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Posted at 5:21 PM ET, 01/ 7/2011

A few more notes on health-care reform

By Ezra Klein

May as well just combine these into one post.

1) Some parts are working better than expected. Notably, the small-business tax credits. As the L.A. Times reports, "major insurers around the country are reporting that a growing number of small businesses are signing up to give their workers health benefits." UnitedHealth Group, for instance, "added 75,000 new customers who work for companies with fewer than 50 employees." BlueCross BlueShield of Kansas City has seen applications jump by almost 60 percent, and "said that 38% of the businesses it is signing up had not offered health benefits before." As experts in the article point out, it's almost unbelievable to see small businesses expanding coverage in an economy like this one. It's a very good sign.

2) A few more thoughts on employer dumping. According to an informed source, the reason CBO doesn't worry about dumping is that it gets canceled out: If a company dumps its workers on the exchange, it also loses the massive tax break it gets for their health care. So the government may have to provide subsidies for some of the workers, but it also gets more tax revenue from the employer. Meanwhile, the employer has to pay those workers higher wages to compensate for taking away their benefits, and those wages aren't tax-free.

The bigger concern with employers, my source said, was that they'll design high-deductible plans that push sick employees onto the exchange. This would be fairly easy to stop if it ever began happening in large numbers, but if Congress refuses to do anything to fix problems with the law, then it would be harder to stop.

3) Health-care reform and jobs: David Cutler estimates that repealing the bill could cost about 250,000 jobs annually. Cutler is pro-reform, and has done some econometric modeling work for the government. Nevertheless, he's also one of the most decorated and respected health economists in the country. His paper assumes that the delivery-system reforms in the bill will be fairly effective and reduce annual spending on health care by one percentage point, which is very much in the bounds of possibility. And for various reasons that Cutler explains, higher medical costs reduces employment. You can read his paper here.

4) Repeal is popular in general, extremely unpopular when you get specific. If I were a Republican strategist, I'd be spending a lot of time worrying about this graph:

healthcare_arena_Final-thumb-475x345-244.png

By Ezra Klein  | January 7, 2011; 5:21 PM ET
Categories:  Health of Nations  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Health-care repeal not popular among House Democrats
Next: How much is working in finance worth?

Comments

Do you mean to say that Cutler is ANTI repeal? The linked paper seems totally supportive of "Obamacare". (hate using the term, but it sure is catchy...)

Posted by: vdepillis | January 7, 2011 5:39 PM | Report abuse

ezra, cutler is pro-repeal? am i reading that correctly? though i've made only a cursory check, i can't find any evidence that david cutler is pro-repeal. could you please direct me to where you found that info?

Posted by: hamiltonjsh | January 7, 2011 5:40 PM | Report abuse

"Meanwhile, the employer has to pay those workers higher wages to compensate for taking away their benefits, and those wages aren't tax-free."

This is a popular theme, Ezra, but I have yet to see any evidence for it. This is a seller's market. You want a job, here's what you get. Don't like it? Go find another one! Employers will pocket the profits from not having to insure, and the employees will get less. Please prove me wrong, because I'd like to believe I am.

Posted by: Riggsveda | January 7, 2011 5:58 PM | Report abuse

Heh. The only part they really want repealed is the thing that makes the parts they don't want repealed possible.

Posted by: KarenJG | January 7, 2011 6:29 PM | Report abuse

"According to an informed source, the reason CBO doesn't worry about dumping is that it gets canceled out: If a company dumps its workers on the exchange, it also loses the massive tax break it gets for their health care. So the government may have to provide subsidies for some of the workers, but it also gets more tax revenue from the employer. Meanwhile, the employer has to pay those workers higher wages to compensate for taking away their benefits, and those wages aren't tax-free."

Well that's not exactly true. If the employer offers higher wages to workers in lieu of benefits, those wages are still deductible. If it doesn't, the profit is taxed but the employees don't have additional wages to tax. You don't get to count it twice.

