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The Health Care Pie

Doctor Leo Spaceman\

from the WSJ, The Myth of ObamaCare’s Affordability by Casey Mulligan


The law has effects that extend well beyond the employment rate and the average length of the workweek. People, businesses and entire sectors will jockey to reduce their new tax burdens or enhance their subsidies. Their adjustments to the new incentives will make our economy less productive and stifle wage growth, even among workers who have no direct contact with the law’s penalties and subsidies.

The “29er” phenomenon is a good example of how the law harms productivity. Because ACA’s “employer mandate” requires firms with 50 or more full-time workers to offer health plans to employees who work more than 30 hours a week, many employers and employees have adopted 29-hour work schedules. This is not the most productive way to arrange the workplace, but it allows employers to avoid the mandate and its penalties and helps the employees qualify for individual assistance.

All of this, and much more, exacerbates the societal problem that the economy cannot expand its health sector without giving up something else of value. A complex law like the ACA has a few provisions that encourage work, such as counting unemployment income against eligibility for health assistance. But the bulk of the law overwhelms them. The ACA as a whole will have the nation working fewer hours, and working those hours less productively.

I estimate that the ACA’s long-term impact will include about 3% less weekly employment, 3% fewer aggregate work hours, 2% less GDP and 2% less labor income. These effects will be visible and obvious by 2017, if not before. The employment and hours estimates are based on the combined amount of the law’s new taxes and disincentives and on historical research on the aggregate effects of each dollar of taxation. The GDP and income estimates reflect lower amounts of labor as well as the law’s effects on the productivity of each hour of labor.

By the end of this decade, nearly 20 million additional Americans will have health insurance as a consequence of the law. But the ultimate economywide cost of their enrollments will be at least double what it would have been if these people had enrolled without government carrots and sticks; that is, if they had decided it was worth spending their own money on health insurance. In effect, people who aren’t receiving assistance through the ACA are paying twice for the law: once as the total economic pie gets smaller and again as they receive a smaller piece.


1. There is no such thing as a free lunch

2.  We create Rube Goldberg systems to hide costs from everyone including ourselves.

3.  It is ridiculous to assume that any central planner can manage such a large and complex market without severe economic dislocations.

4.  This plan is a disaster and anyone who supported it should be voted out of office.  Any candidate who refuses to fully repeal it is unworthy of support. Its harm is much wider and deeper than most understand.

5.  ”The first rule of economics is scarcity; the first rule of politics is to ignore the first rule of economics.”

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What Is the Cost of the Decline in Health Care Spending

Doctor Leo Spaceman

From Bloomberg News, Megan McArdle writes Obamacare Isn’t What’s Slowing Costs.


If health-care cost growth is slowing down because we’re working a lot of inefficiency out of the system, then the slowdown is obviously a big win for everyone except health-care providers and their shareholders. This explanation is a big favorite with the Barack Obama administration, which likes to credit the Affordable Care Act and related policies for the slowdown.

But health-care cost growth might be slowing down for other reasons. Innovation might be slowing down, in which case we’ve got good news and bad news. The good news is that we’ll be spending less on health care in the future. The bad news is that we won’t be getting so much in the way of new treatments.

Or the slowdown in cost growth might reflect broader growth trends in the economy. In that case, I’ve mostly got bad news: Health-care cost growth will be slower in the future. But so will economic growth. Health-care spending will be lower in the future, but so will revenue, meaning that we’ll be poorer — and we’ll still have a problem with the budget deficit. So this is pretty much lose-lose.

Which of these three things is the case?

Well, I think we can be pretty sure that public policy is not making the system more efficient, for two reasons. First, the decline started in the middle of the last decade, and there’s no plausible policy mechanism that would have caused cost growth to moderate just then. And second, the same broad trend shows up in pretty much every high-income country. No matter how smashing you think Obamacare was, it didn’t stabilize health-care spending in Switzerland.

