Posts Tagged ‘barack obama’

Weird Science: Why Politicians and Pundits Cling to the “Cadillac Tax” Idea

January 8, 2010

The theory behind the “Cadillac tax” on health plans is little more than wishful thinking based on dubious research. Advocates believe that forcing employers to cut benefits will lead to cheaper, better care. That’s like preventing rain by outlawing umbrellas. Yet the President has reversed his campaign opposition to the tax and now supports it. John Kerry, who I respect, is defending it too.(1) Why?

Because they’re poorly served by their advisors, and by pundits who cling to the idea in the face of new evidence. Although the Washington Post got it right, too many analysts and journalists are beholden to ideas that Art Levine rightly dubbed “voodoo economics for the punditocracy.”

Why do President Obama and his advisors keep touting the tax? And why do journalists like David Leonhardt of the New York Times keep asserting that “health economists” think it’s a good idea? Uwe Reinhardt – the most respected health economist in the country – said the idea that “with high cost-sharing, patients will do the only legitimate … cost-benefit calculus … surely is nonsense.”

The best-known advocate for the tax is MIT economist Jonathan Gruber, who was hyping it as recently as a week ago, without mentioning new and contradictory data.

The Post described Gruber in 2007 as “possibly the party’s most influential health-care expert and a voice of realism in its internal debates.” How can a “voice of realism” claim that this is “a tax that’s not a tax,” one that affects “generous” plans? That statement was published only nineteen days after a paper in the influential journal Health Affairs (summarized here) disproved it. Using actual benefits data, the authors showed the tax would not target “generous” plans. Instead it would unfairly affect plans whose enrollees were older, worked in the wrong industry, or lived in an area where treatment costs are high. A leading actuary came to a similar conclusion.

Gruber also claimed that the money employers save (by slashing benefits to avoid the tax) would be returned to workers as wages or other compensation. But two leading health benefits firms (2) had already published surveys in which the vast majority of employers polled insisted they would do no such thing.

These are intelligent, ethical, dedicated people. So what’s going on? I suspect the problem is an inability to reject an attractive idea, even when confronted with contradictory facts. There is a simple truth in the world of ideas: Theories can be beautiful. Reality can be ugly.

This “beautiful” idea was born in research. The RAND Corporation published the results of its long-term Health Insurance Experiment (HIE) in the 1980s. Researchers claimed that forcing people to pay more for their medical treatment leads to reduced use of medical services, which saved money without making anyone sicker.

The HIE suggested that people who had to pay more for their care avoided treatments their doctors considered medically necessary about as much as those considered unnecessary. Yet, surprisingly, it concluded that they were no less healthy. The HIE became the theoretical foundation for 25 years of benefits-cutting, providing moral cover for a generation of analysts as they shifted medical costs back to patients. (I was one of them.) Now it underlies the thinking behind the “Cadillac tax.”

Here’s Problem #1: The HIE’s been challenged by a number of economists. As University of Minnesota economics professor John Nyman told me, “I don’t believe you can have a reduction of 25% in hospital admissions and not have it show up in any health measures.” While we don’t have space here to tackle the debate, it’s fair to say that the study’s conclusions are controversial at best. Gruber, a RAND defender, described the study as the “gold standard.” Others disagree.

Problem #2: Even if you accept RAND’s findings, you have to believe they still apply after widespread changes in society, the economy, and employer/employee relations. And then you have to believe Gruber’s assertion, based on long-term wage and benefit trends, that employers will give most of that money back to workers as compensation.

Even though surveys say they won’t …

So let’s review this fragile latticework of assumptions: First, that the RAND study is sound. Second, that the tax will only target ‘generous’ plans, despite a very thorough study disproving that. Third, that employers will give much of this money back to workers, although they say they won’t.

On that thin reed of assumptions the White House, many Senators, some economists, and the tax’s editorial supporters (Leonhardt, Ezra Klein, etc.) are prepared to support a policy that by 2016 will reduce coverage for one American in five with employer insurance. That’s more than eleven million people – and the figure would rise sharply each year.

What went wrong? I can’t know for sure, but here’s a thought: Experts can have an “aha” moment, a flash of insight, even when the pattern they perceive isn’t really there. They can build models and theories – even reputations – around that pattern. When evidence proves the pattern is false, they literally can’t see it.

Fortunately, it’s not too late. We can see it. There’s still time for the President, Senator Kerry, and other leaders to change course. Prof. Gruber and other tax advocates can still review these new findings. They and their advisors can discard an attractive but disproved theory and do the right thing for the American people.


(1) Although it was gratifying that Sen. Kerry acknowledged that the tax’s thresholds are too low.
(2)Towers Perrin Employer Survey, “Health Care Reform 2009: Leading Employers Weigh In,” (pdf), September 17, 2009; Mercer, “Majority of Employers Would Reduce Health Benefits to Avoid Proposed Excise Tax,” December 3, 2009


The Senate Deal: The Price of Everything

December 20, 2009

The CBO finally scored the redrafted Senate health care bill, saying it will cost $871 billion over the next ten years. Not that anybody waited for the numbers before cutting a deal. This was never really about the numbers. It was about coming in below an arbitrary figure and passing the bill by an arbitrary date.

