Tuesday, September 27, 2011
Monday, September 26, 2011
The book provides a detailed outline of what the long run next steps in health care reform should look like, along with suggestions for tax reform and Social Security. It does not have to be either/or....
The decision by Standard and Poor’s to downgrade the long term U.S. debt to AA+ from AAA status seems to have been triggered by the political theater we just witnessed, as well as the policy “no man’s land” into which we have arrived. For all the bluster about the deficit, the debt ceiling deal did not address the primary drivers of our long term problem: a tax code that cannot raise the revenue necessary to pay for any plausible level of overall spending, and health care costs.We have plenty of short term problems that are going unaddressed as well. A quick look at the employment reports of the past year show that if we hadn’t lost government jobs the unemployment rate would be a percentage point lower, there is growing evidence that some sort of mortgage relief will be required to unstick the housing market, and unmet infrastructure needs to enable our economy to thrive in the 21st Century abound. Any short term economic intervention and investment seems crowded out by the noise of the debt ceiling debate and the quietness of the action so far undertaken to address the nature of the long term problem. We need to be able to walk and chew gum at the same time, but now we appear unable to do either.
Monday, September 19, 2011
The President's rhetoric today that raising taxes is not class warfare but math is correct. Taxes received as a percent of GDP will have to rise and spending will have to fall if we are ever to have a balanced budget again. I give the President credit for laying out a credible plan with about twice as much deficit reduction as what the Super Committee must identify, while also providing a plan to attempt to increase economic growth. We need to spur the economy in the short run while charting a path to a longer range balanced budget.
I have long preferred to have a Social Security fix sooner rather than later, mainly becasue it must be done some day, there is no guarantee progressives will be in a better position politically later, and most importantly because if we managed to agree to a fix it would work as planned, allowing us to focus on health reform and addressing health care costs which will have many mid-course corrections. My book lays out these arguments in great detail.
However, given the debt limit talks, it is not clear that the House Republicans would vote for any grand compromise in any event. This plan won't pass, but by drawing clear distinctions with Republicans, it may paradoxically make such a compromise more likely down the road. Here's hoping, but I am not holding my breath.
Monday, September 12, 2011
The idea in dropping corporate tax rates is to incentivize business activity. In my book, Balancing the Budget is a Progressive Priority, I mostly adopt the tax reform laid out by the Fiscal Commission and agree that 21% of GDP as the amount of tax revenue at which to seek balance is doable and a worthy target. However, I think we should end the corporate income tax (rate of 0%). This is obviously not the typical "progressive" policy suggestion, and it was not what I thought before I began writing the book. But, I changed my mind while considering the options. Here is my thinking:
- It is a small part of total Federal Tax receipts.The proportion of the federal tax receipts raised by corporate taxes was 35% in 1945 and has been no more than 10% the past 30 years; it was 7.2% in 2010.
- It is impossible to efficiently tax corporations. One reason corporate tax receipts are low is corporations have successfully lobbied for loopholes. This means the effective tax rate for most corporations is far below the nominal 35%.
- Dropping the rate to 28% and ending loopholes would be an effective tax increase for many corporations. Many Corporations will have a powerful incentive to oppose such a reform because it would result in an effective tax increase. The most powerful corporations presumably have the lowest effective rate, making any change other than ending the tax very difficult.
- This should increase the incentive to produce new jobs in the U.S. One reality is that job creation is slow now even though many corporations have lots of cash. It is true this policy will provide them with more. Some say that uncertainty is the culprit of slow job creation, and this would certainly end tax-based uncertainty. If this did not spur job growth then we would know that and could move on from there with different policy suggestions. Matt Yglesias suggests greatly lowering the corporate tax; his suggestion makes sense, but I think we might as well go all the way and end it.
- Politically, if progressives would push for this it would end (maybe?) the meme that we hate business.
- make capital gains and dividends normal income (assumed in table above)
- increase the top marginal personal income tax rate (I am unsure of how much it would have to rise)
- bring back an inheritance tax (I suggest 45% over $3.5 million and index the amount)
Thursday, September 1, 2011
This week I have blogging about lessons for health policy that can be learned from the National Flood Insurance Program.
