I would guess that the issue on which the beliefs of economists are most at variance with the beliefs of most Americans is that of who pays for employee health insurance. I am at least partially on the side of the ignorant populace on this one. Although I understand the economic argument, and although I even understand that there is empirical evidence for it, I simply cannot believe that if tomorrow the government took over providing health insurance to all Americans, every insured employee in the country would get a raise at anything approximating what employers are now spending on health insurance. I just think the world is more complicated than that, and that it is much more likely, with 10% unemployment, that prices of some products would go down, profits would go up in some sectors, and the income of some employees would rise, and, perhaps, eventually, the income of more employees would go up.
What I have the hardest time believing, however, is that the income of the lowest wage workers would go up. If someone is now earning $10 an hour right now to, say, sweep the floor in a major corporation, and the corporation is providing the employee family coverage that costs, say $6.00 an hour, is it possible the company would raise the employee's wages by $6.00 an hour to compensate for the loss of health insurance? Why would it do this when there are probably a hundred people who would take the sweeping job tomorrow at $10.50 an hour? My guess as a non-economist is that employers provide health insurance to high income workers because the labor market demands it, and that they provide health insurance to low wage workers because the law does not permit self-insured employers or employers with cafeterira plans to discriminate in favor of high-income workers in providing health insurance (and will soon prohibit insured employers from doing so as well) and because they don't want to look bad. Alternatively, they contract out low wage work to companies that do not provide health benefits.
In any event, it seems to me that employment-related health insurance has allowed a form of cross-subsidization, where employers have been willing to insure lower-wage employees who could never have afforded health insurance to retain higher-wage employees. The alternative was never Canada, or even Germany, it was everyone for him or herself in the nongroup market, where the poor would have been universally uninsured (or paid high prices for lousy policies with very low MLRs). I am ready to move on from employment-based insurance, but I think it has not been the disaster that some think it has been for the poor. (Also, it was not the result of wage controls during WWII, a popular myth with no basis in fact, but that is another story).
Tim
Timothy Stoltzfus Jost
Robert L. Willett Professor
Washington and Lee University School of Law
(540) 564 2524
(540) 458 8510
(540) 421 1529
fax (540) 458 8488
[log in to unmask]
________________________________________
From: Anglo-American Health Policy Network [[log in to unmask]] On Behalf Of Uwe E. Reinhardt [[log in to unmask]]
Sent: Thursday, December 31, 2009 6:55 PM
To: [log in to unmask]
Subject: Re: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
-----Original Message-----
From: Joe White [mailto:[log in to unmask]]
Sent: Thursday, December 31, 2009 4:44 PM
To: 'Uwe E. Reinhardt'; [log in to unmask]
Subject: RE: Op-Ed Columnist - A Less Than Honest Policy - NYTimes.com
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.
UER's RESPONSE: Actually, Joe, I would view the German system as one with an individual mandate to be insured (there is such a mandate), but a system that uses the nexus of the payroll to collect premiums. The role of employers is totally passive. Other than writing some code lines in some computer program to siphon off the funds to be sent to Berlin, to the federal risk equalization fund, German employers are completely passive in health care. They do not provide menues of sickness funds from which their employees can choose (Germans love their freedom now to choose their own sickness fund and don't need some company's employment benefits nurse to provide a limited menu of funds from which an employee can choose). When a German chooses a sickness fund, they can stay with it for live. That choice is not tied to a particular employer. If German in Fund A takes a new job in another company, he or she merely needs to tell the new company that he or she is in Fund A, and the new
employer will send the payroll controbution to Fund A. Thus, we have pure portability in Germany. German employers do not have Nurse-Ratchet-like welln ess programs, nor do they know anything about the utilization of health care by their employees. In fact, one can fairly say that german distinguish themselves from Americans in health care in that Germans (1) like freedom of choice among insurers, (2) like freedom of choice among doctors, hospitals and pharamaceutical therapies, and (c) insist on privacy. Americans, though ostensibly freedom-loving, were made to give up all of these freedoms for their sacred employment-based "unsurance" system. In short, the German "employment-based" system is not even vaguely like the American system which takjes away so many freedoms from employees.
***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.
UER'S RESPONSE: Again, Joe: A company fund in Germany is not even vagiely involved in purchasing health care. The company fund collects a set % of gross wages as the employee's premium (ostensibly shared roughly 40% emploer and 60% employee, but we economists believe it really all comes from the employee) and sends that to the risk-equalization fund in Berlin. At that point the employer's role stops. The employee selects a preferred fund from a lrge menue of funds, notifieds the risk equalization fund of that choice (perhaps through the employer), and the risk equalization fund then sends a riask-adjusted capitation payment to the chosen sickness fund (here the company fund). The latter sends the money on to the state's (regional) sickness-fund-physician association (Kassenaerztliche Vereinigung), and the latter distributes the money to physicians on a fee-for-service basis. Fees are negotiated at the regional (state) level between associations of sickness funds and the sickn
ess-fund physician association and hopsital associations (using DRGs for the latter).
So what active role do employers actually pay in Germany? They are merely convenient and law-abiding premium collectors. They don't need the armies of employee benefit consultants our employers need to get that job done.
***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.
UER RESPONSE: Having employers do anything more than collection premiums is not a good idea. They should make widgets and compete selling them and leave the social security of families to the families and the government. Employers just are not fit to do such a job reliably. Many American workers -- especially those in retirement -- are now learning that the hard way. I have little sympathy for them.
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!
UER'S RESPONSE: Wow! This is a whole new way of defining regressivity. Like many US employees, I have a so-called flexible spending account into which May and I can put $5,000 out of pretax income. When I get a root canal for $1,000, it costs me $500 in after-tax money. When a gas station gets the same root canal from the same densist at the same $1,000 and that employee pays the bill out of the flexible spending account, the root canal costs that gas station attendant about $900 in after tax money. I save $500. The gas station arttendant $100. Now if I relate that saving to our resppective gross income, sure, the gas station attendant saves more percentage wise (my income probably being more than 5 times his). But what a strange way to define regressivity.
What I say here about root canals applies with equal force to buying a health insurance policy. I respect Karen very much but part ways with her on this one.
****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."
UER'S RESPONSe: This really is an empirical question. We economists believe that in normally tight labor markets (the current recession being an exception) the price of labor is total compensation, not take-home pay.
****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.
UERS RESPONSE: If one believes that the tax break does influence the reasons people have health insurance, then one should follow the Republican line and also make that very same tax break available to people who buy their own insurance individually. In fact, how could one argue against that proposition. Why should the tax break be available to be doled out only by employers? But if I take two self-employed people buying health insurance individually at a premium of, say, $5,000. One self-employed person has a low income of $25,000, the other one of $150,000. Then, if health insurance is bought with pretax money, clearly the higher-income person pays less after-tax premium for the policy than the low-income self-employed person pays for the very same policy. And that is fair?
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.
UER'S RESPONE: As I try to show above, I disagree.
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!
UER'S RESPONSE: It's on the drawing board already.
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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