Health Care: Jonathan Gruber

A key founding father of Obamacare on what comes next

No economist played as large a role in devising and pushing forward the Affordable Care Act as Jon Gruber, one of my former MIT colleagues. He gets a lot of the credit for the 10-year stretch when America, like every other advanced country, guaranteed adequate health care to the great majority of its citizens.

But MAGA is putting an end to all that. So I talked with Jon about how the ACA came to be, what happens now, cuts to medical research and more. It’s not as depressing a conversation as you might think!

Transcript follows

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TRANSCRIPT:
Paul Krugman in Conversation with Jonathan Gruber

(recorded 7/2/25)

Paul Krugman: So hi everyone. ⁓ Paul Krugman again. I'm talking with Jon Gruber, MIT professor, probably the economist most responsible for the Affordable Care Act, which gave us something almost like national health coverage for a while, but kind of a sad occasion because of the budget bill. We're going to talk about health care, the future, and probably some other things as well.

Jon Gruber: Sounds great, Paul. It's an honor to be here. I enjoyed being your colleague at MIT and, of course, I've been honored to follow along with all the great work you've done, helping people understand economics and why it matters in their lives. So I'm happy to be here with you.

Krugman: You're looking happier than I might have expected given the catastrophic legislation that just passed the Senate. How bad are you feeling about it?

Gruber: Quite badly in the sense that, look, as you know, Republicans tried to go after Medicaid in a fundamental way on a number of occasions. First, when they shut down the government in the mid-90s. And most recently, we all remember John McCain's famous thumbs up that saved the Affordable Care Act. What folks may not remember is it wasn't just the Affordable Care Act on the line, there was a massive cut to Medicaid on the line as well. Indeed, I conjecture if the Republicans hadn't overreached and had just tried to repeal the Affordable Care Act, they might have actually done it. The problem is they paired that repeal with a massive cut to Medicaid. So based on all those lessons, one would have thought that the political salience of Medicaid is something that would have protected it, and now we're seeing it's not. The Republicans have found a way to at last achieve their long-time goal of taking health insurance away from millions of poor Americans.

Krugman: The last time Trump had two bills, one which was tax cuts for the rich and one which was to take away health care from lots of people. And one passed and the other didn't. And so this time he smooshed them together, which is why it's “the one big beautiful bill.” The One Big Beautiful Bill Act is actually the official name of the legislation, which is incredible, based on a calculation that pairing things like this would get him across the line, which unfortunately appears to have happened.

But let's just go back a little bit to the Affordable Care Act, which you had such a large role in devising. You know, I still have friends who say, “It's terrible. We should have had single payer.” Why did we do it the way we did it?

Gruber: Yeah, well, why did we do this thing that you've referred to in your columns a number of times as “the Rube Goldberg healthcare reform?” Look, single payer has a lot of advantages economically, policy wise. It has three fundamental barriers politically, which no one has figured out how to get over. The first barrier is that healthcare in America is paid for by an implicit tax. And that implicit tax is when your employer gives you health insurance, they don't do it out of the goodness of their heart, they do it and they pay you lower wages. That's the deal, you accept lower wages for health insurance. Single payer would say, “look, let's get rid of those lower wages and replace it with an explicit tax. Let's replace this implicit tax with an explicit tax.” The problem is people don't believe that that trade is gonna work. They think, “oh no, the employer will just keep the money, they won't give me a raise and I'm just gonna pay more taxes.” So that's problem one.

Problem two is that despite all the complaining, most Americans would rather keep their insurance than give it up for some unknown thing called Berniecare. There's a huge status quo bias in American politics. And to see this, think about what the Affordable Care Act actually did. We ended up really only taking health insurance away from a couple million Americans who had really crappy insurance that we mandated to get more generous.

Well, Paul, every single one of those millions of Americans emailed me and complained about it. And that was actually taking away insurance that wasn't any good and replacing with legitimate insurance. So the second problem is how do you take away something people are basically happy with?

And the third problem is we have a $1.2 trillion private health insurance industry and they’re not going to say, “hey, it's been a good run. We're happy to fold up our tent.” They're going to fight. And these are fights the government loses.

So for those reasons, single-payer just isn't happening. And so I think it engaging in a debate about whether single-payer is a good idea or not is just fantasy land until someone can come up with a plan to overcome those three barriers, which no one has. So that's the challenge that we have to face.

Krugman: And so we created this very clever system that combines sort of regulation and subsidies to kind of nudge and cajole people into having health insurance that, you know, basically, it's a pain, but it works. One of the legs was supposed to be the mandate that you had to have health insurance. And people were very concerned, what would happen if you didn't have that? But that got kicked out pretty much and the system survived. Do you want to talk about what went right?

