House Health Bill
One of the key differences between the early draft of the House health bill and the Senate Finance draft was the different long-term implications of the financing mechanism. The House bill is financed by taxes on rich people. Since health spending is increasing faster than the overall economy, this meant that even though the House bill was deficit neutral in the 10-year CBO window, by the end of that period expenditures are rising faster than revenues. The Senate Finance bill, by contrast, raises revenue by phasing out the tax exclusion of employer-provided health insurance. Initially it does this by taxing only a small number of “Cadillac” plans, but over time the tax’s bite grows and grows. That means you have fiscal sustainability over the long run.
Senate Kent Conrad (D-ND) tried to stack the deck in favor of his preferred option by getting the CBO to consider not just a 10-year window, but also a 20-year window. The two bills looked about the same in a 10-year view, but Finance’s bill looked much better at 20. The new House bill responds to that challenge by tweaking things to achieve 20-year deficit neutrality:
A previous version of the House bill carried an estimated cost of $1.04 trillion over 10 years, but House negotiators were able to lower the price tag — in part by expanding Medicaid coverage to a broader slice of the population, the equivalent of all individuals who earn about $16,200 per year. The original House legislation had sought an increase to 133 percent of the federal poverty level, or about $14,400 per year, the same level proposed in the Senate bill.
The adjustment reflects findings by congressional budget analysts that covering the poor through Medicaid — which pays providers far less than Medicare — is much more cost-effective than offering subsidies for private insurance policies, something the bill would provide to middle class individuals who lack access to affordable coverage through their employers.
As usual in the health care debate, I think the House is right about everything except this tax point. Getting more aggressive about Medicaid expansion is a great idea. It hasn’t attracted the same volume of activist interest as the “public option” issue, but Medicaid is, of course, a public program. And it’s an important one. This is good policy.
That said, no matter what you can do in any window, it’s still the case that phasing the tax exclusion of employer-provided health care is better policy for the long run. It would, over time, reduce a significant source of economic distortion, reduce overall health cost growth, and improve long-term fiscal sustainability.
27 Responses to “House Health Bill”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
October 29th, 2009 at 12:08 pm
Taxing the super-rich would also “reduce a significant source of economic distortion” and “improve long-term fiscal sustainability”, among many other desirable effects. Plus, it would enrage the right people for once.
October 29th, 2009 at 12:36 pm
I agree on the policy question when it comes to the tax exclusion, but the political question is whether you can get the unions on board.
I also think all this is likely to become moot in the long run. If the exchanges prove popular, then Wyden will probably get his way, and then employer-provided health care will be rapidly dismantled.
October 29th, 2009 at 12:37 pm
One thing about these expensive health care plans is that they frequently apply to union negotiated plans (or will in the near future). Many liberals (and unions) have a big problem with this. But I don’t really understand it. It’s not like these contracts are written in stone. If the labor unions would prefer to get compensation in cash instead of health insurance if they are being taxed on the health insurance their employer is paying for, why not renegotiate for cash instead? Regular non-union employees might have a damn hard time translating reduced health care expenditures on the part of their employer into increased wages, but for even the most minimally competent union negotiator, this should be a trivial task.
October 29th, 2009 at 12:39 pm
The elephant is, of course, that Medicaid is cheaper for the government than the Public Option, which is cheaper for the government than private insurance.
Once this passes, we need to keep repeating that. Then (eventually) the budget hawks will want to save money by pushing people into the less expensive methods of insurance.
I think part of why this session of Congress is so weird is that the DFHs are the ones interested in longterm viability, and thus in deficit reduction. “Conservatives” are now purely advancing business interest, which means spending more government money.
October 29th, 2009 at 12:55 pm
Phasing the tax exclusion of employer-provided health care also has no impact on retired voters, which should make it more palatable to them.
October 29th, 2009 at 12:57 pm
mpowell,
This is a cynical take, but negotiating compensation in the form of health benefits instead of cash is a key part of unions’ marketing pitch to potential members these days (perhaps in part because it is more obvious to people why collective bargaining is necessary when it comes to group-wide compensation issues). So unions have an incentive to keep compensation in the form of such benefits, even if that wouldn’t be to the actual net benefit of their members.
