On friday I wrote that I receive $6,600 in tax free income from Duke each year. This is the amount Duke pays in premiums for my insurance. The fact that Duke pays premiums and I pay no taxes means I am shielded from the cost of my insurance. This has been going on with little fanfare since WWII in the U.S. system, and has lead to employees getting used to someone else paying for a large portion of their insurance. Like I tell my students, many workers think the benefit fairy brings insurance.
The monthly premium I pay ($335/month) is paid for in pre-tax dollars. My salary is reduced by paying this premium, but I get a subsidy from the U.S. treasury (e.g. all taxpayers) equal to the amount of tax that I don't pay on whatever I spend on premiums. I benefit by paying premiums on a pre-tax basis. An indivdiual calling up a private insurance company and getting a policy would pay premiums using after tax dollars.
I benefit from both of these (Duke paying premiums and me not paying taxes on that amount) and me paying premiums and not paying taxes on that amount. I think the second is less distorting than the first because: (1) I at least know that I am paying premiums, and how much I pay; and (2) there are cheaper options available from Duke, meaning I have exercise some choice in which plan I select. But, some readers felt I was trying to under-represent the amount of subsidy that I get from how insurance is now set up.
The way I see it, self employed people do not get tax free income, because there is no employer paying premiums on their behalf that they do not have to pay taxes on. They do get a subsidy similar to what I get when they purchase insurance in pre-tax dollars, thus saving payroll and income taxes. But, the premium cost is deducted from their income.
The total figure quoted in the column I wrote ($250 Billion) includes these costs, but also several other types of tax expenditures, such as money put into flexibile spending accounts (used to pay out of pocket expenses such as eye glasses and prescriptions--you guessed it, I've got one of them too), and the fact that out of pocket health care expenditures greater than 7.5% of gross income are deductible from anyones taxable income when you file an income tax return.
Here is a paper focused on tax year 2004 (total cost to treasury that year, $188 Billion) that walks through the details of various ways in which the tax code subsidizes health insurance premiums and health care expenditures.
Monday, July 13, 2009
Four Question Interview with Mike Munger
I want freeforall to be a discussion. So, I thought I would have a series of four question interviews with a variety of persons from different perspectives. The rules of the interview are that I will pose the same four questions to different folks and publish their responses in full. You can get mad at me for stuff I write, but not for stuff others write.
First up is Mike Munger, chair of the political science department at Duke University, and the Libertarian Party candidate for Governor of North Carolina in 2008. Mike and I go way back...he taught me in graduate school at UNC his first semester as an assistant professor and we both survived. Mike is in Germany this summer.
Question 1. What is the biggest problem facing the U.S. health care system?
Sharply rising costs. Two ways to "solve" the costs problem: (a) give everyone insurance, so that they are insulated from cost increases. (b) reduce cost increases, and find ways to make basic health care cheaper.
(a) is the most talked about option, but it is a bad idea. Someone (the taxpayer) still pays for insurance, so we are not really protected from cost increases. The French economist, Frederic Bastiat, said that the state is the fiction that each of us should be supported by all of us. It may be that universal coverage for serious illness would protect people, but "free" health care is too expensive, unless we get a handle on costs.
Option (b) is much better, but harder, because medical lobbies and interest groups will fight it. The problem is that we do not teach, or reward, preventive action by citizens or basic primary care by physicians. NC has a big shortage in primary care, at every level.
Put it this way: I have auto insurance. But it does NOT pay for oil changes. If I don't do the oil changes, then the car will decline in value and break down. Nobody else has to pay for my bad decisions, and insurance won't cover the new engine if I ruined the old one by running without oil or maintenance.
Why should other people have to pay for the fact that I don't exercise, that I smoke, and that I eat a bad diet? "Free" insurance protects me against my own choices.
The answer is to lift restrictions on primary practice by Physicians Assistants and Nurse Practitioners. I'm not saying they should do annual check ups; we need docters, with broad training and experience, for that. But for many complaints, and for advice on diet and exercise, and smoking, even a simple computer based expert system can do a fine job. If I have a minor infection in my finger, or need my blood pressure checked, or want to know about the tingling in my diabetic toes, then I should be able to show up an office, without an appointment, and pay no more than $30 for the visit.
