this will go on for years." It took three years longer [to happen] than I said."

    "Go on" is not a synonym for "take", John.

    "(And I will admit, I did not think hard about how long it would take before writing "2014")"

    That's an excuse, John. It's not an admission.

  9. ==={ The insurers pulling out of exchanges, the swaths of the country with only one insurer left, the policies that are nice cards in your pocket but don't actually pay for much, the skyrocketing premiums... it all took three more years. }===

    Basically, it is irrelevant whether your predictions were right or wrong...the ACA is what it is, and so this back and forth is pretty childish; but it is disingenuous for you to simply say that your predictions were right in effect - only off on the exact date - if you didn't predict the Republican interference in the ACA.

    It is at least arguable that absent that interference (for example, undercutting the non-profit option for the Coops), the amount of options today under the ACA would be consierably higher than they are now, premium costs would be lower, etc.

    Now if you had predicted that it would have the current problems that it now has because of specific developments that you, likewise predicted, then you might have some defense for the meaningless and self-serving assessment of "It's strange to be ridiculed when, for once, I was right!":

    FYI, I have benefited significantly from the ACA for the past three years. In itself, that doesn't mean much in terms of the overall picture, but then neither does your hyperbolic description that I excerpted above. Your generalizations are not useful for a meaningful analysis. You need to look at the relative numbers of people who have "nice cards" that don't "actually pay for much." You need to look at the premium costs relative to what existed before the ACA. I mean, seriously, don't you think that someone of your status in the world of economics would meet the basic standards of meaningful analysis?

    There is a reason why, with all the problems that the ACA has had, the "replacement" had such a low favorability rating with the public across political affiliation. Simply trotting out shallow and un-nuanced Republican talking points about how the ACA is "imploding" isn't useful. The only way to improve the current situation is through a sophisticated analysis of the existing problems - one that is based on an accurate and qualified assessment.

  10. Cochrane writes, "I usually leave Brad DeLong and Paul Krugman alone. If you haven't figured them out by now, you are beyond my help."

    I can empathize with Cochrane's desire to dismiss an attack, but I doubt here he has "figured out" a common thread between Delong and Krugman.

    DeLong and Krugman do quote each other approvingly. But DeLong is a minor light in the world of economics, while Krugman's professional and public stature is towering.

    A self-styled libertarian, Cochrane would do well to think a bit harder about the value of pluralism in our society. And whether he truly recognizes human diversity on all of the relevant dimensions, including cognitive and stylistic ones.

    Maybe then he would be a little more accepting of Delong and Krugman.

    1. Acceptance of Krugman as what? As an economist with interesting and/or useful insights on current issues in Econ/policy which could at least be construed as having some basis in the facts? No chance. As a blindingly partisan left wing political commentator? Absolutely!

    2. If you want to speak about pluralism (and how Cochrane values it), you can go to Delong's blog and express an opposite view. You will be surprised.

      At least, that's what happened to me when I realized my comment had been deleted.

  11. If Cochrane actually understood the nuances of health insurance instead of crowing about being right three years late, he might consider the lack of risk corridor payments to insurers that led to some of them leaving these markets.

    But Jason Furman has already pointed out on Twitter how John's claims of a death spiral are wrong.

    The Barris comment on "any pretense of unbiased scholarship in favor of strident partisanship" seems far too apt for much of the policy discussion on this blog.

    1. Ahh, yes, Jason Furman. If Jason Furman says it, then it must be true, because he is an unbiased observer. Never mind that he was BHO's Chief Economist, but that is an alternative fact.
      Next time I want to have an opinion, I will undertake the WWJD strategy, What Would Jason Do. Because, evidently, that seems to be the way to go these days.

  12. I read your Wall Street Journal article. You said could we credit "smart phones" to the antitrust actions of the government.

    AT@T was broken up about 35 years ago. But until then you could only install telephone equipment from the AT@T subsidy, Western Electric, because of potential "quality issues" to the network if you used a competitor's equipment. The local Bell would charge you to come out and install the equipment, you could not simply plug a phone in.

    The antitrust settlement ended that and allowed competitors to enter the market which lead to increased competition and innovation. It is a long road from Western Electric to the smart phone and I don't think you can chart a clear path. But antitrust action did start the economy down that road.

    1. And ATT was against the Internet at the beginning. PS. I was a student cooped at Bell Labs, a great research organization but was supported by monopoly. As a student I benefited from the monopoly.


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