Gruber: So, basically, let's just do a little bit of history on the Three Legs. I wrote a comic book, it's a “graphic novel,” but a comic book to try to explain healthcare reform. The book is imaginatively entitled, Healthcare Reform. It used the three legged stool metaphor. There is vast support in America for not allowing insurers to discriminate against the sick. We were the only nation in the world where insurers could deny you insurance or charge you more coverage just because you were sick, which doesn't make sense. A number of states tried to outlaw that, setting up what's called community rating. But the problem is, insurers said, “fine, if you're not gonna let us do that, we're just gonna leave the market and the markets all collapsed.” So the idea was really Mitt Romney’s, who really came up with this. I worked with him on this. It was to say, “well, look, if we want to get rid of this discrimination, let's prop it up by mandating that everyone buy health insurance and then we'll have a deal. Everyone will buy health insurance, insurers will price it fairly, everybody wins.”

The problem is, you can't mandate something people can't afford. And thus the third leg of the stool, which was subsidies to make it affordable. Many people, including myself, thought all three legs of the stool were vital. It turns out they may have been vital to get health reform off the ground, but once it was in place, the subsidies were enough to keep it going. We found that if you pull the individual mandate leg out, the chair didn't topple, it stumbled.

Pulling the individual mandate probably cost several million people having their health insurance and raised premiums by double digits. But it didn't cause a death spiral. It didn't cause the whole system to collapse. So I ended up with a system that still basically worked. And I have a recent working paper with Ben Summers and Gabi Afandoulis, which sort of goes through the history of this.

But basically, you had a system which Trump weakened by pulling out the mandate and by making it harder to enroll. Biden strengthened it, not by adding the mandate back in, but by making these credits that people can use to buy health insurance more generous and by making it easier for people to sign up for insurance. So, right by the time Trump took office the ACA was covering about 20 million people. Trump probably cut that number to about 16 million people. Biden probably boosted it to about 24, 25 million people. And now if you believe the estimates from CBO, it's gonna fall by 16 million people, which is two-thirds of the whole gain of the law, which is just astonishingly awful.

Krugman: Yeah, you're subsidizing health insurance on sliding scales, so the lower your income, the more subsidy. And basically it was, “okay, below a certain point, let's just expand Medicaid.” And so we also got a big expansion in Medicaid. And that's all now at risk.

Gruber: Yeah, the third leg of the stool was a two-part leg. One leg was if you were to turn Medicaid into a truly universal entitlement, if you're below 133 % of the poverty line, so say like 30 grand for a family, you could now get Medicaid coverage for a family. Above that, we would give you subsidies to buy health insurance on these new exchanges we set up that would be, as you said, on a sliding scale with income.

The first problem that raised was in 2012. The Supreme Court ruled that states didn't have to expand Medicaid if they didn't want to. Now, at the time of that ruling, Paul, we were all like, “Whatever. The federal government is paying 90% of these costs. For every state, it's an incredible deal to do this. Of course they'll do it.” But this was sort of a sign of where politics were going. For example, Florida. Florida literally had 1 million people who would get free health insurance from this law, and the federal government would pay for it in a way which would have been, on net, economy expanding for Florida due to the multiplier effect of this spending, and Florida turned it down. Still to this day, it's been slowly expanding. Still to date, we have 10 to 12 states that have not expanded their Medicaid programs. But nonetheless, the majority did. That brought millions of people onto this program, which is really the safety and health insurance program for America.

And if you remember back to the beginning of this one big beautiful bill, the plan was to cut the match rate that the federal government gave to states for this expanded population, to basically get states to back off these expansions they'd done under Obamacare. That was quickly taken away. I was sort of surprised at how quickly that fell away. And instead they're replacing it with something which is, I think, much more politically clever, if no less devastating.

Which is to say, we're just gonna make sure that the people who get Medicaid deserve it by making them jump through a ton of hoops. So, to be on Medicaid, you have to have income below a certain level. People's income changes. So we have what we call redetermination. Redetermination is an annual process through which they send you a letter and you certify that your income remains below the level required, 133% of poverty, to qualify for Medicaid. The problem is, many people don't respond to those letters.

Maybe because people won’t read their mail, because they're not native English speakers, it's not in the proper language, because they just don't understand. So every year through redetermination, a number of people who should be on the program lose their coverage. What this bill does is turn that from an annual process to a six-month process and make it a harder process to complete, including adding a bunch of documentation you have to show. So essentially what they can claim is, “we're not kicking anyone off the program who deserves it.”