We can do this with oil changes, and it works fine! Why not with basic office visits? Right now, people delay going to primary care, or can't get an appointment. Then they have a REAL infection, or a stroke, or they have to have gangrenous toes removed at the emergency room.
Legalize health care. Allow PAs to practice basic primary care. And reduce the costs and hassle of going to the doctor. There is no reason it should be harder, or more expensive, than an oil change.
Question 2. What do you most want to see preserved about the U.S. health care system?
The US is the best in the world at designing new procedures for operations, and new protocols for physical therapy and prosthetics. That drive for innovation has to be preserved, whatever else we do.
Question 3. What is the most important health policy priority for North Carolina (or the USA)? [answer which ever you want to answer]
Reduce costs, and legalize basic primary care offered by Physicians' Assistants.
Question 4. If you could design a health system from scratch, what would it look like?
Universal private insurance, with large deductible. Very large amounts for total coverage, so that most major procedures are covered. People minimize basic health care costs by taking care of themselves, but the truly sick get taken care of by the system. Lots more competition, and many more providers, in primary care.
Our current system has it backwards: people want LOW deductibles (which is expensive), but then they often run out of benefits, or get cancelled, if they have a serious medical problem.
Mike Munger, in Germany
First up is Mike Munger, chair of the political science department at Duke University, and the Libertarian Party candidate for Governor of North Carolina in 2008. Mike and I go way back...he taught me in graduate school at UNC his first semester as an assistant professor and we both survived. Mike is in Germany this summer.
Question 1. What is the biggest problem facing the U.S. health care system?
Sharply rising costs. Two ways to "solve" the costs problem: (a) give everyone insurance, so that they are insulated from cost increases. (b) reduce cost increases, and find ways to make basic health care cheaper.
(a) is the most talked about option, but it is a bad idea. Someone (the taxpayer) still pays for insurance, so we are not really protected from cost increases. The French economist, Frederic Bastiat, said that the state is the fiction that each of us should be supported by all of us. It may be that universal coverage for serious illness would protect people, but "free" health care is too expensive, unless we get a handle on costs.
Option (b) is much better, but harder, because medical lobbies and interest groups will fight it. The problem is that we do not teach, or reward, preventive action by citizens or basic primary care by physicians. NC has a big shortage in primary care, at every level.
Put it this way: I have auto insurance. But it does NOT pay for oil changes. If I don't do the oil changes, then the car will decline in value and break down. Nobody else has to pay for my bad decisions, and insurance won't cover the new engine if I ruined the old one by running without oil or maintenance.
Why should other people have to pay for the fact that I don't exercise, that I smoke, and that I eat a bad diet? "Free" insurance protects me against my own choices.
The answer is to lift restrictions on primary practice by Physicians Assistants and Nurse Practitioners. I'm not saying they should do annual check ups; we need docters, with broad training and experience, for that. But for many complaints, and for advice on diet and exercise, and smoking, even a simple computer based expert system can do a fine job. If I have a minor infection in my finger, or need my blood pressure checked, or want to know about the tingling in my diabetic toes, then I should be able to show up an office, without an appointment, and pay no more than $30 for the visit.
We can do this with oil changes, and it works fine! Why not with basic office visits? Right now, people delay going to primary care, or can't get an appointment. Then they have a REAL infection, or a stroke, or they have to have gangrenous toes removed at the emergency room.
Legalize health care. Allow PAs to practice basic primary care. And reduce the costs and hassle of going to the doctor. There is no reason it should be harder, or more expensive, than an oil change.
Question 2. What do you most want to see preserved about the U.S. health care system?
The US is the best in the world at designing new procedures for operations, and new protocols for physical therapy and prosthetics. That drive for innovation has to be preserved, whatever else we do.
Question 3. What is the most important health policy priority for North Carolina (or the USA)? [answer which ever you want to answer]
Reduce costs, and legalize basic primary care offered by Physicians' Assistants.
Question 4. If you could design a health system from scratch, what would it look like?
Universal private insurance, with large deductible. Very large amounts for total coverage, so that most major procedures are covered. People minimize basic health care costs by taking care of themselves, but the truly sick get taken care of by the system. Lots more competition, and many more providers, in primary care.
