Obamacare is Working, and It Will Probably Continue to Work

| Mon Jul. 14, 2014 11:12 AM EDT

Tyler Cowen isn't satisfied with current answers to the question of how well Obamacare is working. But although no one has firm answers to the questions he asks, I think we know more than he implies we do—especially when you widen your scope beyond just the details of the Obamacare transition over the next few years. Here are a few quick responses to his questions:

1. Five to ten years from now, how much do we think employment will have gone down as a result of ACA?

Take a look at Europe. The answer almost certainly is (a) perhaps a little, but not much, and (b) it's going to be swamped by other factors anyway. In fact, if Obamacare eventually leads to the end of employers being responsible for health insurance, it could end up helping employment. More generally, though, if you're worried about employment trends, then health care taxes and mandates should be the least of your concerns. They're just a blip by comparison to everything else going on.

1b. How will the effort to introduce greater equality of health care consumption fare if wage and income inequality continue to rise?  Will this attempt at consumption near-equalization require massively distorting incentives?

No. Even if we move to full universal health care, it will likely raise marginal tax rates by something in the neighborhood of 6-7 points. That's nothing to sneeze at, but the bulk of it will replace current spending by employers and will do little to distort anything. The remainder is simply too little to introduce more than a modest amount of distortion in a $15 trillion economy.

2. Will ACA even have improved overall health in America?

Probably a little bit, but not a lot—though it depends on how you measure it. Especially in the under-65 age group, for example, it will do little to reduce mortality. However—and this is something I can't repeat often enough—this is not the main point of universal care anyway. The main point is to improve quality of life and reduce the life-shattering financial consequences of serious medical emergencies.

3. Given that prices in the individual insurance market already seem to have gone up 14-28 percent, and may go up more once political scrutiny of insurance companies lessens, what is the overall individual welfare calculation from this policy change?

Actually, prices will probably go up less in future years. The initial increase was a one-time response to the new requirements of the law, especially the addition of lots of sicker people to the insurance pool. In the future, given the competition between insurance companies, increases are likely to roughly match the rate of health care inflation.

4. Given supply side constraints, how much did ACA increase the consumption of health services in the United States?

We don't know yet. But obviously the answer is that, yes, any kind of universal health care entitlement will increase consumption. Once again, though, look at Europe. We have decades of experience in lots of different countries with a wide array of different forms of universal health care, and in every case health consumption is lower than in the US. There may well be birthing pains associated with Obamacare, but in the longer run there's simply no reason to think that it inevitably has to lead to a significant increase in consumption.

5. How much of the apparent slowdown of health care cost inflation is a) permanent, b) not just due to the slow economy, and c) due to ACA?  Or how about d) the result of trends which have been operating slowly for the last 10-20 years?

Obviously historical evidence is never conclusive, but the historical evidence we have points very, very strongly to a permanent slowdown. There's a lot of variability in medical inflation, but one of the most underreported trends in health care reporting has been our steady, 30-year-long decline in medical inflation. There's no special reason to think this is suddenly going to change.

If I were allowed only one answer to all these questions, it would be this: Just look at the rest of the world. Health care is not an area where we're confined to econometric studies and CBO models. There are dozens of countries that have implemented national health care in dozens of different ways, and we can look at how they've actually done in the real world. Almost universally, the answer is that they've done better than us on virtually every metric. Unless you really, truly believe that the United States is a unique outlier to the laws of economics, there's very little reason to believe that national health care in America would fare any worse.