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Reality-Based Economists' Letter on the Affordable Care Act

David Cutler, Harold Pollack, and Karen Davenport put this letter http://www.americanprogressaction.org/issues/2011/01/pdf/budgetcommitteefinal.pdf together and assembled the signatures in 48 hours...

Harold Pollack emails:

We have at last count 272 labor, public finance, and health economists, several on this list. Had we included health services researchers and other social scientists (a tiny number of non-economists ended up on there for various random reasons), we could have doubled that number with people who have credible specific expertise. A pdf should be posted soon.

What's striking is the reach across the profession--not so much the dignitaries such as Arrow or Kahneman, but former CBO, Treasury, CEA people, serious people in research and government.... For what it's worth in a post-truth environment, we can honestly say that economic and clinical claims made on behalf of the repeal effort are generally viewed as non-substantive within the health policy community, and that ACA commands broad support from researchers who have researched the subject.

January 26, 2011

Honorable Dave Camp, Chairman
Honorable Sander Levin, Ranking Member
U.S. House of Representatives
Committee on Ways and Means
Washington, DC 20515

Dear Chairman Camp and Representative Levin:

This week, Congress is holding hearings on the economic impact of health care reform.  We write to convey our strong conclusion that leaving in place the Patient Protection and Affordable Care Act of 2010 (ACA) will significantly strengthen the economy and promote economic recovery.  Repealing the Affordable Care Act would cause needless economic harm, and would set back efforts to create a more disciplined and more effective health care system.

Our conclusion is based on two economic principles.  First, high medical spending harms employment and economic growth.  Many studies demonstrate that employers respond to rising health insurance costs by reducing wages, hiring fewer workers, or some combination of the two.  Lack of universal coverage impairs job mobility as well; workers pass up opportunities for self-employment or for positions working for small firms because they fear losing their health insurance or facing higher premiums.  Second, the ACA contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending.  These provisions include:

  • Payment innovations including greater reimbursement for patient-centered primary care; bundled payments for hospital, physician, and other services provided for a single episode of care; shared savings approaches or capitation payments that reward accountable provider groups that assume responsibility for the continuum of a patient’s care; and pay-for-performance incentives for Medicare providers.
  • An Independent Payment Advisory Board with authority to make recommendations to reduce cost growth and improve quality within both Medicare and the health system as a whole
  • A new Innovation Center within the Centers for Medicare and Medicaid Services, or CMS, charged with streamlining the testing of demonstration and pilot projects in Medicare and rapidly expanding successful models across the program
  • Measures to inform patients and payers about the quality of medical care providers, which provide relatively low-quality, high-cost providers financial incentives to improve their care
  • Increased funding for comparative effectiveness research
  • Increased emphasis on wellness and prevention

Taken together, these provisions are likely to reduce employer spending on health insurance.  Estimates suggest spending reductions ranging from tens of billions of dollars to hundreds of billions of dollars.  Because repealing reform would eliminate the above provisions, it would increase business spending on health insurance, and hence reduce employment.  One study concludes that repealing ACA would produce job reductions of 250,000 to 400,000 annually over the next decade.  Worker mobility would be impaired as well, as people remain locked into less productive jobs just to get health insurance.

The budgetary impact of repeal would also be severe.  The Congressional Budget Office concludes that repealing ACA would increase the cumulative federal deficit by $230 billion over the next decade, and would further increase the deficit in later years. Other studies suggest that budgetary impact of repeal is even greater.  State and local governments would face even more serious fiscal challenges if the ACA were repealed, as they would lose substantial resources provided under the new law while facing the burdens of caring for 32 million more uninsured people. Repealing the ACA would thus make a difficult budget situation even worse.

Rather than undermining health reform, Congress needs to make ACA as successful as it can be. This would be as good for our economy as it would be for the health of our citizens.

I would like to note that my guess is that repealing the Affordable Care Act would have a smaller drag on employment than David Cutler thinks--perhaps half of a third as large...