Dear colleagues:
Thanks, Uwe, this is very useful. As Shirley pointed out in an earlier
post, the problem in part is that, even if you agree with the overall goal
as articulated here, the particular "compromise" may be worse than the
status quo.
I've inserted a few points, on which we may or may not disagree. I hope
they're helpful for clarifying the issues.
Cheers,
Joe
-----Original Message-----
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of Uwe E. Reinhardt
Sent: Thursday, December 31, 2009 3:45 PM
To: [log in to unmask]
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear colleagues:
As I am one of the scrooge-economists who signed the notorious letter to the
President, let me explain what motivates me to go along with the
ugly-duckling tax on high-premium health insurance that emerged from the
sausage machine in the Senate.
1. As Joe White suggests in connection with Jonathan Gruber, I am one of
those economists who wish that employers had never entered the field of
health-insurance sponsorship and fervently wish that, one day, they get out
of it, so that America could then start to build a decent, reliable,
life-cycle health insurance system of which we would not have to be ashamed.
American employers have been THE spoilers in American health care. They have
been truly lousy purchasers of health care, they have always stood in the
way of a more rational health insurance system, and they have misled
millions of naïve American workers into believing that an American
corporation is a better, more reliable provider of social security than
government can ever be (see the attached). My thoughts on this topic have
been recorded in quite a few papers. So I am telling you nothing new here.
I could think of nothing better than getting rid of the employment based
system and replacing it with something along the Dutch, German or Swiss
systems or even a single payer system on the Canadian model -- anything but
this brittle, dishonest monstrosity of an employment-based "unsurance"
system!
***Here's a key analytical point. From some perspectives, the German system
is quite "employer-based." In fact, the proposed reform would create
something much like the German design: the exchange would be a version of
the regional funds, and the remaining employer-sponsored insurance would be
a version of the company funds.
***The difference between the reform design and Germany, then, is NOT that
employers are involved in the risk-pooling for health care; and not that
employers are at least nominally the purchasers of health care. A company
fund in Germany, after all, is self-insured just like most large employers
in the United States. The difference is that, in the U.S., employers are
left on their own to deal with the docs and hospitals and drug companies
individually. In Germany, employers are helped by the government and
various corporatist arrangements so that, in dealing with the providers, the
employers are in a much less disadvantageous position.
***This is why we both (if I read Uwe correctly) think that it would make a
lot of sense to have all-payer price regulation. If the U.S. had all-payer
price regulation, the "employment-based" insurance in the U.S. would operate
a lot more like company funds in Germany. There would still be some
inequities -- because it makes most sense to run a company fund if you get a
risk pooling advantage, even with the various German adjustments. But it
would be much less of a problem than the current U.S. system.
***So basing insurance on employment per se is not such a bad idea -- it
depends on how you do it.
2. Like Jonathan Gruber and many other economists, I have long opposed the
untoward, expensive and highly regressive tax preference accorded employment
based health insurance (but not other forms of health insurance). Harvesting
only half the tax revenue expended on it would have paid for 100% of health
reform.
****This doesn't seem quite right to me. There's three problems. First, as
Karen Davis et al pointed out in their paper, whether the preference is
regressive depends on how you look at it. The traditional view assumes the
health benefits are the last dollars; that they would otherwise be wages
taxed at the highest marginal rate for that wage-earner; and that therefore
they are a bigger benefit for higher earners. Karen points out that health
benefits are a much larger share of compensation for lower earners. Someone
who makes $45,000 with a $15,000 health benefit is getting a break on 25% of
income; someone who makes $90,000 with a $15,000 benefit is getting a break
on 14% of income. And the break, of course, applies to payroll taxes as
well as to income tax. Therefore, in practice, the tax break is more
significant -- a larger share of income -- for the lower earner! Which
means, by normal uses of the term, the tax break is progressive, not
regressive!
****Second, there is no particularly good reason to assume that the
compensation currently paid in health benefits would be replaced by the same
amount of wages for all workers -- in other words, that the $45,000 wage
employee would get a 33% raise, and the $90,000 employee would get only a
17% raise. The percentage raises seem likely to be more similar than that.
