Tuesday, November 18, 2014

Professor Krugman continues to misinform readers about Romneycare

Get the economics of Obamacare and Romneycare from Side Effects: The Economic Consequences of the Health Reform.  Especially Chapter 10, entitled "Romneycare times Eleven":

Overall, the ACA erodes nationwide average work incentives about eleven times more than Romneycare did in the state of Massachusetts . Table 10.1 is a good summary of why the differences are so dramatic: the amounts involved and the fraction of the potential workforce presented with a new income or employment tax as a consequence of health reform.
The primary difference between Romneycare and ACA employer penalties is the nominal amount: $ 295 versus $ 2,000 (plus health cost inflation), respectively. Also significant are the facts that the ACA penalty is not business-tax-deductible and that Massachusetts employers are especially likely to offer health insurance even without a penalty.
The subsidized coverage in Massachusetts has barriers to participation that are absent from the ACA and thereby make Romneycare’s implicit [full-time employment tax] less significant. Romneycare came after other permanent forms of assistance for Massachusetts workers leaving [jobs with health coverage], whereas, before the ACA, the federal government had no significant and permanent program for assisting nonelderly nonpoor adults with health insurance while they are not working. Accounting for the prevalence of various taxes, I find that the ACA’s implicit income tax (not shown in Table 10.1) is about eleven times greater than Romneycare’s.

I give the CBO a lot of credit on this. Unlike Professor Krugman, the CBO never fell into the trap of saying that Romneycare= Obamacare, therefore Obamacare has no noticeable effect on the labor market (CBO 2012).

Updated. I answer commenter Veritas with the excerpt below from Chapter 10 of Side Effects.

[The] federal government helped pay for much of Romneycare, whereas the ACA does not turn to any higher power for funding. ...Romneycare encouraged employers in the state to help employees use pre-tax dollars to pay for health insurance, which means that the U.S. Treasury would be passively assisting employees in the form of reduced personal income and payroll tax receipts from Massachusetts. The state also had federal money that was attached to a Medicaid waiver from the federal Department of Health and Human Services (Powell 2012). Thus one should not assume that Romneycare would be elevating Massachusetts labor income tax rates to [the] levels [needed when federal governments expand coverage],

I believe that Professor Gruber videos refer to the Medicaid waiver but, as my excerpt notes, Romneycare had even more federal funding than that.

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