December 14, 2021
Many people may remember University of Chicago economist Casey Mulligan for his argument that unemployment in the Great Recession was caused largely by generous food stamp benefits. Well, he’s back, and telling us that the childcare provisions in President Biden’s Build Back Better (BBB) plan could raise the cost of childcare by $27,000 a year.
Mulligan’s basic story is that by raising pay for childcare workers, BBB will make childcare more expensive. While the plan includes generous subsidies for most families with children, Mulligan argues that families with incomes about the cutoff for subsidies will be paying much more for childcare. He predicts fewer parents will be working and that in some cases families will break up as a result of the bill.
Interestingly, Mulligan’s model is the Affordable Care Act (ACA). He tells us that the ACA hugely increased the cost of health care insurance.
What’s interesting about this example is that health care costs actually increased far less than was projected at the time the ACA was debated and passed. In 2009, the Centers for Medicare and Medicaid Services projected that in 2019 we would spend $4.5 trillion, or 19.3 percent of GDP, on health care. In fact, we spent $3.8 trillion, or 17.7 percent of GDP, on health care in 2019. The difference of 1.6 percent of GDP is almost half of the military budget.
The health care savings of $700 billion in 2019 are more than three times the size of the latest plans for President Biden’s Build Back Better proposal. The extent to which the ACA was responsible for the reduction in health care costs can be argued, but the fact that costs came in far lower than projected cannot be disputed. This means that if Mulligan wants to hold up the ACA as a horror story to be averted with an expansion of government support for childcare, he has a real uphill battle.
What Mulligan can say is that some people do pay more for health care insurance. Before the ACA, people in good health could sign up with insurers that excluded people with health issues, like heart conditions or cancer survivors.
Getting into a pool with only healthy people meant lower-cost insurance. However, it also meant that people with serious health conditions either paid huge premiums or were prevented from getting insurance altogether.
The ACA was about changing this situation. Some healthy people were certainly losers in this story, although the subsidies in the program, which were made more generous by Biden’s recovery package, ensured that low- and middle-income families were largely protected.
We’re looking at a similar story with the childcare provisions in the BBB. Mulligan is right, there could be some losers. But tens of millions of families with children will have better access to quality childcare. I suspect most parents will be fine with this situation.