Krugmanite

Alert THC reader LDC sent a link to a recent article by current NY Times columnist, and former Enron advisor, Paul Krugman in which he claims that Obamacare (aka the Affordable Care Act (ACA)) is "already having an effect on healthcare costs" - and he means that in a good way!

His evidence?

Since 2010, when the 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 goes on to attribute that slowing to Obamacare.

Now, according to the economists THC reads, Professor Krugman was well-respected for his work in that field but he's made it clear that he views his column writing role at the Times to be as a polemicist - a goal he's accomplished.

There are two problems with Krugman's argument.  The first is his use of a tactic, noted in a THC post last year, that is routinely employed by partisans of all political persuasions - arbitrary starting and/or ending dates for trending data.  You will note that in Krugman's column his starting date is 2010 and he is correct in his statement about the trend in healthcare costs since that time.  But what happened before that date?

The chart below is from the Council of Economic Advisors:
As you can see the decline starts in the middle of the last decade and accelerates in 2008.  Guess it's just something else we can blame on George W Bush!







The second is the recently released analysis of the Office of the Actuaries of the Centers for Medicare & Medicaid Services (CMS) projecting healthcare costs through 2019.  The CMS analysis does reduce estimated U.S. healthcare costs by about 1% of GDP from its previous 2010 estimate but its memorandum explains why.  These are the sources for the estimated $574 billion in reduced costs:

Severity of the recent recession which lowered the baseline projected in the 2010 report (21.7%)

Lower income and price growth (6.1%)

Lower growth assumptions for Medicare, Medicaid and other government programs (50.7%).  The memo goes on to explain  "These assumptions are unrelated to the ACA, and largely reflect a changing economic and policy environment that effects Medicaid per enrollee trends and enrollment, as well as lower expected growth in Medicare spending for hospital and prescription drugs . . "

"Several other non-ACA related factors" including changes in non-personal healthcare spending paid for by other private revenues and the net cost of private health insurance (26.2%).

If you add up the reductions they total 104.7% of the $574 billion reduction.  How can that be?  It's because CMS calculates that the ACA's projected costs have increased by 4.7%!!  The increase includes higher costs for the administration of ACA - what a surprise.

In his many columns on the subject, Krugman has given ample evidence that he does not actually understand how the ACA works; a problem he shares with some other prominent people as Peggy Noonan explains.  His interest is in pandering to his readership with his stirring attacks.  Of course, sometimes he makes the mistake of actually interacting with people.

Here is the good Professor at a 2008 debate in New York on healthcare where, after praising the Canadian healthcare system and attacking his Canadian co-panelist who begs to disagree, he asks the Canadians in the audience to identify themselves and then confidently asks them "how many of you think you have a terrible healthcare system" and then is shocked when almost all of them think they do indeed have a "terrible system"!