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The Money Problem, Cont'd

The more people I talk to and the more reporting I read, the more convinced I am that health-care reform still faces the money problem. The unions hate the excise tax because it increases the cost of their benefits. Senators from high-cost states hate the excise tax because it increases the cost of their benefits relative to those in lower-cost states. The Republicans are attacking the excise tax because, well, it seems like the thing to do. Liberals like Jay Rockefeller are attacking the excise tax because it hurts some workers you don't want to hurt. And yet, everyone agrees we actually need more money in order to increase subsidies.

You can reform the tax. But then you get less money from it. You're probably going to need to go back to the drawing board, at least a bit. So let's talk about that drawing board.

There are three main ways people are raising money, and they have different advantages and different advantages.

1) Inside the Health-Care System: This includes excise taxes on insurance, or caps on the employer tax deduction, or any new taxes or fees levied on Medicare. The upside of raising your money inside the health-care system is that it grows as fast as health-care costs, so you're not caught with insufficient revenues 10 years down the road. The problem is that most of the ways are unfair to a lot of people, as the health-care costs vary for reasons that have nothing to do with income (geography, for instance, or the relative danger of your workplace, or the relative age of your workplace). This makes the options unpopular.

2) Outside the Health-Care System: Tax the rich. Tax soda. Tax cigarettes, or alcohol, or itemized deductions. The upshot of this is that the taxes can be relatively popular, and you can be pretty sure about who you're taxing. You can also raise money in ways that make people healthier, by taxing soda, or if we were really ambitious, in ways that make the planet better off, by taxing gasoline. The downside is that the revenue you get from these taxes grow much less slowly than health-care costs, so you're fairly quickly in a situation where the money you're raising isn't covering your expenses.

3) Inside the Health-Care Bill: The point of health-care reform, at least in part, is that it saves money. Some estimates (pdf) see the modernization measures alone saving $2 trillion. The health-care industry has promised that it can achieve that on its own. And then there are the so-called game-changers: MedPAC and evidence-driven medicine and the public plan and all the rest. CBO is reticent about scoring this stuff, but you can attach it to a "fail safe" measure -- cuts or revenues that trigger in the event the savings don't materialize -- and CBO will score that. The upshot is that you can try to get savings without doing all sorts of brutal revenue moves. The downside is, well, I'm not sure.

Right now, the Senate Finance bill uses the first strategy: the excise tax is unpopular, but CBo gives it a good score because it raises more money than the bill costs, particularly in the long-term. The House bill uses the second strategy: the surtax on the rich is politically defensible, but deficits explode after the first 10 years. And the plan the president released uses the third strategy: it didn't name any specific revenue measures, but it promised automatic spending cuts if the bill didn't balance. My sense is we're going to end up with a mix of the three strategies, but I'd like to see Democrats throw as much as possible behind the second strategy.

By Ezra Klein  |  September 18, 2009; 4:36 PM ET
Categories:  Health Reform  
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You are absolutely right to weigh and consider the relative merit of your very well considered blackboard options in the harsh spotlight of being "unfair to lots of people", but isn't this a relative term itself? In other words, won't any change alter the landscape of who is being treated "fairly" and who is not.
I believe we must start with the presumption that the status quo is really, really unfair to many, many people and almost all of the changes discussed will only reprioritize benefits and burdens more "fairly".

Posted by: crieser | September 18, 2009 6:30 PM | Report abuse

Which leads me to agree that the second stratagy is the best way to go. My thought is that since anything we do will be unfair to someone somewhere we all (I include myself) need to get bigger and bolder.

Posted by: crieser | September 18, 2009 6:49 PM | Report abuse

"The downside is, well, I'm not sure."

That's because you are not old enough to understand that "triggers" of any type --- whether to curtail spending or generate revenue --- are routinely and almost uniformly ignored by Congress and whatever administration is in power. They are just feel good gimmicks that allow government to appear to be doing something about affordability IN THE FUTURE, if somehow, against enormous odds, their rosy projections of revenue collected or spending curtailed don't come true.

CBO may "score this stuff," but it has no meaning, and shouldn't be considered at all in determining affordability based on HISTORY.