Nobody knows, of course, because the question isn't normally asked. But
sociological work on wage-bargaining years ago -- as well as observation of
professional athletes -- suggests that people carry around notions of
appropriate wage proportions, and I doubt the visible proportion would, in
fact, be changed as much as Gruber et al appear to assume. This criticism
does not even address the fact that, when employee benefits firms like
Mercer asked employers if they would raise wages as much as they cut
benefits if the excise tax were enacted, large majorities said "no."
****Third, it isn't helpful to say that "harvesting only half the tax
revenue expended on it would have paid for 100% of health reform," because
that assumes the tax break isn't one of the reasons people have insurance
now. If the tax break has some effect on the sponsorship of insurance by
employers, then this is not a harmless tradeoff.
My position is not based on the theory, much espoused by economists located
on the very right of the political spectrum, that this tax preference is the
major cost driver in American health care or wholly inefficient. I oppose it
mainly because it is so inequitable on its face and serves to cement in
place the very "unsurance" system I decry above (see item 1).
****But the preference is not as inequitable on its face as it is usually
described, for the reasons above.
Ideally, I would have liked to have seen the preference attacked openly in a
health reform bill, by taking it away bit by bit according to income level.
Thus, for employees with a family income below, say, $50,000 the tax
preference would remain in place. For employees with a family in excess of
$250,000, on the other hand, the average premium paid by employer per
employee (or family) would be added to the employee's taxable income. In
between, fractions of that amount would be added to taxable income, on a
sliding scale. The details could be worked out; but you get the idea.
3. Taxing health insurers on high-premium policies is the product of the
twisted American political system that seems to make it ok to go after
health insurers but not employers or employees. How the insurers will pass
on that tax remains everyone guess.
***Actually the proposal is explicitly NOT only a tax on insurers. The tax
applies to the employer if the employer self-insures. The proposal also is
NOT just meant to reduce standard health insurance benefits. It applies to
the full amount of compensation that a worker receives without tax because
it is in the form of some medical-related benefits. In my case, for example,
it would include my Anthem health insurance coverage, but also my Caremark
prescription coverage, my Dentemax dental benefits, and my Flexible Spending
Account. At any rate, the proposal goes directly after employers and
employees.
But it may not be progressive at all. The only reason to accept the tax at
all is that it breaks a taboo - that it may act as the camel's nose under
the tent, so to speak. Furthermore, it brings in at least some taxes to
finance health care for people totally without health insurance.
***True. But at what cost? Most of the pain will be felt by people in
sicker groups in more expensive areas. There has to be a better way.
That's why Tim and I have argued for defining a set of covered benefits and
saying anything up to that is eligible for the tax preference and anything
above that must be purchased with post-tax dollars. Doing that is not
simple, but it is essentially how insurance works in other countries, as far
as we can tell: the government subsidizes a (fuzzy) standard benefit
package.
4. I would have favored a small earmarked "health care sales tax" of, say,
50 basis points on all retail sales (with a few exemptions), and
specifically identified so on every merchant's invoice. It might bring in
some $500 billion over a decade in tax revenue. It would have avoided all
these nickel and dime taxes - e.g., the tax on medical device companies (too
small to amount to much, too large not to be a political irritant).
****A fine idea, and maybe something that should be thrown in during
conference, in part as a way to get rid of the excise tax! It would be
great if Uwe would write an op-ed to that effect!
5. Bob Herbert is right to question how much money the tax on high cost
health insurance actually will yield. The entire CBO scoring is a truly
amusing game, but that game must be played with a straight face.
6. Overall, though, I have to choose over whom to shed tears - the folks
whose high-cost insurance might take a little tax hit or the uninsured
waitress, I'd reserve my tears for the latter.
****Me too, if the folks with the high-cost insurance were not especially
likely to need care. Unfortunately, given what we seem to know about why
high-cost plans are high-cost, most of the people in the high-cost plans
seem unlikely to be the people from whom you'd want to take coverage in
order to cover the waitress.
***** And, in the meantime, what Herbert's saying about how the excise tax
is designed to impact middle-class employees' health insurance over time is
simply true. So it looks like political dynamite also.
Have a Happy New Year to you all. White House economists tell us that it
will be glorious.
