So it looks like Healthcare.gov is working — or at least working much better than it was before. Hopefully, this means we can soon set aside our collective national freakout over a really serious substantive threat to Obamacare, and go back to freaking out over the purely optical threats. Those would be “rate shock” and the failure of Obama’s “if you like your plan you can keep it promise” to pan out. Unlike the website’s travails, they’re purely political problems, and actually result from Obamacare operating the way it was designed to. They’re exceedingly unlikely to threaten the macroeconomic stability of the insurance markets, or the soundness of any part of the law’s policy design. Their costs are dwarfed by the benefits going to poor people receiving subsidies and covered by the Medicaid expansion.
But rate shock and the plan cancelations also happen to affect a population that’s upper-middle-class and relatively politically active, so our political system actually cares about their troubles in a way it doesn’t for the truly poor and unfortunate. So we treat inconveniences heaped on the former group as major political scandals, and massive alleviations of suffering for the latter group as non-events. Which is shameful and morally perverse, if you ask me.
However! With that bit of throat-clearing out of the way, let me say I’m sympathetic to complaints that Obamacare’s restrictions on health coverage design hamper consumer choice, and hold back innovation in the packaging and delivery of care. Those restrictions also contribute to rising premiums (not much, but somewhat) because expanded coverage comes with expanded costs. And they’re causing the cancellation of a lot of pre-Obamacare insurance plans.
I don’t obsessively fetishize choice and innovation they way reformist conservatives do. But they’re good values to promote, and shouldn’t be undermined unless it’s necessary to pursue some more foundational moral obligation. I don’t think it’s necessary here. And hey, if we can fix rate shock and plan cancellations while we’re at it, why not?
So, without further ado, here it is:
The Official Jeff Spross Plan To Fix Obamacare
1) Remove all but the gold rating from the exchanges.
Right now insurance plans have to meet one of four ratings to be sold on the exchanges. Bronze plans offer the stingiest and least comprehensive coverage; then it goes up to Silver, Gold, and finally Platinum with the most generous coverage. Catastrophic plans can also be sold under certain conditions. Those four “metal ratings” all include a package of essential health benefits (EHB) — ensuring everyone gets at least a minimum level of reliable coverage. They also require various deductibles and cost-sharing.
My recommendation: clear out the EHB requirements and everything except the gold plans. Then change the law so that as long as an insurer sells a gold plan on the exchange, they can sell any other plan they cook up as well.
That would address conservative complaints regarding choice, innovation, and plan cancellations. But it would also still serve the liberal goal of protecting consumers from “junk insurance.” Gold plans would function as a seal of approval: you can take your chances with the other plans if you like, but the government has checked these out, and they’re solid.
Furthermore — if I understand the economics correctly – requiring all insurers to sell at least a gold plan before they can sell anything else should cut down on any risks of adverse selection.
Practically speaking, this wouldn’t bring back the plans that have already been canceled due to Obamacare’s new rules. But it would satiate conservatives’ principled objections, and would open up the possibility for insurers to resurrect similar plans in the next year or two.
2) Simplify the subsidies.
Right now the subsidies customers can get on the exchanges are calculated to cover the premiums they’d pay for a silver plan. The subsidies are adjusted for income — the more you make, the less of your premium is covered — and they phase out completely if you make over 400 percent of the poverty line. Separate subsidies, also adjusted for income, are provided for out-of-pocket costs.
First off, obviously, my plan would peg the subsidies to the gold plans. The division between premium subsidies and out-of-pocket subsidies is also silly, si I;d just have one lump sum that covers everything. Next, there should be no adjusting for income. Everyone should get the full cost of their premium and out-of-pocket expenses covered, regardless of how much they make. Third, don’t phase it out at 400 percent of the poverty line. Give the subsidies to literally everyone on the exchanges.
Obviously, this will significantly increase Obamacare’s annual spending, which would be a big downside for conservatives. But it would also eliminate the policy and paperwork complexities that come along with means-testing; it would do away with rate shock, since everyone will have the entirety of their premiums covered no matter who they are; it would bring Obamacare’s subsidies closer in form to the universal health care tax credit conservatives advocate; and it would eliminate any latent welfare trap effect from the benefit phase-out.
Finally, this would make a gold plan affordable to everyone. Combine that with the “seal of approval” function mentioned above, and gold plans would become the all-purpose fall back plan. And if a customer decides to go with coverage that costs less than a gold plan, they can just pocket the leftover subsidy. That keeps the incentive for customers to shop for the best deal, and the accompanying competitive market pressure.
