Archive for category: Health Policy

This post from Nate is just weird.

As you recall, in my last post on affordability issues, I basically accepted Nate’s selected source for family expenses–BLS data–and showed that even still this plan was unaffordable for a middle class family with child care costs.

But what’s remarkable is that, even assuming Nate’s numbers are correct and mine are high, those numbers still show that this plan is unaffordable for a family of three paying some child care.

Nate’s post completely ignored that part of my post, completely ignored that I had used BLS data for housing, completely ignored that I had eliminated all income taxes for this family, completely ignored that I specifically backed out BLS data for health care and replaced it with an unrealistic 7.9% charge (indeed, that was one of the big mistakes he had made in adopting the BLS data in the first place, as I pointed out in my post) and still shown the program to be unaffordable.

Either Nate has now decided that the BLS data is no longer valid, or he doesn’t want to engage with that part of my post.

But on his other costs, here are some points.

Taxes

Nate argues that my original estimate for taxes was too high (which, of course, I accepted in the second post). But then he has calculated those taxes making them less than the FICA taxes (7.65%) for this family. And he does that even while hypothesizing that one of these family members might be self-employed, which means the family would face FICA taxes of 15.3%. Note also, Nate assumes that this family owns their house and calculates mortgage deductions accordingly, which is probably an unsafe assumption for all middle class families in this day and age; 27% in the BLS data, for example, are renters. So while I’m happy to use the BLS numbers (which, after I got rid of all income taxes became basically just FICA), let it be said that Nate ignores two possibilities that would make those taxes go much higher.

Housing

Here’s what Nate says about housing:

Housing: This is still the most significant difference — I had figured housing costs at about $10,000 based on BLS data, versus Marcy’s estimate of $19,275. Marcy points out that the a higher propotion of people in the BLS dataset I used will have paid off their mortgage, but that’s still just one-fifth of the BLS’s sample, so it’s not going to make a huge difference. But let’s bump up my estimate to $12,000 — or an even $1,000 per month — to account for this, as well as for the fact that a family with two children might want some extra square footage.

Now, if you just figured out what the BLS numbers gave you without the people in the sample who owned their own home outright, it would show that the remaining 80% would pay $12,577, already higher than Nate’s estimates. And that’s assuming the 4-person families are living in the same size housing that all the singles in the BLS sample are living in, so on that basis, the number is still likely higher.

But let’s do this another way. I live in a house that was–when I bought it in 2002–almost exactly the average price of a house in this country. After losing value over the last several years, it is now worth somewhere between the average national price and average price for a midwestern house. I have not refinanced since I bought it, but when I bought it I put 20% down and had near perfect credit–almost certainly far better off than the middle class families we’re talking about. Admittedly, Ann Arbor’s property taxes are crazy, which adds a lot to monthly payments. So assume my better-than-average mortgage cancels out Ann Arbor’s exorbitant tax rates. And yet I still pay a few thousand more than the $12,577 you’d get off of the BLS numbers. And my house is average or below average in other ways, too–it’s 50 years old, in average condition, just 1,000 square feet, has just one bathroom, and the third bedroom makes a much better office than a bedroom. All three families who lived in this house before I did were just like the middle class families I’m talking about (though one was a single mother). In other words, this almost perfectly average house, with higher property taxes but lower credit costs, costs several thousand more than Nate has calculated.

Child Care

Here’s what Nate says about child care:

Child Care: Marcy’s data says that pre-school care costs $6,216 per year, and infant and toddler care costs $7,936 per year. Assume that each child needs three years of infant care and three years of pre-school care out of an 18-year childhood. If that’s the case, the family will spend $2,358.50 per year per child on average, or $4,717 on average for two children. Also, while Marcy asserts that her estimates are high, not all families will have to pay for day care. Even if both parents are working, some families may be fortunate enough to have a free or discounted child care program available to them via a church, employer, or municipality, or may have older relatives living nearby to take care of the children during the daytime. Or, if one or more of the parents works from home — which will be the case fairly often for someone in the individual market — they may be able to take care of the toddlers themselves and still earn a paycheck.

