Too Much of a Good Thing
Igor Volsky looks at how much subsidizing we would do in an ideal health reform and comes to the conclusion that in principle subsidies should be available for people earning up to 500 percent of the federal poverty line. That’s a pretty high figure. For the sake of context:
500 percent of the poverty line for an individual is slightly over the median household income. And 500% of the poverty line for a family of four is quite a bit over the median. It’s unlikely, in practice, that congress is going to pony up this level of funds. But I think what it illustrates is mostly just that in an ideal world we’d be constructing a real universal health care system where everyone pays taxes, and then out of the taxes a level of health insurance is provided to everyone. That, it seems to me, is where the logic is pointing you once you’re actually subsidizing a majority of people. For now, though, that’s not where the politics are so what will be will be. And what will be will almost certainly be less generous than this.
34 Responses to “Too Much of a Good Thing”
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July 10th, 2009 at 9:21 am
The repiggies are firmly committed to absolutely no public option whatsoever.
We need to be firmly committed to absolutely no repiggie option whatsoever.
Senator Grassley of Idaho, a major repiggie opponent of the public option, is up for re-election in 2010.
We need to ease him into retirement, along with repiggie members of the House who face similar re-election bids next year.
July 10th, 2009 at 9:21 am
Where does that number for ‘per capita income’ come from?
July 10th, 2009 at 9:30 am
“For now, though, that’s not where the politics are so what will be will be.”
Well…
The WH and Democratic Congressional leadership needs to steer the final bill towards higher subsidies.
There are two ways of approaching the politics of this:
1) A higher CBO number will be bad.
2) A bill that the electorate is happy with after passage will be good.
Reasoning #2 seems to me to strongly take precedence in the electoral calculus.
The way folks view this bill after passage will be owned by the WH and Democratic Party for years to come, starting in 2010 and 2012.
If the bill has generous levels of subsidies, it will be popular, it will drive future elections towards our side.
I know Matthew thinks electoral politics is random and should be ignored, but it’s not how the game works.
July 10th, 2009 at 9:53 am
I’m sorry, but this analysis is terrible. Liberals love to ignore the dead weight cost of taxation of less economic activity. As a liberal myself, this tendency is insanely irritating. There is no way we should be subsidizing health care for median earners. Whatever median earners are willing to pay without subsidy is a pretty good indication of what our society should be spending on baseline health care. The most important aspect of health insurance reform is creating reasonable price options based on community ratings for independent purchasers. That means including a public option. It doesn’t mean subsidizing families earning 100K.
July 10th, 2009 at 9:59 am
Let me see if I have this straight… you want someone else to pay for your healthcare and the people who object are greedy? Sorry bud, but greed is coveting someone else’s resources to be your own.
Oh absolutely, that idea is working so well for California after all. Heh.
July 10th, 2009 at 10:00 am
mpowell, that must be why France has been hit so much harder by teh recession than the US.
Oh, wait…
The French National Institute for Statistics and Economic Studies reported today that France’s industrial output rose 2.6% month-over-month in May, an unexpected improvement, as economists had forecast a 0.2% decline. Manufacturing output rose 2.6%.
July 10th, 2009 at 10:03 am
Steve LaBonne,
And what about Germany?
July 10th, 2009 at 10:14 am
Liberals love to ignore the dead weight cost of taxation of less economic activity.
And just how much is this cost, if tax revenues are intelligently used? Compare, for example, the US to Scandinavian countries.
Oh I forgot, the magical supply and demand curves intersect, and then…
July 10th, 2009 at 10:15 am
What about it? One counterexample is sufficient to show that mpowell is wrong.
In reality, the deadweight cost that’s killing our industries (and making our labor markets unnecessarily rigid) is employer-based health insurance.
July 10th, 2009 at 10:56 am
Wow, the poverty line is low. You could earn twice it and still be forced to live on nothing but Ramen with a family or heavy debt load or whatever. Not that this is news, of course, but it jumped out at me.
July 10th, 2009 at 10:57 am
What about it? One counterexample is sufficient to show that mpowell is wrong.
In reality, the deadweight cost that’s killing our industries (and making our labor markets unnecessarily rigid) is employer-based health insurance.