Tuesday, August 23, 2011
No, of course not. In fact, I note that what the country most needs to respond to health care costs (ch. 7) is a political deal that allows people of all political stripes to both get some "credit" for health reform, but most importantly to have "some responsibility" for doing the hard work of addressing health care costs. Currently, health reform is a political football and there is no hope of moving ahead so long as every new study, finding, etc. is first and foremost the next "projectile" is a political war about health reform. It will take every "side" if we are going to truly address health care costs.
The title of your book is "Balancing the Budget is a Progressive Priority". I consider myself a Conservative. Does this mean that there is not a message in the book for me?
Why include Progressive in the title then? Basically, the book is written to Progressives who have traditionally focused on protection of key programs such as Medicare, Social Security, and Medicaid. In that sense, I am addressing my arguments to people with whom I generally agree politically and in policy terms. I think we have been slow to respond to the need to change our budget to achieve long term sustainability. It is true that I do not generally prefer the policy solutions often espoused by "Conservatives" but that is not always the case. And I fully realize that there is no way I would ever get I want in terms of the way forward. It will take compromise.
A word on labels. I would define a Progressive as believing that collective action (government) has an important and active role to play in improving the lives of people. However, resources are limited. In that sense, I would call myself a cautious Progressive. If people who call themselves different things identify or agree with some of the themes/ideas of the book then great! We will be on our way to practically solving some problems. I wouldn't expect anyone to agree with me about everything.
Monday, August 22, 2011
The past few days have brought about some interesting conversations with my colleagues in the Sanford School of Public Policy at Duke where I teach about the publishing avenue I have taken.
Friday, August 19, 2011
- Everyone dies
- Before that, the healthy subsidize the sick
I am interested in the moral and conceptual issues connected to Taylor's Second Law and its corollary that health policy is fundamentally about how the healthy will subsidize the sick.Go and read Paul's post as it is a very thoughtful explication of what underlies what I call the second law. He is correct that I mostly think of the second law as a statement of fact, but reading his post lets me know I need to think a bit more about this, especially since it is stated as a "law." The challenge of stating a third law strikes me as important, especially given that our country needs to learn to talk more explicitly about the difficult public policy decisions and trade-offs inherent with health care reform.
Tuesday, August 16, 2011
I started writing this book about 14 months ago thinking that the goal would be to try and put discussion of the balanced budget onto the national agenda. I had planned to start seeking a traditional publisher now, but the timing of such a book (next Summer at best) would likely have come much too late for the coming policy discussions this Fall and Winter, especially with the creation of the super committee. Hence, I decided to put out a pared-down version of my argument in a self-published e book.
Many say that we need to be supporting the economy now, instead of focusing on the budget deficit. I think we need to do both, and that the lack of a long range plan for a balanced budget actually crowds out the ability to undertake short term policies that might support our sluggish economy.
From the prologue of the book:
As the super committee gets underway, this book is really my version of what the "grand bargain" should look like. Perhaps movement toward one will enable short term policies to support the economy.
The decision by Standard and Poor’s to downgrade the long term U.S. debt to AA+ from AAA status seems to have been triggered by the political theater we just witnessed, as well as the policy “no man’s land” into which we have arrived. For all the bluster about the deficit, the debt ceiling deal did not address the primary drivers of our long term problem: a tax code that cannot raise the revenue necessary to pay for any plausible level of overall spending, and health care costs.
We have plenty of short term problems that are going unaddressed as well. A quick look at the employment reports of the past year show that if we hadn’t lost government jobs the unemployment rate would be a percentage point lower, there is growing evidence that some sort of mortgage relief will be required to unstick the housing market, and unmet infrastructure needs to enable our economy to thrive in the 21st Century abound. Any short term economic intervention and investment seems crowded out by the noise of the debt ceiling debate and the quietness of the action so far undertaken to address the nature of the long term problem. We need to be able to walk and chew gum at the same time, but now we appear unable to do either.
Friday, August 12, 2011
Everyone is buzzing today about the 11th Circuit Court of Appeals ruling that the individual mandate in the ACA is unconstitutional, but severable, meaning the remainder of the law could remain even if the mandate is invalidated. There are a variety of policy remedies that could be used to try and reduce adverse selection in the absence of an individual mandate. In policy terms, all would not be lost, and the mandate is quite weak in any event. Politically, I think it is a different story.