The CBO Director’s Blog writes that  “(t)he changes with the largest budgetary effects include expanding eligibility for a small business tax credit; increasing penalties on certain uninsured people; replacing the ‘public plan’ … with ‘multi-state’ plans  … deleting provisions that would increase payment rates for physicians under Medicare; and increasing the payroll tax on higher-income individuals and families.”

In other words, the bill now has more breaks for business but harsher punishment for uninsured individuals, it eliminates the already-weakened public option, it pays doctors less – and it costs the Federal government $23 billion more.

Hey, what’s not to love?

The idea of raising payroll taxes on higher earners is a good one.  But if you take that new revenue, add the unfair tax on higher-cost benefit plans (studies demonstrate its unfairness), throw in the pay cut for doctors, and toss the higher individual penalties on top of that, it still doesn’t offset the fiscal recklessness behind killing the public option.

Why would the public plan have saved the government money?  Because, as the CBO puts it, “it was expected to exert some downward pressure on the premiums of the lower-cost plans to which those subsidies would be tied. ”  In other words, it would have made other insurance cheaper by creating real competition.  If it’s costing the government this much money to lose the public option, can you imagine what it’s costing the rest of us as individuals?

Remember: the CBO score doesn’t include the personal value of  these policies for each of us. The Senate’s new bill won’t just increase the Federal budget. We’ll also pay higher premiums because we lost the public option, and face more out-of-pocket payments from the excise tax.    Wasn’t it Oscar Wilde who said a cynic is someone who “knows the price of everything and the value of nothing”? It’s pragmatic to take the best deal you can get, but it’s cynical to avoid the battle and then claim it’s the best deal you can get.  The main thing dividing progressives right now is that some see pragmatism and others see cynicism.

Another question:  If Joe Lieberman can single-handedly be credited with most of these changes, is it fair to call him the Twenty Billion Dollar Man?  Maybe.  But remember, it’s easy to hate Joe Lieberman – and it’s a distraction.  The Administration and the Senate leadership made a series of choices that give him this power.

Some say that the public option was always doomed – that the Administration cut a deal in which they’d make a half-heated attempt to fight for it and would then let  it die, placating the always-compliant liberal wing with another mantric repetition of the phrase “we didn’t get everything we wanted, but …” In that scenario Joe’s the Bad Cop to the President’s (and Harry Reid’s) Good Cop.  If Joe Lieberman didn’t exist it would be necessary to invent him.  “Hey, I wanted to help you out – here’s a cup of coffee – but my partner here …”

Think that’s unfair ?  I certainly hope so, but that gets us back to the string-of-blunders interpretation. Reality’s probably somewhere in the middle:  mismanagement and a back-room deal or two. (We know there was a deal with Big Pharma.)

There’s an easy way for the President and Sen. Reid to disprove the Good Cop/Bad Cop Scenario, of course:  They can fight like hell to win concessions in the House/Senate conference, to bring the  final bill more in line with the House version.  That would mean, at the very least, a public option and no excise tax.

Think they will?  Me neither – but I think they should be pressed to do so.  I expect that the House will be put under enormous pressure to cave and accept the bill as it is.  I think the President and other party leaders assume the left can always be counted on to cave in for the good of the country.  I also think that anyone who points out the flaws in this bill will be subjected to another round of scoldings from party leaders and their supporters, charged with not understanding how the world works. Wouldn’t it be better to debate the tactics on their merits instead?

Because that last charge is the biggest miscalculation of them all.  Many of the people being lectured  over this bill are the same people who have been right about matters of both policy and politics for most of the last decade.  (And about the politics – the Democrats are going to get killed if they pass this bill.)  So it was particularly satisfying to see Markos Moulitsas respond forcefully to Chris Matthews for his wave-of-the-hand dismissal to those who saw the last decade’s events more clearly than he did.

That doesn’t necessarily make them right today, of course, but I think they are.  And speaking personally, I’m not talking about “killing the bill” – I’m talking about getting a better bill.  I believe it will take a credible threat  – a “fear factor” – to get that done.

Is Truth the Next Casualty in the White House’s Push For the Senate Bill?

December 18, 2009

Many of us admire the wealth of talent on display in the White House, so it’s disappointing when there’s a breakdown in the accuracy or completeness of information being put forward by members of this Administration.

Take Jason Furman, the Deputy Director of the Administration’s National Economic Council. We understand that emotions are running high about the Senate health bill, but Mr. Furman’s recent brief in support of that bill isn’t just rhetorically overheated (although it’s certainly that.) What’s less excusable is the way he overlooks some significant new findings that undercut his argument. He’s entitled to his opinions, and even to his emotions. But it’s his responsibility as an economic advisor to know and report the facts, too, and in this case he’s failing to carry out that part of his job.