But effectively, millions of people are going to lose it just because they're not going to be able to go through these paperwork hurdles.

Krugman: When Supreme Court decided that states could opt out, it just happened that my wife and I were in a pub in Scotland and reading the news. And it was misreported at first. At first it looked as if they had actually killed the whole thing. I was not involved the way you were, but very emotionally committed to this whole thing. And then when it became clear that no, they actually hadn't killed it, there was only one thing to do, which was order a double scotch.

Gruber: Yes. Paul, I will say there's another long conversation to be had about the roles of academics in policy and the lack of rewards in our profession for being involved in policy. And you're one of the few people in our profession who you saw me—it was at Paul Samuelson's memorial event shortly after the law passed—and you gave me a big hug and said congratulations. And I still remember that as one of the few people in the profession who really recognized what a big deal this was.

Krugman: No, it's true. But eligibility determination. There are a bunch of other paperwork things as well, right? Proof of seeking work?

Gruber: Yeah. We're hearing 16 million or 17 million people will lose health insurance. Where's that coming from? That's coming from several pieces. The first piece is essentially a whole set of hassles they are going to set up to be on Medicaid. Every six months you have to re-determine, you're gonna have to verify citizenship. You're gonna have to verify that you're trying to find a job. In some sense, the details are almost unimportant. It's just like the old poll tax, you know, what they used to do to stop black people from voting back in the day, which is setting up a bunch of hurdles that are gonna be very hard for people to meet, especially the set of people who need Medicaid, many of whom need it because they have mental health challenges, which makes it particularly hard to jump through the set of hurdles. So this set of hurdles is going to be a major reduction in the Medicaid rolls.

Krugman: I knew that it was going to hit exactly the people who need it most. I hadn't thought about mental health as being one factor.

Gruber: Yeah, so the second piece, and this is the piece which is a little trickier. It's sort of how in economics we talk about the second best. So we have a deeply second best solution going on, which is: Medicaid does not pay states enough to maintain the program at any decent level of quality. So states have turned to a financial trick, which is called provider taxes. What are provider taxes? The following financial trick, which is the federal government matches state spending.

So let's take Massachusetts. For every dollar Massachusetts spends on Medicaid, they get 50 cents back from the federal government. So what Massachusetts does is it goes to its hospitals and it says, “hey, charge a dollar more to Medicaid and we are gonna tax you a dollar. You will be no worse off. You'll get a dollar, you'll pay a dollar. We'll be 50 cents better off because we only pay 50 cents of the dollar we spend on Medicaid, but we get the whole dollar of taxes.”

That's not proper public policy, let's be honest. In an ideal system, you would not do those shenanigans, but it's essentially a second best way states have dealt with the fact this program is under-financed. What the House version of this law does is cap the ability of states to continue to grow this option. The Senate version actually scales back this option, which will dramatically reduce the ability of states to pay for Medicaid. Here's the trick.

And this is where, you know, I think the world of CBO. Let's be very clear. You should do many shows on CBO. They're the last thing standing between us and the collapse of democracy.

Krugman: Viewers may not know CBO = Congressional Budget Office, which remains even now a neutral and well-informed arbiter of budget matters. So go ahead.

Gruber: They are absolutely critical. They have a hard job, which is to figure out what this end of provider tax is gonna do to a number of uninsured? Here's why it's hard, Paul. Something people don't understand about Medicaid. The majority, three quarters of people on Medicaid are young, poor people of the type that Republicans are focusing on. Three quarters of the spending is not on that group. It's on the elderly and disabled. Medicaid pays for nursing homes, they pay for home care.

Most of the dollars of Medicaid don't go to the folks that the conversation is focused on. They mostly go to our moms and grandmoms who are in these institutions that need long-term care. States are going to have to decide who's going to suffer. They're about to lose a huge revenue source. Are they going to kick people off the coverage? Are they going to pay nurse gums even less? We already pay nurse gums way too little. Are they going to kick people off home care?

Remember, in America, if you're sufficiently poor and disabled, you're entitled to nursing home stay, but you are not entitled under Medicaid to actually get care at home, which is what people prefer. In a number of states, there's waiting lists and other things. The second big hit is, these provider taxes are going to both lead them to kick people off the system and also lead to a reduction in the care for the elderly and disabled. That's the second piece. The third piece…

There's actually four pieces, I'm sorry. My wife says I should never give a numbered list... Okay, so the third piece is that they are making it much harder to get into the ACA exchanges. So ACA exchanges basically have to once again qualify based on your income. So same sort of argument. They’re saying, “we're just going to make sure people really have the right income,” but they're adding a huge amount of reporting and other burdensome requirements. And in particular, scaling back any effort to outreach to people to make sure they understand they're eligible for these Obamacare exchanges. That's going to cost coverage. And then the last piece is: Biden expanded the subsidies, as I said, to make more people eligible. They're going to end those expanded subsidies.