Is there even a coherent argument in this comment? You are arguing that taxation doesn’t have any deadweight loss because employer-based health insurance is increasing rigidity in the labor market? Those are two completely separate things and don’t touch the issue of whether their is an economic loss associated with taxation. This is not lauffer curve stuff, it is basic supply and demand curves intersection. Maybe you could argue labor is not elastic enough for it to apply, but this is not generally contested theory. 20% loss is a reasonable number to work from. To the extent that people are paying for something, it’s better that they pay it on their own than for the government to raise the money through taxation and pay for it for them. This is an important point for liberals to recognize because it is mostly likely true.
And preceeding your argument by showing France has responded better to the recession is just as bizarre. Again, how is that relevant? By any measure France is still less wealthy than the United States. Is this due to their rigid labor markets or their high taxation or something else? I wouldn’t presume to attribute it to any single factor.
Also, it is perfectly reasonable to imagine a world without employer provided health care AND low levels of government subsidies. A public plan with community ratings paves the path for individuals to pay for their coverage out of pocket while still getting a fair rate. But subsidize the poor, not the upper-middle class.
July 10th, 2009 at 10:59 am
Fraudulent, not to put too fine a point on it. Kind of like reporting U3 ad “unemployment” tout court. But even more misleading than that.
July 10th, 2009 at 11:00 am
Liberals love to ignore the dead weight cost of taxation of less economic activity.
And just how much is this cost, if tax revenues are intelligently used? Compare, for example, the US to Scandinavian countries.
Oh I forgot, the magical supply and demand curves intersect, and then…
I think you misunderstand the point. Even if the revenues are perfectly invested, their is still a loss. The idea is that raising $100 in taxes costs the economy $120 in wealth. This is not a contested point among economists. So if you could have a private individual buy something for $100 or tax him and then pay for it, it’s better to do the former. There are a lot of subtleties here, but subsidizing median earners is just silly.
July 10th, 2009 at 11:02 am
You’re confusing it with YOUR comment which is indeed incoherent . International comparisons immediately put paid to your alleged effect of taxation to support generous health care coverage. You’re talking complete rubbish. And it’s right-wing rubbish so stop pretending you’re a “liberal”.
July 10th, 2009 at 11:08 am
Aldo, improved public health –> increased productivity. Freeing people to change jobs or quit to start businesses –> increased productivity. Anyone too stupid to tell the difference between an investment and a deadweight cost is disqualified from commenting on economics.
July 10th, 2009 at 11:08 am
“Also” that is. Apologies to any Aldos out there. Ciao!
July 10th, 2009 at 11:16 am
MY “And what will be will”
A shout out to Jay Livingston and Doris Day in a health care post. I like it.
http://www.youtube.com/watch?v=xZbKHDPPrrc
July 10th, 2009 at 11:21 am
You’re confusing it with YOUR comment which is indeed incoherent . International comparisons immediately put paid to your alleged effect of taxation to support generous health care coverage. You’re talking complete rubbish. And it’s right-wing rubbish so stop pretending you’re a “liberal”.
Dude, you’re making an ass out of yourself. Go back and check the comments around here and elsewhere for the last 4 years. I’ve consistently argued for liberal positions. Your international comparisons are completely irrelevant and if you weren’t intent on being such an ass, you would not have trouble seeing that. Whether taxation causes additional loss or not, societies that have high tax rates may still do well if the government revenue is well invested. Maybe not as well as they could have and it’s certainly an issue to debate, but you have to take both the pros and cons under consideration. The scandinavian countries do quite well. Whether they do better than the US is a debatable point. But trying to isolate this single effect from a broadbrush international comparison is foolish at best. France, of course, is not debatable. They are poorer than the US. And their economy’s response to the depression is pretty much irrelevant to this question.
It is perfectly fine to debate where spending for health care should come from. But when you are planning on transfering a huge amount of spending from private to public hands, it is absolutely necessary that you make the comparison while considering all the factors. And so you can’t ignore the additional costs to taxation. My view is that with that understanding subsidizing median earners is not good economic policy.
