Firm incentives in an Obamacare world


Michael Shermer, writer and founder of The Skeptics Society, is quoted as saying “Smart people believe weird things because they are skilled at defending beliefs they arrived at for non-smart reasons.” Ostensibly he had a general subject area in mind when he said this, but the I think the general gist is relatable to other things as well. Especially, in my area of interest, policy and politics.

It is with that quote in mind that I reread this piece by Cass Sunstein who, by analogical way of Edwin Durning-Lawrence’s obsession with Francis Bacon as Shakespeare, describes Republican’s reactions to every development of healthcare reform as facilitating confirmation bias. This bias is what happens when people “don’t evaluate evidence on its merits, but instead enlist it opportunistically in support of their preordained conclusions.” These three paragraphs from Sunstein perfectly encapsulates the phenomenon:

To the critics of the health-care law, however, the real lesson of the announcement is clear: OBAMACARE IS A DEBACLE. And to those critics, that is the real lesson of essentially every development in health-care reform.

If governors decline to establish state exchanges, leaving that task to the federal government, then Obamacare is a debacle. If the administration releases a complex application form for the coming exchanges, then Obamacare is a debacle (even if the application is just a draft). If states opt out of the Medicaid expansion, then Obamacare is a debacle.

No one should doubt that the implementation of the health-care law is creating serious challenges. Reasonable people have objections and concerns. But as with Durning-Lawrence, so with many of Obamacare’s critics, whose conclusions are motivated and preordained.

People who just can’t help but react in this manner, who can’t escape the fever vision of tyranny from insuring the uninsured through the Affordable Care Act, are not by default unintelligent or uniformed. As Shermer says even smart people believe weird things, and sometimes that leads them to passing off preordained conclusions as something other than what it is — mostly an exercise in restating a personal opinion. Ramesh Ponnuru, like many conservatives oriented against the healthcare law, in writing his “Six Inconvenient Truths About Obamacare,” falls into this cognitive trap.

To be fair Ponnuru probably didn’t write the headline (I presume most writers don’t have any control of that), yet the first sentence makes clear that it’s a fair description, writing that the administration’s recent regulatory rulings that delay some parts of the ACA “illustrates six truths about the law that its supporters can’t easily acknowledge.”

For the sake of reading time here’s an abbreviated list of his ‘hard truths’ for people that disagree with him:

  1. “First, important parts of it are badly designed.” Why? Because the employer mandate was delayed for political reasons related to the mid-term elections that recognize people like their employer-sponsored insurance (ESI). The mandate threatens to depress full-time employment.
  2. “Second, the Affordable Care Act is a standing affront to the rule of law.” Why? Because the administration is doing much of the reform grunt work through regulatory policy.
  3. “Third, the law is struggling politically.” Why? Because it doesn’t poll well.
  4. “Fourth, the administration is not following previous norms about how to build public support for a new program.” Why? Because the law was “jammed through” Congress against the people’s will.
  5. “Fifth, the law’s problems aren’t simply the result of Republican sabotage, as many of its supporters say.” Why? Because the economic consequences of the employer mandate is too frightful to contemplate, and thus has nothing to do with Republicans.
  6. “Sixth, opposition to Obamacare is reasonable.” Why? ACA proponents describe conservative opposition as pathological, but recent developments make clear that’s not the case.

I’d like to respond to his points for a couple of reasons, neither of which has anything in-particular to do with the writer. In fact I often read Ponnuru because I consider him to be an astute conservative political observer. Rather, I’d like to do this as an general exercise responding his points because, frankly, they’re not unique to him. These are generalized arguments and reactions from Republicans and conservatives on recent healthcare reform developments that deserve refutation. In a more selfish vein of motivation, it also allows me to better articulate and organize my objections to this hodgepodge of conservative characterizations. Recognizing that this covers quite a bit of ground I’ll break up my response into more than one post (also, I tend to overwrite, so there’s that). Today I’ll only address the first argument, er, “truth.” The rest will, hopefully, come tomorrow and/or this weekend.