Adding those four things up gets to about a 16 or 17 million person coverage reduction.

Krugman: I know there are some estimates that say it might even be more than that.

Gruber: The one thing we know about CBO is they'll never be exactly right. But the other thing we know is they're unbiased. They have the best possible guess. So it could be more, could be less, but no one's got a better informed guess than they do. So I think that's a decent number to focus on.

Krugman: So let me ask, and this is a thing that I've been thinking about ever since, you know, the bad news came down. I'm not sure about the provider tax issue, but since a lot of this is all about just creating paperwork barriers, creating an obstacle course that the people who really need this are unable to navigate, and they're cutting back on federal outreach, is it possible for a few wealthy, decent people to fund a bunch of nonprofit private organizations that will basically do that, that will help people navigate through the system?

Gruber: I've been thinking a lot about this as well since the news came out. I think that there are certain elements that states can do. There are certain ways states can do this. You've written and know about the fact that we ought to be pre-populating tax returns for Americans. We can pre-populate Medicaid redetermination forms.

There are also efforts private individuals and organizations can do, and they do that some under the ACA, where they can set up clinics. They can reach out to people. And that's why this number's uncertain. It could be more, it could be less. If a number of blue states in particular get their act together and really make the re-determination process as easy as possible under the law, if individuals contribute in a way to set up clinics and other things, it could help. But it's never gonna fully reverse it.

Krugman: I'm just wondering, assuming that we're going to end up with Mayor Mamdani in New York, they could find a few tens of thousands of volunteers to knock on doors, people who can speak to people in their own their native languages and really help them through this. It could be very well-placed.

Gruber: I love that. First of all, that's an unbelievably cost effective intervention. Think of all the ways that Mayor Momdani can improve people's lives in New York. Many of them are very expensive, which he's gotten criticized for. Alternatively, it's incredibly cheap to get someone to help someone fill out paperwork that can save their lives by getting them health insurance. That's point one. But here's why I'm less sanguine about that than you. Are you going to be able do it every six months forever? People might be happy to volunteer and go out and help, but are they going to go out and do it every six months? Which is what this new law is going to require.

Krugman: Well that's a really good question. I guess I'll probably be doing some advocacy myself, that there will be a real effort to do this. But Republicans have tried to pretend that they're not cutting Medicaid because they're just enforcing some new rules and it would be a kind of a sweet irony if it turns out that actually they don't succeed in cutting Medicaid because people find a way to ⁓

Gruber: Look, it would be wonderful and I think once again, I can't emphasize enough. This is the non-sexy part of government that really matters. It's not as sexy as rent control or publicly-owned supermarkets, but it is so vital and so cost-effective in terms of improving people's lives that I hope that all the blue states and any red state with a conscience will

get out there and really do their best to minimize the damage being done by this law.

Krugman: Let me raise one more question which is sort of cutting the opposite way in terms of this possibly being even worse. They’re imposing a bunch of paperwork requirements, but paperwork mostly doesn't involve paper or in the end always goes digital, and we know that the actual machinery of government, particularly at the state and local level in the United States, has been underfunded for ages, that it's held together with paper clips and scotch tape. So what's the chance that the systems just collapse or are unable to deal with this?

Gruber: This is a great point. We have an underfunded system. I mean, this came to head most vividly during COVID when they wanted to make the user interface more generous and they couldn't make it sophisticated because some of the UI systems were still being programmed in COBOL, which is something which was out of date when I was a student. So, basically, you're right. This is part of the “starve the beast strategy.” There's been an underinvestment in the administrative state. Once again, it's not sexy.

Krugman: No, I get it.

Gruber: No one's getting elected by saying, you know, I put a new computer system in. But the truth is, it's also not expensive and not that hard to get right. And we need to really use pulpits like yours to bring attention to policymakers and say that this should be a focus of what they should be looking into.

Kruman: Yeah, I have to say, random anecdote. So I was in the US government a long time ago in the 80s. US government agencies in movies have all these glittery state-of-the-art computer screens. And I actually had a couple of meetings at the CIA, not planning assassinations or something, but actually worrying about the Latin American debt crisis.

