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The Obligatory Health Care Post, Now With Pictures…

March 22nd, 2010 · 15 Comments
Policy

Seriously, how mad would you be if I didn’t address this topic? But it’s really giving me a headache, and I kind of want to crawl into a cave rather than face the Internet right now. I live in Massachusetts (in all of its insurance mandate glory), and, as a self-employed individual, I was pleased that a component of our health insurance mandate was that coverage would be made available to everyone. As someone who had tried to get individual health coverage in the past and not even received as much as a call back, I was willing to put up with being told what to do in order to have access to the same type of coverage that my car has been entitled to for many years now. (Full disclosure: I did pay the tax penalty for a while before I sucked it up and got insurance. Sorry Mom. That said, I do think that having health insurance is the right answer since it takes away the monetary incentive to avoid going to the doctor and whatnot, and going to the doctor is probably best in the long run. Moral hazard be damned…on that note, I do think that the annoyance and discomfort of going to the doctor goes a long way in combating moral hazard.)

I used to work for an insurance company, and at this job I learned that, in Massachusetts at least, no driver, no matter how risky, could be denied automobile insurance. If a driver is rejected from insurers via the traditional channels, he can get insurance via a secondary pool that all of the insurers have to contribute to. These premiums are higher than in most other cases, but at least there is an insurance option for people who want to operate a car. This seems to work pretty well, so why not have the same for health insurance?

In a way, that’s pretty much what we are ending up with. (For the record, it costs about twice as much to insure me as it costs to insure my car. This ratio is lower than it probably should be because I am a bad driver.) Insurance exchanges are being set up to serve customers who cannot get insurance from private companies directly. People are even being treated better than my car since they are getting subsidized if they have an income such that regular health insurance is “unaffordable.” (I hate that word, since it really has no good meaning, but you get my point.) And yes, this works in some fashion as a transfer from the more wealthy to the less wealthy, since it has to be paid for somehow and we have a progressive income tax. (See below for more on this point and deficit neutrality.)

What else is in the health care bill? The short answer is “I wish I knew.” I’m more than a little frustrated that I don’t have a better answer to this question, but I a. am not going to read 1000+ pages of legislation, and b. don’t really trust most news outlets to report accurately an objectively in this scenario. So I will resort to a picture, courtesy of ImageThink:

If you really want to know, which you should, I think Reuters does a decent job of summarizing the provisions of the latest version of the bill:

The legislation would require substantial insurance market reforms that would bar insurers from excluding people for pre-existing conditions and prevent them from arbitrarily dropping policy holders.

Insurance exchanges would be created where small businesses and individuals without employer-sponsored coverage would be able to shop for coverage. Plans offered on the exchange would have to meet minimum benefit requirements.

The proposed changes would allow dependent children to remain on their parents’ health policies until age 26.

The Senate bill requires insurers to spend at least 85 cents of every premium dollar on medical care in small group markets and 80 cents in large group markets. The proposed changes also would require Medicare Advantage insurers to spend at least 85 percent of revenues on medical care.

COVERAGE MANDATES, SUBSIDIES AND MEDICAID

Individuals would be required to obtain health insurance. Those who fail to purchase coverage would face fines of up to 2.5 percent of income by 2016.

Firms with more than 50 workers who do not offer medical coverage could face fines of $2,000 per full-time employee.

Federal subsidies would be provided to help people with incomes up to 400 percent of the poverty level purchase coverage on the exchange. Proposed changes would sweeten those subsidies for lower income people.

Medicaid, the government healthcare program for the poor, would be available to everyone with incomes up to 133 percent of the poverty level, which stood at $10,830 for an individual and $22,050, for a family of four. Many states have eligibility requirements below those levels.

The proposed changes would get rid of a special deal to help Nebraska pay for the expanded coverage and boost aid to all states.

FINANCING

The final proposal makes some adjustments to the revenue measures in the Senate-passed bill.

The Senate bill included a 40 percent excise tax on high-cost health insurance plans. The proposed changes would delay implementation of the tax until 2018 instead of 2013. The tax would kick in on plans costing $10,200 for individuals and $27,500 for family coverage. A higher threshold is allowed for plans covering mostly women, older workers and retirees as well as those in high-risk professions.

The bill calls for raising the payroll taxes for Medicare, the government health insurance plan for the elderly, to 2.35 percent from the current 1.45 percent for individuals earning $200,000 or more and for couples earning $250,000 or more. The proposed changes would apply the tax to some investment income as well for those high-income groups.

