David R. Henderson Points Out Huge Flaw in Pro-ObamaCare Claims

The good thing about the Internet is that there is a Hayekian safety net: When a bunch of free-market economists are idiots and overlook an obvious point, eventually somebody comes along to rescue them. For today’s example, we have the arguments over the CBO’s estimate that the Affordable Care Act (ACA aka “ObamaCare”) will cause a reduction of the equivalent of 2.5 million full-time jobs in the U.S. labor market.

In previous posts (here, here, and here), I walked through the attempts of Paul Krugman and other ACA apologists DRH 2008-1to spin this finding as a good thing. Yet there was something incredibly obvious that I (and everybody else I have been reading) missed, until David R. Henderson pointed it out in a piece for the Hoover Institution. David writes:

As noted, though, Krugman and [Alan] Blinder argue that [the CBO’s projected] cutback in amount worked is good for the workers involved. Their argument is straightforward. Low-income workers face a loss of subsidy if they work more. If they choose to work less, therefore, they must see themselves as being better off or else they would not have made that choice. As Krugman puts it in a February 10 blog post, “For those who choose to work less, this is a clear gain—otherwise they wouldn’t do it!”

That’s true—again, basic economics. And if that were the end of the story, Blinder and Krugman would be right to conclude that, however harmful this reduction in work is for the society, Obamacare is a good deal for those who voluntarily reduce their work.

But that’s not the end of the story. We have to remember what Obamacare does: it requires people to buy a high-cost health-insurance plan whose structure and coverages the government has a large role in deciding. So not just the subsidy, but the whole health insurance and subsidy scheme must be analyzed. If the government requires people to buy something they don’t want and subsidizes them to purchase it, we can’t say for sure that they are, on net, better off.

David’s point is especially poignant, since it is precisely those low-income people who previously lacked health insurance whom Krugman et al. think are the primary beneficiaries of the ACA. Many of these people are going to be forced by the ACA to buy health insurance plans that (before subsidies) are very expensive, containing many perks that these people would otherwise have declined–if consumer choice were allowed to operate, that is.

To give a personal anecdote on this point: I talked with my health insurance carrier to get an idea of how bad the damage was going to be. I asked for the barest bones policy they could give me, to replace my current plan which will be illegal now. They came back and gave me a quote for a policy with a premium about 50% higher than what I currently pay, AND it has a deductible that is $1,000 higher! Before this phone call, I had simply assumed that my plan didn’t qualify because of its high deductible, but nope, that’s not it. Instead they are being forced by law to give me all sorts of “benefits” (such as maternity care and dental) that I don’t want.

David R. Henderson has provided a simple, yet brilliant, insight into the debates over the ACA’s impact on employment: Yes, workers who choose to enjoy more leisure after passage of the ACA are better off than if they had been denied the subsidies given in the ACA. But this does NOT prove that these very workers are better off than if the ACA had never been passed and they kept providing their original amount of labor hours.

4 Responses to “David R. Henderson Points Out Huge Flaw in Pro-ObamaCare Claims”

  1. Sahil Diwan says:

    Great post. Thank you for taking the time to posting this information very helpful!. I discovered so many interesting things inside your blog

  2. Rob Rawlings says:

    " But this does NOT prove that these very workers are better off than if the ACA had never been passed and they kept providing their original amount of labor hours. "

    Ignoring means testing , workers who are worse off as a result of ACA in the way David describes will probably choose to work more not less hours. If I am compelled to pay $5,000 for something I value at $0 I will probably have to increase my hours to pay for it plus my other costs. As a result of ACA some people will work longer and still have lower utility than before.

  3. David R. Henderson says:

    Thanks, Bob. Not that it matters for your argument, but the Mises Canada audience might be interested to know that I grew up in Canada and, as an adult in the United States, saw my father’s struggles with Canada’s Medicare.

    • Raja says:

      This weekend I spent 7 hours just to get one kid checked out for a stomach virus, that I had already diagnosed because other kids at school were also sick. Two people, who pay a combined 50-60k+ per year in taxes still wasting so many hours in the waiting room. This is quarter of a million in 4-5 years given to the government, and we still can't get one doctor to have a look at our kid for so long.

Leave a Reply

You must be logged in to post a comment.