3) Get rid of the age bands.
Obamacare also instituted a new rule that premiums for older Americans on the exchanges couldn’t be higher than premiums for younger customers by a factor of more than 3 to 1. Older people tend to be sicker and thus a greater risk for insurers, which drives their premiums higher. The rule was meant to help out the older set with an implicit transfer: drive down their premiums by driving them up for younger customers.
It’s unclear just how much the age restriction contributes to premium hikes and thus to rate shock. Most of the hikes are probably due to the rule that insurers can no longer deny customers based on pre-existing conditions. But the age rule obviously contributes some.
So let’s get rid of it. We’ve already removed all limitations on who can and can’t get a subsidy. So no older American is going to be left out in the cold when their premium goes up. I don’t object to the age rule myself, but it seems to me we can accomplish the same goal through less intrusive tinkering in how insurers design their coverage.
4) Get rid of the coverage requirements for the employer-provided market.
Finally, Obamacare imposes some new requirements on the small and large group markets for employer-provided coverage, which are causing some modest disruptions there. Personally, again, I don’t care about this. If your employer cancels your current plan, the most likely outcome is they’ll just provide you with a better one. If they don’t, then you’ll be getting a bigger paycheck (since none of it’s going to premiums anymore) and you can go shop on the exchanges. Either way, you’ll be fine.
But conservatives seem annoyed by these requirements. And much of the impetus behind Obamacare was the idea that employer-based coverage was already the “good” kind, and we were trying to make the individual market more like it. So I don’t see why the employer requirements are strictly necessary. Why not just get rid of them?
BONUS: Cover everyone who got left out by state refusals to expand Medicaid.
I don’t like describing the expansion of coverage to millions of the least fortunate Americans as a “bonus.” (See my bitching above about whose struggles our political system does and doesn’t value.) But I did frame this post as a response to rate shock and plan cancellations, and expanding Medicaid isn’t strictly relevant to that. Still, as a leftwinger with the attendant moral priorities, this would be a huge “win” for me. So I’m including it.
Right now, to qualify for the exchanges, your income has to be at least 100 percent of the poverty level. That’s because lawmakers figured every state would expand Medicaid, covering everyone below that threshold. But 26 states didn’t, leaving almost 5 million Americans — all of whom are far poorer than those seeing rate shock and plan cancellations — high and dry.
But since we’ve already eliminated the income ceiling on who qualifies for the exchanges’ subsidies, we might as well drop the floor as well. That yields a simpler system: as long as you’re not covered through your job or through some government program (Medicare, Medicaid, Veterans Health Administration, etc.) you’re on the exchanges, end of story.
Yes, again, this would significantly increase the law’s annual expenditures. But it would also serve as a détente of sorts on the Medicaid expansion, and take the political pressure off conservative states that don’t want to participate. Read the rest of this entry »
Let us stipulate, for the sake of argument, that President Obama has broken his promise that “if you like your health care plan, you can keep your health care plan.” I actually think the accusation is highly contestable on its merits, but whatever. Let’s roll with it. What I want to know is: what, in practical terms, I should take away from this fact?
And I ask in earnest! Because Obama’s critics sure seem to think it’s important. But so far they seem like the dog that caught the proverbial car with this talking point — now that they’ve landed it, they don’t know what to do with it.
The most obvious implication they’re pushing is that this invalidates the law: as Ben Domenech put it at a recent Wonkblog debate, whether Obamacare succeeds or fails should be judged by whether it lives up to the White House’s promises.
But this is an obviously stupid argument. First off, Obama is not my Dear Leader or anyone else’s. He’s just some dude I voted for. We’re all perfectly capable of forming our own opinions on a policy and coming up with our own metrics. I’m not obligated to adopt his. And as a matter of common-sense, it seems to me most voters will judge the law on whether it makes American lives better off on the whole, not whether it matches up with a few political talking points the vast majority of them weren’t paying attention to anyway.
Tim Carney, however, does a better job with two distinct takeaways:
1) Never trust Obama again.
I can’t really say I disagree, though I don’t share the sentiment. I’m deeply cynical and utilitarian about this stuff — politicians are function algorithms, whose behavior is determined by self-interest and the environment of political forces they encounter. I vote for them accordingly, looking for the one that I think will best advanced my preferred policies and values given their nature and circumstance. I gauge the likelihood they’ll keep their promises by the same measure. (As such, Obama’s done a good job of keeping his promises to me, since I’m a lefty-liberal, and am smack-dab in the middle of the political coalition that most affects Obama’s fortunes.) In short, trust doesn’t really enter into it for me, except at the margins.
