Krugman: Wrong Again About ObamaCare
What I’m about to show you is in my opinion an embarrassment to the economics profession and I wish more of my colleagues would express their strong disapproval.
Take a look at the blue line in the chart below. It shows the annual rate of change in U.S. health care spending. Now here is what Paul Krugman wrote in his New York Times column the other day:
… the facts are striking. Since 2010, when the [the Affordable Care Act] was passed, real health spending per capita — that is, total spending adjusted for overall inflation and population growth — has risen less than a third as rapidly as its long-term average. Real spending per Medicare recipient hasn’t risen at all; real spending per Medicaid beneficiary has actually fallen slightly.
He then goes on to consider a number of possible causes for this slowdown, but appears to give the lion’s share of the credit to ObamaCare. In fact his column is titled, “ObamaCare’s Secret Success.”
All of which is pointless speculation, because as the chart clearly shows, nothing happened to the rate of increase in health care spending in 2010 ― the year ObamaCare was passed.
Yes, the growth rate of health care spending that year was well below the historical average. But it was just as much below it in 2009, the year before the act was passed! Health care spending growth in 2010 was exactly the same as it was in 2009. It remained exactly the same in 2011. And again in 2012. Looking only at the numbers, we would have to conclude that nothing that happened in 2010 had any impact whatsoever on health care spending. Nothing Congress did; nothing the president did; nothing that anyone did that year seems to have mattered.
Taken from Joe Antos, Testimony before the Senate Committee on the Budget.
Here is something else Krugman failed to inform readers about: as the chart clearly shows, the slowdown in the rate of health care inflation has been steady and stretches over almost the entire decade before the Affordable Care Act became law. Whatever the cause, it started early on George Bush’s watch ― not under Barrack Obama.
Moreover, ObamaCare doesn’t really begin until this coming January. All the changes up to now have been cost increasing ― providing risk pool insurance to the uninsurable, forcing private plans to cover more benefits, and adding such extras to Medicare as free “wellness exams.”
So how does Krugman manage to give ObamaCare any credit for a slowdown in spending? He begins by noting that a 2011 letter signed by hundreds of health and labor economists pointed out that “the Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending.”
Sad to say, but there are members of my profession who will occasionally sign their names to nonsense. Even so, shouldn’t readers be told that the letter and the Congressional testimony of the letter’s organizer, Harvard professor David Cutler, have been completely discredited by University of Chicago professor Casey Mulligan and other reputable economists ― scholars who actually looked at the facts instead of signing on to shoot-from-the-hip rhetoric.
And shouldn’t readers be informed that every reputable forecast made by serious economists has concluded that ObamaCare will add to health care spending, rather than detract from it. For example, the Medicare actuaries predict that ObamaCare will add $625 billion to total health care spending over the next decade. And the RAND Corporation predicts that consumers in the ObamaCare exchanges will pay almost $2,000 more for health insurance than they otherwise would by 2016.
Krugman has other arrows in his quiver. For example, he claims ObamaCare:
- Has cut payments to private Medicare Advantage plans. But most of these were postponed until after the 2012 election and don’t really kick in until next year.
- Has cut some provider payments. So far, these have been minuscule.
- Has begun to penalize hospitals with high readmission rates. But this program was started only recently and so far the savings are scant.
- Has encouraged doctors and hospitals to organize into accountable care organizations, where Medicare payments will be partly based on performance. But the number participating so far is small and there appears to be little evidence of success in reducing in costs or improving in quality.
Further, Krugman must surely know that the federal government has been funding dozens of pilot programs and demonstration projects to see if different methods of payment under Medicare will reduce costs and improve quality. Yet three separate Congressional Budget Office reports have found that these experiments are not working. (See here, here and here.)
There is one final bit of deception. Krugman writes that:
…there’s evidence that Medicare savings “spill over” to the rest of the health care system — that when Medicare manages to slow cost growth, private insurance gets cheaper, too.
Well not quite. The study found that this is true not for Medicare, but for private (Medicare Advantage) plans that Krugman generally rails against for being less efficient than government insurance and that receive fees that ObamaCare is scheduled to cut.
Finally, here is Bob Laszewski making some of these same points at The Health Care Blog.
Great post. I always enjoy your rejoinders to Krugman.
Krugman really has no idea whatever he is talking about. He is not an economist, even if he thinks he actually is one.
Everything Krugman thinks he is —is wrong, not just being an economist!!
Accountable (Care) Organization= Oxymoron.