Here’s what Mr. Furman said – and didn’t say – in a recent blog post on the White House web site.

He opens with sarcasm – an unfortunate tactical decision when addressing one’s potential allies. “(O)pponents of reform are testing the age old adage that if you only say something enough times you can somehow make it true,” writes Mr. Furman. “Yesterday, we heard a new version of the old, tired refrain that the health reform bills in Congress would raise taxes on the middle class.” Here are the rest of his statements, and the facts that undercut them (as available in data from the Joint Committee on Taxation and several other sources):

Statement: “First, the health insurance reform bill being considered in the Senate does not raise taxes on families making less than $250,000 – in fact it is a substantial net tax cut for American families.”

Fact: In 2019, six years after this bill takes effect, the excise tax will affect one in five taxpayers making $50-$75,000 per year. The average tax impact on people in this income bracket will rise to $1,100 in 2019. Overall, more than 24 million taxpayers (or “tax units”) will be affected by 2019.(1)

The CBO found that the tax would impact 19% of all employees with health insurance by 2016.

Statement: “(T)he excise tax levied on insurance companies for high-premium plans, the so-called ‘Cadillac tax,’ will affect only a small portion of the very highest cost health plans – a total of 3% of premiums in 2013. The vast majority of health plans fall below the thresholds set in the Senate plan and would be completely unaffected by the provision. “

Fact: the Communication Workers of America, using figures provided by the Joint Committee on Taxation, found that 27 percent of single plans and 22 percent of family plans will be affected by the tax in 2019. (Report available in pdf form here.) And a recent Mercer survey (discussed here) found that 19% of all benefit plans – that’s one plan in five – could be affected by the tax in its first year.

Mr. Furman is either unaware of these figures, or – as is more likely – he’s playing a misleading game with numbers. He says that 3% of premiums will be affected, but what he doesn’t say is that this is because only the premium above a certain level is taxed. Here’s the financial reality for working Americans, once the games are set aside: At least one in five employees will be hit with a new tax, and studies show that on average this will add $958 to their benefit costs in 2013 (also from the CWA report). Both the average cost and the number of people affected will keep going up each year.

(And, as an aside, let’s stop using the phrase “Cadillac tax.” Like the phrase “death tax,” it’s a misleading and emotionally charged phrase designed to manipulate people’s perceptions of the issue.)

Statement: “In addition, the Senate plan provides special protections to plans held by workers in high-risk professions – like police and firefighters – as well as by those over 55.”

Fact: Two new papers in the respected journal Health Affairs (summarized here) have concluded that the Senate bill does not do enough to offset these factors, and that people are most likely to be subjected to this tax because of the industry that employs them or the age mix of employees in their plan. According to one of the papers cited(2), only 3.7 percent of the variation of premiums for family plans is determined by a plan’s benefit design.

What does that mean? Health plans don’t usually cost more because they offer extravagant benefits. They cost more because they include people whose medical expense are higher – older workers, chronic disease sufferers, and women. Other important cost drivers include the size of the employer and the part of the country where the employees are located.

Statement: “(F)or the small sub-set of plans that are affected, the primary impact of this provision will be to increase workers’ wages. Getting a pay raise is not what most people would call a tax increase.”

Fact: In a survey of employers conducted by the Towers-Perrin firm (pdf), only 9 percent said they would increase salary or direct compensation if health care reform reduced their benefit costs; 78 percent said they would keep the savings in the business as profit.

Mr. Furman quotes a list of economists who believe that wages will go up if benefits are cut. That’s a theoretical assertion based on multi-year comparisons of wage and benefit trends. But theories are theories and reality is reality. It’s hard to give a theory – especially one that’s based on data from a different economic climate – more credit than real-time, real-life survey results like these.

What’s more, even a small increase in wages – which are taxable – would never offset a similar loss in benefits, which aren’t taxed. Once you add in the much higher deductibles and cost sharing that will result from this tax, people will wind up deep in the hole.

Statement: “Finally, supporters of the status quo are supporters of continuing the hidden tax of $1,000 that the millions of Americans who get insurance through their job or buy it on their own are already paying each year to cover the costs of caring for those without insurance.”

Fact: None of the groups or experts opposing this tax are supporting the “status quo.” This is the kind of rhetorical gamesmanship that has become all too common in Washington lately. Opponents of this tax simply suggest that it be removed, as is proposed in the Sanders-Franken-Brown Amendment, and replaced with the more rational and progressive taxation policy in the House’s bill.
Peter Orszag committed a similar, if less egregious sleight-of-hand on Monday when he cited the excise tax as one of four “fiscally responsible” measures likely to contain costs – ignoring the new Health Affairs report which challenges that assumption. As we’ve already mentioned, that study shows that generous benefits- the very cost tax supporters claim it will contain – only account for 3.7% of the variations in premium for a family plan.(3) That means this tax will hit a lot of plans that aren’t generous at all.