October 29th, 2009 at 1:04 pm
It has a public option. That’s good enough for me. Arguing about just how shitty the the plan is is a waste of time from my perspective. The plan itself is worthless, This bill as a whole is worthless. What is important is enshrining a government-run health program in law. Everything else in this bill is a joke, from its laughable enforcement mechanisms to it’s faux-subsidies. Democrats will likely pay dearly for the fact that they have been running their mouths about creating universal healthcare for decades, and when given the chance, simply forced everyone to buy insurance instead.
But come 2016 or 2020, another Democrat will be office, and they will have no excuses not to improve the public option rather than play another round of kabuki with fake reform. Obama clearly wasn’t the man he pretended to be, so lets not give the next guy the option of backing out.
October 29th, 2009 at 1:07 pm
FYI – the House bill also ups Medicaid reimbursement rates to Medicare’s level. So, in other words, everyone under 150% just got Medicare…which is about a third of the population.
Mpowell – I wrote this to explain why unions don’t like the idea.
October 29th, 2009 at 1:08 pm
DTM, you pretty much just hate unions. I can’t really imagine anyone taking you seriously when you talk about them. People like you are why we struggle with working class voters who should be part of this party, but know that Democrats are too unreliable on economic matters to be trusted. So they only vote on the social issues you care about, and vote firmly against them out.
Then people like you pretend those people are stupidly voting against their self interest when despite the fact that Democrats never actually deliver what they promise anyway.
October 29th, 2009 at 1:25 pm
There’s no way I can support any policy that will squeeze middle-class people’s health benefits, no matter what good it does, unless there is a quality public option that they can get into that doesn’t end up costing them more than the value they lose in dropping the tax exclusion.
Maybe Matt is right about the tax exclusion having the distorting effect of driving up costs, and this method of subsidizing health care benefits should be undone for that reason. That can’t be done on the backs of the middle class like that.
October 29th, 2009 at 1:31 pm
DTM, that is too cynical.
Look at what the unions are doing on immigration. If they were operating by the narrow, self-interested, we-got-ours terms you’re describing, they’d be out there on the stump with Tom Tancredo.
Unions have always looked after the interests of working people, in and out of the unions.
October 29th, 2009 at 1:40 pm
Reform, an Exchange, and a Public O — all from day one!!! Of 2013!!!!
October 29th, 2009 at 2:04 pm
“That said … it is still the case that phasing [out] the tax exclusion of employer-provided health care is better policy for the long run. It would, … and improve long-term fiscal sustainability. ”
All true. That said, the millionaires tax would take money from people who really really don’t need it. Phasing out the tax exclusion would take money from people who could really use it.
The relative importance of progressivity and other nice things is hard to assess.
I think you have slipped from saying that progressivity isn’t the only thing that matters to saying that focusing only on progressivity is a mistake to disliking any argument based on the desire for progressivity. This is a natural raction when you get a lot of verbal abuse from soaktherichers (richsoakers ?) such as myself, but it isn’t a rational response to our possibly irrational obsession.
On the other hand
A proposed additional argument against the House approach is that the rich are gonna get soaked and pulling the soaking of the rich forward a few years does not really add revenue. That is, the hard part is taxing the non rich so we must do all of that which we can.
Highly qualified: Talks to God
Qualified: Talks to himself
marginaly quaified: Argues with himself
Unqualified: Loses those arguments
October 29th, 2009 at 3:19 pm
That’s not actually true.
There is a lot of other good stuff in this bill that begins immediately.
October 29th, 2009 at 3:19 pm
DTM, you pretty much just hate unions.
Nah. Overall, I think unions play a necessary role in our sort of economy, and indeed we would likely benefit from greater rates of unionization.
DTM, that is too cynical. Look at what the unions are doing on immigration.
The unions are supporting immigration reforms that would legalize people already in the workforce while making it harder for firms to bring in temporary foreign workers. That is not at all inconsistent with the cynical view I sketched.
October 29th, 2009 at 3:47 pm
DTM –
Even starting from a classic political science view of unions as an interest group, isn’t it just as likely to be the case that unions don’t like the taxation of union health care plans specifically because they view those plans as compensation that was won at a time when unions had a much larger presence in the economy and hence more leverage at the bargaining table, and that in the current economic climate, they might very well end up with the savings from ending employer-based health care ending up in the pockets of the employers, instead of being shared with the workforce?
