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

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.
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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)
(3)Ibid.

(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.)

Elmendorf vs. Orszag: A “Teachable Moment”… for Geeks and Nerds

This week a bitter confrontation between individuals from two distinct social groups offered our nation a rare and precious “teachable moment,” an opportunity to grow beyond those things which divide — or unite — us as a people.

Those individuals, of course, are OMB Director Peter Orszag — a geek — and the CBO Director, ubernerd Douglas Elmendorf. Their struggle is our struggle. Through it we can learn not only about ourselves, but about how to understand and talk about … numbers.

That’s right. I said we can talk about numbers. Wait! Don’t go. This doesn’t have to be boring! Numbers can be exciting!

First, the conflict. As NBC’s First Read reported: “Peter Orszag accused Congressional Budget Office Director Doug Elmendorf of ‘overstepping’ in a Web post Saturday … Orszag, a former CBO director, accused Elmendorf of playing into a stereotype that the CBO often overestimates cost and underestimates savings.”

This is war … between two analytical types whose names sound like characters in a Tolkien novel.

And they didn’t just throw down. They did it on blogs. The conflict began when Elmendorf blogged that the new Medicare advisory panel charged with reforming payments was likely to generate a paltry $2 billion in savings over the next ten years. Orszag replied by saying, in effect, that short-term savings was never the point, adding for good measure that the CBO had “overstepped.”

While it ain’t exactly rival rap entourages exchanging gunfire outside a radio station, it’s pretty badass stuff for number-cruncher types. Orszag’s post also suggests that the CBO would be wise to restrict itself to “qualitative” and not quantitative projections over longer periods of time – a polite way of say “you can’t touch – or quantify – this.” (His “qualitative” comment even includes a hyperlink … back to the very post it’s embedded in. Is that kind of head trip? Some ultra-hip, self-referential “meta” critique of the blogging medium itself?)

“Playing into a stereotype”? Those are fighting words in any context. The stereotyping in this case is between Orszag as geek and Elmendorf as nerd. While people consider the two terms interchangeable, here’s the difference: A ‘nerd’ is conservative, number-fixated, and highly rational. A ‘geek,’ while equally bookish and intellectual, is more given to flights of intellectual fancy and wild imagination.

A nerd can count. But a geek can dream.

Each of us can be a nerd or a geek at different times of our lives, of course, or even at different times of the day. But in this fracas, that’s how the social divide breaks down. Why? Perhaps it’s because Elmendorf’s job is to calculate the bottom-line effect of any program on the government and its coffers, while Orszag (who once held Elmendorf’s job) is allowed to project the long-term and systematic change that new ideas (like advisory panels) might have. There may be bigger savings in Orszag’s vision (I think there are), but dreaming those sweet dreams isn’t in Elmendorf’s job description.

For those of us who love our policy by the numbers, it’s heady stuff. It’s hard dollars vs. soft. It’s expenditures vs. imagination. Elmendorf is the stone-faced banker who won’t lend the money, while Orszag’s the inventor holding a prototype of the hula hoop. Elmendorf’s the dour landlord who says “Sorry, kids – the theater’s closed,” while Orszag is Mickey Rooney and Judy Garland saying “Hey, kids! Let’s put on the show right here!”

Orszag is the right brain and Elmendorf is the left. Orszag is the … oh, you get the point.

Does any of this matter? Actually, it does. We need to apply both types of rigor, but policy analysis is no different from judicial analysis. Numerical impartiality can be a mask for ideological leanings and other assumptions. Both Elmendorf and Orszag have important roles to play, but I think Orszag is right to look at a larger and more quantitative picture. Real “healthcare reform” will come in ways we can’t quantify yet.

I was also surprised by the ideology that seemed implicit in Elmendorf’s recent testimony about health reform. It was striking that he noted simply the cost to the Federal government, and not the potential for overall savings. Even more noticeably, according to the Wall Street Journal, he commented on the support many health policy analysts have expressed for taxing health benefits (an idea I’m not crazy about). The vast majority of health analysts believe there are great savings to be had, along with improved health outcomes, from structural reforms of the very kind that the Medicare panel represents. Elmendorf’s selective use of health analysts’ thinking reflects either ideology, a mode of thought, or (to be fair) simply his necessary focus as the “expenditure and revenue guy” on Capitol Hill.

It’s not up to me to adjudicate between these two analysts, whatever my biases. I do think Orszag has the cooler job, and perhaps as a result has a broader outlook. But that may only prove that I’m a geek. As for resolving this throwdown, maybe the President can invite the two of them over for a beer. Or an Ovaltine. They can watch sci-fi movies, chill out, and resolve their differences.

In the end, however, health care isn’t about the numbers at all. It’s about human lives. Numbers are only tools to help us achieve the right ends. If those of us who love numbers remember that, this will have been a true “teachable moment.”