Is it really possible that neither Mr. Furman nor Mr. Orszag have heard of these studies – and neither has anyone who works for them?

Policy experts like Furman and Orszag are free to represent their Administration or push a political line. But, like generals testifying before Congress, I believe they also have a responsibility to lay the facts out fully before the American people. They work for us. If they want to tell us why they don’t accept these new findings, fine: they can make their counter-arguments. But pretending that these studies don’t exist should not be an option. Either these White House officials are ignoring critical information, or they and their teams are unaware of some important new studies affecting their areas of policy expertise. I don’t know which explanation is worse.

Either way, we expect more from this Administration.

(1)Joint Committee on Taxation data, as summarized by the Communications Workers of America (pdf)
(2)Jon Gabel, Jeremy Pickreign, Roland McDevitt, Thomas Briggs, “Taxing Cadillac Plans May Produce Chevy Results,” Health Affairs (Dec. 3, 2009)

(Disclaimer:  I’m actively involved in a campaign to eliminate the proposed excise tax, and any writing I do on that topic should be read with that understanding.)

Med Mal: Sometimes The Best Defense Is … No Defense

May 19, 2008

A lot of attention is being given to yesterday’s New York Times piece about doctors and hospitals who apologize, ‘fess up, and correct their mistakes when they make medical errors. For medical professionals who have been trained to “deny and defend,” the whole idea seems counterintuitive. It’s a natural instinct for people to want to hide their mistakes. And as Michael O’Hare points out, it’s also something attorneys have been telling their medical malpractice clients to do for a long time.

I’ve written about the Sorry Works! Coalition before, and they’re mentioned in the Times article. That’s the group that’s dedicated to becoming “the nation’s leading advocacy organization for disclosure, apology (when appropriate), and upfront compensation (when necessary) after adverse medical events.” The Times suggests that there is now a data trail for the medical disclosure movement. Reporter Kevin Sack writes:

Despite some projections that disclosure would prompt a flood of lawsuits, hospitals are reporting decreases in their caseloads and savings in legal costs. Malpractice premiums have declined in some instances, though market forces may be partly responsible.

O’Hare tells an anecdote about working with a hospital whose in-house counsel promoted a similar policy 25 years, with very positive results. That sounds right: During my years inside the insurance industry I saw similar examples of the seemingly counterintuitive. Sometimes ‘fessing up is the best defense.

And there’s a political movement to institutionalize medical disclosure. Sack quotes the director of Sorry Works! as saying that “34 states have enacted laws making apologies for medical errors inadmissible in courteven require that patients be notified of serious unanticipated outcomes.” He observes that Democratic Presidential candidates Clinton and Obama cosponsored a similar resolution in the U.S. Senate, only to see it die in a GOP-controlled committee.

This should be an ideal topic for bipartisan support, given the Republican penchant for criticizing excessive med mal settlements. So why would Republicans kill a bill like this one? I don’t get it.

“Universal Coverage” – Only Words

April 21, 2008

It’s only words, but words are all I have to steal your heart away …1

My wife and I stood at the curb saying goodbye to our friend Maureen last week. The election came up, and Maureen said “I like the candidate that’s going to provide universal coverage.” Here’s the problem: there’s no such candidate this year. Maureen’s been had.

But first, a question: What’s wrong with this sentence, from my friend Joe Paduda’s informative write-up of the World Health Care Congress, referring to the difference between the Clinton and Obama health plans?

“… [Clinton] wants mandated universal coverage and [Obama] does not.”

The italics were a hint: Joe and I agree, as does our mutual friend Bob Laszewski, that the two plans are essentially similar. But their primary difference, which is that the Clinton plan includes mandates for adults, can not accurately be described as “universal coverage.” The Massachusetts experience has demonstrated that conclusively.

Even if a mandate plan were to be passed, millions of today’s uninsured would – by my estimation – remain uninsured. Millions more would benefit, as they would under a non-mandated plan, but we’d have nothing like genuine “universal coverage.” And many working Americans would face new financial pressures, without receiving better health coverage in return.  (My numbers and logic are laid out in a footnote.)

I expressed early and serious concerns about the Massachusetts plan, and there’s no pleasure in reporting that they have proved justified. The plan’s been very effective in providing coverage for those who qualify for full subsidies. But it has been far less effective for lower-income working people. Subsidies don’t reach them, and the difference between plan premiums and the mandated tax penalties they face is still a big-dollar amount for their budgets.

The result? These hard-pressed Americans still don’t have health coverage … and they’ve been hit with more taxes.

The Massachusetts plan is a lot like Clinton’s, in a state with a much less complex uninsured problem that other parts of the country – and it’s been forced to exempt 20% of the uninsured. That’s not “universal coverage,” it’s health mandates – and while it will provide coverage for some, many will fall through the cracks.