Our current system has it backwards: people want LOW deductibles (which is expensive), but then they often run out of benefits, or get cancelled, if they have a serious medical problem.
Mike Munger, in Germany
Sunday, July 12, 2009
Two Sides, Three Issues
Brief arguments taking different sides on three reform issues in today's New York Times, including the tax subsidy for employer provided insurance.
Saturday, July 11, 2009
Fire, meet gas
is what David Brooks sees in the Congressional health reform bills winding their way through the various committees. His main point is that the bills are focused only on covering the uninsured, and then in trying to pay for these expansions either through reducing federal spending or raising taxes (they seem to be serious about doing this). But they aren't focused on trying to slow down health spending.
I can follow the logic of saying we have to cover everyone first, get rid of the cross subsidies in the system and then move to slowing down costs. But, that logic seems to apply most strongly to a single payer approach which would have the ability to use cost effectiveness research on a comprehensive basis. And that option is not seriously in play.
The broad cuts to Medicare which are a part of (paying for) all the Congressional plans are very blunt tools, and not an attempt to seriously address situations like this. Cutting Medicare payment rates could actually incentivize providers to undertake the 'higher cost, but maybe not worth it', treatment options.
I can follow the logic of saying we have to cover everyone first, get rid of the cross subsidies in the system and then move to slowing down costs. But, that logic seems to apply most strongly to a single payer approach which would have the ability to use cost effectiveness research on a comprehensive basis. And that option is not seriously in play.
The broad cuts to Medicare which are a part of (paying for) all the Congressional plans are very blunt tools, and not an attempt to seriously address situations like this. Cutting Medicare payment rates could actually incentivize providers to undertake the 'higher cost, but maybe not worth it', treatment options.
Friday, July 10, 2009
Delay in release of bill
Delay in the release of House Dem version of reform to address 'Blue Dog' concerns. When you hear someone say the Democrats health plan will......you should ask 'which Democrats?' Not exactly a solid voting bloc on health reform.
Update: House Dem committee plan proposes income tax increase on individuals making $280,00+ and couples making $350,000 which they project will raise $550 Billion over 10 years, around half of the $1 Trillion total cost of the bill over that time...Medicare cuts would make up a good deal of the rest.
There are only so many ways to come up with $50 Billion/year:
*income tax increase as noted seems in play in this house committee bill
*cap tax subsidy on employer provided health insurance seemed to be in play in the Senate, but many cooling to the idea
Update: House Dem committee plan proposes income tax increase on individuals making $280,00+ and couples making $350,000 which they project will raise $550 Billion over 10 years, around half of the $1 Trillion total cost of the bill over that time...Medicare cuts would make up a good deal of the rest.
There are only so many ways to come up with $50 Billion/year:
*income tax increase as noted seems in play in this house committee bill
*cap tax subsidy on employer provided health insurance seemed to be in play in the Senate, but many cooling to the idea
Health Reform, Column 1
I have a column in today's Raleigh, News and Observer discussing the possibility of repealing or limiting the tax subsidy for employer provided health insurance as a way to pay for health reform. On the side bar to the right is a new paper in the New England Journal of Medicine by Jonathan Gruber discussing this idea more completely.
I wrote an op-ed laying out what I say as the basics of any health system in early June.
I will be writing a weekly column in the N and O on various aspects of health reform. If there is a topic you would like to see addressed, let me know.
I wrote an op-ed laying out what I say as the basics of any health system in early June.
I will be writing a weekly column in the N and O on various aspects of health reform. If there is a topic you would like to see addressed, let me know.
Wednesday, July 8, 2009
The prostate cancer test
An interesting article in today's New York Times that clearly identifies an issue that would not be addressed by simply increasing insurance rates. The article says that treatment options for prostate cancer vary by a factor of 20 or more, and it is not clear which is better. Assessing both the costs and benefits of competing treatment options is cost effectiveness analysis. There are tricky issues in doing CEA analysis correctly. However, if you say you are opposed to using cost effectiveness analysis in making health care decisions, you are saying you don't want to know which treatment is best, and whether the more expensive options 'are worth it'.
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