***Well, then it must be true! Everybody should enjoy tonight's champagne--
***Next year....
Joe
Uwe Reinhardt
-----Original Message-----
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of Adam Oliver
Sent: Thursday, December 31, 2009 1:35 PM
To: [log in to unmask]
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Might there be some implications in terms of shifting the burden of health
care costs away from employers, in the hope of trying to improve the
competitiveness of American manufacturing? I'm not saying that this 'trumps'
all other considerations, but it seems to be a consideration that is not
being, well, considered much in this discussion (although I admit to not
having read everything carefully, and I guess most of Tom's suggestions may
also address this problem - whether those suggestions are politically
feasible is not so obvious, otherwise I would have thought that the new US
Govt would have implemented them).
-----Original Message-----
From: Rice, Thomas [mailto:[log in to unmask]]
Sent: 31 December 2009 17:49
To: Oliver,AJ; [log in to unmask]
Subject: RE: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Hi everyone,
I have just joined this list-serve and was pleased to see the topic being
discussed. Although I am not dead-set against a Cadillac tax, I do not
subscribe to this policy solution because it perpetuates a belief, way too
common among U.S. health economists, that demand-side policies are the main
reason that health care costs are high. It was very disappointing to read
in the health economists' letter their belief that, "This provision offers
the most promising approach to reducing private-sector health care costs
while also giving a much needed raise to the tens of millions of Americans
who receive insurance through their employers."
Much more promising approaches exist, both on the quantity side and price
side. Regarding quantity, incentives to reduce geographic variation, reward
provision of useful services, move away from fee-for-service limit the
overuse of certain technologies, limit advertising of prescription drugs ...
the list goes on. On the price side, consolidating purchasing power (e.g.,
through a public option that is not saddled with so many restrictions, so it
can use its clout to lower prices and therefore garner more enrollment,
giving it more power to negotiate) would be far more effective. (Moreover,
as Jon Gabel's Health Affairs article demonstrated, the main reason plans
have Cadillac premiums are related to the firm/employee characteristics and
geographic costs, not the benefit structure.)
Tom
Thomas Rice
UCLA
-----Original Message-----
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of Adam Oliver
Sent: Thursday, December 31, 2009 8:34 AM
To: [log in to unmask]
Subject: FW: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Not sure if you saw this from Uwe...
-----Original Message-----
From: Uwe E. Reinhardt [mailto:[log in to unmask]]
Sent: 31 December 2009 16:30
To: Oliver,AJ; [log in to unmask]
Subject: RE: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Adam:
I believe only May could run England properly. (a) she loves British royalty
and all that goes with it, (b) she is a total dictator under whom
"democracy" works (as long as I don't vote), but (b) she is benevolent (or
I'd weigh 40 lbs more).
For smokimg, though, you'd have tp go the island of Jersey.
So if you need a leader for your new party, may I suggest her.
Happy New Year!
Uwe
-----Original Message-----
From: [log in to unmask] [mailto:[log in to unmask]]
Sent: Thursday, December 31, 2009 9:52 AM
To: [log in to unmask]
Cc: [log in to unmask]; [log in to unmask]; [log in to unmask];
[log in to unmask]
Subject: RE: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear Joe,
Ok, fair enough. Actually, the only thing I'm certain about is that I don't
really know much at all.
The tax-related issues are not really something that UK health economists
have to think about that much - many of them focus upon QALYs, which,
admittedly, has become a dominant school of thought in that particular
discipline, something that I have been moaning about for years, due to
methodological weaknesses. But then, I moan a lot (incidentally, the Chief
Exec of NICE, Andrew Dillon, was knighted today
- he probably deserves it though, if knighthoods mean anything).
I'll copy in some of the US-based health economists you mention, to see if
they can come back on your points. I'm always amazed that the RAND
experiments are still taught at the LSE - they were great work, but seem to
me to be 30 years out of date, and were, as you know, not even conducted in
England.
Incidentally, since we're talking about challenges to dominant views, David
Hockney said the following, reported in the Sunday Times, on the smoking ban
in pubs in England (I agree with him more or less, and I hate smoking):
"First of all, the smoking ban was never mentioned during the general
election. Second, in Germany they rescinded the ban on smoking in bars when
people complained, because Germany is an adult democracy (Note from
AO: not sure about this!). Not here. We're treated like children. I am fed
up with it. One might go along with the ban in a restaurant, but not in a
pub. I don't know what they think pubs are for. They're making a very dull
and dreary country, and it all came from the Labour party.