Carney’s point is certainly relevant to, say, conservative voters who are curious about immigration reform. If the final bill’s concession to conservatives is increased border security, and that increase is written in the legislation such that it relies heavily on executive discretion, then yeah, they should be worried Obama will welch. But really, that would be just as true before the current Obamacare brouhaha, because that’s the nature of politics. It’s also a good reason to leave the executive as little discretion as possible in a law’s language, which is how we ought to be doing things anyway.
I also think the decisiveness and gravity with which Carney renders this judgment is uncalled for. As I said, the charge is contestable, even from his framework. Obama’s promise has held true for everyone on Medicare, Medicaid, and the vast majority of employer-provided plans. That’s most Americans right there. The Congressional Budget Office projected that 8 million Americans would lose their current coverage. By my lights, when you make a promise to 300 million-odd people, keeping it for 97 percent of them is doing pretty well. It’s also arguable the White House was honest if cagey at the time that the grandfathered plans wouldn’t last.
The most you could say, I think, is that this is one data point in the case you shouldn’t trust Obama, and a relatively mixed one at that.
2) Loosen the rules that are outlawing insurance plans.
As Carney says, “Why should it be illegal for me to buy a plan that doesn’t cover mental health or contraception? Why should it be illegal for my neighbors to buy a plan that doesn’t cover maternity or prescription drugs? Why should a $5,000-in-network out-of-pocket maximum combined with a $10,000 out-of-network max be outlawed?” Those are all fair questions! And it’s absolutely true that loosening Obamacare’s rules about how coverage can be constructed and what benefits must be included would cut down on the amount of plan cancelations.
But this is a debate over an a priori policy preference. We’d still be having it, in exactly this same form, even if Obama had been totally up front from the beginning that some plans would get nixed. And if you do think tall those practices should be outlawed, then saying the plan cancellations are merely “transitions” is a perfectly valid argument.
It’s worth noting that most conservative health wonks want to equalize the tax treatment of employer-provided plans and individual ones. Now that would lead to some serious upheaval in what coverage is currently available, and who gets to keep what. So the mere fact of changing plans can’t be taken as evidence that a particular policy is bad.
Again, I don’t see how Obama’s failure to keep his promise illuminates anything here. For myself, I’m sympathetic to the idea that Obamacare’s rules on this score shouldn’t be so demanding. But I’m also firmly in agreement with Josh Barro and Austin Frakt that our current health care system is a mess, that changing it into something better will inevitably lead to lots of people losing what they now have, so Obama’s promise is something that shouldn’t be kept because doing so would be bad policy.
We should decide whether the essential health benefit requirements are a good idea or a bad idea, then alter or not alter the law accordingly. Obama’s personal virtue has nothing to do with it. And if those rules are a good idea, we certainly should’t get rid of them anyway just to bring the law into line with the President’s previous sales pitch.
Here’s Tim Carney, tracking the genuinely interesting meeting-of-the-minds Wall Street and the Left arrived at in supporting Janet Yellen for Fed Chair.
The reason for the former’s enthusiasm is pretty straight forward: Yellen is a big fan of quantitative easing. That’s the relatively new form of unconventional monetary stimulus the current Fed Chair, Ben Bernanke, and his supporters have used to try to boost the economy. They’ve already cut short-term interest rates to zero through conventional monetary policy, so that can’t go any further — the infamous “zero lower bound.” So with quantitative easing, the Fed creates new money, then injects it into the economy by buying up both U.S. Treasuries and other instruments on the financial markets, like mortgage-backed securities, in an effort to move long-term interest rates and inflation expectations.
“Wall Street loves quantitative easing much more than it dislikes regulation,” wrote Yellen critic John Berlau of the free-market Competitive Enterprise Institute.
Republican investor Stanley Druckenmiller sounded a similar note: “This is fantastic for every rich person,” he said of quantitative easing. The Fed’s buying binge drives up demand for stocks and bonds, thus boosting the price of these financial assets. “Who owns assets?” Druckenmiller continued. “The rich, the billionaires.”