July 10th, 2009 at 11:21 am
While I would normally tend to agree with that, the public plan should be allowed to operate on an equal playing field with employer provided private plans. Currently, private plans receive huge subsidies in the form of tax breaks. The smallest subsidy a “self-and-family” plan member gets is around $1000; the largest is over $4000 (unless it’s been capped recently – I’ve heard snippets about that). The private subsidies also have the oddity that higher earners get bigger subsidies.
The average subsidy to someone on the public plan should be roughly equal to the average subsidy to someone on a private plan.
The average cost of a family plan is about $13000/yr. About 70% of the cost is born by the employer, so there’s $9100 not taxed at either the individual or corporate rate. The median household income for a family of 4 is about $73000/yr. They’ll pay 15% marginal federal tax, + about 4% for state and local taxes. The average combined federal and local corporate marginal tax rate is about 40%. The tax break is split between the employer and employee, I’ll assume a 50/50 split. That makes the effective marginal tax 29.5%, on $9100, – or about a $2700 subsidy for a typical family.
July 10th, 2009 at 11:24 am
Aldo, improved public health –> increased productivity. Freeing people to change jobs or quit to start businesses –> increased productivity. Anyone too stupid to tell the difference between an investment and a deadweight cost is disqualified from commenting on economics.
Good lord, I missed this comment initially. It is perfectly possible to regard health care as a worthwhile investment while recognizing that if you pay for it from public funds, you may pay an additional penalty because you have to raise the funds through taxation. Would you rather spend $120 for the government to provide something or spend $100 to buy it yourself. It’s the $20 difference that is the loss. I believe I’ve been clear on this point. If not, my apologies, but it certainly seems as if you’re not seriously attempting to understand this point.
July 10th, 2009 at 11:26 am
What the hell are you talking about shooter?
July 10th, 2009 at 11:27 am
19: That’s a good point. I agree that we should consider the implicit subsidy with current employer provided health insurance as distorting things here. But couldn’t this be handled by allowing for an appropriately sized tax deduction for purchasing private health care?
Anyhow, the article seemed to imply that in a general sense, the government should be subsidizing health care for any household spending 10% or more on care.
July 10th, 2009 at 11:28 am
And heath care is an excellent investment, AND a good pubic system (as anyone can see, again, from international comparisons) is far LESS wasteful than what we have now. So why are YOU still making an ass of yourself?
Which is exactly why your original comment was completely foolish- because it did precisely that by making an unsupported claim about the supposed effect on the US economy of taxation to support health care. Why are YOU still making an ass of yourself? Is it that you just like to hear yourself talk even when you’re babbling nonsensically? Whatever, knock yourself out.
July 10th, 2009 at 11:31 am
It is also perfectly possible- in fact, extremenly likely- for that to incur LESS of a penalty than our highly inefficient, parasite-ridden current system. For example, the huge administrative overheads of for-profit insurance companies, and the costs that their bureaucracy in turn imposes on providers, is a HUGE deadweight cost.
You’re talking out your ass.
July 10th, 2009 at 11:39 am
Njorl makes another excellent point that mpowell’s “analysis” ignores.
July 10th, 2009 at 11:48 am
The scandinavian countries do quite well. Whether they do better than the US is a debatable point. But trying to isolate this single effect from a broadbrush international comparison is foolish at best. France, of course, is not debatable. They are poorer than the US. And their economy’s response to the depression is pretty much irrelevant to this question.
You said this twice. How is it not debatable? Nevermind IDH or WHO rankings, but look at simple GDP per capita:
15 United States 46,859
16 France 46,016
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita
And if you go by median income figures, the average household is probably richer in France in absolute terms.
And look at who’s higher on the list than the US: mostly goddam socialist countries who are collapsing under all that taxation dead weight… any day now.
July 10th, 2009 at 11:50 am
23 and 24: I will note that you have still said nothing about whether there is an economic cost associated with higher levels of taxation whereby the revenue the government receives is less than the loss the economy sees. This is what I have been referring to the entire time. Whether public healthcare spending is a good idea or not is entirely irrelevant to the argument of whether or not this cost exists. What I am pointing out is that we cannot debate health care spending with a cost/benefit analysis that ignores this cost as it is considerable. It strongly argues for spending to be directed to the private sector when, on balance, public spending has no advantages. And I don’t see any economic advantage to the principle of the government subsidizing government arranged health insurance (the so called public option) to median earners.
