Ezra Klein: The Insurance Industry's Deceptive Report

In the hallowed tradition of the tobacco and energy industries, the health insurance industry has commissioned a report (pdf) projecting doom and despair for those who seek to reform its business practices. The report was farmed out to the consultancy PricewaterhouseCoopers, which has something of a history with this sort of thing: In the early-'90s, the tobacco industry commissioned PWC to estimate the economic devastation that would result from a tax on tobacco. The report was later analyzed by the Arthur Andersen Economic Consulting group, which concluded that "the cumulative effect of PW’s methods … is to produce patently unreliable results." It's perhaps no surprise that the patently unreliable results were all in the tobacco industry's favor. He who pays the piper names the tune, and all that.

All that makes it a bit hard to respond to this analysis. Seriously engaging with its methodology probably gives it more credit than it deserves, making this seem like an argument between two opposing sides as opposed to a predictable industry hit job. But totally ignoring its claims means some of them might live unchallenged. So rather than a full tour through the "analysis," here are a couple of its more representative moments.

A footnote -- how come the good stuff is always in the footnotes? -- on page E-2 of the report sort of gives away the game. It reads: "Impact assumes payment of tax on high- value plans, full cost-shifting of cuts to public programs, and full passthrough of new industry taxes." That's written to obscure, but what it means is that the report assumes no behavioral changes in response to new policies.

To illustrate how this works, let's go back to another PWC favorite: tobacco taxes. Imagine Congress slaps a $10 tax on each cigarette purchased in the continental United States. The impact is obvious: People will virtually cease purchasing cigarettes, or the trade will move onto the black market. But a PWC report that "assumes payment of tax" would assume that cigarette purchasing remains unchanged, and smokers fork over $30 bazillion (approximately) in taxes. This would mark the beginning of a heretofore unknown phenomenon: nicotine bankruptcy.