The Supreme Court will now almost certainly hear the case, and perhaps rule next Summer just as the Presidential campaign hits full boil. The "losing side" be it President Obama and the Democratss or the Republican party will receive quite a political blow.
I don't believe there is any perfect health system and certainly no perfect health reform plan. What our country most needs is a way forward in health reform that provides both "sides" with some credit, and most importantly, which makes both sides responsible for the next, harder steps in addressing health care costs. Currently, every health policy study, finding or news items is first and foremost the next salvo in a political war that is being waged over the ACA. We have no hope of doing the hardest things in health reform as long as it remains politically toxic.
Democrats do not want to see their major policy achievement lose a key aspect, and Republicans, if they are smart will realize they do not have a coherent health reform plan and that they need one if they are serious about achieving a balanced budget some day.
Both sides have an incentive to remove the uncertainty that a Presidential-year court ruling on the mandate might bring and strike a deal. The book suggests the outlines of such a deal that would have at its heart guaranteed, catastrophic insurance that would render the individual mandate unneeded, and render the court cases moving toward the Supreme Court, irrelevant.
More next week.
Sunday, July 24, 2011
For readers of my blogging, many of the themes will be familiar, but the book is my attempt at a comprehensive though brief treatment of our nation's long term fiscal problems framed in the context of the next steps that we need to take after the passage and impending implementation of the Affordable Care Act (ACA). Slowing the rate at which health care costs are growing is a necessary, but not a sufficient condition to developing a long range balanced budget.
It is a premise of the book that we will deal with the deficit and rapidly accumulating debt at some point because we will reach a crisis point in the future; the only question is whether we will do so in a reasoned, thoughtful manner, or whether we will be forced to act in the midst of a debt-driven crisis that limits our options. It is a claim of this book that Progressives need a balanced budget more than Conservatives do because we believe that government has an important role to play in modern life to make the lives of our people better.
Lack of a long term plan to move toward a sustainable budget crowds out short term Progressive priorities: infrastructure, green technology, more efforts to support the economy in our continued period of slow growth and so on.
The current debate regarding the debt limit in Washington, DC is insane and definitely not reasoned--we are at great risk of a self inflicted harm to our economy due to hesitancy to enable the executive branch to pay the bills to implement the budgets that Congress already passed. Short term cuts in discretionary spending is the last thing that we need in a weak economy. And it is not necessarily conducive to the best policy to be discussing such important changes in the context of impending default of our debts. However, discussion of the long term fiscal problems of our nation has definitely been put front and center on the national agenda and progressives have got to engage. My book makes the case that developing such a long range plan should be a priority for progressives, both in policy as well as political terms.
I will be blogging a bit on the book here at my old blog instead of The Incidental Economist because we try and focus on research evidence at TIE. Though based on my reading of some research, this book is very much my personal version of the way the world should be. If you like the way I blog, you may be interested in knowing my thoughts.
Friday, March 18, 2011
I especially would like to encourage my hospice and palliative care colleagues to join the fray at the Incidental Economist as that area will remain one of my key topics and your perspective would be valuable at the blog.
You can also follow the Incidental Economist on twitter @IncidentalEcon
This twitter feed tweets nothing but the posts from the blog
I will continue to tweet from @donaldhtaylorjr and will tweet some, but not all of my posts from the Incidental Economist.
The blog Freeforall will stay live for the time being. Eventually, the posts will be migrated to the Incidental Economist, and the donaldhtaylorjr.blogspot.com domain is likely to become a blog I use for the courses I teach at Duke only.
Thursday, March 17, 2011
Steve Pizer has been writing this week on how health reform will change private and public insurance, based on a recent working paper he co-authored with colleagues Austin Frakt and Lisa Iezzioni. In particular, he has focused on the role of the excise tax on high cost insurance policies that is contained in the ACA (aka 'the Cadillac tax'), and its effects on low wage workers. Generally, high cost insurance policies are associated with high paying jobs, which is mostly true and documented in their paper and posts. However, firms with expensive health insurance plans do have low wage workers, and Steve has looked at the role the excise tax could play in crowding out low wage workers from private, to public insurance under the ACA. CBO estimates that around 3 Million (net) persons who would otherwise have employer based private insurance in 2019, would instead purchase subsidized coverage in the exchanges, or move into Medicaid under the ACA. It was never entirely clear to me who they would be.