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Subsidizing Consumption vs Production

kevin williamson

“As with the Connecticut parking spaces, we have through the entitlements (and through the tax preferences given to employer-based medical benefits) done a great deal to encourage the consumption of health-care services while doing nothing to encourage the production of them. In fact, various political efforts at health-care reform going back decades have made it less profitable, less prestigious, and less enjoyable to be a doctor, with the result that our best and brightest no longer even consider medicine to the extent that they once did, preferring jobs in finance. About one in four U.S. doctors today is an immigrant, meaning that without high levels of immigration the number of medical professionals would be nosediving relative to the population. Life as an American doctor looks pretty good to a recent med school graduate in Bombay or Karachi, but not to a Harvard-bound valedictorian at an American high school. But even with immigration, the number of physicians in many specialties has stagnated, and new policies in the PPACA, such as punitive taxes on manufacturers of medical devices, will contribute toward stagnation in other sectors of the health-care industry if they are enacted.

“And while there is some concern nationally about the number of doctors in the general profession, there is acute concern about the number of doctors who are willing to see patients enrolled in Medicare, Medicaid, and other government-run programs. Medicare ends up being a great deal on insurance to pay doctors who will refuse to see you. Medicaid is of course even worse: The quality of the doctors and institutions that will take Medicaid patients is so low that they have worse health outcomes than do those with no insurance or coverage at all. Subsidizing consumption of a good does not necessarily ensure that production will keep up with demand; it merely replaces the most efficient and fair form of rationing (market pricing) with inefficient and politically biased forms of rationing. Even before the passage of the PPACA, about half of all health-care spending in the United States was government money. (For that reason, if for none other, the conservatives’ cries of “socialized medicine” during the PPACA debate were odd.) New Deal policies that tied workers to employer-based insurance programs, and later policies such as the creation of the HMO simply resulted in the rationing duty being handed off to insurance companies, as they no doubt will continue to be under the PPACA, should the program survive.”

“What happens when you subsidize consumption rather than production? Understanding that is key to understanding the entitlement problem.”

Excerpt From: Kevin D. Williamson. “The End Is Near and It’s Going to Be Awesome.” HarperCollins, 2013-05-01. iBooks.

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A Brief History of American Healthcare

Doctor Leo Spaceman

“There are many volumes to be written on the history of what went wrong with American health care, but here is a short and very simplified version: The Roosevelt administration began imposing central planning on broad swathes of the U.S. economy in the 1930s, but in an effort to escape the Great Depression and to prepare the country for war. One of the things the administration did was to impose wage and price controls, and it was ruthless about enforcing them. The great newspaperman R. C. Hoiles, who had been a fierce critic of President Roosevelt’s creation of the Japanese internment camps, was fined a thousand dollars—not for cutting salaries but for giving his employees an unapproved raise. With the war on, businesses had to compete ruthlessly for good employees, but the wage controls prevented them from luring workers with higher pay. (Seriously—through a depression and the onset of a world war, the Roosevelt administration was cracking down on employers for paying people too much.) Thus was born the fringe benefit: company cars, expense accounts, and, most popular, employer-sponsored health insurance plans.  Because these benefits were not considered income per se, payments made by employers for health insurance did not come under the income tax, a situation that persists to this day. Over time, that produced a truly odd and destructive economic arrangement: The company store has been abolished everywhere except in health insurance. That creates perverse incentives on both sides. The insurance company is not beholden to the consumer, but to the consumer’s employer: Apple has to work hard to keep me happy to keep my business, but Aetna only has to be good enough that it’s not worth it to my employer to switch to another provider”

Excerpt From: Kevin D. Williamson. “The End Is Near and It’s Going to Be Awesome.” HarperCollins, 2013-05-01. iBooks.

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Health Care Cost Loop


“Strange that I can get an exact price on an iPhone, a Honda Civic, or a pizza, but not on something as essential to my well-being as health care.

There are almost no consumer prices in health care. Because there are no prices, there is no price discrimination by consumers, and therefore no pressure to keep prices down to where consumers can pay them. It’s a chicken-and-egg problem: One of the reasons that we rely on insurance or government programs to pay medical bills is that the bills are too high for ordinary consumers to pay; one of the reasons that the bills are too high for ordinary consumers to pay is that we rely on insurance and government programs to pay for them.”

Excerpt From: Kevin D. Williamson. “The End Is Near and It’s Going to Be Awesome.” HarperCollins, 2013-05-01. iBooks.

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