Tobacco used to be a huge added tax earner. But they're turning a legal
industry into an illegal one, and everybody will have to pay more taxes.
They just assume everyone wants to be healthier. It's not true (Note from
AO: QALY maximisers, take note). It's absolutely a feature of the Noughties
that we've lost sight of the bigger picture."
The bizarre thing to me is that I'll probably still end up voting for Gordon
Brown in 2010. The Blair/Brown governments have been an almost total
disaster, particularly, I think, under Blair, and particularly given the
economic circumstances and huge parliamentary majorities they enjoyed up
until 2005. But the Conservatives would have made the same terrible
decisions, and more besides. We really need a new political party, and a new
more mature form of parliamentary debate, rather than heckling each other
across a chamber. How about it Joe? I think we allow our leaders to be
foreign born...
Best,
Adam
-----Original Message-----
From: Joe White [mailto:[log in to unmask]]
Sent: 31 December 2009 14:15
To: Oliver,AJ; [log in to unmask]
Subject: RE: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear all,
It is surely true that not all economists have a common view. One of the
nice things about Adam is, he's an uncommon economist! I apologize to
anyone who feels unfairly labeled.
In the case of this particular issue, however, the vast majority of at least
well-known U.S. economists appear to be on one side. And this is a very
important political fact, which shapes policy-making. It shapes Jon
Gruber's view of himself and the proposal; it shapes the various editorial
boards' positions, and I suspect it even shapes what younger U.S.
economists
feel they must believe if they are to seek tenure and advancement.
This is something that the occasional political scientists who are invited
to some gathering full of economists have been remarking on for years.
There are really two beliefs, and they're linked: the distaste for the tax
preference, and the belief that the RAND experiment showed that cost-sharing
is a good idea.
I'm not sure which U.S. economists actually understand that the tax
preference is not so bad. Surely Karen Davis does, because she and her crew
did a very nice report, this year, explaining that the usual conclusions
about its distributional impact are backward. (Cathy Schoen, Kristof
Stremikis, Sara Collins and Karen Davis. "Progressive or Regressive? A
Second Look at the Tax Exemption for Employer-Sponsored Health Insurance
Premiums." Commonwealth Fund Issue Brief (May 2009).) But, as Shirley
noted in her e-mail, the distaste for the tax preference is extremely broad.
Given that the main effect of the Senate provision would be to increase
cost-sharing, a logical person would have to like more cost-sharing to like
the provision. It appears that most American economists are perfectly happy
with that, based on beliefs about what the RAND experiment showed.
There
are American economists who are not convinced by that argument (Davis and
Tom Rice leap to mind), and a good review of the evidence is Dahlia K.
Remler and Jessica Greene, "Cost-Sharing: A Blunt Instrument." Annual Review
of Public Health 2009. 30: 293-311. And, of course, skepticism about
cost-sharing is more common internationally (e.g. Bob Evans).
I think it's fair to say that, outside of the U.S. economics fraternity,
economists may be more likely to see cost-sharing as an empirical question
that must be answered case by case; and not to start with the presupposition
that it is a good idea. But, INSIDE the U.S., the default is that
cost-sharing is a good idea, because in general people are over-insured.
I
had a nice talk with one of my Case Western colleagues about this recently,
and he started from the principle that a lot of health coverage isn't really
"insurance" anyway, because it involves not-so-rare events (as for chronic
illness). He's right, compared to normal insurance for, say, auto
accidents. But that doesn't mean
broad-healthcare-something-that-isn't-really-insurance is a bad idea!
If you look at who signed the original "economists' letter" which explicitly
praised the Senate's "Excise tax on high-cost insurance plans," they
are:
Henry Aaron Kenneth Arrow Alan Auerbach
Katherine Baicker Alan Blinder David
Cutler
Angus Deaton J. Bradford DeLong Peter
Diamond
Victor Fuchs Alan Garber Jonathan
Gruber
Mark McClellan Daniel McFadden David Meltzer
Joseph Newhouse Uwe Reinhardt Robert Reischauer
Alice Rivlin Meredith Rosenthal John
Shoven
Jonathan Skinner Laura D'Andrea Tyson
Conspicuously missing -- I don't know if they were asked or not -- are Karen
Davis, Tom Rice, and Ken Thorpe, whom I would surely rank as significant
U.S. health economists (sorry to any whom I'm not mentioning). But that is
one heck of a list of notables. It's striking that some of them are really
policy economists who talk about the deficit (e.g. Rivlin and Sawhill), and
don't actually work on or, to my mind, know anything other than what
Brookings colleagues tell them about health policy. And that speaks to what
I said in my e-mail -- that the attitude towards the healthcare tax
preference is grounded in a broader distaste for tax preferences in general.