The bill would impose fees on medical device manufacturers, insurance providers and brand name pharmaceuticals. The proposed changes would delay implementation of those fees.

MEDICARE

The legislation would freeze payments to insurers that provide coverage to Medicare patients in 2011 and begin reducing the subsidy in 2012.

It would also gradually close the gap in drug coverage for Medicare beneficiaries by 2020. Those who enter the coverage gap, the so-called doughnut hole, in 2010 will get a $250 rebate. In 2011 they would get a 50 percent discount on brand-name drugs.

There. Be for it, be against it, both of those options are fine by me. But at least know what you are for or against. I’ve written before about how a lot of disagreement regarding health care comes down to differing views on what members of our society are entitled to. This is fine. There are what are called “positive” questions, such as “Will health care reform increase the budget deficit?”, which can be answered by facts and figures. (People may disagree on the facts and figures used, of course.) “Normative” questions, on the other hand, are value judgments/opinions…for example, the question of “Should health insurance be made affordable for all Americans?” is a normative issue, and there really isn’t one right answer. It’s important to understand the distinction, if for no other reason than then you can distinguish between when economists are (relatively) objectively reporting facts and when they are trying to advance their own ideologies (yeah, I’m talking to you, Paul Krugman…and Brad DeLong…and Don Boudreaux and Russ Roberts…and…oh, the list is so long it’s not even worth it. 🙂 ) After, all, opinions are like assholes- everybody’s got one and everyone thinks everyone else’s stinks. But it’s helpful to be able to distinguish between an asshole and…well, anything else. It’s also helpful to answer the positive questions as best as possible and then use those answers to inform normative viewpoint rather than just talking out of your…well, ass.

I purposely left Greg Mankiw off of the list above, since he seems to be better than most about setting his personal ideologies aside (at least this time) when analyzing the issues:

As a weak-willed eclectic, I can see arguments on both sides. Life is full of tradeoffs, and so most issues strike me as involving shades of grey rather than being black and white. As a result, I find it hard to envision the people I disagree with as demons.

Arthur Okun said the big tradeoff in economics is between equality and efficiency. The health reform bill offers more equality (expanded insurance, more redistribution) and less efficiency (higher marginal tax rates). Whether you think this is a good or bad choice to make, it should not be hard to see the other point of view.

I like to think of the big tradeoff as being between community and liberty. From this perspective, the health reform bill offers more community (all Americans get health insurance, regulated by a centralized authority) and less liberty (insurance mandates, higher taxes). Once again, regardless of whether you are more communitarian or libertarian, a reasonable person should be able to understand the opposite vantagepoint.

He goes on to say that he is against the bill, both because he is more of a libertarian than a communitarian (is that a nicer word for Socialist?) and he doesn’t believe that the costs of the bill will be as favorable as stated. I wish everyone in the conversation could be that reasonable.

It’s not shocking that providing extra services costs money. Also, it’s not shocking that medical care is expensive- if nothing else, doctors need to get paid a lot of money to make it worth their while to go through four years of medical school, however many years or residency, etc. Personally, I am fine with this, since I really want the best people possible taking care of me when I am sick. (This is not to say that there aren’t other opportunities for savings in the health care system so much as it is to say that we should be careful about what exactly gets cut.) In order to make the health care bill “deficit neutral” or whatever term is being thrown around that means “doesn’t put the US more in debt than it would be otherwise”, it provides for cuts and cost savings in other areas. This is why the health care bill talks about student loans, for example. This complementarity makes the bill more palatable both financially and politically, and the spending cuts in the bill might even be in areas that would never have been addressed otherwise. However, we should be at least a little wary of seeing the spending cuts as a panacea for the deficit problem. Again, Greg Mankiw has a good take on this, where he provides an analogy of a person cutting back on Starbucks in order to take a vacation. His conclusion:

Even if you believe that the spending cuts and tax increases in the bill make it deficit-neutral, the legislation will still make solving the problem of the fiscal imbalance harder, because it will use up some of the easier ways to close the shortfall. The remaining options will be less attractive, making the eventual fiscal adjustment more painful.

(Man, I am totally kissing up today, but I can’t help but give credit where credit is due.) Basically, Greg is saying that we took the low-hanging fruit and now are going to find it harder to reduce spending in the future. I tend to agree. I don’t think this is a reason in itself to be against health care reform, but it’s important to understand the pros and cons.