It's a very impressive foyer, as you go in. And then they lead you down through increasingly dank corridors. And finally, they had a room with some bridge tables and some brownies, which the staffers said, “well, we baked these ourselves, because we couldn't get any more.” The reality even of the federal government, is so pokey and underfunded. And state and local, God help us.

Gruber: Well, you've written and spoken a lot about DOGE, but this ties to the fact that the U.S. federal government workforce has been shrinking over time. The administrative part of the U.S. government is much too small for the functions that people expect from the government. You know, people are not going to stop expecting things from the government, but there's this myth about waste and fraud that's allowed them to starve the beast and make government worse and then it becomes this vicious cycle where people say, “government doesn't work well, that's the government's fault,” rather than, “that's the fault of the fact it's been underfunded.” And of course, no better illustration of that than cutting back on enforcing against tax fraud, which pays for itself many times over.

Krugman: I'll say a word of praise, however. I still have a New Jersey driver's license and the New Jersey Department of Motor Vehicles, I have to say, is amazingly good. They're about 15 years past a fresh coat of paint, but the people are actually nice and helpful and it's actually amazing sometimes how well government does by us.

Gruber: Well, it's amazing if you compare with other countries. There's no bribes at the DMV. And of course, Acemoglu and others have written eloquently, that democracy is the best thing to fight against corruption and more corruption weakens democracy. Trump wants to lead us down this vicious cycle of more corruption, leading people to not care about democracy, which leads to more corruption. And we need to really stand up against that by supporting places like the DMV.

Paul Krugman: Okay, so two more Medicaid issues. First one is, as you say, one of the things about Medicaid is that most of the people are young. Medicaid is paying for a lot of children, a lot of births. Most of the money is going for the elderly and disabled. If you look at the whole U.S. healthcare system, on a dollar basis in terms of who's covered, we're a lot closer to single payer than people imagine, right?

Gruber: We are. Ironically, we are literally almost exactly 50% public, 50% private, in terms of dollars that are spent in the US on healthcare. In terms of people, were mostly private. But in terms of dollars, we're like almost literally 50-50.

Krugman: And even in places that have single payer healthcare, there's always a fair bit of just out of pocket stuff…

Gruber: Absolutely. We're not that different. Other places have a higher share public relative private. But any and every country you go to that has a single payer system has a shadow private sector that people use and people spend a lot of money in. It's quite interesting. It's in many ways quite progressive. If you take a country like Mexico, their main health insurance system pays all doctors of all specialties in all locations exactly the same amount. Now, you might think, why would anyone become a surgeon when they're making the same as a pediatrician? The answer is because the surgeons then work a bunch outside the public sector for richer people who pay them. So it's kind of like an interesting progressive system where the richer people are supporting this equal public system by sort of subsidizing people who want to be surgeons. Things like that operate outside the public system.

Krugman: Interesting. I didn't know that. That would be a whole other discussion I'd love to have, but not today. Last thing about Medicaid. The phenomenon where states refuse to expand Medicaid even though the feds were paying for it. Something like that happened when Medicaid was first created as well.

Gruber: Absolutely. Medicaid was introduced in ‘65. The last state, which was Arizona, added Medicaid in ‘82. I mean, the vast majority happened within a shorter time. If you compare the ACA Medicaid expansions to Medicaid introduction, I would say in some sense over five years, the parallels were pretty good. But within five years, basically almost every single state had adopted original Medicaid. There weren't as many holdouts as there still are. So it's a similar pattern. It's just that there's more holdouts now than held out for Medicaid originally.

Krugman: The place I was going with that, it that it gives us something of a natural experiment because we get to see the effects. So we actually know in some ways more about the returns to public investment in health than we do about almost anything else and as I understand it, Medicaid is a really, really positive program for long run economic growth and revenue.

Gruber: Well, it's a positive program in every way. Someone described the ACA as the Health Economist's Full Employment Act. And it's true that the ACA set up a number of amazing things we can study, One of which is really understanding in a truly convincing way, what is the impact of Medicaid? And what have we learned? And by the way, this falls on the earlier Medicaid expansions, actually under Reagan and Bush, where once again, different states adopted at different rates. So there’s a long history of what we call “natural experiments” to study.

Krugman: Side note: Economists don't generally get to do experimentation on people. So what you look for is something where, sort of by accident, some people get a program and others don't, at least not immediately. Then comparing the outcomes of those populations.