Now aside from the fact that Nate strains to average this out–ignoring that if both these kids are in child care in a year the costs will be at least $12,432, meaning this family would have to find a way to pay for much higher rates in several years of that average, there are several other bizarre assumptions Nate makes to bring child care costs down. He assumes that a family that doesn’t get health care through an employer might get child care through that same employer. He assumes that several discounted child care options aren’t included in the child care averages I used. Most curiously, he assumes that children don’t need after school care between the time they go into kindergarten and the time they turn 13, when most states consider them capable of watching themselves (after school care for two in Ann Arbor’s school system would cost at least $100 a week, or about $3,900 for the school year, and that doesn’t account for summers). Read more →

Like Nate, I appreciate having a discussion based in facts and details. And Nate says several of the cost estimates I used to show why the health care bill is unaffordable for middle class families “are on the high side.” I appreciate him checking my numbers–as I have said on several versions of the post I have done on affordability, I’d like to have a real discussion about these costs.

Nate’s numbers are too low

Nate uses a different method than me; rather than building costs up from individual estimates as I did (indeed, Nate never shows what my hypothetical family’s budget would look like), he looks at BLS data, and argues that either, “this is significantly more than most two-child families will be spending on these services — probably by a margin of $10,000 or so,” and/or my hypothetical family, “does not have a reasonable and responsible gameplan to begin with.”

Now, Nate hasn’t actually shown that. Instead, his primary source of numbers shows what the average family in this income bracket ($50,000 to 69,999) would spend. And that family is older (average adult age of 47) and smaller (2.7 people, with just .7 kids) than the family I was discussing. That’s significant in ways that make his costs too low on several counts. For example, over a fifth of the people in the BLS estimate own their home outright. A significant portion are single or couples. Adding older home-owners and singles needing smaller homes into his consideration almost certainly means Nate’s housing costs are too low for a family of four or even three. Similarly, Nate’s figures for food expenses are low by $1,324 (and his average family eats out, which USDA assumes my average family of 4 does not for its calculations).

Plus, Nate doesn’t point to the places where my estimates (based on real expenditures) are quite low, according to the numbers Nate uses. I said this family spent $1,500 a year on heat, electricity, and water; his numbers say the average 2.7 member family would spend $2,823. I said this family would spend $1,200 for all telecom services; Nate’s data says this 2.7 member family would spend $1,253 on telephone services alone, with cable, at least, presumably included in the $1,141 of audio and visual equipment and service. So, accepting Nate’s numbers for these services would mean both my costs and probably his, too, for utilities and telecom are still too low for a 4-person family.

And the BLS data Nate uses appears to not account for child care at all (please correct me if I’m wrong here). Nate points out rightly that, “not all families will have a pre-school aged child. The typical child spends 3-4 years in pre-school, but then 12-13 years in the public school system,” but doesn’t account for the fact that I used costs for just one kid in child care, and not the more expensive infant or toddler rates. Also, if these kids were school aged, it would mean the family would spend $1,353 more on food because of the growing kids’ higher calorie requirements. Also, note these costs don’t necessarily have to include child care. Unmanageable college loan debt, unplanned major house repairs, existing medical debt, or credit card debt could all get my middle class family into the same plight without any child care costs and without, necessarily, making this family at all unusual or frivolous.

And then there’s the most ironic place where Nate’s calculations–finding my estimates $10,000 too high–are themselves too low: health care. The BLS data Nate uses shows this family of 2.7 spends $3,229 yearly on health care. Yet, the majority of this pool would get health care through work, a significant number are single, and some (though not many) are on Medicare.

Even Nate’s numbers show this plan is unaffordable for a middle class family

But what’s remarkable is that, even assuming Nate’s numbers are correct and mine are high, those numbers still show that this plan is unaffordable for a family of three paying some child care.

Nate’s numbers show the average income in this bracket is $59,319, with $58,610 left after taxes (note, a family of 3 at 301% of poverty would make $55,131, so this hypothetical 2.7-member family would still fall into the same income bracket I used in my original post). This average family would spend $50,465 a year. So to show what happens when this average family has to pay child care and spend 7.9% of its income on mandated insurance, I’m going to take out the BLS health care costs and add in the 7.9% this family would have to spend under the mandate. And because I argued earlier that these families aren’t spending all that much on entertainment (and therefore couldn’t save money by cutting entertainment expenses), I’m going to back out entertainment costs too. And because Nate said my estimates for taxes were too high, I’m going to take out those, too (though not FICA, which this family would have to pay).