Why does this matter? Why am I harping on the choice of words? Because perception drives reality in politics. Maureen thinks her candidate will provide “universal coverage” if elected. Here’s what will really happen if Maureen’s favorite gets the nomination – she’ll be hammered by her opponent in the general election over the enormous added tax burden to lower-income working families. If she wins, her plan will face far greater political opposition because of the mandate provision – which will most likely be dropped as a result. If, against all odds, these obstacles are overcome and a mandate provision is passed,

Based on rough calculations, I agree that Obama’s plan would leave approximately 15 million uninsured. But I estimate that Clinton’s plan would leave 8 million uninsured – and is far less likely to pass in Congress.2 (Each plan has its own strengths in the cost-cutting and health oversight areas – and McCain’s isn’t really a “plan.” It’s more of a “wealth-transfer-device” for the already well-to-do … but that’s another topic.)

What about the argument that a mandate plan can’t pass?

Not so, says Paduda. He quotes Obama surrogate Rep. Jim Cooper as saying the mandate provision – which Joe again mischaracterizes as “universal coverage” – will get “zero Republican votes,” which he calls “a completely wrong statement.” Joe cites the mandate-driven Wyden Health Plan, with six Republican co-sponsors, as proof.

But the Wyden plan, which takes employers out of the health insurance game, has a couple of carrots to offset the “mandate” stick. One’s for working people: It requires employers who currently provide coverage to boost salaries to offset for the huge expense savings they’ll get. That puts money back in people’s pockets. The second is for employers: Salaries are rising at a much slower rate than health premiums, and they have more control over them, so this is a financial win – especially for larger corporations.3

I’ve talked to many employers over the years – large and small – who would love to get out of the health benefits business. And I’d argue that the Wyden bill can be pitched as more attractive to lower-income working people. I suspect these differences make the Wyden bill GOP-friendly enough to offset for its universal coverage mandate provisions. (That said, it’s excessive of Rep. Cooper to suggest that a mandate bill would get “zero” Republican votes. There might be handful, but probably not enough to pass …)

So we watched Maureen pull away from the curb, content in her belief that at least one Presidential candidate would bring the country “universal coverage.” Can’t blame her: a lot of smart people think so, too.

Too bad life ain’t so simple …


1What would a wonkish health policy post be without quoting at least one Bee Gees song? Others I could have cited here include “Stayin’ Alive” – and, of course, “Massachusetts.”

2Quick and dirty calculation: Massachusetts, which is demographically less challenging than other parts of the country (fewer illegal immigrants, etc.), was forced to exempt 20 percent of the uninsured from its plan. Planners in more variegated California expected that 30% would have to be exempted. So, even the generous assumption that mandates will do as well nationally as they have in Massachusetts gives us a 20% exemption rate. If we assume 40 million uninsured nationwide, then 20% = 8 million. That ain’t universal. Thus, the difference between an Obama plan that excludes 15 million and a Clinton plan that excludes 8 million is 7 million.

What’s left to consider? First, whether you think a mandate plan can pass Congress. If it can’t, everybody loses. Second, your personal opinion of whether mandates for hard-pressed working families are a) a way to force them to pay their fair share, or b) another regressive tax that places too much burden on those at the lower end of the spectrum.

3Re the Wyden plan, I like the concept. Unfortunately, though, I can see a number of ways that employers could game it. But that’s for another day.

Heated Debate Over Mandates

February 7, 2008

The intensity of debate around health care reform is reaching new heights, especially around mandates. They were a key part of the Massachusetts reform law and are central to the Clinton health proposal. Obama’s reform plan does not include a mandate provision, at least initially, although he indicated during the early debates that he would consider adding one later if voluntary programs don’t succeed in getting near-universal coverage.

Clinton has been hammering Obama over this issue for months, saying that her plan guarantees “universal coverage” and his doesn’t. Here’s the simple fact: Mandates do not create universal coverage. When the pundits were celebrating the “Massachusetts miracle” — including many of the same “health wonks” now touting the Clinton plan — I was one of the few to point out that the plan was actually more mirage than miracle. It kicked the unpleasant decisions down the road so that Mitt Romney and his Democratic and labor collaborators could take an undeserved victory lap at the signing ceremony.

Sure enough, the legal authority responsible for the Massachusetts plan eventually acknowledged that the plan will leave 20% of that state’s uninsured without coverage, and the real number may be higher. Why? Because there is a wide band of people who would suffer financial hardship if compelled to pay the premiums, and it’s financially infeasible to subsidize them all.

The Clinton plan, should it ever be passed, will suffer the same fate. I will happily bet Paul Krugman on that point. He should know better than to claim that the Clinton plan could provide universal coverage. Experience and political common sense say that just ain’t so.

That’s not to say there aren’t valid arguments in favor of mandates. There are, which is why they’re part of conventional health policy wisdom. Mandates solve the “selection problem,” where insurance costs become too high because only sicker people buy insurance voluntarily. They also allow funds that are now used to reimburse providers for treating the uninsured to be used in better ways. And I think the Obama team is over-optimistic about voluntary compliance levels.