Gruber: Yeah, exactly. So, for example, with the most recent ACA, you could ask what happened to mortality in a state that expanded Medicaid versus one that didn't? And what happened to mortality among the poor people who are most eligible for Medicaid? And we now have several studies which have shown enormous health benefits to Medicaid.

The study I prefer the most, which is by Sarah Miller and others, shows that for about every 800 people you cover with insurance, one fewer person dies. So to put that in perspective, her estimates suggest that this bill would lead to about 25,000 more deaths per year. And that adds up every year. That's 250,000 over a decade. That's an enormous number. So it matters for health.

And it matters for economic opportunity. There are great studies by Amanda Kowalski and others that follow people decades after they got Medicaid. This is in these earlier natural experiments and shows that if you look at the tax revenues they then pay by the improvement in their income, the tax revenues they then pay pays back for the program costs. So basically it's a free lunch.

My colleague, Nathan Hendren has a wonderful organization called the Policy Impacts Lab. What the Policy Impacts Lab does is essentially take a whole range of public policy interventions and evaluate their cost-benefit ratio. And what it shows is basically these kinds of investments, especially in kids, are free. Medicaid was basically free. If you look at how much we got in terms of improved economic growth, in terms of people's income growth, people being able to earn more later in life, have more productive careers, it paid for itself. So it's just...

Now to be fair, let's be economists. We need to be clear with the evidence. That is absolutely true for children. The evidence is less clear about whether investments you make to adults leads to that return. That evidence is less clear. But certainly it's been true for children. And certainly, the health benefit and reducing mortality is true at all ages. That's true both for kids and for adults. And if you take a typical value of what economists think of a value of a life, it's a great deal.

Krugman: Something that I always thought was kind of funny was that when we talk about physical infrastructure versus increased spending on children, the physical infrastructure seems serious, that's steel and concrete. And yet we actually have a very vague idea of what such investments pay off to. Whereas, we have a very good idea of what spending on children does, and it's an incredibly good investment.

Gruber: It's amazing, across such a wide variety of interventions from Head Start to health insurance. These things are incredibly high return. And kids should inspire our sympathy, and yet we're gonna be cutting their healthcare.

Krugman: Yeah. One of the things I've been looking at is, we actually now have really big differences in mortality and life expectancy across states and across places. Do you have an idea of how much policies impact that? We do know that about the Medicaid expansion, but there are lots of other things. There are big differences between states and between cities. New York and Boston basically have, like, European life expectancy. And, obviously Alabama does not. How much of that do we think is policy?

Gruber: I don't think we have a good answer to that. My colleagues Amy Finkelstein and Heidi Williams and Matt Gentzkow have been doing interesting work looking at people who move across regions and asking how does their mortality change when they move? And they find that these place effects matter, that when a given person moves to a place that's at high mortality, they are more likely to die. So these place effects do matter. So we know it's not just a set of people living there. It's something about the place itself. And I think it's a range of factors.

I think one of the most astonishing facts I've ever come across is after the Freddie Gray riots, we found that two areas three miles apart in Baltimore have a 17-year difference in life expectancy. Three miles, 17 years. One is 84, one is 67. 67 is lower than North Korea. And a lot of the factors are economic opportunities, people are much poorer. A lot of it is access to healthcare. But I don't think we've done a good decomposition of how much is policy. We know policy matters, but I think we haven’t done a good decomposition.

Krugman: Yeah, and by the way, in terms of access, we haven’t even mentioned hospitals. A lot of hospitals are going to close.

Gruber: That's a great point. We didn't mention that. I was focused on coverage. But there's two reasons why this is bad for providers. First of all, when people lose health insurance coverage, they don't stop using healthcare. They just move from the public paying for it to it becoming uncompensated care. That uncompensated care is paid for partly by hospitals raising bills to the privately insured, but partly hospitals can't pay for it. So they just go out of business. And the ones that go out of business are the ones that serve the most needy populations. So we have that.

Then we have this provider tax piece, which is going to mean cuts in the ability of safety in hospitals and other institutions that serve needy populations to do what they need to do. People are going to suffer and die. There's just no question. I think in substance, the most interesting question is political, which is, will the party that's responsible for this pay the political price for doing it? There's no question it's going to happen.

Krugman: You know, there's no chance that there will not be a hospital within half an hour of where I live because it's in the middle of New York City. But if you're in the middle of Eastern Kentucky or Southern Alabama, it's got to be a real issue that there will simply be no place.