But the list explains why Jon Gruber feels the excise tax "is almost
universally favored by health policy experts." Shirley may well be right
that the problem is they haven't thought through the "compromise" of taxing
only "high cost" plans. But by now, after the various criticisms especially
by Jon Gabel and a bunch of other experts on insurance, people like Gruber
should be paying attention to the data, rather than just following their
presuppositions. That's what makes the Gruber article particularly
bothersome.
The right answer, in principle, is obvious -- as Tim and I and others have
wrote, and Adam also mentions. Define the benefits and make only the
benefits up to that coverage level eligible for the tax break. But any
politically plausible version of that would not raise as much money,
precisely because it would apply to fewer people. Therefore it would do
less to pay for reform. What Adam calls a "more nuanced" approach might not
work politically because of Senate coalitions. Just guessing, but Gruber
surely has spent enough time talking with policy-makers to draw the
conclusion that the Senators won't go for any more reasonable way to pay for
reform. Therefore he is making the case for something that CBO will say
saves money and that Senators from low-cost rural states who don't like
reform all that much anyway will endorse because it will not have much
effect on their states. I see the political logic. But that's why David
has a point -- if the only way to pass reform is with this horrible
provision, we shouldn't be sure the conference is going to come out alright.
Sigh. Happy New Year!
Joe
-----Original Message-----
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of Adam Oliver
Sent: Thursday, December 31, 2009 8:11 AM
To: [log in to unmask]
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear all,
One of the things that I think ought to be guarded against is the
implication that economists share a 'common view' (on this or on anything
else). I have read as such time and time again throughout my own career in
articles and books by non-economists (and also by some economists), and I
think it is damaging to interdisciplinary understanding (in fact, it can be
pretty infuriating). There are almost as many views within economics as
there are across disciplines, and I myself am as likely to be in
agreement/disagreement with an economist as I am with a non-economist.
Wasn't it Keynes who said that if you put 10 economists in a room, you will
end up with 11 different opinions (it was someone anyway)? What would you
think if I said all political scientists are new institutionalists?
Rant aside, and although I am a novice of US health policy, shouldn't there
be a somewhat more nuanced debate of the Cadillac plans? I suspect that the
target for the Democrats are the plans that offer a wide range of benefits,
some of them perhaps not even directly relevant for health per se, for
wealthy people. And these perhaps do not warrant tax breaks.
And then there are the plans that offer lots of benefits that sick people,
and not necessarily wealthy people, really need, which might warrant tax
breaks. How to separate the two?
Anyway, I wish you all an economically viable New Year.
All best wishes,
Adam
-----Original Message-----
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of Shirley Johnson-lans
Sent: 31 December 2009 12:50
To: [log in to unmask]
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear Joe and David,
I agree with both of you. Another unforseen or unintended negative
consequence of taxing the "Cadillac plans" is to provide an incentive for
employers of fairly small groups of employees to try to avoid hiring or not
retain employees who are known to be (or have family members who
are) high risk.
In an attempt at a defense of my colleagues in my discipline, I think one of
the problems that the economics profession is tending to ignore is that even
if one espouses the position that all employment-based health insurance
premiums should be taxable income, this does not have the same consequences
as choosing to tax only more expensive plans, which was a scheme hatched as
a "compromise" between not taxing and taxing all such benefits.
Happy New Year to All,
Shirley
----- Original Message -----
From: Joe White <[log in to unmask]>
To: [log in to unmask]
Sent: Wed, 30 Dec 2009 16:30:26 -0500 (EST)
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear Colleagues:
The following two links show what Tim Jost and I think of the "cadillac tax"
as well:
http://healthaffairs.org/blog/2009/12/03/cadillacs-or-ambulances-the-sen
ate-
tax-on-excessive-benefits/
http://www.rollcall.com/news/41838-1.html
Jon Gruber had a piece in the Post endorsing it on the 28th.