I’m at 1900 words, so I think I am going to stop now. Back to your regularly scheduled ranting…

Tags: Policy

15 responses so far ↓

  • 1 holmegm // Mar 22, 2010 at 8:57 pm

    I see.

    We don’t know what’s in there (a senior Dem leader told us, after all, that we have to pass it to find out what’s in there), but here’s a cartoon telling us what’s in there anyway.

    Since we don’t know what’s in there, then we should probably be for it, by default. Or at least not against it. Because that’s the smart-sounding, reasonable-sounding position.

  • 2 econgirl // Mar 22, 2010 at 9:38 pm

    Yup. That’s exactly what I said.

  • 3 Alex Rodriguez // Mar 22, 2010 at 10:06 pm

    haha, yes Jodi, awesome come back. Man we need a sarcasm font….

    side note, i think i may have noticed a minor typo in paragraph 1 when you said

    “I do think that the annoyance and discomfort of going to the doctor goes a long was in combating moral hazard.”

    pretty sure you meant “goes a long way” not “a long was”

    not picking on you, just trying to help out 😉

  • 4 econgirl // Mar 22, 2010 at 11:48 pm

    Oh A-Rod, you can correct me any time. 🙂 I’m not sure what I would do without it- I thought the spell-checker would be sufficient, but apparently not…

    In related but not directed at you news, apparently there IS a sarcasm punctuation mark:

    http://www.telegraph.co.uk/technology/news/6995354/Sarcasm-punctuation-mark-aims-to-put-an-end-to-email-confusion.html

  • 5 econetti37 // Mar 23, 2010 at 8:16 am

    I am all about the free-rider system, so you can use FREE sarcasm marks for the humorless or slow readers who don’t get the joke. Using /s to indicate sarcastic remarks or my favorite, the ellipse “…” to show a pause at the end of a statement to let it sink in instead of a sharp, curt ending.

    I hope they make money off that downloadable font, because everyone deserves to profit off Americans… /s

  • 6 Matt // Mar 23, 2010 at 10:55 am

    Hey Jodi,
    What do you think the big differences are b/w state run health insurance plans and this federally run bill/program/thing? It seems like states could be more flexible in how much/quickly insurance is expanded. Is there just a lack of political will to expand state run plans like that in Massachusetts? Are state budgets just strained too much?

    Also, if it is possible to reform hospital practices and incorporate cost saving technology (digitization of medical records, etc.), why not first realize the savings from those reforms and then use that money to fund insurance expansion. I saw where they put the whole student loan section in there to direct its savings to the health care package. Are enough measures like that being taken to consider the bill cost-neutral from what you’ve read?

  • 7 Dan L // Mar 23, 2010 at 10:56 am

    I honestly don’t understand why Mankiw is any more honorable than Krugman. I’m curious about particular instances where you believe that Krugman is disguising his ideology as objective reporting. (First, he writes in a section called “Opinion,” and second, his book and blog are titled “Conscience of a Liberal.”) Perhaps it’s because Krugman presents economic arguments that just happen to support his political views? But so does Mankiw.

    The fact of the matter is that both of these economists are assets to the public debate, because they debate on real substance, based on real facts. (Mankiw is actually quite a savvy debater; he just has a very different style.) The public “debate” that gets through to most of the general public is usually just based on nonsense and outright lies.

    I completely agree with Mankiw that we should strive for honest debate. But I think he’s wrong that this debate should focus on philosophy (liberty vs community). A philosophical debate is too abstract, and it’s not as if there’s a 0 to 10 liberty-community dial that we can agree to set to 3.6. At the end of the day, for any piece of legislation, the people just have to decide: do we want it or not? And that decision should be based on facts and honest analysis of those facts. That’s what we need from our journalists and pundits.

    It’s also hard to take seriously Mankiw’s whining about stuff like the assumptions that go into CBO scores, when it’s *his* party whose only argument against reform is: “It’s communist!” This is true both for his party’s political leaders in Congress, and for its most popular pundits. (Even Mankiw, is his own sneaky way, engages in a bit of this tactic, essentially asking: “Do you want to be a commie or a capitalist? Your choice.”)