Posted by: Curmudgeon10 | September 19, 2009 1:48 AM | Report abuse

"The downside is, well, I'm not sure."

If you say you are only cutting "savings" from efficiencies or quality improvements then you can claim you are not affecting benefits.

If you simply brute force cut Medicare then you are paying providers less than their cost which will result in doctors and hospitals refusing to see Medicare patients.

I guess that's a way to save money but we will end up with a lot of dead seniors.

Posted by: cautious | September 19, 2009 2:56 AM | Report abuse

I like your suggestions from a previous post better:

"Congress could tie the tax on the rich to the rise in health-care spending, thus creating more political pressure to control costs. It could convert the employer tax exemption to a progressive standard deduction, which would mean a tax cut for the majority of Americans and would easily fund the system. The problem is not insufficient money, or the relative growth in costs, or the savings. The problem is insufficient political will."

Posted by: cautious | September 19, 2009 3:02 AM | Report abuse

All I know is, if revenue measures are indexed to health inflation then benefits should be too. Otherwise lower-income families are going to take it on the chin.

Posted by: bmull | September 19, 2009 5:52 AM | Report abuse

Jay Rockefeller is only against this, because the costs affect his Union supporters, and jeopardize his re-election if he votes for it.

If his Union friends were exempt, as they first insisted, and this legislation only affected Schumer's rich bankster constituents, Rockefeller would be full speed ahead.

I've noticed, now that the millionaire CNN and MSNBC pundits understand that their own policies will be assessed a 35% excise tax, they're suddenly feeling put-upon by the very same president they drooled over before.

It's quite amusing watching reality hit them full in the face.

Hell, MSNBC is looking for employee early retirement buyouts now, given their low ratings and ad buys. At this point, the Obama/Baucus 35% excise tax on the pundits' fancy plans will put even more of the "little people" out of work.

Is Keith Olbermann willing to take less, to help his "little people?"

Probably not.

And so it goes.

Posted by: auntmo9990 | September 19, 2009 9:54 AM | Report abuse


Curmudgeon is completely correct. You may as well expect magic pixie dust and ponies to descend from heaven to pay for all of this- and that is what all three options you discuss are- fantasies.

Have you not even taken a single second of your life, Ezra, to examine the history of any government entitlement program, its original funding mechanisms, or any reforms taken along the way to make them "financially sustainable"? Any proposal that promises to "pay for itself" in government entitlement programs has turned out to be a fraud in the end, and there are no exceptions whatsoever. Your naivete is absolutely stunning.

Posted by: YanceyWard | September 19, 2009 11:30 AM | Report abuse

organized labor is gung ho for healthcare thathey should be proud to bear the cost burden

Posted by: JoeLunchpail | September 19, 2009 3:12 PM | Report abuse

Piling taxes on the rich is how California went more-or-les bankrupt. When incomes fall, they do so first and foremost.

Taxing one group's hard-earned money to pay for someone else's problem sounds more than as litle like robbery to me, too.

Posted by: balataf | September 20, 2009 5:33 AM | Report abuse

Why can you not admit that just a month and a half ago you breezily assured people, during a q & a online, that healthcare reform, insurance reform, or whatever name it was then going under, was "deficit neutral." period. end of discussion. no money issue and everyone knows that? Why can't you admit that you were peddling the "no money problem" line very very recently, and this in the face of the CBO report? It would be the ethical thing to do, to explain the shift, rather than sweep it under the carpet.

Posted by: truck1 | September 20, 2009 9:56 AM | Report abuse

We are so glib about taxing the 'rich'....the plumber, the roofer, the doctor. We have already committed to borrow $150,000 per person. If we do not free up economic growth, the welfare state will continue to crater.

Posted by: mace77 | September 20, 2009 10:03 AM | Report abuse

The second strategy is a good one only if you want to continue the unsustainable fiscal position this country is on. You even admit it in the post! Even a stupid budget analyst knows enough to know that you need to have a revenue source that keeps up with expenditure growth or else your program is out of balance and unsustainable.

Posted by: lancediverson | September 21, 2009 11:01 AM | Report abuse

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