The Cadillac tax contained in the ACA is one of the primary policy tools that should slow the rate of health care cost inflation. The tax was sold politically as one on insurance companies, but this tax will be passed on to employees, with the intent of the tax being for employers to provide lower cost policies to employees whose premium value is above the tax trigger point. This will mean less insurance and more out of pocket costs, which will slow health spending. This should also lead to wage increases over time as some premium dollars are converted to wages as employees decide they would rather have cash than premiums if the latter is taxable income. In short, it is a tax that is designed to be avoided, and in doing so will shift some compensation from a tax free form (employer paid premiums) to taxable wages while increasing out of pocket health care costs.
The current budget debate has been noisy but hasn't focused on the actual crux of the long term budget problem: health care costs. If the current budget debate is actually going to deal with the budget deficit problem, it either has to replace the ACA or add something in addition to the ACA that further addresses costs. Nearly two months after the House voted to repeal the ACA, the Republicans have not offered an alternative plan.
In looking for a bipartisan down payment on health reform for this Congress, the most (and maybe only) area I can think of that leaves the larger question about the direction of health reform to the 2012 election is to modify the tax treatment of employer paid health insurance. Since World War II, employer paid insurance premiums have not been taxable, giving those with good employer sponsored plans tax free income and resulting in more insurance than we would have if we bought policies with after tax dollars. Addressing this would be a consequential change.
The Cadillac tax that is part of the ACA could be started earlier, say in 2012 instead of its current start date of 2018. Even better would be to replace the Cadillac tax with a reform of the tax code that caps the amount of employer paid premiums that are excluded as taxable income. I would prefer capping the tax exclusion to the tax on high cost insurance for several reasons.
- It helps orient the country that the subsidy being reduced has been flowing to people like me with expensive employer-based health insurance.
- Virtually all Republican health proposals typically include ending the tax exclusion (Sen. McCain's Presidential campaign plan; The Patients' Choice Act; Michael Cannon's plan from CATO, etc.).
- Democrats have already voted for a back-door capping of the tax exclusion via the tax on high cost insurance contained in the ACA.
- Capping the tax exclusion is more progressive in that it doesn't hurt low wage persons working for firms with high cost insurance as much as the excise tax would.
- Capping the tax exclusion should lessen the crowd out effect of low wage workers from private coverage into exchanges or Medicaid which Pizer and colleagues believe are at greatest risk of this; this issue is of great interest to Conservatives.
For the family coverage with premium value of $19,000, the amount of excise tax owed would be $19,000-$15,750=$3,250 x 40% = $1,300 (green box in chart above). For single coverage the amount of excise tax owed would be $860. Note that the amount of tax owed for the excise tax is the same regardless of wages because it is based on the value of the policy.
If you instead use the excise tax trigger points as the amount at which to cap the tax exclusion of employer paid premiums ($5,850 for individual; $15,750 for family) you find that the total tax increase (income and payroll tax) with a capping of the tax exclusion is around $100 less for individuals with initial wages of $100,000 ($766 v. $860) but much less for individuals with $10,000 in initial wages ($379 v. $860) [gold box in chart]. Note that in the case of a single person with $10,000 income even with an increased income tax liability they would still receive a (smaller) income tax refund ($335 refund without capping tax exclusion, $120 if capped, hence +$215 in column labeled Change in Income Tax).
For family coverage (4 persons, 2 dependent children both eligible for child tax credit), the change from the excise tax to a capping of the tax exclusion of employer paid insurance would have an even larger impact on low income families, as total tax paid (income and payroll) by a family with $10,000 in initial wages and an expensive insurance plan would be -$419 with a cap v. +$1,300 with the excise tax. Note, income tax liability drops with increased income from $10,000 to $13,250 because of the EITC. The total tax owed will always be less under capping the tax exclusion as compared to the same dollar value as the excise tax trigger because the highest marginal income tax rate (35%) is lower than the excise tax rate (40% on the amount above the trigger value). The benefit is greater for lower income persons because they are in a lower marginal income tax bracket.
