Nobody Considers Health Insurance Mandates a Tax? Really??
As my colleague Jeffrey Miron noted earlier today, when grilled by George Stephanopolous on whether the so-called “individual mandate” is a tax increase, Obama replied, “Nobody considers that a tax increase….You can’t just make up that language and decide that that’s called a tax increase…My critics say everything is a tax increase.”
Where do Obama’s critics get these wacky ideas? From a bunch of nobodies, that’s who!
Princeton economist Uwe Reinhardt, quoted by Larry Summers (1987):
[Just because] the fiscal flows triggered by mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax.
Economist Larry Summers, Obama’s National Economic Council chair (1989):
Economists have generally devoted little attention to mandated benefits regarding them as simply disguised tax and expenditure measures… Essentially, mandated benefits are like public programs financed by benefit taxes… [If] the mandated benefit is worthless to employees, it is just like a tax from the point of view of both employers and employees…There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers.
Columbia University economist Sherry Glied, Obama’s appointee to HHS Assistant Secretary for Planning and Evaluation, in the New England Journal of Medicine (2008):
The mandate is in many respects analogous to a tax. It requires people to make payments for something whether they want it or not. One important concern is that the government will provide insufficient funds for the subsidies intended to accompany the mandate. In that case, the mandate will act as a very regressive tax, penalizing uninsured people who genuinely cannot afford to buy coverage.
Congressional Budget Office (2009):
Under some proposals, firms would be required to make payments to the federal government if they chose not to offer health insurance to their employees, and individuals who did not comply with the requirement to obtain insurance would have to pay a penalty. Such payments would be equivalent to a tax or a fine, and the government’s receipts should be recorded in the budget as federal revenues.
Here’s a question: if an individual mandate is not a tax, why exempt anybody? If an employer mandate isn’t a tax, why exempt small businesses?
Filed under: Cato Publications; General; Health, Welfare & Entitlements; Tax and Budget Policy
Washington Post Misrepresents Individual Mandates
Here’s a poor, unsuccessful letter to the editor I sent to The Washington Post:
“Like Car Insurance, Health Coverage May Be Mandated” [July 22, page A1] paints a misleading picture of proposals to require Americans to purchase health insurance – i.e., an “individual mandate.”
First, the article lacks balance. It cites three politicians who support an individual mandate but none who oppose it, a group that includes a majority of Republicans. The article claims an individual mandate “has its roots in the conservative philosophy of self-reliance,” even though most conservatives, including the movement’s flagship magazine National Review, oppose the idea. The closest the article comes to offering an opposing perspective is one conservative who has supported an individual mandate in the past and may yet again, just not yet.
Second, the article makes the demonstrably inaccurate claims that an individual mandate “lowers overall costs” and “help[s] keep premiums down” by adding more young and healthy people to the insurance market. Forcing healthy people to purchase insurance does not affect premiums for sicker purchasers, because insurers set premiums according to each purchaser’s health risk. The article confuses a mandate with price controls, which force low risks to pay more so that high risks can pay less.
Finally, if an individual mandate reduced overall costs, then health care spending would be falling in Massachusetts, which enacted the nation’s only individual mandate in 2006. Instead, overall health spending is rising, and the rate of growth has accelerated under the mandate. Rising health spending implies rising health insurance premiums, which has also been the Massachusetts experience.
End the Credit Rating Monopoly
Earlier this week, SEC Chair Mary Shapiro appeared before Congress to suggest ways to fix the failings in our credit rating agencies. Sadly her proposals miss the market, although that shouldn’t be so surprising as her suggestions appear to rest upon a misunderstanding of the problem.
The thrust of the SEC’s current approach is more disclosure, such as releasing “pre-ratings” that debt issuers may get before final issuance. Additional disclosure of ratings methodology and assumptions is likely to be useless. Almost all that information was available during the building housing bubble. The problem is that the rating agencies had little incentive to go beyond the consensus forecasts of increasing to at most modest declines in home prices. These same assumptions were the foundation of almost all government economic forecasting as well, yet few believe that forcing CBO or OMB to disclosure more of their forecasts will cure our budget imbalances. What is needed is a change in incentives.