This critique of quantitative easing — that it inordinately benefits the rich — is hardly new. What interests me here is you really only ever see it deployed as an argument for not doing quantitative easing period. But that doesn’t follow! This critique has nothing to do with the basic macroeconomics of the matter, which say we’ve suffered an aggregate demand collapse and are teetering on the edge of a deflationary spiral, and thus the economy needs a big injection of new money. All the “it helps rich” critique implies is that, hey, maybe we should find some way to get the money into the economy other than buying up stocks and bonds.
Which is something I’m genuinely curious about. What are our alternatives? Well, the wonky ideal would be through direct cash giveaways. The Fed should literally just start cutting Americans checks. This would be the proverbial “helicopter drop,” properly understood. Steve Randy Waldman put forward a pretty slick version of how this could work a while back: whenever the Fed wants to inject money into the economy, it could just deposit it into every American’s bank account. When it wants to take money out, it could just coordinate temporary tax hikes with Congress.
I can see some possible problems with this. For one thing, roughly one quarter of Americans carry out some, or even all of their financial business without a bank account. These are the people who would need those stimulative Fed deposits the most, yet they’re also the hardest to get those deposits to in practical terms. I’d also worry about the political efficacy of tightening monetary policy by hiking taxes. That seems like a quick way to make everyone hate the Fed, and to make tight monetary policy even harder to carry out politically than it already is. (That said, I’m in agreement with Waldman and much of the blogosphere that insufficient monetary tightening has been the least of the Fed’s problems for the last few decades.)
At any rate, it’s certainly the cleanest and simplest proposal I’ve seen. The thing to remember is that the central bank isn’t really a “bank” in the popular sense. It’s more of a ballast chamber for the money supply. Right now it sucks money in and pumps it out in the form of bought and sold financial instruments. But there’s no reason it couldn’t do the same with direct cash transfers.
A less radical proposal, built more on existing policy, could leave conventional monetary policy’s buying and selling of government bonds unchanged, but turn to direct cash transfers whenever the zero lower bound looms. Essentially, replace quantitative easing with temporary boosts in social safety net spending. Congress could write language establishing a menu of programs that rely on giving people cash directly — TANF, unemployment insurance, Social Security, the earned income tax credit, the child tax credit, and so on — and then the Fed just decides how much extra cash it wants to inject and when, and spending levels on those programs would rise accordingly. If we ever established a universal basic income (and I definitely think we should) it could be added onto the menu.
It wouldn’t be perfect — you’d still be choosing Wall Street as the entry point for money creation under conventional operations — but I think it would be a big improvement over the status quo.
Now, contra the “it inordinately benefits the rich” argument, Scott Sumner has argued that where the money gets injected doesn’t have distortionary effects on distribution. But it does seem to me (and I admit we’re at the far outer limits of my policy acumen here) that his argument only works as long as the money actually circulates fully through the economy. Which gets us to Carney’s other point: the Fed has increased the money supply by about $2.7 trillion since the 2008 recession, but there’s been no corresponding increase in inflation, and the economy remains middling. So where’d all that money go?
Here’s one clue: Banks are holding $2.3 trillion in reserves — compared to less than a trillion in 2008. Also, corporations, feeling cautious these days, are sitting on record piles of cash, according to the Bureau of Economic Analysis.
This makes sense, considering the mechanism of QE: The Fed buys Treasuries from banks. But gun-shy banks don’t lend it so it sits on their books instead of entering the real economy, where it could cause job growth, inflation or both.
This is a slightly different problem that what Sumner was responding to. Not that quantitative easing amounts to Wall Street cronyism, but that economically privileged recipients of the new money are the least likely to push it out into the broader economy, precisely because they’re the least likely to feel the pinch in a downturn. Recipients of social safety net spending, on the other hand, are the most likely to feel that pinch. So why not make them the entry point for the new money?
Lastly, Joseph Weisenthal raised another suggestion, that corporate and bank cash hoarding simply shows the Fed hasn’t raised inflation expectations enough. Monetary policy simply remains too tight. Strictly speaking, I think this is correct. As Milton Friedman pointed out, nominal GDP growth and inflation are the two things by which monetary policy should be measured. Both remain quite low, which suggests policy is too tight as opposed to too loose. There’s a solid case that the Fed’s policies so far, while failing to boost the economy out of its torpor, have effectively put a floor under it and prevented things from getting any worse. I’m also persuaded that a four percent inflation target would be vastly preferable to the Fed’s current target of two percent.
So I do think we could get more economic stimulus if the Fed went even bigger with its money creation. And given the current menu of options and political realities, that’s almost certainly the best course of action.