So are any of these necessarily “inconvenient truths” that health reform proponents just can’t take seriously? Well, no, not really. Neither are they especially objective observations. They’re either easily debatable or things that that ACA advocates don’t actually dispute (if not for exactly the same reasons as conservatives). Which is to say, don’t misunderstand me; these points are all (both weakly and strongly) arguable from his perspective, but Ponnuru treats every aspect of health reform’s development here as self-validating of his views. Such confirmation bias means every implementation hiccup somehow transmogrifies that validation into some shield of inconvenient truth for supporters — when really, Ponnuru, it’s just, like, your opinion, man.

First, yes, it’s easy to argue any part of the health reform law is “badly designed,” even outside of one’s ideological proclivities. Nothing about the law is ideal in the sense that healthcare wonks would start from scratch and produce the PPACA. Yet Ponnuru specifically name-checks the employer mandate (my recent opine here) as structurally deficient because it threatens to reduce full-time employment and by implication some folk’s ESI. I’ve two general objections to his characterization on this point; data and incentives.

I’m not convinced there is sufficient-enough evidence to definitively ascribe any significant employment effects from the employer mandate using existing data. For instance, conservatives readily used last month’s job’s report to argue the increase in part-time employment was directly attributable to the employer mandate. As I argued here that’s almost certainly motivated conjecture, and I haven’t read anything since then to change my mind. In short, the data provided by the Bureau of Labor Statistics (or any other data I’ve read) isn’t nearly detailed enough to derive a reasonable claim to causality in the mandate’s effects. The economy is more than one thing — fluid and dynamic, greater than any one law or regulation — pushed in so many directions by so many things. Attempting to discern the effects of any one particular ‘push’ is difficult, requiring all other things to be equal, and I don’t think (especially given the stage of implementation) it’s possible to measure right now on macro-level. It’s easy to theorize, sure, but not to empirically verify.

For the latter point, on the ACA inducing companies to dump ESI, people bringing up this possibility tend to confuse probable incentives for definite outcomes. Detractors readily point out that the ACA creates an incentive for some companies to drop their ESI because employees can then receive coverage on the state-based insurance exchanges, while also highlighting, as Ponnuru does, that the employer mandate exists to counteract that impulse. I don’t read proponents of the law arguing that the former incentive doesn’t or will not exist, but (and this is key) this type of incentive exists right now and will continue to exist in the future. As Tim Jost recently testified to the House & Ways committee (PDF):

The employer responsibility provision was intended to build on the current employer based system, minimize disruption, and help ensure a level playing field among businesses. No employer, of course, is likely to offer health insurance simply to avoid a $2000 or $3000 penalty—health insurance costs far more than that. But nearly all midsize and large employers already offer health insurance without a penalty, and all of the reasons that they do so now—the ability to increase compensation through tax subsidies, recruitment and retention of employees, increased productivity and reduced absenteeism—will continue to exist in 2014 and beyond. The penalties are merely a marginal incentive, which might induce a few more employers to offer insurance and, more importantly, will keep a few others from dropping it.

Again, Ponnuru accurately notes that the employer mandate exists to goad companies into not dropping their ESI and putting more people on the state-based insurance exchanges. Why? Because people like the insurance they get through their employers and the administration made a political promise that people who like their insurance coverage will get to keep it — also, the employer mandate addresses some of the fiscal consequences of guaranteeing access to insurance on the exchanges. So the mandate serves more than one purpose. Ponnuru is right to say it isn’t an incidental feature, or even unimportant so much as it goes. Yet that doesn’t necessarily mean it’s critical either; a point both Adrianna McIntyre and Jonathan Chait effectively argue.

The important takeaway, though, is that such incentives for companies regarding insurance don’t magically disappear post-ACA. It’s usually agreed that most firms provide ESI for all the reasons Jost listed in his testimony. In a world with Obamacare the motivation(s) behind providing employees with insurance will still be valid. The ACA may shuffle those reasons but the design is clearly meant to leave the overall balance of incentives unaffected. Will that end up happening? I don’t know for sure. More importantly, neither does Ponnuru (or anyone else).


5 responses to “Firm incentives in an Obamacare world

  1. Pingback: On Obamacare’s “standing affront to the rule of law” | The McLean Parlor·

  2. Pingback: On Obamacare’s “standing affront to the rule of law” | Punditocracy·

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