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Jonathan Gruber's New 'Analysis' of Obamacare and Romney's Health-Reform Plan

September 25, 2012

By Avik Roy

Jonathan Gruber, the MIT economist and Obama health-reform adviser, has been featured on these pages for, among other things, boldly predicting in 2010 that Obamacare would "for sure" reduce insurance premiums, while subsequently telling state governments that Obamacare would increase premiums by as much as 30 percent. Apparently, however, that analytical foul-up has left Prof. Gruber unbowed. This week, he’s releasing a new report "describing the vast differences in the impact on people in every state between ObamaCare" and Mitt Romney’s plan for national health reform. Given that his predictions keep changing from year to year, how reliable will his analysis be?

(DISCLOSURE: I am an outside adviser to the Romney campaign on health care issues. The opinions contained herein are mine alone, and do not necessarily correspond to those of the campaign.)

Politico Pro reported yesterday that Gruber is hosting a news conference, slated for Thursday, to discuss his new paper. "The report provides new national data comparing the small differences between ObamaCare and RomneyCare [in Massachusetts], and provides new national and state-by-state data describing the vast differences in the impact on people in every state between ObamaCare and RomneyCandidateCare [Romney’s plan for national reform]." Gruber will be joined at the news conference by Stuart Altman, a health economist at Brandeis.

I’m not sure what Gruber is going to say, or what his analysis will show. But I’m a bit confused as to how Gruber thinks such an analysis can be performed in the first place.

The Romney health-reform plan is agnostic on ESI tax reform

The core of Mitt Romney’s plan to replace Obamacare is to equalize the way the tax code treats people who buy health insurance for themselves and those who get it through their employers. Right now, if your employer buys health insurance on your behalf, you pay no income or payroll taxes on the value of that plan. Individuals who buy insurance for themselves have to do so with after-tax money.

As I described in my summary of the Romney plan in June, there are a number of ways to equalize the tax treatment of employer-sponsored and individually-purchased insurance:

"There are a number of ways to equalize the tax treatment of health insurance. One would be to do what George W. Bush proposed, and create a standard deduction that any taxpayer can take advantage of. Another would be the approach championed by Paul Ryan and John McCain, among others, in which every American would get a fixed tax credit, or subsidy, with which to buy insurance for himself. A third approach would be a hybrid system, in which taxpayers could choose between either the deduction or the credit, or in which those falling below an income threshold would get the credit."

Romney hasn’t specified which of these approaches he favors. Indeed, if I had to guess, if Congress sent him a bill that contained any of these approaches, he’d sign it. But there are important fiscal considerations in such a significant reform, and important tax-writing Congressional committees—such as House Ways and Means and Senate Finance—would necessarily have their say.

But given that these approaches have meaningful differences—a universal tax credit would effectively provide universal catastrophic coverage, whereas a standard deduction would more modestly expand the uptake of expensive, comprehensive insurance—I don’t understand how Gruber and Altman claim to have produced an "analysis" of "RomneyCandidateCare."

If the work of other liberal think-tankers is any guide, Gruber will simply invent a Romney-like plan, one with scary but inaccurate numbers, that he can then compare unfavorably to his own (historically unreliable) analysis of Obamacare. Then the Obama campaign will trumpet Gruber’s "non-partisan analysis" in order to attack Romney.

Gruber’s predictions of Obamacare’s impact have been historically unreliable

As I discussed in March, in October 2009, while consulting for the White House, Gruber published an analysis of the Obamacare bill that was then making its way through the Senate Finance Committee. "What we know for sure," he told Ezra Klein, "is that [the bill] will lower the cost of buying non-group health insurance." Gruber’s report received a lot of attention, coming as it did at a time when the merits of Obamacare were being hotly debated on Capitol Hill.

More recently, Gruber has made the opposite case regarding Obamacare’s impact on insurance premiums. From August 2011 to January 2012, he issued three reports to state governments stating that non-group insurance premiums would increase, relative to prior law. By 2016, he wrote, premiums would increase in Colorado by 19 percent; Minnesota by 29 percent; and Wisconsin by 30 percent.

Most importantly, Gruber has admitted that his model has a catastrophic flaw: it can’t model the impact of Obamacare’s requirement that insurers take all comers regardless of pre-existing conditions. Here’s what he said to the State of Colorado (emphasis added):

"It is important to recognize some limitations in our modeling of prices. In particular, given publicly available data we cannot incorporate the effects of the ban on pre-existing conditions exclusions. This ban will cause a rise in premiums as insurers are forced to cover conditions that they had previously excluded. In addition, there are new premium taxes on insurers that will raise premium rates…Overall, we cannot predict the net impacts of these factors on premiums without more analysis."

It’s precisely this aspect of the law that non-partisan analysts have pointed to as a reason why Obamacare will drive up premiums. It remains to be seen whether or not Gruber’s model now assesses the impact of this provision on insurance premiums. Without it, it’s hard to see how his numbers will be that useful.

Massachusetts, pre-Romney, had a dysfunctional insurance market

A main reason for the state-by-state variation in Gruber’s work is that states’ regulatory regimes vary. Some states, like Massachusetts before Romneycare, had dysfunctional individual insurance markets, because they forced insurers to take all comers and charge young people more to subsidize the cost of older individuals. Such mandates—"guaranteed issue" and "community rating" in wonk-speak—make it economically impossible for insurers to survive, without an individual mandate.

Other states have relatively light regulatory regimes, and such states will face dramatic premium increases as insurers are forced to comply with Obamacare’s federal regulations.

I wrote about the history of Romney’s Massachusetts reforms back in April. What’s clear from the history is three things: (1) Romney’s plan was designed to solve the specific problems that had arisen in Massachusetts’ health-care system, such as individual-market dysfunction; (2) Romney favored allowing individuals to buy low-cost catastrophic insurance, whereas the succeeding Deval Patrick administration forced individuals to buy costly, comprehensive coverage; (3) Obamacare is modeled after Patrick’s implementation of Romney’s reform, more than it is modeled after what Romney actually sought to achieve.

Romney’s plan did succeed in driving down the cost of individual-market insurance in Massachusetts, by moving that state’s health care system from a left-wing morass toward the center. But that doesn’t make Massachusetts a model for more market-oriented states which never suffered from Massachusetts’ problems.

Many questions for Gruber and Altman

So, these are the things I’ll be looking for answers to when Gruber and Altman host their press conference. Did Gruber fairly and plausibly analyze a wide range of possibilities for employer-sponsored insurance reform, or did he invent his own conception of Romney’s plan in order to cherry-pick the most favorable numbers? Does his model have the same methodological flaws that led it to make contradictory predictions in 2009, 2011, and 2012? Does Gruber take into account the fact that reform at the federal level is necessarily different from that at the state level?

And one final point: Does Gruber’s analysis take into account that the law increases taxes by $1.2 trillion and cuts Medicare by $716 billion in order to fund its massive new subsidies for health insurance? We’ll find out soon.

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