$50,465 (total expenditures)

-$3,229 (less health care expenses)

-$2,936 (less all entertainment costs)

-$709 (less income taxes)

$43,591 (Nate’s numbers less health care, entertainment, income taxes)

+$4,686 (7.9% of $59,319 in income–or the amount paid before opt-out became possible)

+$6,216 (child care for just one four year old in MI)

$54,493

$4,826 (total income less total expenses)

In other words, this family would have just $4,826 left to spend on entertainment (what Nate originally said this family could cut back on) and out-of-pocket health care expenses.

That says a family expected to pay 30% of out-of-pocket health care expenses would blow their entire discretionary budget after $16,086 in medical costs. More than what my other hypothetical family might spend, but still not a catastrophic medical event. And this hypothetical family would have to go $3,147 in debt before government subsidies would pick up the rest of their out-of-pocket expenses. Read more →

This is pretty funny. Ezra has a post up arguing that, the Senate health care bill “is very close to the health-care bill that Barack Obama promised.”

And then he proceeds to list 8 ways that the bill is not like what Obama campaigned on.

And there are, to be sure, some differences. The public option did not survive the Senate. The individual mandate, which Obama campaigned against, was added after key members of Congress and the administration realized that the plan wouldn’t function in its absence. Drug reimportation was defeated, and a vague effort to have government pick up some catastrophic costs was never really mentioned.

But the basic structure of the proposal is remarkably similar. Here’s how it was described in the campaign’s white paper:

The Obama-Biden plan provides new affordable health insurance options by: (1) guaranteeing eligibility for all health insurance plans; (2) creating a National Health Insurance Exchange to help Americans and businesses purchase private health insurance; (3) providing new tax credits to families who can’t afford health insurance and to small businesses with a new Small Business Health Tax Credit; (4) requiring all large employers to contribute towards health coverage for their employees or towards the cost of the public plan; (5) requiring all children have health care coverage; (5) expanding eligibility for the Medicaid and SCHIP programs; and (6) allowing flexibility for state health reform plans.

We don’t know what the employer mandate will look like once the House and the Senate merge their bills, and the exchanges look likelier to be run by states or regions than by the government (though there will also be a national exchange overseen by the Office of Personnel Management), but those are really the only differences. And it’s not even clear they’re differences.

Nor were there aggressive cost controls outlined in Obama’s white paper but abandoned amid the legislative process. The Senate bill is quite a bit stronger on controlling costs than the campaign paper, which makes no mention of prudential purchasing or the excise tax on high-cost health insurance or the Medicare Commission or specific delivery-system reforms.

So let’s review. Ezra lists the following things that Obama promised, but failed to deliver:

1. Public option
2. No individual mandate
3. Drug reimportation
4. Government coverage of catastrophic costs
5. Employer mandate
6. National, rather than state level, exchanges

And then adds two things that Obama didn’t promise but are in the bill (and note, I agree the delivery system reforms are great improvements, but the case for the excise tax is riddled with problems and is a big attack on the unions that supported Obama in the campaign).

1. Excise tax
2. Delivery system reforms

And from that, Ezra judges, that the Senate bill is very close to the bill Obama promised!

That’s the funny part. There are parts of this that aren’t funny at all.

Read more →

The White House, in a post purporting to tell “The Truth on Health Care Reform and Taxes,” repeats a claim I’ve seen just about all defenders of the “They-Call-It-Cadillac-But-It’s-Really-A-Chevy Excise tax” make: that the tax will give workers a raise.

… for 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. Economists agree by taxing the highest cost plans this provision will lead insurance companies to be more efficient and provide quality care to consumers at lower prices (see this endorsement in a letter from a group of prominent economists – including three Nobel laureates and previous members of both Democratic and Republican administrations and this analysis by CBO 2009). Even a report commissioned by the insurance industry’s trade association acknowledged that: “[w]e expect employers to respond to the tax by restructuring their benefits to avoid it.” [PWC, 2009]. As a result, employers will be in a position to increase workers’ take home pay.