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/27/AR200912
2701
714.html
It is quite revealing - he thinks the health policy community strongly
supports it, because the part of the community he recognizes as legitimate -
American economists - strongly supports it. Political scientists, actual
insurance experts, etc. don't count. I drafted the following - not sure
what I'll do with it - that expresses the truly remarkable aspects of Jon's
argument.
The Real Case for the "Cadillac" Tax:
Employers Should Not Sponsor Health Insurance
Joe White
<mailto:[log in to unmask]> [log in to unmask]
December 29, 2009
Jonathan Gruber has done the public a favor in his December 27 Washington
Post article that endorses a special tax on high-cost, "Cadillac" health
plans.
He makes clear that he and other health economists simply dislike the tax
exclusion for employer-sponsored insurance benefits, regardless of the
effects of any policy to alter it. The logical implication of his argument
is that employers should not sponsor insurance at all.
He begins by saying that reducing a tax expenditure does not constitute a
tax increase. Now, whenever Congress reduces a tax expenditure, that raises
tax revenues. That has the economic effect of a tax increase and has always
counted as a tax increase under budget rules. Although he endorses the
provision because it would raise government revenues, he argues that it
isn't really a tax because it simply changes some peoples' taxes from being
too low to being the right level. Apparently he has invented a new budget
accounting category: tax revenue increases that aren't tax increases.
I'd
call it, "tax increases that some economists like, so they think should be
viewed differently than increases they dislike."
This could be viewed as remarkably self-regarding, except that Gruber
apparently only thinks health economists' opinions should count anyway.
Thus early in his article he describes the excise tax as "almost universally
recommended by health policy experts." It would be more accurate to say
that the tax is broadly praised by health economists, but experts with other
backgrounds disagree. For example, many insurance experts, such as those
quoted by Allen Sloan in his December 18th article in the Post, think the
economists' enthusiasm ignores evident facts about how the tax would work.
Gruber bows to this evidence a bit when he admits that, "many claim that
this is a tax not on excessively generous insurance plans but on those who
happen to have high insurance costs." But he then ignores the evidence when
he argues that it is unfair for taxpayers to provide twice as large a tax
benefit to a family whose insurance costs $13,000 than to a family whose
insurance costs $26,000.
This is a remarkable position for a person who has advocated consistently
that (a) all Americans should have insurance; (b) coverage should be
subsidized according to ability to pay; and (c) coverage should be
sufficient to cover need.
If insurance costs more for one family than for another family with the same
income, and that is because the first family has greater need, Professor
Gruber is quite willing to say the two families should pay the same price.
That's called community rating, and he endorses it strongly. If community
rated insurance has an income-related subsidy, then the net subsidy for
health care costs is much greater for the family with higher costs.
That is
what Gruber has fought for in Massachusetts and in the current health care
reform effort.
So Professor Gruber strongly endorses a system in which one family with
costs of $26,000 receives a much greater subsidy, in practice, than the
subsidy received by another family, with the same income, but costs of only
$13,000 - so long as both families get their insurance through the
"exchange." This difference in subsidies is the whole point of reform:
to
make health care affordable regardless of income or illness.
But, as soon as insurance is provided through employers' books, and the
subsidy therefore takes the form of the tax deductibility of premiums --
poof! Suddenly it is unfair. "Taxpayers are literally sending twice as
much money to the second firm," which has the employees with higher costs,
and Gruber thinks this is such a bad tax policy that changing it shouldn't
even count as a tax increase!
How can anyone take such an inconsistent position, in policy terms?
There
are three possibilities.
First, Professor Gruber simply has not accepted the mounting evidence about
why costs of employer-based plans differ, so can rationalize ignoring it.
Second, he objects to the tax preference so much that he can't see that it
is just the way insurance is subsidized when it is provided through
employers, rather than through the exchange. More expensive groups of
employees get a bigger subsidy than less expensive groups, just as, in the
exchanges, more expensive families would get bigger subsidies than less
expensive families.
Third, he appears to believe that workers will just get the money as wages
anyway. Even if that were true, they would still lose the government
subsidy through the tax code. So workers in a less fortunate group would be
worse off than workers in healthier groups - which is precisely what health
care reform should be designed to avoid.
