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This Is How Obamacare Gets Rid Of Employer-Based Health Care

The latest Jonathan Gruber video is less inflammatory, but speaks to a fundamental question about Obamacare: Should Americans get health insurance from their employers?

Posted on November 17, 2014, at 2:21 p.m. ET

Dominick Reuter / Reuters

Economist Jonathan Gruber at a conference in Boston on March 12.

Economist Jonathan Gruber believes America's employer-based health insurance system is a terrible idea, and he helped design Obamacare to get rid of it.

Gruber — an MIT economist who was one of the "architects" of the Affordable Care Act — came under fire last week after a series of videos surfaced in which he calls voters "stupid" and "exploited." The idea in those videos was that the American public didn't understand economics well enough to really comprehend what the ACA — or, Obamacare — was actually doing.

Then, late last week, a sixth video of Gruber discussing Obamacare surfaced. The video comes from a 2011 speech Gruber gave at Harvard for the Pioneer Institute and lacks the inflammatory language of the previous videos — Gruber never calls anyone stupid, for example.

But the video has something much more important: Gruber's clearest explanation yet of how, according to Gruber, Obamacare is designed to ween everyone in America off of the health care they get from their jobs.

This is how it'll work:

First, it's important to understand that under the current system, employer-provided health care gets a tax subsidy.

Tax subsidies are the source of Gruber's beef with the current system. Right now, companies don't have to pay taxes on the health care plans they provide employees. Not paying taxes is obviously cheaper for individuals in the short term, but Gruber says it makes the system overall "regressive, inefficient, and expensive." Gruber touched on this subject in several of the videos that have surfaced, and the problem as he sees it is that the more money you make and the more expensive your healthcare plan, the bigger your tax subsidy. Hence, "regressive."

As a result, Gruber frames his approach to Obamacare as an effort to correct a troubled system.

The first strategy Gruber describes is a decision to "mislabel" what Obamacare is actually doing.

As Gruber points out in many of the videos, no one was going to accept sudden taxes on their health insurance. As a result, the Obamacare architects had to figure out a way to make taxes politically feasible. The solution was to tax companies and let them pass the costs along to customers.

"The only way we could take it on was first by mislabeling it," Gruber said in the latest video, "calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans."

Obama disagreed with this characterization Sunday, saying the law was thoroughly debated and that he did not deceive anyone, Politico reported.

But in any case, this is what Gruber was talking about when he called voters "stupid" and "exploited." However, the second part of the story is at least as important.

The second strategy Gruber describes is a delay on when new taxes actually kick in.

The key term for this strategy is "Cadillac tax," which is a tax on the most expensive "Cadillac" health care plans. Starting in 2018, Obamacare applies a stiff 40% tax to these plans. But it also won't affect a lot of people; according to CNN, when the so-called Cadillac tax begins it'll only apply to plans that cost $10,200 for an individual, or $27,500 for a family.

In the latest video, Gruber says this tax will apply to "about the top 8% of health insurance plans" in 2018. So not a lot.

Over time, however, the Cadillac tax will scoop up more and more people, until virtually everyone's employer-provided health insurance becomes a "Cadillac plan."

Given enough time, a plan that costs, say, $5,000 today will eventually cost $10,000 simply due to inflation. Obamacare takes the changing costs of health care into account, but it doesn't actually use inflation — it uses the Consumer Price Index. And the CPI is lower than inflation.

In other words, according to Gruber, non-Cadillac plans will catch up to the Cadillac price — and the economic incentives for employer-provided health insurance will be gone.

It may take a long time, but eventually everyone's plan is going to get there. Gruber says this "essentially amounts over the next 20 years to basically getting rid of the exclusion for employer-provided health insurance."

This is a really big deal. If the tax subsidies for employer-provided health insurance disappear, presumably more people will sign up for Obamacare — especially if it's subsidized as it currently is for many people.

This new system will be difficult to change because it saves money.

One of the recurring themes in all of the videos of Gruber is that the cost-cutting aspects of Obamacare were an important part of getting it passed. In the latest video, he explicitly points out how they'll also make it difficult to get rid of: If someone wants to scrap the Cadillac tax in 2018, "they're going to have to fill a trillion dollar hole in the deficit."

Because of its deficit-reducing qualities, Gruber goes on to call the law "the opposite of a fiscal gimmick."

Critics of Gruber — and of Obamacare generally — want to paint him as a member of a deceptive group trying to pull one over on voters. However, in the video Gruber argues that Obamacare is actually doing something good.

How you respond to Gruber's arguments may depend on whether or not you share his underlying assumptions about health care in the U.S. He sees the pre-Obamacare landscape as inefficient and unfair, and in the videos is celebrating what he sees as a victory. (Though last week he did apologize for some of his remarks, saying he was speaking "off the cuff.")

That, however, is unlikely to satisfy critics and Gruber is now being assailed from both sides. Conservatives have argued that his comments prove Obama deceived the public, and Democrats are keeping their distance or in some cases outright criticizing him.

Watch the full video below. The clips above were taken at about 30 minutes in.

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