Keep in mind that the goal of both policies--tax on high cost insurance policies and the capping of the tax exclusion of employer paid insurance is for persons to avoid these taxes by having less generous coverage. This will slow health care cost inflation by exposing those with expensive private plans to more out of pocket costs. It will also shift compensation over time to taxable wages away from tax free income via insurance premiums, increasing both disposable income and tax receipts. The amounts estimated here are best thought of as relative signals to employees and employers to change their insurance offerings and choices, and I have admittedly used simple examples. Let me know if you think I have made errors, because there are lots of things going on even in this simple example.
In summary, moving in this Congress to reform the tax treatment of employer paid insurance by capping the amount of employer paid premiums excluded from income would:
- mean the budget debate actually addressed the biggest long term budget problem, health care costs.
- do so in a more progressive manner (more beneficial to low wage workers) that I believe would lessen the crowd out (into exchanges or Medicaid) incentive of low wage workers at firms offering high cost insurance.
- provide a bipartisan down payment on health reform that is flexible. Doing this would improve the cost saving potential of the ACA, and of any imaginable health reform strategy. The big picture of whether to move ahead with the ACA or to adopt the (forthcoming?) Republican alternative could then be reserved for the 2012 election.
Update: I had an error in the original table for family of 4, $10,000 income; correct reduction in income tax if capping tax exclusion at premium of $15,750 is -$668 (I had -$488 in original) and the correct net effect of a cap is -$419 reduction in total tax liability (I had -$239 in original). Sorry about the error; it doesn't change the analysis.
Wednesday, March 16, 2011
Please subscribe to the Incidental Economist as that will be my primary blogging home by Friday, March 18, 2011. This site will remain available for links and searches....there may be a migration of posts at some point in the future, but not right away.
Freeforall was started on a whim as a way to aggregate some background information related to the columns that I wrote on health reform for the Raleigh (N.C.) News and Observer. It has become an important part of my professional life, and having to explain myself and take public responsibility for my words on a (near) daily basis has helped me refine what I think, learn to make the case, and realize that I am sometimes wrong (my wife and kids already knew this). The people that I have met because of the blog have convinced me that we academics must go beyond simply publishing a paper in a peer review journal if we truly want to have an impact, but paying attention to the research has been what I have tried to do. Beyond that, I have wanted to give others the benefit of the doubt because that is what I would like to receive in return as we debate and discuss our way toward a better health care system. The tag line of the Incidental Economist is "Contemplating health care with a focus on research, an eye on reform." Sounds perfect for me.
Limiting the tax preference of employer paid insurance starting in say 2012 is a simple, consequential and flexible policy that will work to slow health care costs regardless of the future direction of health reform. Doing so would improve the saving potential of the ACA and will work as intended under any imaginable health reform Republicans might someday pass. Anyone claiming to be interested in the deficit who is not advancing policies to address health care costs is only talking.
Update: Steve Pizer at Incidental Economist with fourth in a series on the tax on high cost health insurance that will begin in 2018 under the ACA. Democrats have already voted for limiting the tax preference of employer paid insurance via this provision, and most Republican plans talk about ending it all together. So, bring this tax, or a more direct limiting of the amount excluded from taxes in a tax reform context into 2012. It will actually work to slow health care costs!
Further, if I interepret Pizer's figure correctly, a shift from a tax on high cost insurance to a similar capping of the tax exclusion of employer paid insurance premiums should lessen the crowd out (from private to subsidized insurance, Medicaid) effect on low income workers who would be less likely to have their tax liability increased due to a capping of the exclusion. So capping the tax exclusion is more progressive than the tax on high cost insurance (I think). There is some cap of the tax exclusion that can raise the same amount as the tax on high cost insurance, but which might do so with less crowd out (I think). I need to noodle on that a bit.
Tuesday, March 15, 2011
- The memo is more recent, so things could have changed, and do change with the ACA (on the revenue side).
- MEDPAC appears to have not considered volunteer costs in calculating margin, whereas I think the Moran memo did; so the two sources don't appear to have used the same costs in calculating margin.
- MEDPAC notes that cost structure of hospices was the key driver in differences in margin, which in one sense is a tautology given hospice has a straight per diem payment (MEDPAC report has gory details).
- Large cost differences give rise to questions about quality.