Krugman and other supporters of the Clinton plan are now pointing to a study by the respected Urban Institute as a validation of their position. It’s a good study that shows mandates are the only way to achieve something like “universal coverage” — if you first exclude single-payer coverage from the mix. (They also exclude my preferred approach — core basic coverage paid from tax revenues, with the ability to “buy up” into private plans through a subsidy/voucher approach.)

Here’s one problem: The paper’s authors admit, albeit indirectly, that they overestimated the ability of Massachusetts to achieve universal coverage. They make the same mistake here. Here’s another: Sen. Clinton and the supporters of her plan have been evasive about how they would enforce this mandate, and enforcement is key to the Urban Institute’s findings. In a recent interview she was forced to acknowledge, for example, that she would consider garnishing wages. And while she has boasted about tying mandate obligations to personal income, she has been equally vague about what level of personal income she might allocate for healthcare.

Those provisions are political non-starters. Massachusetts is easy compared to the country as a whole — both in terms of political climate and the scope of the uninsured problem. Yet they had to leave 20% of the uninsured without coverage. That figure would equate to about 8 million people nationwide. If we accept Sen. Clinton’s figure of “15 million uninsured” under the Obama plan (and that figure was chosen by a journalist, not a technical study), that means a difference of seven million — in return for a plan that might actually get passed in Congress. (The gap could be filled in later, after premiums are brought under control and it becomes more politically feasible.)

And consider what mandates might do to a family of four. While Clinton won’t tell us the percentage of income she’d tie to mandates, many analysts have been using 10%. If premium assistance is provided up to 300% of the poverty level, a family of four trying to survive on $75,000 could be forced to pay $7,500 to insurance companies or in health copayments. The alternative could be tax penalties or garnished wages. That seems unfair. I also believe it’s a serious misread of American political culture to think that kind of mandate could ever get through Congress.

Krugman was outraged by an Obama ad that seemed to channel “Harry and Louise” from the 1994 anti-reform campaign. He says that mandates are to “prevent some people from gaming the system,” he writes, as if that family of four could write out that $7,500 check if not for some moral hazard. (Granted, there are “gamers,” but they tend to be the young, healthy, and relatively prosperous.)

We already have a mechanism for “shared responsibility,” and it’s called taxation. Adding 10% to struggling families’ financial burdens reads politically like a highly regressive tax to be paid to insurance companies – and the Wall Street Journal suggests that insurance companies do prefer the Clinton plan. That could create rough political waters in the general elections, especially for a Democrat.

While mandates have real value, political realities and issues of fairness suggests that the health reform process should start elsewhere. What’s even more clear is that they are not a mechanism for creating “universal coverage,” whatever the politicians say.

(extracted from a piece in the Huffington Post)

Health Mandates: A Talk With Obama Health Advisor David Cutler

December 1, 2007

Hillary Clinton, John Edwards, and Barack Obama have each presented detailed proposals for health reform. The Clinton and Edwards plans include health mandates, which require Americans to obtain health care coverage or face (unspecified) sanctions. The Obama plan does not include mandates.

Health mandates are popular among many Democratic-leaning health policy analysts. The Clinton campaign has been going after Obama aggressively on this issue. They’ve said that the absence of mandates is a basic flaw in Obama’s plan; suggested a cynical political calculus behind Obama’s position said that his position feeds a Republican narrative; and took the position that Obama’s plan is politically vulnerable while theirs (and Edwards’) is a political plus in the general election.

(The preceding positions were echoed today by Paul Krugman – see my response, “Why Paul Krugman Is Wrong …“)

I don’t support any Democratic candidate, but I do have strong opinions about health mandates. As a long-time healthcare policy analyst and health manager in the private sector, I disagree with Paul Krugman, Ezra Klein, Jacob Hacker, and others who support mandates. My differences are based on policy effectiveness, issues of fairness, and Democratic political strategy. I think mandates pose more problems than they solve, and that they could be a political loser for Democrats in the general election.

I’ve been engaged in a collegial debate with Klein, blogger/consultant Joe Paduda and others on this topic for some time (see, for example, here, here, here, and here). During an exchange with Klein over the last week it became apparent that, while I had reasons to support Obama’s policy, it was unclear to me what his team’s current thinking was on the topic.

The team published a rebuttal to Clinton’s campaign late today. Earlier I spoke with David Cutler about mandates. Cutler is Professor of Applied Economics at Harvard, Obama’s senior health advisor, and the principal architect of the Obama plan.

Read the rest of this entry »

Why Paul Krugman Is Wrong About Health Mandates

December 1, 2007

Now there’s an intimidating headline to write. Paul Krugman slammed Barack Obama today on the issue of health mandates. Here’s why I believe he’s wrong:

From the beginning, advocates of universal health care were troubled by the incompleteness of Barack Obama’s plan, which unlike those of his Democratic rivals wouldn’t cover everyone.

