What Jonathan Gruber and Ezra Klein don’t get about Obamacare
Obamacare is like free Big Macs … for some

McDonald's by Shutterstock.com

Article Highlights

  • Though some proponents ignore the evidence, Obamacare won't help everyone

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  • The ACA's goal is to make premiums go up for some and down for others

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  • For large numbers of people, premiums will increase under the ACA

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"My plan begins by covering every American. If you already have health insurance, the only thing that will change for you under this plan is the amount of money you will spend on premiums. That will be less," president Obama said in a May 2007 speech unveiling his health care plan. He continued making similar statements during last year's presidential campaign.

But newly released data on insurance premia in California's health care exchange show that they are not true at all: for large numbers of people, premia will actually increase.

Some of President Obama's most prominent acolytes, including MIT professor Jonathan Gruber and Washington Post blogger Ezra Klein, have attempted to argue that that does not matter at all, that there are people who used to have no health insurance who receive it at a discount now and that all is glorious.

Their case rests upon the following series of arguments. Before Obamacare, fairly basic health insurance was available at a low price, especially for healthy young men. Other plans, for older or less healthy consumers especially, were much more expensive. What the Affordable Care Act was meant to do is outlaw these basic plans, and make somewhat more comprehensive plans mandatory. These plans will be subject to community ratings that make them more expensive for groups such as healthy young men, and less expensive for others. On top of that, low-income buyers of these plans will receive subsidies paid for by high-income buyers.

This reminded me of the following (entirely fictional) anecdote:

Ezra Klein and Jonathan Gruber walked into McDonald's a few years ago, trying to buy a burger. They'd heard about the McDouble, which is on the Dollar Menu, and costs $1. That struck them as a good deal, and they expected all burgers to be priced similarly, so they ordered a Big Mac. In a shocking development, McDonald's charged them over two bucks!

But then Obamacare passed, so they expected prices to drop.

The next time they walked past McDonald's, they noticed a homeless person eating a Big Mac. Curious to see how the presumably poor person had acquired such an expensive treat, they asked him how much he had paid for that.

"Well, you guys just gave me $2, and I had a quarter, so I got this Big Mac." "Wow," Ezra Klein and Jonathan Gruber thought, "Obamacare has really lowered the price of a burger. You get one that used to be super expensive but delicious and you're paying less than what you used to pay for a terrible one! This program is truly amazing."

 So they walked in, stood in line for quite a while, and ordered a Big Mac. It is hard to express their surprise when they realized it cost them over two bucks, again. Adding in the $2 they had handed to the homeless person, they had now spent over four bucks on their Big Mac.

That's the Obamacare Dollar Menu in a nutshell. Its whole point is to offer only Big Macs. Its main goal is to make them cheap as a McDouble for some, but expensive as a Big Mac meal for others. You can support that or not, but claiming or implying that it makes everyone better off is, you know, disingenuous.

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About the Author

 

Stan
Veuger

  • Stan Veuger is a resident scholar at AEI.  His academic research focuses on political economy, and has been published in The Quarterly Journal of Economics. He writes frequently for popular audiences on a variety of topics, including health and tax policy. He is a regular contributor to The Hill, The National Interest, U.S. News & World Report, and AEIdeas, AEI’s policy blog. Before joining AEI, Dr. Veuger was a teaching fellow at Harvard University and Universitat Pompeu Fabra. He is a board member of the Netherland-American Foundation in Washington and at The Bulwark, a quarterly public policy journal, and was a National Review Institute Washington Fellow. He is a graduate of Utrecht University and Erasmus University Rotterdam, and holds an M.Sc. in Economics from Universitat Pompeu Fabra, as well as A.M. and Ph.D. degrees, also in Economics, from Harvard University. His academic research website can be found here.


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