- As with most discussions of hospice and costs, quality is not addressed here (in the memo; is discussed a bit by MEDPAC). We really need to move toward discussing quality and cost together so that we can have some sense of value being provided to patients. This is generally true in health care, but is acutely true in hospice because it seems to be the only part of the Medicare program that is expected to improve quality of life and save money for Medicare overall.
h/t @ctsinclair Christian Sinclair who blogs at PalliMed blog. Update: just got a grant from the HCFO Initiative of RWJ Foundation to study these issues (note the email they list for me in the link is wrong; don dot taylor at duke dot edu).
I further stated that I would prefer Michael Cannon's health plan to the status quo, though it is not my preferred choice. A key aspect of his plan is the vouchering of the Medicare program, in which beneficiaries would get age and risk adjusted vouchers with which to purchase private insurance. This is similar to the Medicare option of Paul Ryan's roadmap proposal.
A commenter to yesteday's post (Steve) asks a question about vouchering Medicare:
"Has anyone priced out what private insurers would charge these elderly for insurance. I have asked my broker and they will not quote prices for Medicare aged buyers."
This question, and many related questions that flow from it are the primary reasons that vouchering Medicare is not my preference. I cannot decide if I am skeptical for political only, or political plus technical reasons. Leaving aside the political concerns, and the irony of critics of the ACA essentially wanting to create the structure of the ACA for Medicare, here are a mixture of assertions (end in period) and questions (have a question mark) I have about vouchering Medicare.
I would be interested in people's insights, especially if it is in the form of 'no, we can deal with that in this way' or 'no, you are wrong and here is why.'
- Insurance is the trading of a known cost (premium) for protection against an uncertain occurrence of a potentially catastrophic cost
- Many/most Americans think of health insurance as a mechanism to finance care
- Before Medicare was passed, about half of the elderly had no health insurance, though private insurance did exist
- There have been private plans in Medicare for about 35 years or so; until the BBA of 1997, they were straight cherry pick deals in which healthier people signed up and the HMO actually increased costs. Subsequent modifications of the program have resulted in continued overpayment and muddled answers to questions about which are more efficient or higher quality.
- Vouchering Medicare will require 100% of beneficiaries to be included, including the 7.5 Million dual eligibles.
- In FFS Medicare, around 10% of the beneficiaries consume around 60% of the dollars in a given year.
- Everyone dies, and it is well known that costs rise near death.
- Medicare insures 13% of the population, but covered 83% of the people who died last year.
- Private Medicare plans are increasingly focused in a few large private insurance companies. This would seem to be bad from a competition standpoint, but good from a risk pooling standpoint. Would the vouchering of Medicare not simply produce a few very large private plans who would function like public utilities? Would that be bad from the perspective of advocates of vouchering? If a small entrant got a bunch of dual eligibles in their pool, wouldn't they be sunk?
- Why would an insurance company want to be in this private Medicare insurance business in the first place since the profit in insurance is not in volume, but in margin? And Medicare is about volume (high costs).
- If private vouchering Medicare works and saves money, doesn't that mean that less care is delivered and/or less is paid for the same care? Is the real reason to voucher because advocates don't think FFS Medicare can say no (via expert driving rationing say), but they you assume that profit driven insurance companies will be more incentivized to say no?
- Are there ways in which this is mostly semantics and Medicare is not as dissimilar as private vouchering?
Update: Austin Frakt has some interesting posts on competitive bidding (the way to set the voucher amount) in Medicare here and here (with many links to take up your entire day!). He is quite positive about the technical possibility of this approach mixed with realism that it will be hard to address costs in any way.
Rehan Salam on why he wants to voucher Medicare but doesn't like similar structure for non-elderly in ACA.
Ezra Klein: responding to Salam (who was responding to him) and making the point that structure of vouchering can work, the key is cost control (Ryan roadmap for example says 1% above general inflation).
The biggest problem for Conservative critics of the ACA is they have said that steps to slow costs in the ACA won't be taken because they are too hard, but their plans also rely on equally hard (or harder) steps. We need a political/cultural deal on how we will address coverage, and then focus on costs. If the focus is on policy, we can work it out. So long as it is only a political football 'your hard thing is impossible, but mine is easy' we are doomed to talk about cutting NPR while not addressing the real cause of the long range deficit: health care costs.