October 29th, 2009 at 3:55 pm
isn’t it just as likely to be the case that unions don’t like the taxation of union health care plans specifically because they view those plans as compensation that was won at a time when unions had a much larger presence in the economy and hence more leverage at the bargaining table
I don’t think there are enough CBAs still operative from that era with the right sort of terms that will persist far enough into the future to make that hypothesis plausible.
October 29th, 2009 at 4:07 pm
You left out the part where they are working to increase legal immigration rates, meaning it’s not just about people already in the work force.
October 29th, 2009 at 4:24 pm
You left out the part where they are working to increase legal immigration rates, meaning it’s not just about people already in the work force.
I don’t see how that is inconsistent with the cynical view I expressed either. Economic immigration increases the relative size of the labor pool, so the more economic immigrants the better for unions (as institutions–whether it is good for existing unionized workers is a more complex issue).
October 29th, 2009 at 6:26 pm
Budgeting healthcare over a 20 year span is.. bloody silly, because that timespan will see a really large amount of progress in biotech, which will change the entire sector. Things that are currently expensive will get dirt cheap, things that are currently untreatable will be treatable at high and low costs, and things that we dont even consider to be diseases might end up being considered treatable ailments. Like scenesence and “not being a genius”.
October 29th, 2009 at 7:32 pm
DTM – really? Because I would point to, say the UAW’s auto locals as just one example. It doesn’t have to be that long ago – just 20/30 years.
October 29th, 2009 at 7:38 pm
Because I would point to, say the UAW’s auto locals as just one example. It doesn’t have to be that long ago – just 20/30 years.
To my knowledge almost all the UAW CBAs have been renegotiated within the last 20 years. But maybe you can point me to a specific example.
October 30th, 2009 at 2:06 am
StevenAttewell,
Interesting point about Medicaid, I imagine that Uncle Sam is footing the entire bill for expanding eligibility and paying the higher Medicare rates (the state governments don’t have the funds to cover the typical 43% or so cost-share). Dumb question, is there an economic reason (other than insurance industry rent-seeking) to not allow people above 150% FPL to buy into Medicaid? Presumably the half a trillion in premium subsidies would go farther to make a Medicaid buy-in affordable versus the more expensive public option or private insurance policies.
October 30th, 2009 at 2:16 am
DTM – yes, but in general, things in CBAs that are relics of old CBAs tend to be much more secure than things that are new items, a certain degree of “custom and practice” has built up. As a result, it wouldn’t be considered as a credible bargaining position for an employer to just drop a health plan they’ve had running for some time, but at the same time, the addition of new language regarding how labor savings are to be divided would depend less on “custom and practice” and much more on the relative bargaining strength of the two sides.
Beowulf – thanks. Yes, the Feds are paying 100% of the cost of the expansion – that how the Federal percentage going up to 75% works out. There isn’t an economic reason for forbidding people over 150% from buying into Medicaid, any more than there’s an economic rationale for forbidding people under 65 from buying into Medicare.
It’s a strictly ideological and/or self-interested question. People who don’t like government programs tend to deal with the problem that people generally like government programs once they’re in them by trying to keep them out.
October 30th, 2009 at 11:15 am
DTM – yes, but in general, things in CBAs that are relics of old CBAs tend to be much more secure than things that are new items, a certain degree of “custom and practice” has built up.
Maybe in general, but in the cases I am aware of, health insurance provisions have specifically been targeted for new negotiations on the claim that costs have risen faster than anticipated.
October 30th, 2009 at 11:18 am
By the way, we are getting very close to a convergence of views here. The argument that you specifically need to keep a union around in order to preserve good benefits it negotiated in the past even as they are being renegotiated in the future may have some merit in some cases, but it also tends to serve the interests of unions as institutions to have those issues continue to be the focus of negotiations.
October 30th, 2009 at 12:22 pm
If we need to raise revenue, then I suggest that we start to tax the tax shelters. Any trust that has a value of more than $5 Million would be taxed. Gates and Buffet put almost $100 Billion in trust. Their families will benefit/be employed by the foundation/trust without paying any estate taxes.
Lets see who has trusts, Senator John Kerry, The Heinz trust, Senator Rockefeller, Senator Kennedy etc. Speaker Palois. Why not tax these as a new source of revenue. Lets say 28% of the income they produce or should we apply the normal progressive tax rate that applied to individuals would be a nice place to start.
It would lessen the blow to those who are EARNING income rather than those who are living off those who did in the past.