But let's look at some examples using the Kaiser calculator.

A family earning $55,000/yr with head of household aged 48 gets $11,697 worth of subsidies (and then also out of pocket expense subsidies if it needs them) on a $15,831 policy.

If that money is now provided as wages, the government gets back $3,957.75 at a 25% marginal tax rate. Even in a low cost area, the tax credit is $8,530. In a high cost area, it's a bigger subsidy.

Or consider another situation:

A two income family earns $120,000/yr ($80k/$40k split), and pays $12,000/yr for child care for two kids. If they aren't offered employer coverage, and the head of household is 45, that's a $14,245 plan in a moderate cost state. Drop their income to $80,000, and they get a $6,645 tax credit and lower out of pocket expenses, which if they need them could amount to roughly $9,000 in subsidies.

So between the tax credit, the cost of childcare, regular taxes and a house that is always dirty, the low income spouse throws up his/her hands and quits to be a stay at home mom or pop. That's a huge loss in tax revenue AND a subsidy that wasn't expected.

Or consider a single 45 year old worker who earns $48,000/yr in a high cost state. She would have to pay $6,730 for a plan with an out of pocket max of $6,250 - up to 27% of her gross income. However, if she asks her boss for a pay cut to $46,000, she gets a $2,360 tax credit, and a better plan. And she pays lower taxes!

These examples will become more severe each year as prices rise. Remember, the cadillac tax doesn't kick until $10,200 and $27,500 (if I remember correctly) for individuals and families. If that's what plans will be running for one day, you'll see people willing to change from $55,000/yr to $45,000/yr because they'd be financially better off. The government will literally pay them to earn less money.

Posted by: justin84 | January 7, 2011 6:33 PM | Report abuse

I'm with Riggsveda. Nothing in the past 30 years leads me to believe that employers will "share" their savings by paying higher wages. Not when they haven't "shared" the profits from productivity gains over the last 30 years. Not when we have highly profitable companies STILL demanding give-back concessions from workers.

No, they will pocket the savings and laugh in our faces if we ask for a little more in the paycheck to cover our new expense of buying our own insurance.

Posted by: KarenJG | January 7, 2011 6:55 PM | Report abuse

I, too, am with Riggsveda. You often write that higher wages are sure to follow loss of coverage. I wish you'd be more careful with that assumption.

Posted by: eRobin1 | January 7, 2011 7:15 PM | Report abuse

You can argue with Ezra till you're blue in the face that higher wages do not follow automatically from loss of coverage. This idea came from Jon Gruber who has since partially disowned it. But Ezra clings to the notion like a fearful white person clinging to guns and religion in Obama's mind.

Posted by: bmull | January 7, 2011 10:33 PM | Report abuse

So the "Repeal the Job-Killing Health-Care Act" bill would be more aptly named the "Job-Killing Repeal the Health-care Act" bill. Whadyaknow?

Posted by: ms1024 | January 7, 2011 11:24 PM | Report abuse

Of course, there are more moderate versions of many of these changes that would appeal to broader segments.

1. Change Medicare payment structure to encourage less overuse, overbilling (HSA approach).
2. Allow pre-existing conditions to be covered, but allow a greater price differential.
3. Make cheaper catastrophic plans possible, instead of forcing assistance to buy the plans.
4. Fix the medicare drug benefit so that it doesn't cover the most expensive new drugs at retail cost and phases in coverage to coincide with lower prices. As a sideline, finding a way to indict Billy Tauzin would make many people happy.
5. Keep the individual mandate, but reduce the minimum requirements for a mandated plan so that affordable plans can be created, high deductible plans can be created, plans that don't encourage overuse etc.