Gruber: One of most disgusting parts of this whole process was, a number of politicians, including Josh Hawley out of Missouri, were saying, “I'm not gonna support these Medicaid cuts.” And then the bill included a $25 billion fund for rural healthcare. $25 billion is nothing. Okay? We're talking about trillions of dollars of cuts to healthcare, and they put in a $25 billion fund, and all of sudden, that gave cover. Those guys say, “okay, we're supporting the bill.” It's just, clearly these politicians do not care about millions of people dying.

Krugman: Yeah. Moving on from that happy thought, we're having other big changes in health policy. I have to admit that I thought RFK Jr. was a crank, which I wasn't wrong about, but not to be taken seriously. But now it turns out that he's in charge of our national health system. Do you have any early reads? How bad is this going to get on the whole vaccination health policy front?

Gruber: There's two answers. One is we know it's going to be bad. We know the direction. We've already seen measles outbreaks in Texas. We know that vaccination is a public health miracle. We know it's an incredibly effective way to address communicable disease. And we know that anything which puts sand in the gears of people getting vaccinated will lead to illness and death.

I think what's hard to know, Paul, is: are we talking thousands of people or hundreds of thousands of people? And that will depend on the progress of the next pandemic. Essentially, we know that people will suffer and die because they won't get vaccinated. I think whether that's going to be a truly national catastrophe is going to depend on whether there's another giant wave of something awful that comes. And this time we will not have what we did for COVID both in terms of the public health response and in terms of the research responses. Both were miraculous. Both of those are at risk. I think we just have to hope nothing like that happens before we get RFK out of power. Because if it does, then we're talking hundreds of thousands, plus people that could really be in trouble.

Krugman: Wow, okay. It wasn't just that good advice was being given, but it was also that the vaccinations were free that we were paying for.

Gruber: Yeah, I mean, we have experience with this. We largely wiped out measles many decades ago. And then in the late 80s, early 1990s, there was a wave of measles cases and Bill Clinton made vaccination free and they stopped. So partly it's that, and partly we know that mandates matter. There's lots of evidence out of COVID and other things that schools mandating vaccinations and business mandating vaccinations made a difference, particularly healthcare institutions. So we know these things matter and that they're really important for public health.

And let's be clear, the public health infrastructure that RFK is gutting is not just vaccinations, those get the headlines. But if you think about it, we saw the public health system in action with COVID. It's information. He's gutting all the information we have about communicable disease and transmission. It's the kind of responses that make it possible to save people's lives. And we're losing all that infrastructure.

Krugman: I experienced the disappearance of information in a different area because I was looking at the Department of Energy’s page on electricity consumption by crypto mining. The page is still up, but has a note on it that says “this will not be updated.” So information is disappearing as we speak.

Let’s talk about Research. NIH is or was a monster of research funding. A huge thing. And how much is it being cut now?

Gruber: It's not clear because that's not in the one big beautiful bill. That's to separate the appropriations process, but it's imposed as much as 50%. DOE 50%, NIH 50%.

Krugman: And NIH is a really large part of the federal scientific research budget,

Gruber: Yeah, so a little self-promotion. I have a book with Simon Johnson, who won the Nobel Prize, not for this book, but for a different book. Our book is called Jumpstarting America. We highlight a fact that at least a lot of economists I talked to didn't really understand well enough, which was that in 1965, 2% of the entire US economy was public science. One in every $50 was public science. That's now about half a percent of GDP.

We've gone from by far the best in the world to 14th in the world. By some estimates, we're about half as big as China in terms of public R & D investments. Our total R & D spending is about ninth in the world, but it's been a shift from public to private R & D, which is not a fair substitution for many reasons we cover in the book. This gave us everything. We would not have this call. We would not have our GPS. We would not have airlines. We would not have the drugs we have.

That all came out of public scientific investment. There's a large literature which shows that the rate of return to public R&D is outsized. It's enormous. Some estimates suggest as much as 50% rate of return to public R&D investments. And really, that was what made America great. If you want to talk about what made America great, honestly, it was the government investment in science which really made America what it was in those boom decades that you've talked about in the decades after World War II. And I think it's associated with a lot of the fall off in productivity growth since. Biden was the first president to make a serious effort to sort of reverse that trend with the CHIPS and Science Act. And now Trump is going hard the other way. This is something which has both devastating short run effects and more devastating long run effects.

Krugman: Yeah.