I was thrilled to see those three links, because I figured it meant the White House was providing some proof for this claim where I had seen none before.

Here’s what those links say.

Economists

The letter “from a group of prominent economists” says nothing about the excise tax; it only even uses the word “tax” once, and not in the context of funding the health care reform. This is the closest it comes to tying the mode of health care delivery to wages, but this passage says nothing about how you make the health care system more efficient:

A more efficient health care system would free up resources that could be used to produce other goods and services, and to invest in the future. That would promote economic growth and jobs, along with higher wages and living standards.

So the link to the economists doesn’t even support the Administration’s more general argument for the excise tax, much less its claim that the excise tax will result in higher wages for workers.

CBO

The CBO paper linked to prove this point likewise does not support the point. It does support several related claims, though, that may reveal what the Administration is really thinking about employer-provided care. Here’s what it says in its extended section on employer-based tax.

Nearly all analysts agree that the current tax treatment of employment-based health insurance—which exempts most payments for such insurance from both income and payroll taxes—dampens incentives for cost control because it is openended. Those incentives could be changed by restructuring the tax exclusion to encourage workers to join health plans with lower premiums; those lower premiums would arise through a combination of higher cost-sharing requirements and tighter management of benefits.

CBO’s Budget Options volume discusses a number of such changes. One option would replace the current tax exclusion with a refundable but more limited tax credit. Another option would limit the amount of health insurance premiums that could be excluded from income and payroll taxes to specific dollar amounts that represented the 75th percentile of premiums paid by or through employers.17 These approaches would change workers’ incentives about how much insurance to purchase and how much care to demand, and they would increase federal revenues by several hundred billion dollars over 10 years.

17 The dollar amounts in 2010 would be about $17,300 a year for family coverage and about $6,800 a year for individual coverage.

So a CBO report the Administration claims supports their excise tax claims actually argues simply that we need to move away from an employer-based delivery model.

Read more →

I tweeted this factoid yesterday, but wanted to post on it too, because I think it illustrates the difference bewteen health insurance and health care.

A number of supporters of the current Senate bill have been pointing to RomneyCare to argue that mandates and exchanges can be wildly successful in providing care. But a September 2009 Kaiser Commission review of the MA experience had this to say:

According to a March 2009 Urban Institute report, health reform has improved access to health care services for newly insured and previously insured adults. Over ninety percent of adults in Massachusetts have a usual source of care and most reported seeing a doctor in the previous year. However, the affordability of health care remains a barrier to receiving care for some residents. Of the total population, 21 percent went without needed care in the previous year because of cost. People with disabilities and those in fair and poor health experienced the greatest barriers to accessing care.

There is some good in this snippet. It says that people–presumably some of them for the first time in a while–are getting primary care. But it’s also saying that more than one-fifth of them are forgoing medically necessary care because the health insurance they have is too stingy to make that medically necessary care affordable.

The MA program is not dissimilar to the Senate bill. It allows for policies with deductibles of up to $4000 for families and other out-of-pocket fees, though it actually has lower out-of-pocket limits than the Senate bill. What MA considers to be an affordable premium is not all that different from what would be required under the Senate bill. (While I don’t think all the Senate subsidy levels have been released, making a one-to-one comparison impossible, it appears that the Senate bill offers an affordability opt-out for the affluent–families making $114,401–that the MA program doesn’t have, but requires the middle class to pay higher premiums–$441/month versus $364/month for a family making $66,150; go figure, the House of Lords screwed the Middle Class again).

So we should assume that the Senate bill would have similar outcomes as the MA program (though with a much weaker mandate, it would achieve much lower levels of coverage). And one outcome appears to be that the middle class is being forced to buy insurance, but that insurance is not making health care affordable when people need it the most.

It’s one thing to require people to buy insurance if it is affordable and it guarantees that it’ll actually get them the care they need. But if it doesn’t (and the Senate bill wouldn’t for the middle class), then it just becomes a wealth shift from the middle class to the health care industry.