Any perceived suggestion on my part that I prefer our current health care system, only exists in your head. If you refer to my original comment, I clearly indicated a preference for a public plan, eliminating both private insurers and employment-linked insurance, not to mention subsidies for those for whom the cost would be too burdensome.
And the backing for the idea that taxation incurs a secondary economic loss is substantiated based on far more than simplistic international comparisons. Economists ranging from Tyler Cown to Brad Delong concede it’s existence.
July 10th, 2009 at 11:52 am
Yes. That deduction would create a budget shortfall for which we would need to compensate with higher taxes, so you get your deadweight loss anyway.
While I agree that taxes cause a deadweight loss, you are missing an important point. The government isn’t buying something that an individual can buy. The government is providing bargaining power.
The government is collecting that $120, not to buy $100 worth of insurance, but to buy more than $100 worth of insurance and suppression of future costs. The latter is something the individual can not buy for himself, so if the value of suppressing future health care costs is deemed to be worth the deadweight loss, the government should do it. Considering how much faster health care costs are rising than inflation, it is very likely that the deadweight loss is worthwhile.
July 10th, 2009 at 11:54 am
That’s right: your “argument” consists, in its entirely, of “deadweight cost of taxation mumble mumble”. As if that were the ONLY kind if deadweight cost that exists. AND as if there weren’t massive, distortionary tax expenditures right no that go to subsidize private insurers. Fail.
July 10th, 2009 at 12:58 pm
29: You should seriously reconsider the perspective you are bringing to this discussion. I argued from the beginning for a public option. I only argued against subsidizing median earners. You seem to have taken the approach that if I disagree with you on healthcare, than obviously I am a right winger, therefore you can impute views to me that are expressly the opposite of the ones that I’ve advocated and then you can declare that you have succeeded in refuting these imputed views. Well, you haven’t presented a particularly coherent case for government provided health insurance, but I support it in any case. Regarding the question of whether the government should provide insurance to individuals at cost versus subsidized (or free), you have offered no actual arguments, though you have referred vaguely to some socialist countries in Europe. Some of them, you may be shocked to learn, do not actually pay for the health insurance they provide.
28: You are mistaken about how the government provides bargaining power. It’s not necessary for the government to subsidize a public plan in order to use its bargaining power as the manager of such a public plan to lower costs. The subsidization and the plan management are more or less separable.
Also, to be fair, employer and independent plans should be equally subsidized. Due to the politics, I can understand why the employer subsidy remains. But I maintain that it would be best to move to a world where there is eventually very little subsidy for the purchase of health insurance for median and higher earners.
July 10th, 2009 at 3:00 pm
I think there will be a slow departure from the way employer provided healthcare works.
If a public plan receives the same per capita subsidy as private plans, the less generous private plans will end. Employers of middle class workers will instead offer small wage increases, which, combined with the existance of a public plan will be more effective at attracting employees. This will cause the average subsidy to private plans to increase. For competition to be fair, the pulic plan subsidy would also increse.
The end result of such a spiral would be a public option with a very large subsidy completely replacing employer provided health insurance. I don’t think that will happen, though. Long before that, employers will begin offering supplemental health insurance plans, paying employees more, and steering them to the public plan for basic insurance.
The public plan will morph to nearly a single payer plan, with the existance of subsidized supplemental insurance for the wealthy. At that point, people will wonder why the wealthy are being subsidized like this, and the tax deduction for it will be eliminated.
When we’ve reached that state, we can determine the optimal combination of efficiency and social justice reached by taxes, subsidies and consumer out of pocket expenses. Until then, political necessity will force less than perfect solutions upon us.
July 10th, 2009 at 3:37 pm
Not really. It would be true if the government were willing to let the uninsured suffer and die without care, but it won’t. The uninsured represent a means of leverage for healthcare providers to keep costs high.
The number of people who decide to go without insurance, even without the public plan, will be a function of the subsidy levels provided. Providers can let them die, or they can treat them under a seperate reimbursement deal with the government. If the seperate reimbursement deal is less profitable than the public plan, the providers will let them die, so it will be more costly to the government.