Gruber: The devastating short-run effect is economic activity. There's a lot of jobs in the R&D enterprise. The devastating long-run effect is basically the foundational leadership of the U.S. economy. Here's one of my favorite examples from our book. In the early 1980s, there was a Nobel Prize-winning biologist who had an idea. Wouldn't it be good if we could map the human genetic structure? To do that, he needed $10 million. And he went to private sector investors and said, "Can I have $10 million to do this?” And they said, “no. Why should we do that? What's in it for us?” We’re going to make this map. It's going to be public. Fortunately, well-meaning policymakers invested $3 billion in the Human Genome Project. As of the time we wrote our book five years ago, the genomics industry in America was responsible for $6 billion per year in tax revenue alone.

These investments pay off and the Trump administration's attack on universities and attack on science is going to have massive negative long run implications for our economy's growth, for jobs and for just the future of our nation as a leading light in the world.

Krugman: Yeah, one of the ways I think we may have a bit of an issue, is that when you say technology, everybody thinks IT. And you say technology hubs, everybody thinks Silicon Valley, which itself is not going to do great on this. But biotechnology is a really big thing. I still do regional analyses, and if you look at how the Boston area really excels with biotech and all of these kinds of payoffs, I'm surprised that we aren't hearing more clamor from industry saying, “Leaving aside this whole saving-human-lives thing, you're really going to ruin the basis of our business.”

Gruber: There's a great piece of research by Pierre Azoulay and Daniel Lee here at MIT where they have shown the enormous benefits for private biotech of NIH investments. They estimate that for every $1 of NIH investments, it leads to $8 of private R&D investing because basically it becomes the basis for future drug development. They estimate that every $1 of NIH spending leads to $3 of stock market value in terms of the private pharmaceutical sector. So it's a fascinating question in general about why businesses are on the sidelines on this debate if not actively supporting this bill. Even if these CEOs and leaders have right leaning preferences, they should be serving the fiduciary responsibility of their stockholders. Fiduciary responsibility should lead these biotech companies to be going nuts about cuts to NIH funding. That's their lifeblood. And it's disappointing.

The geography element is a big element of our book, as well. My friend Simon Johnson has a great line about Kendall Square. He said, “it was such a dump that you used to have to leave and go to Central Square to get mugged.” Kendall Square was literally a dump. In the mid 1970s Boston used Kendall Square as a place to dump the excess snow that had built up in the city of Boston. It's now the most valuable real estate in America. And that's because of the NIH. That's because government investment in science, a lot of it at MIT, led to this biotech hub, which is now Kendall Square. And that's happened over and over again around the country. It can happen again if we put the federal resources into it.

Krugman: For listeners, Kendall Square is the piece of Cambridge, Massachusetts, right by the MIT economics department. I was a grad student there, and it really was bad. There was a bus terminal there, where if you wanted a really terrible cheap lunch, you went to the Terminal Sub Shop. Now it's all these gleaming, glistening buildings of biotech.

Gruber: It's amazing. And the key point that we make in our book is that this is not some natural, ordained-by-God thing. This can happen everywhere. Remember, where did Bill Gates start Microsoft? Albuquerque, New Mexico, not Seattle. Why Albuquerque, New Mexico? Because Seattle was a dump. It had twice the murder rate of Albuquerque. There was a sign at the Seattle airport which said, “Will the last one out, please turn off the lights.” It was a dump.

But Gates moved back to Seattle because he was born there and wanted to bring Microsoft there. Fast forward to 1994, when Jeff Bezos gets in his car in New York to drive west, start Amazon, he did not go to his hometown of Albuquerque, New Mexico, but he went to Seattle. I mean, Walter White could have been cooking meth in Seattle, and Albuquerque could be the great tech hub, except for these kinds of accidents of history. So these places are not ordained by God, they're made. And they're made a lot in part by government investment, and we need to continue that to do it.

Krugman: Yeah. Okay, so we're running as long as this should go. Any final thoughts?

Gruber: Look, Paul, you mentioned in the beginning, I seem like I'm not as down as I should be. I'm an optimistic guy. This is a terrible piece of legislation. I mean, it's hard to imagine that it’s not the worst piece of legislation of the last 30 years, if not of the post-war period. But I think that we need to fight the trend that I fear has been going on among many people, which is just getting depressed and dropping out. You made a great point. There are things we can all do as citizens to help fight back on this, to help people sign up for health insurance. More importantly, there's things we can do as voters and engage people in the political system to make people recognize the link between the damage that will happen and the people who are doing it.

And ever since the Tea Party in the summer of 2009, this nation's been heading in the wrong direction politically. And my somewhat optimistic take is maybe we will finally hit rock bottom and maybe this is the point which will really cause people to turn and recognize what's going wrong. Hopefully at this point we can bounce back and lead to a better country.

Krugman: I think that's a good closing note. Thank you so much.

Jon Gruber: You bet.