  • 8 Joe Weber // Mar 23, 2010 at 11:07 am

    Jodi,
    Eureka, a sensible and balanced discussion of reform, at last. Economists are most useful, I believe, when they offer a clear-eyed view of benefits and costs and lower the temperature of an overheated debate. You and the folks you cite, especially Mankiw, do that well.
    JW

  • 9 econetti37 // Mar 23, 2010 at 12:58 pm

    Jodi,
    Several writers point out that States already mandate car insurance, so health insurance is not a big leap. The difference I see is that car insurance protects your private property as well as the property of someone else. So, if I cause an accident, the other driver is protected against my bad driving. With mandated health insurance, someone’s poor health habits are covered by the healthy, akin to the good driver paying for the bad driver’s accident (this happened to me once). And the person with risky behavior is rewarded by receiving more than he pays into the system and without he risk of being dropped by insurance. Car insurance companies have the luxury of dropping poor drivers who cost them money but there is no governmentally funded car insurance programs (“Medi-car”?). Other than both being insurance companies, I don’t see how we can compare mandated health with mandated car insurance.

  • 10 Dan L // Mar 23, 2010 at 2:11 pm

    @econetti37, I agree that the car insurance analogy is sort of pointless, especially when there’s a much more relevant precedent, specifically:

    Each and every working American is already required by federal law to purchase government-run (aka “socialized”) health insurance. It’s called Medicare.

    Of course, having precedent for something doesn’t make it right. But the fact is that if you don’t like health reform solely or primarily because of its restrictions on personal choice, it is a logical corollary that you must also want to repeal Medicare, since it is, by far, more socialist and more restrictive of “freedom” than anything in the current health care bill. So where is the outrage over Medicare?

    The typical honest, intelligent libertarian despises Medicare at least as much as Obama-care. They just don’t talk about it because it would expose their priorities as being hopelessly out of sync with the majority.

  • 11 econgirl // Mar 23, 2010 at 2:20 pm

    @ econetti37: You are partially right…in fact, the part of auto insurance that is usually required is the liability part, not the collision part. (i.e. no one cares if you bust up your own car, but they care if you bust up someone else’s car or injure someone else.) My comparison to the auto insurance market was supposed to be more focused on the availability rather than the mandate, but adverse selection and other market failures make it difficult to have one without the other. (If you want to investigate this, check out what the car insurance situation looks like in New Hampshire, since it isn’t mandated there.) Whether car insurance companies can drop people varies by state, and, like I said, people often have access to auto insurance even after they are dropped by the private system, so it is similar to mandated health insurance in that way.

    You’re also not wrong about the risky being subsidized by the healthy. I am fine with the randomly healthy subsidizing the randomly unhealthy (“Hey, I’m overpaying for my insurance, but at least I don’t have cancer” is a trade I would take any day). I’m not sure what to say about the non-random situations…you currently have healthy people subsidizing smokers, the obese, and even athletes and outdoorsy people. (It’s important to note that people can be high-risk in an insurance sense without partaking in what society considers “bad” behaviors.) If anyone has a good solution to this, I’d love to hear it. I imagine that people would try to game a system that tried to surcharge for these behaviors:

    Doctor: Do you smoke?
    Patient: No.
    Doctor: Then why did smoke just come out of your mouth when you said that? Fine. Do you eat healthy?
    Patient: Of course.
    Doctor: Um, you have a jelly donut stain on your shirt.
    Patient: I swear I was just holding it for someone. *burp*
    Doctor: Do you engage in risk-risk sports?
    Patient: Not at all.
    Doctor: Is that a bungee cable I see sticking out of your bag?

    You get the idea. It’s also not reasonable to exclude coverage for conditions that typically result from high-risk behaviors, since then you punish the people who get these conditions randomly. The only other solutions I can think of involve nannycams and are way too Big Brother for people to get behind.

    Health care is also different from auto repair in that a mechanic or auto body shop can refuse service to non-paying customers, whereas doctors (at least in emergency rooms) can’t. Strangely enough, this concept makes the market similarity stronger, since being uninsured and getting sick does in fact confer costs on others- somebody has to pick up the tab eventually, if nothing else. And that doesn’t even address the people who catch things from people who walk around sneezing because they can’t afford to go to the doctor.

  • 12 tamara // Mar 24, 2010 at 1:59 am

    econgirl… you forget to bring an apple to profesor Mankiw xD. So the people who dont get sick much because they try to take care of themselves are gonna have to bare the costs of those hypocondriacs who go to the doctor everytime their tummy hurts… hey, love the sarcasm, love the ass kissing and love your italian fame

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