LOL,
John, thank you for articulating what any economist has known. The real proof is five years from now, when the gathering forces are implemented and we see the results. Already the indication is increased costs. Not to mention the Billions of $ already spent on demonstration projects, websites, and other health deforms, with no ROI.
To quote the Chinese curse: “may you live in interesting times?”
I don’t pay a whole lot of attention to Krugman – mainly because he seems more intent on pushing a poitical agenda than focusing on what actually works.
That said, anybody that is discounting the impact of population health management initiatives on the cost curve simply isn’t paying attention. I would recommend spending some time looking at the spend results associated with early PCMH initiatives – BCBS NJ 2012 results are worth looking at. Look at what’s happening with narrow networks. Check out the upcoming budget projections from the likes of Vandebilt and Cleveland Clinic and their projected revenue reductions as a direct result of these factors – 18% to 35% cumulative.
The shared savings ACO model is deeply flawed however the core free market principles behind value based pricing and aligned incentives are sound, have now spread way beyond CMS, and will continue to produce results. I don’t think for one minute that the architects of the ACA actually meant to unleash the free market but they have done so and in my view the country is going to be far better off as a result of the ACA than had we continued to do nothing.
Any smart economist knows about differences in differences.
Why would the information of your chart–known to Joe Antos–be reported by Krugman as it was? Any answer to this question does not reflect well on Krugman
“Krugman: Wrong Again about Obamacare” has become what we used to call a “standing head,” much like “Walmart Santa Charged,” “Kennedy Arraignment Set” and “Lawmaker Facing Charges.” The headline remains the same – only the content of the article varies slightly from version to version.
This time your criticism of Paul Krugman is an exception since it happens to be on target. In his article, Krugman repeated point by point the highly flawed analysis of Jason Furman, chair of Obama’s Council of Economic Advisors. Krugman really didn’t do his homework on this one.
For a brief critique of the Furman (now Krugman) analysis, skim down to the comment at this webpage:
http://www.pnhp.org/news/2013/november/why-we-shouldnt-be-celebrating-the-slowdown-in-health-care-spending
John, I see that your incomplete graph conveniently omits the dramatic GDP growth under the new administration, but I’m sure you think that is coincidence also. The graph shows only national spending on health care which, as it should, drops in relationship to rising insurer premiums and citizens dropping their policies. As you are aware, the primary focus of the ACA is to get people insured, not reduce national spending; although the CBO still shows the ACA reducing the Federal deficit. http://www.cbo.gov/publication/44176
Funny how there is no real data out there that healthcare spending is going down. Everyone knows that spending will just keep going up and up and up until some real reform happens.
Since 2010, when the [the Affordable Care Act] was passed, real health spending per capita — that is, total spending adjusted for overall inflation and population growth — has risen less than a third as rapidly as its long-term average.
Yes, but correlation isn’t the same as causation. Besides, nobody actually believes ObamaCare resulted in lower spending. It wasn’t even implemented yet — most of it still isn’t.
We cannot afford Obamacare! How can Krugman ever say otherwise?
Great article. But the mistake, John, is calling Krugman an economist, when he is really a progressive polemist. I will link to this from my Old Jarhead blog. (www.tartanmarine.blogspot.com)
Robert A. Hall
USMC 1964-68
USMCR, 1977-83
Massachusetts Senate, 1973-83
Author: The Coming Collapse of the American Republic
All royalties go to help wounded veterans
For a free PDF of my 80-page book, write tartanmarine(at)gmail.com
Krugman claims that “Since 2010 . . . real health spending per capita . . . has risen less than a third as rapidly as its long-term average.”
A glance at the chart above, prepared by CMS, confirms two things
(1) Krugman’s statement is arithmetically correct
(2) Krugman’s statement is economically wrong
(Krugman is also mathematically wrong – for those who appreciate the difference between arithmetic and mathematics)
Given any variable that steadily declines each year, of course its arithmetic average for the most recent years will be less than its “long-term average.”
Krugman apparently cites this bit of meaningless arithmetic in the attempt to distract his readers from thinking about the true meaning of the facts reported by CMS, namely:
(1) the rate of national healthcare spending steadily declined over the 7 years preceding 2010, and
(2) the rate of national healthcare spending did not change over the 3 years since 2010.
Thus Obamacare has had no discernable impact on the rate of increase in national health care spending. Accordingly, Krugman drew absolutely the wrong conclusion from the history that he himself cites.
Why bother to dispute a pop sociologist, who, like Obama, happened to win a Nobel Prize in a field of incompetence.
True. Quite an unbelievable piece. He’d fail any Princeton econ freshman making that absurd claim (or at least a serious econ prof would).
