The White House Council of Economic Advisers (CEA) has released a projection of jobs created by the economic stimulus bill. However, the method they used to get these numbers falls short of basic scientific standards. The CEA modeled a potential outcome for the economy without the stimulus, basing it on historical data. They then compared this computer simulation with the actual data about what occurred with the stimulus – and have declared that the stimulus worked.
This method would be met with a failing grade in any decent university economics course. A projection of a potential economic outcome based on a model must be compared with a baseline scenario produced by that same model. This is basic: the policy simulation must be compared with a baseline. Instead, the White House compared a simulation with empirical data!
This is absurd because any slightly different assumption in a simulation will produce a different result. When comparing with a baseline these can be controlled—we can see what assumptions went into the baseline scenario and which went into the simulation of the policy. There are no hidden tricks. But if a simulation is compared to empirical data, we have no way to know why the two differ. It could be anything.
What were the assumptions in this simulation, I wonder? Do they not know that they must use a baseline—or was this a purposeful political maneuver?
Media coverage of the CBO scoring of Senate Majority Leader Harry Reid’s health care bill left out some of the fine print and heroic assumptions that were in the report. The Heritage Foundation believes they merit your consideration.
Premiums Rise
The media quotes the CBO as saying that ObamaCare would not make premiums rise for people who get their insurance through their job or other groups. This is mostly because millions of people would no longer receive coverage from their employer, and instead would buy insurance in the so-called “non-group” market that sells individual health plans. These would likely be older and sicker Americans.
While this transition could make premiums cheaper for those who would continue to receive health benefits through their workplace, they would likely see higher taxes down the road for subsidies that would be offered to people buying individual insurance, the CBO reports. And the CBO notes that other taxes imposed on medical device manufacturers, insurers and other providers would be passed onto consumers “in the form of higher premiums for private coverage.”
Additionally, the CBO said Sen. Reid’s health care bill would raise premium rates for people who buy it in the so-called “non-group” markets, and these increases would be 10 to 13 percent. So anyone who cites the CBO as saying Americans would not see their premiums jump assumes that employers will not dump their workers into an exchange where people get insurance individually.
There Is a Crowd-Out Effect
And that’s an assumption that goes too far. In fact, the CBO notes that roughly 6.4 million people who have work-based health coverage under the current law would lose it under Sen. Reid’s bill. That’s because some businesses would find it unaffordable to offer health care to their workers under the Reid bill. They’ll opt for paying the $750 fine and dumping their workers onto a health exchange. Many older and sicker employees would likely lose their job-based coverage, even if they like it, according to the CBO. Businesses would push these workers to get their health care in the “non-group” or individual market because it’s cheaper for companies. But as noted above, it’s not a better deal for the individuals.
Younger People Assumed to Fall in Line
At the other end of the spectrum, the CBO analysts make the assumption that younger, healthier workers are going to comply with the “individual mandate” in the bill. That’s the one that forces every American to buy health insurance or pay a fine (a provision whose constitutionality has been and will continue to be questioned). However, these younger workers will look at the option between a much more expensive, mandated health plan — providing benefits they don’t want or need — and a less expensive annual fine and be much more likely to forgo the health insurance plan and pay the fine. As the CBO reports, it’s the younger workers who are the biggest losers in this “reform.”