Two misstatements in this opening sentence. First, while it’s true that Obama’s plan won’t “cover everyone,” neither will anyone else’s. Mandates have never achieved 100% effectiveness. The practical design problems of subsidies, exemptions, and benefit levels that accompany mandates are complex and unwieldy.  That’s why the Massachusetts Authority responsible for that state’s plan – which Krugman would describe as “covering everyone” – just exempted an estimated 20% of uninsured residents from the mandate.

Secondly, the absence of mandates is not necessarily an incompleteness in the Obama plan. I’ll be posting my conversation on this topic with Obama health advisor David Cutler shortly.

Here’s why: under the Obama plan, as it now stands, healthy people could choose not to buy insurance — then sign up for it if they developed health problems later. Insurance companies couldn’t turn them away, because Mr. Obama’s plan, like those of his rivals, requires that insurers offer the same policy to everyone.

As a result, people who did the right thing and bought insurance when they were healthy would end up subsidizing those who didn’t sign up for insurance until or unless they needed medical care.

Mr. Krugman raises some valid concerns here. But what he doesn’t say is that this would only be a temporary problem under the Obama plan. If it failed to achieve enrollment rates high enough to offset this ‘selection effort,’ other measures would be used – including potentially mandates.

The main difference between Obama’s plan and his rivals’ is this: They would mandate health coverage first and fix cost problems later. Obama would do the opposite. While both approaches are problematic, there is a strong case to be made that Obama’s plan is fairer – and much more politically progressive.

Mr. Obama claims that mandates won’t work, pointing out that many people don’t have car insurance despite state requirements that all drivers be insured. Um, is he saying that states shouldn’t require that drivers have insurance? If not, what’s his point?

His point is that the Clinton and Edwards claim – that they provide “universal coverage” – is false. If mandates don’t result in “universal coverage” – and the Massachusetts experience seems to confirm that – than this statement is hyperbole, not fact, and the debate is really about how many people to cover and how fast .  It’s not the black-and-white issue the campaigns are making it out to be.

Mr. Obama accuses his rivals of not explaining how they would enforce mandates, and suggests that the mandate would require some kind of nasty, punitive enforcement: “Their essential argument,” he says, “is the only way to get everybody covered is if the government forces you to buy health insurance. If you don’t buy it, then you’ll be penalized in some way.”

Well, John Edwards has just called Mr. Obama’s bluff, by proposing that individuals be required to show proof of insurance when filing income taxes or receiving health care. If they don’t have insurance, they won’t be penalized — they’ll be automatically enrolled in an insurance plan.

That’s a “terrific idea” with no penalties, Mr. Krugman says. Okay, let’s amend Obama’s choice of words slightly: when people are enrolled in a plan automatically and then don’t pay the premiums they’ll be “penalized in some way.” That’s not hair-splitting – it’s a huge difference. If a family of four is enrolled in a health plan with $10,000 annual premiums, that’s a burden. What will happen if they don’t pay?

We’ll fix that with subsidies, says the mandate crowd. But how much will people actually pay? They’re not saying.

I recently castigated Mr. Obama for adopting right-wing talking points about a Social Security “crisis.” Now he’s echoing right-wing talking points on health care.

I agree with Mr. Krugman about the Social Security issue. And I understand the concern about the use of words like “forced” by the Obama campaign. I understand the concern about the use of words like “forced” by the Obama campaign.  But that’s mild compared to the words the GOP will use in 2008 – and they’ll say them no matter what Obama does or doesn’t do. So rather than crying “foul” when someone challenges them, the Clinton campaign and others should use this as an opportunity to sharpen their talking points – or primary voters may conclude they don’t have it in them to make their case when the going gets tough.

Even More On Mandates – and the 80% Solution

November 28, 2007

The mandate question won’t go away because it’s central to most health reform proposals on the books today. And yet in a little-known development, the best known “mandate plan” is no longer “universal,” since Massachusetts has decided not to impose mandates on everybody.

Ezra Klein has responded to my take on his Obama slam. He echoes the pro-mandate consensus when he says this: “You can’t actually have this wonderful system everyone’s talking about without full buy-in.”

Buy-in … buy-in … that word keeps haunting me like a ghost from Dickens, and I don’t know why. Oh, wait … I do know why. Because no other industrialized nation has forced people to “buy” something that is usually provided as a social service. Which gets to my underlying problem with mandates, something I haven’t fully articulated until now:

Insurance premiums as we use them in this country are a market-driven, private-sector mechanism.* Advocates want to mandate that people pay premiums, rather than taxes, to meet a social goal. That’s a functional mismatch between the way governments typically address social goals – through taxation – and the way markets establish the price to be paid for transferring risk.

The end result? Elaborate mechanisms for trying to protect people from unfairly shouldering more of that social cost than they can personally bear. When you factor copayments and deductibles on top of premium costs, that gets very difficult.