Again, it is the awful, short sighted design of the plans themselves that makes the imposition of them on the populace so frightening. The fact that HHS is coming up with the design of these plans and then complaining about their actuarial cost is symptomatic how they are wishing there way into making this work. We have to enable a true market for consumers to seek more cost effective care. By designing a system where insurance company profits are calculated as a maximum percentage on expenditures they are basically encouraging costs to rise so that profits can rise.

It's either a formula to drive insurers out of business (if they don't allow the rate increases this thing will bring) or just turn up the current flow of money from my pocket into the pockets of hospitals, doctors, insurers, and pharma companies.

Perhaps the biggest change we could effect in this country is more skepticism about medicine itself. Changes in diet, reducing sugar and simple carbs, could save us more money than most insurance schemes (with the possible exception of HSAs). The high priced drugs that have to be taken as a cocktail in order to balance side effects seem to be only marginally more effective than aspirin for many preventative situations. Current standards of patient safety in US hospitals is abysmal.

Just reading Walt Bogdanich's pieces in the NY Times on radiation dangers makes you wonder if this stuff really just is not worth it all. Even dentists are scamming us with more expensive, more dangerous, yet no more useful x-rays. Disgusting.
http://topics.nytimes.com/top/news/us/series/radiation_boom/index.html

Posted by: staticvars | January 8, 2011 1:01 AM | Report abuse


I have posted this already here before You guys should stop complaining because, one the health care we have now isnt as good as it was supposed to be. also the law has just been signed so give it some time. so if u want to say u have the right to choose tell that to ur congress men or state official. If you do not have insurance and need one You can find full medical coverage at the lowest price check search online for "Wise Health Insurance" If you have health insurance and do not care about cost just be happy about it and believe me you are not going to loose anything!

Posted by: jeremytaylore | January 8, 2011 1:47 AM | Report abuse

yes you can save money on your auto insurance by making few simple changes search on the web for "Clearance Auto Insurance" gave me the lowest rate

Posted by: carolcampo8 | January 8, 2011 2:03 AM | Report abuse

on the small business tax credits its easy to see that in areas where it applies (where average salaries are under $50k that this would happen but if you say that this is working you also have to mention how much tax revenue is forgone by giving these substantial tax credits? Correspondingly you also have to look at how much uncompensated care is not being needed and balance it all to see the benefits.

Posted by: visionbrkr | January 8, 2011 11:20 AM | Report abuse

"2) A few more thoughts on employer dumping. According to an informed source, the reason CBO doesn't worry about dumping is that it gets canceled out: If a company dumps its workers on the exchange, it also loses the massive tax break it gets for their health care. So the government may have to provide subsidies for some of the workers, but it also gets more tax revenue from the employer. Meanwhile, the employer has to pay those workers higher wages to compensate for taking away their benefits, and those wages aren't tax-free.

The bigger concern with employers, my source said, was that they'll design high-deductible plans that push sick employees onto the exchange. This would be fairly easy to stop if it ever began happening in large numbers, but if Congress refuses to do anything to fix problems with the law, then it would be harder to stop."

The company in question will still benefit because the money they save in health care costs will be greater than the additional taxes since the maximum corporate tax rate is 35% and is applied to net income.

A simplified example: A company makes $100,000 a year in profits. They have $10,000 a year in health care costs. Their net profit after health care costs are deducted is $90,000. Their tax at 35% is
$31,500. Remaining net profit after taxes and health care costs: $58,500

They get rid of health insurance. Leaving aside the issue of fines if they are over a certain number of employees, the revised tax calculations are $100,000 with 0 deduction for health care costs at a 35% rate is $35,000 in tax owed. Remaining net profit after taxes and health care costs: $65,000.

Their taxes are $3,500 greater, but they saved the $10,000 in health care costs so their net gain is $6,500.

I still find John Cassidy's analysis more compelling. Since you went through David Brooks' column point by point, I'd be interested in seeing you do the same for Cassidy's.

http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-1.html

http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html

Posted by: jnc4p | January 8, 2011 4:31 PM | Report abuse

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