Cato on Health Care Reform
We are now facing some of the most sweeping changes health care has seen in decades. Reform is needed, but increasing government control over one-sixth of the economy and over important personal and private decisions — as many of the proposals aim to do — would harm American taxpayers, health care providers, and patients.
This week, the Cato Institute launched Healthcare.Cato.org, which highlights Cato’s contributions to the health care debate. The resources provided on the site provide in-depth analyses of health care issues and reform initiatives, and underscore the ways in which free-market reforms, increased consumer choice, and energized competition — not more government control — improve the quality and cost-efficiency of health care.
Please check back regularly for updates and new resources!
Update: The Cato Institute Conference on Health Care Reform will be Webcast live from 9:00-5:00 PM Wednesday.
Featured speakers:
- Rep. Paul Ryan (R-WI)
- Rep. Michael C. Burgess, M.D. (R-TX)
- Rep. Jason Altmire (D-PA)
- Karen Davenport, Director of Health Policy, Center for American Progress
- Douglas Holtz-Eakin, Former Director, Congressional Budget Office, and Director of Domestic and Economic Policy for the McCain presidential campaign
- Tom G. Donlan, Barron’s
- Karen Tumulty, Time Magazine
- Susan Dentzer, Health Affairs
- John Reichard, Congressional Quarterly
Full schedule of events and Webcast, here.
Filed under: Cato Publications; Health, Welfare & Entitlements
The GOP Is Not Serious about Cutting Down Spending
A month ago, President Obama issued a list of proposed spending cuts that I dismissed as “unserious” due to the fact that they were trivial when compared to his proposed spending and debt increases. Today, the House Republican leadership released a list of proposed spending cuts.
I’d love to say I’m impressed, but I can’t.
Both proposals indicate that neither side of the aisle grasps the severity of the country’s ugly fiscal situation, or at least has the guts to do anything concrete about it.
The GOP proposal claims savings of more than $375 billion over five years, the bulk of which ($317 billion) would come from holding non-defense discretionary spending increases to no more than inflation over the next five years.
First, it should be cut — period. Second, non-defense discretionary spending only amounts to about 17% of all the money the federal government spends in a year, so singling out this pot of money misses the bigger picture. At least, defense spending, which is almost entirely discretionary, should be included in any cap. But it has become an article of faith in the Republican Party that reining in defense spending is tantamount to putting a white flag in the Statue of Liberty’s hand.
The second biggest chunk of savings would come from directing $45 billion in repaid TARP funds to deficit reduction instead of allowing the money to be used for further bailing out. That’s a sound idea as far it goes, but I can’t help but point out that the signatories to the document, House Republican Leader John Boehner and Minority Whip Eric Cantor, voted for the original $700 billion TARP bailout. Proposing to rescind the Treasury’s power to release the remaining funds, about $300 billion I believe, should have been included.
According to the proposal, the rest of the cuts and savings comes out to around $25 billion over five years. Like the specific cuts in the president’s proposal, they’re all good cuts. But the president detailed $17 billion in cuts for one year and I generously called it “measly.” What am I to call the House Republican leadership specifying $5 billion a year in cuts?
The Economic Case for Health Care Reform
There’s an old Yiddish saying that, “If my bubba had wheels she’d be a trolley.” So goes the logic of the Obama administration in their paper released yesterday, “The Economic Case for Health Care Reform.” Their claim is that reducing health care costs would help the economy. Yes, if health care costs were reduced it would likely help the economy, though we should remember that the health care industry is part of the economy.
There is nothing in Obamacare, however, that will reduce costs. In fact, expanding coverage may cause costs to rise. One study by MIT’s Amy Finkelstein suggests that the prevalence of insurance itself has roughly doubled the cost of health care. So, if Obama succeeds in expanding insurance coverage, it’s very likely to increase the cost of care.
Take Massachusetts for example. Three years ago, Massachusetts governor Mitt Romney signed into law one of the most far-reaching experiments in health care reform since President Bill Clinton’s ill-fated attempt at national health care. Proponents promised the reforms would reduce health care costs, suggesting the price of individual insurance policies would be reduced by 25-40 percent. In reality, however, insurance premiums rose by 7.4 percent in 2007, 8-12 percent in 2008, and are expected to rise 9 percent this year. This is compared to a nationwide average increase of 5.7 percent over the same three years. Nationally, on average, health insurance for a family of four costs $12,700; in Massachusetts, coverage for the same family costs an average of $16,897.