As noted by the Progressive States Network, total health costs for some Massachusetts residents could exceed 23% of income – at a wage level where that could have a profound impact. The PSN also notes this:

… although 200,000 previously uninsured residents have obtained health insurance in the past 16 months, anywhere from 150,000 to 300,000 residents have yet to sign up with an insurance plan. …. Any uninsured residents will be penalized in 2008 by losing a $210 tax exemption. In 2009, the penalty will jump to “half the monthly cost of the least expensive plan available …” But officials recognize that the still-high costs of health care in Massachusetts make imposing this penalty unfair.

In other words, mandates are being phased in – just as Obama had initially promised to having a universal coverage law by the end of his first term. (Although, come to think of it, haven’t heard about that pledge lately.) The escalating penalties also indicate that, at least in Massachusetts, officials believe mandates have to be quite severe before enrollment increases significantly.

“The Connector authority is granting waivers to 20% of the state’s uninsured residents,” the PSN adds, “or roughly 65,000 individuals, exempting them from the individual mandate.” So the “universal coverage” plan has become the “80% solution” for the state’s uninsured.

In other words, the Massachusetts universal coverage plan is no longer “universal.”

And Massachusetts is an easy state compared to California and some others. When you’re talking about the entire country, the problems become massive.

So what about fairness? One economist said: “”What the Massachusetts decision will do is put down a marker that other advocates will use to say that costs can’t be more than 10%.”

Let’s think about that for a second: Let’s say that society has decided that the total Federal taxation burden for a middle-class family is 28% of income. Now, through mandates, that could become 38% . How can an “opportunity society” candidate argue that a vital need like healthcare should create a usurious burden on the middle class, yet cost the wealthy a small amount of their income (and nothing for the poor)?

Ezra also repeats his assertion that a plan without mandates will be a political liability. And I repeat mine – that mandates themselves will be a liability. I can see the Republicans scoring huge points with something like this: “They’ll be watching you – every time you go to the doctor’s office, or pay your taxes, or get a driver’s license. And they’ll raise your taxes by 40%. Why? Because they think you shouldn’t decide for yourself how much insurance to have.”

Good luck with that.

The alternative is to say: “We’ll invest in making the system better. Then we’ll figure out a way to finance universal coverage that everyone can live with.” Do I like kicking the financing issue down the road? No. Do I recognize that adverse selection will be tough to manage? Yes. But the only alternative is to say that every American deserves a base level of medical coverage paid for out of general tax revenues. And I don’t see any of the leading candidates saying that any time soon.

In short, there are two ways to do this: If it’s optional, it’s Obama’s plan, or something like it. If it’s universal, it’s taxation. (Maybe with vouchers, and employer tax offsets for offering benefit plans.) The in-between approach – mandates – still seems problematic to me.


*There are countries with very different premium models, like Germany, and those are models we should seriously consider.  But that’s another day’s work to write about …

More on Mandates: Ezra’s Take

November 27, 2007

Is Obama’s decision not to include mandates for health coverage “a policy … his campaign regards as a mistake”? Ezra Klein believes so. Maybe he has some insider info that’s not available to the rest of us. But even if the Obama campaign thinks it’s a mistake, I don’t.

Ezra’s piece is an emphatic and succinct summary of the pro-mandate arguments being made from the left by a number of progressive Democratic health policy analysts. Ezra writes:

I’m getting really tired of Obama’s constant excuse that his health care plan isn’t universal because “The reason Americans don’t have health insurance isn’t because they don’t want it, it’s because they can’t afford it.” The reason Americans don’t all have flat screen televisions is because they can’t afford those, too.

That’s true, I suppose – although I’d hesitate to use an analogy between healthcare and expensive consumer electronics when critiquing a policy from the left. But we’re not mandating televisions. And the mandate we are discussing won’t achieve its stated goal of “universal coverage.”

Most experts agree that compliance with a health mandate will be notably less than universal. It will be greater under the Clinton plan than it would be under Obama’s mandate-free alternative. But we’re talking about relative degrees of coverage, not the “universality” that will remain somewhat elusive even under mandates.

We share similar concerns about each of the Democratic candidates, but Ezra specifically sees Obama’s no-mandate position as a betrayal of progressive principles. He writes of his hopes, now unrealized, that Obama would argue “we as a society needed to unify, come together, make temporary sacrifices to build a better world.” Ezra adds, “his remarkable eloquence rendered him uniquely able to articulate the larger progressive narrative, that our nation must move forward as ‘we,’ rather than continue as a country of I’s.”

Here’s my response: First, when it comes to universal coverage and mandates it’s not a black-and-white matter of “we” vs. “I.” Mandates add some more”I’s” into the “we” pile, but not all of us. How many? That remains to be seen. Massachusetts residents will have to choose between expensive health insurance or a tax penalty that starts at less than $300 but quickly escalates to half their expected premium. Many will buy the insurance, but others will take the penalty.

As Massachusetts “Connector” Authority chief Jon Kingsdale said, “There’s good evidence, whether it’s buying auto insurance or wearing seat belts or motorcycle helmets, that mandates don’t work 100%.”

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