The government will establish norms for reimbursement for care provided to the uninsured who can’t pay. Given the cost of that reimbursement, one can calculate what amount of subsidy is profitable for the government to offer. The subsidy should probably be a little higher, because the uninsured tend to use health care resources inefficiently, driving overall costs up.
It might be true that the optimal subsidy level for a median income earner is zero, but if it isn’t, the subsidy should be offered.
July 10th, 2009 at 4:02 pm
I think this thread is missing the point. What we should be talking about here is the politics – from an economics standpoint, there really isn’t a reason why middle or upper class Americans should be in Social Security or Medicare, but they are there to make the program politically secure.
At the moment, we are faced with the political situation that 80% of the country has health care and 20% doesn’t – in order to pass health care legislation, you have to do something that gets people with health care on board. And while systemic cost containment is good for the country as a whole, it doesn’t really trickle down to individuals/families…except as lower premiums. And that’s where the premium subsidy kicks in (although keep in mind that it’s a SLIDING SCALE subsidy, not the same for everyone). Giving middle class families a nice check that comes out of the same pot as a proportionally larger check for poor families is important because it creates a community of interest between the middle class and the poor to keep the program going.
July 10th, 2009 at 5:06 pm
AMERICA’S NATIONAL HEALTHCARE EMERGENCY!
It’s official. America and the World are now in a GLOBAL PANDEMIC. A World EPIDEMIC with potential catastrophic consequences for ALL of the American people. The first PANDEMIC in 41 years. And WE THE PEOPLE OF THE UNITED STATES will have to face this PANDEMIC with the 37th worst quality of healthcare in the developed World.
STAND READY AMERICA TO SEIZE CONTROL OF YOUR NATIONAL HEALTHCARE SYSTEM.
We spend over twice as much of our GDP on healthcare as any other country in the World. And Individual American spend about ten times as much out of pocket on healthcare as any other people in the World. All because of GREED! And the PRIVATE FOR PROFIT healthcare system in America.
And while all this is going on, some members of congress seem mostly concern about how to protect the corporate PROFITS! of our GREED DRIVEN, PRIVATE FOR PROFIT NATIONAL DISGRACE. A PRIVATE FOR PROFIT DISGRACE that is in fact, totally valueless to the public health. And a detriment to national security, public safety, and the public health.
Progressive democrats the Tri-Caucus and others should stand firm in their demand for a robust government-run public option for all Americans, with all of the minimum requirements progressive democrats demanded. If congress can not pass a robust public option with at least 51 votes and all robust minimum requirements, congress should immediately move to scrap healthcare reform and request that President Obama declare a state of NATIONAL HEALTHCARE EMERGENCY! Seizing and replacing all PRIVATE FOR PROFIT health insurance plans with the immediate implementation of National Healthcare for all Americans under the provisions of HR676 (A Single-payer National Healthcare Plan For All).
Coverage can begin immediately through our current medicare system. With immediate expansion through recruitment of displaced workers from the canceled private sector insurance industry. Funding can also begin immediately by substitution of payroll deductions for private insurance plans with payroll deductions for the national healthcare plan. This is what the vast majority of the American people want. And this is what all objective experts unanimously agree would be the best, and most cost effective for the American people and our economy.
In Mexico on average people who received medical care for A-H1N1 (Swine Flu) with in 3 days survived. People who did not receive medical care until 7 days or more died. This has been the same results in the US. But 50 million Americans don’t even have any healthcare coverage. And at least 200 million of you with insurance could not get in to see your private insurance plans doctors in 2 or 3 days, even if your life depended on it. WHICH IT DOES!
If President Obama has to declare a NATIONAL STATE OF EMERGENCY to rescue the American people from our healthcare crisis, he will need all the sustained support you can give him. STICK WITH HIM! He’s doing a brilliant job.
THIS IS THE BIG ONE!
THE BATTLE OF GOOD Vs EVIL!
Join the fight.
Contact congress and your representatives NOW! AND SPREAD THE WORD!
God Bless You
Jacksmith – WORKING CLASS