The effect of the "Cadillac tax" will be to punish employers for having less
healthy workers, or workers for joining companies with less healthy
employees. It only makes sense if your long-range goal is to get employers
to stop providing insurance - or, to ensure that only employers with
particularly healthy employees provide insurance directly.
This is a situation where a comparative perspective is relevant. In the
draft, I compare two of Gruber's own views. But lets do this
cross-nationally.
If you have a country with various sickness funds - like Germany - and some
companies have healthier pools than others, then the sickness funds with
healthier pools have to make transfers to the funds with sicker pools.
The
transfers don't eliminate all differences, but ameliorate them. If you have
a country with alternative kinds of pools like Japan, so healthier and
wealthier people are in one type of insurance (big companies) and, on
average, less healthy or poorer people in others (the national fund for
workers, or community funds), there are some transfers among funds too, but
the government also provides differential subsidies to the funds.
In the U.S., we have companies that buy insurance or self-insure. They
and/or their employees (take your pick how you divide it up) basically spend
their own money but, to encourage the pooling advantages of grouping by
employer, the government subsidizes the insurance somewhat with a tax break.
Some pools have greater medical expense risks than other pools, so either
their premiums (if they buy insurance) or their incurred costs (if they self
insure) are higher. According to the available data, the variations in
costs across employers depend far more on the pools than on the benefits.
The U.S. does not have the risk-experience transfers that some countries
have. But it DOES have a modest functional equivalent, in that the tax code
gives a larger subsidy to less healthy (so more expensive) groups, and a
smaller subsidy to more healthy (so less expensive) groups. The tax subsidy
does not come close to eliminating differences, but ameliorates them.
That's what Gruber is criticizing. The inequities due to unequal risks are
what the excise tax would purposefully worsen. This is entirely contrary to
the goals of reform. But American economists don't like the tax subsidy in
principle, and that is part of a more general distaste among our economists
for tax preferences of any sort - which are viewed as a "distortion" in
principle. So Gruber's view is deeply entrenched in the theology of
American health economics. Apparently, contrary facts just lead him to make
bizarre excuses for the policy - to the point of saying a change in tax law
that increases revenue by taking more from some people isn't a tax increase!
Cheers,
Joe
From: Anglo-American Health Policy Network [mailto:[log in to unmask]] On
Behalf Of David Wilsford
Sent: Wednesday, December 30, 2009 1:38 PM
To: [log in to unmask]
Subject: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
Dear AAHPN colleagues
Well, now that the Christian Christmas is over, time for Scrooge to be
back - and in the nick of time to spoil New Years too, if you are
passionately interested in American health care reform efforts.
Much brouhaha accompanied the Senate's passing of Harry Reid's "ugly"
bill on the Christmas Eve. (The adjective "ugly" comes from all sorts of
commentators.)
Little noticed - until perhaps this morning - is the middle class gouge
that is in the making, if the bill passes with the so-called Cadillac tax on
generous plans. It is little wonder that labor unions are against it.
Why is this important? Rather than for me to summarize it, better
to
read the scathing review of it in this morning's NYT by columnist Bob
Herbert, longtime center-left mainstay of that paper's op-ed page. (See
link below.)
For such a scathing critique to come from him, well, trouble is clearly
brewing in Oz.
He closes it with this passage:
"The tax on health benefits is being sold to the public dishonestly as
something that will affect only the rich, and it makes a mockery of
President Obama's repeated pledge that if you like the health coverage you
have now, you can keep it.
"Those who believe this is a good idea should at least have the courage
to be straight about it with the American people."
It also catches my attention that more than a few Obama partisans that
are friends of mine (yep, they hold their noses when associating with
me)
and have administraion posts are near-to-alarm at the electoral results that
stand to come when a so-called Cadillac tax kicks in. Moreover, more
than
one have pointed out to me, when subsidies to buy insurance end up not
covering the premiums required to abide by the mandate, all hell will be to
pay by these voters, as well.
The corridors of power in the nether regions of this administration are
not as jubilant as Harry Reid, the Senate Democratic caucus and the White
House are.
Yours for a good New Year, in spite of my curmudgeonly views,
David
http://www.nytimes.com/2009/12/29/opinion/29herbert.html?hp
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