This is clearly inappropriate use of data, in academia we use to call it “data mining” or “selective use of data”.
Dr. Goodman,
Thank you for clarifying the misrepresented numbers and their context. Currently, I am enjoying reading ” Priceless”.
It seems that there is a ” TWILIGHT ZONE” where misinformation is represented as truths. The sensationalism is infuriating many on both sides of many issues. It makes intellectual discussions, at least emotionally, very charged.
My main concern, as a physician, are the patients. They need a voice and not for anybody, anything or any entity to speak on their behalf. How can we as individuals (physicians included) as well as a society empower more individuals to discover, or rediscover, that they do have the power to make a difference.
There is evidence from industry and actuarial studies that the expansion of account based plans have slowed the increase in healthcare costs. Health Reimbursement Arrangements, Health Savings Accounts, and an increasing emphasis on plan member wellness, health literacy, personal responsibility, and consumerism have been a significant factor in recent years. More and more employers have moved from offering healthcare consumerism designs as options to full replacements. HRAs (2002) – HSAs (2004): maybe, just maybe the marketplace has adopted successful strategies before ObamaCare and are now struggling to maintain those effects as government precludes and makes difficult some of these successful strategies.
John and Friends:
I’m interested in why few people mention the effects of the recession in reducing demand, compared with expected demand from aging trends. Off-setting expected demand is also the loss of jobs and insurance. In the reverse, there is not much attention to the combined/net effects of aging against medical breakthroughs such as stem cell therapy.
BTW, Obamacare is planning to save money by having both narrow networks of providers and a small drug formulary. All, of course, in the name of “value purchasing.” AKA–you are on your own.
Not only does Krugman not understand economics, he doesn’t understand the healthcare system.
Wanda Jones
SF
Krugman cites real spending per capita. Mr. Goodman appears to compare it to total health spending. Am I missing something?
Jerry, I have noticed, on this site, that all things liberal, the ACA, and anything Obama is considered negative; therefore, any facts or figures provided by commentators have their basis in cordoned subjective interpretation and fluid creative license. [If something is bad, all information must support that premise, irrespective of any massaged necessary.]
Incidentally, is spending on health care the whole story? Don’t we need to compare it to quantity and quality of care? You can always reduce expenditures by requiring people to buy used Kias instead of new Kias. But what effect has that had on cost? Seems like you can’t compare the two. Cutting expenditures is only good for consumers if they get the same product for a lower price. Otherwise, we don’t really know if lower expenditures make us better off.
“Cutting expenditures is only good for consumers if they get the same product for a lower price.”
Only good? Same product? Jerry, is that really how you shop? It’s not how I shop.
I mean, when I shop I’m looking for a better product for a lesser price. Sometimes I find it. And sometimes I find a better product for about the same price. And sometimes I find a lesser product that still works for me, at such a lower price than the product I thought I wanted that it’s still a scorching bargain. This is all possible because there is a voluntary market, the market supplies a kaleidoscope of choices, and because I can voluntarily choose to buy what I decide I like best.
Perhaps you misoversimplify a bit the very shopping process you use yourself?
btw, I haven’t noticed the principle of voluntary-buyer, voluntary seller at work in Obamacare – desptie the many people who try to persuade me it’s a “market-based” program.
Your point is on the mark. Maybe I should have said something like “only knowing that the consumer spends less does not tell us whether the consumer is better off.”
I have a million other questions that I never see answered, like 1) do some health care sectors have higher cost growth than others? Would it be wise to focus on those and leave the other sectors alone? And do we have to “reform” all of health care? Why not just parts of it?
Don’t confuse Krugman with facts. Only his counts.
Great items from you, man. I’ve take into accout
your stuff previous to and you’re just extremely magnificent.
I really like what you’ve acquired here, certainly like what you’re saying and the best way during which you assert
it. You make it enjoyable and you continue
to take care of to keep it smart. I can’t wait to read much more from you.
That is actually a great website.
my website; social anxiety
This is my first time pay a visit at here and i am truly pleassant
to read all at alone place.
Have a look at my page natural makeup
Every weekend i used to go to see this web page, because i wish
for enjoyment, since this this web page conations truly pleasant funny information too.
Here is my site – wu-long tea
I’ve been exploring for a little bit for any high-quality articles
or blog posts on this sort of area . Exploring in Yahoo I finally stumbled upon this site.
Studying this information So i’m happy to convey that I
have an incredibly good uncanny feeling I discovered just
what I needed. I such a lot unquestionably will make certain to do
not disregard this site and give it a glance regularly.
Also visit my webpage Jazz Piano Made Easy