In fact, since the bill was signed, health care spending in the state has increased by 23 percent. Thus, despite individual and employer mandates, the creation of an insurance connector and other measures that increase insurance regulations, Massachusetts has failed to bring costs down.
President Obama and Congressional leaders have endorsed expanding coverage in similar ways to Massachusetts. The proposals would undoubtedly make it easier for some people to get coverage, but would also raise insurance costs for the young and healthy, making it more likely they would go without coverage. This leaves two choices: revert to the individual mandate (President Obama opposed the mandate as a candidate) or increase subsidies to try to cut costs to young and healthy individuals, thereby adding to the already substantial cost of the proposed plans.
Ultimately, controlling costs requires someone to say “no,” whether the government (as in single-payer systems with global budgets), insurers (managed care) or health care consumers themselves (by desire or ability to pay). In reality, any health care reform will have to confront the fact that the biggest single reason costs keep rising is that the American people keep buying more and more health care.
GOP Health Care Alternative: Not as Bad as Advertised
Like my colleague, Michael Cannon, I was convinced by the staff summary and general spin accompanying the Republican health care bill introduced by Sens. Tom Coburn (R-OK) and Richard Burr (R-NC), and Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA) that the bill headed, albeit more slowly, down the same road to government-run health care as expected Democratic proposals. However, a closer reading of the actual bill shows that, while there are still reasons for concern, it may be much better than originally advertised.
First, it should be pointed out that the centerpiece of the bill is an important change to the tax treatment of employer-provided health insurance. The Coburn-Burr-Ryan-Nunez bill would replace the current tax exclusion for employer-provided health insurance with a refundable tax credit of $2,300 per year an individual worker or $5,700 per year for family coverage. This move to personal, portable health insurance has long been at the heart of free market healthy care proposals. The bill would also expand health savings accounts and make important reforms to Medicaid and Medicare.
And, the bill should receive credit for what it does not contain. There is no individual or employer mandate. (I could live without the auto-enroll provisions, but they look more obnoxious than truly dangerous). There is no government board determining the cost-effectiveness of treatment. There is no “public option” competing with private insurance. In short, the bill avoids most of the really bad ideas for health reform featured in my recent Policy Analysis.
Other aspects are more problematic. The authors still seem far too attached to the idea of an exchange/connector/portal. The summary implied that states would be required to establish such mechanism. In reality, however, the bill merely creates incentives for states to do so. Moreover, I have been repeatedly assured that the bill’s authors are aiming for the more benign Utah-style “portal,” rather than the bureaucratic nightmare that is the Massachusetts “connector.” Still, I would be more comfortable if the staff summary had not singled out Massachusetts as the only state reform worthy of being called “an achievement.”
And, if states choose to set up an exchange, a number of federal requirements kick in, such as a requirement that at least one plan offered through the exchange provide benefits equal to those on the low cost FEHBP plan. There is also a guaranteed issue requirement.
Elsewhere, there are also requirements that states set up some type of risk-adjustment mechanism although the bureaucratic ex-post option that I criticized previously, appears to be only one option among many for meeting this requirement. And, I wish the authors hadn’t jumped on the health IT bandwagon. Health IT is a very worthy concept, but one better handled by the private sector.
And, if we should praise the bill for what it doesn’t include, we should criticize it in the same way. The bill does not include one of the best free market reform proposals of recent years, Rep. John Shadegg’s call for letting people purchase health insurance across state lines.
The bills (there are minor differences between the House and Senate versions) run to nearly 300 pages, and additional details, both good and bad, may emerge as I have more opportunity to study them. But for now, the bill, while flawed, looks to have far more good than bad.
No Balanced Budget, No Raise
Ben Goddard writes in The Hill about the new taxpayer revolt in California this week. The political establishment put together a package of initiatives that it thought would fix the budget process there — but the people weren’t buying it. The only thing they passed was the measure to ban salary increases for legislators if they didn’t balance the budget.
There are similar proposals floating around Capitol Hill. If bills were subject to a popular vote, it seems like such a thing would be likely to pass.
Cato on Facebook
Cato on Twitter
Cato on YouTube
Cato Tweets