But I also wonder if we could be getting “looser” monetary policy by changing its structure as well as its size or ostensible targets. If every last dollar the Fed created was immediately getting pushed into circulation by its recipient, as opposed to piling up in corporate books and bank reserves, could we be getting more bang for the buck?
Writing on how conservatism could get its act together in the New York Times, Ramesh Ponnuru suggested, among other things, that conservatives focus on changing “the existing tax break for health insurance so that people would be able to pocket the savings if they chose cheaper plans.”
Conservative wonks like Ponnuru have long advocated equalizing the tax treatment of health coverage purchased individually and that purchased through an employer, either by repealing the tax break entirely or extending it to the individual market. This is a very good idea. (Eliminating the tax break more than extending it, but that’s a separate issue.) Unfortunately, over at the Washington Examiner, Ponnuru’s fellow conservative Philip Klein does not see it that way. And his objection is, well, weird:
Changing the tax treatment of employer-based health care has long been the cornerstone of market-based reform, because it would give individuals more choices and more incentive to control their medical spending. But with the new health care law in place, changing the tax treatment could simply mean that many more people get dumped into the government-run insurance exchanges, helping accelerate the growth of Obamacare.
You see what Klein did there? Equalizing the tax treatment would significantly lower the incentive for employers to provide health benefits, so fewer would do so. With ObamaCare now in place, that would mean more people going into the exchanges. And Klein assumes any act that grows ObamaCare is ipso facto in tension with the goal of market-based health care reform.
That assumption is very common within the Republican Party and conservative wonk circles. And it makes zero sense.
First off, the definition of a market is any system that allows for the trade of goods and services between buyers and sellers. That’s what ObamaCare’s exchanges do: They provide a framework for individuals to purchase health insurance from providers on an individual basis.
Now, if you click through his links, you’ll find that Klein’s complaint with the exchanges is that they regulate the coverage sold on them. This is equally silly. The government regulates trade in everything from food to cars to cigarettes. Now maybe you think it regulates them too much, but that’s a prudential call. No one suggests we don’t have functioning markets in these goods just because the government stepped in with a few rules — much less that they’ve suffered a “government takeover,” as Klein puts. By that standard, the government already runs the vast majority of the economy and we’ve already descended into socialist dystopia.
In fact, oftentimes regulation actually improves a market’s function. Two of ObamaCare’s key regulations are guaranteed issue and community rating; the first prevents insurance providers from denying people based on pre-existing conditions, and the second bars them from charging certain people exorbitant prices based on their age, gender, etc. Absent those regulations, providers would be able to compete based on who can cherry-pick the least costly customers, rather than competing on what actually matters: who can deliver customers the best value. Markets are social creations, so there’s no objective, self-evident criteria for what constitutes a well-functioning market outside of what we as a society decide. But I hope we can at least all agree that lowering prices for healthy people by rendering sick people entirely uninsurable is not the kind of result we’re looking for from our health care markets.
For what it’s worth, Switzerland also regulates the coverage provided by private insurers, while requiring its citizens to purchase coverage and subsidizing them in doing so — a very similar system to ObamaCare. And if you ask a conservative wonk for an example of a market-based universal health care system they approve of, it generally isn’t long before Switzerland gets mentioned. Read the rest of this entry »
I wouldn’t have expected Marco Rubio, of all people, to dig me out of my personal blogging hiatus. And just in time for the Thanksgiving holidays, too.
Anyway, Rubio’s refusal to give a straight answer on the age of the Earth has been worked over pretty well at this point. But Slate’s Daniel Engber gave things a good shot in the arm yesterday with an instance from 2008, when then-Senator Barack Obama was asked a very similar question and gave a very similar “on the one hand but on the other hand” answer. Several writers have denied there’s an equivalence between the two examples. I don’t think their arguments hold up.
Steven Benen pointed to the wording of the two questions and the settings in which they were asked — a secular magazine interview for Rubio, a religious forum for Obama. I don’t really see how that’s relevant. Both questions were meant to illuminate the same difficulty: “Given how the discoveries of science, concerning the age of the Earth and evolution, run up against some of the premises of fundamentalist and biblically-literalist Christianity, how do you navigate that tension?” Both men functionally gave the same answer, which was, “It’s above my pay grade.”
I’m sure Obama doesn’t actually think the Earth could be a few thousand years old. I bet Rubio doesn’t either. But Obama’s response suggested it would be legitimate for himself or anyone else to let some other belief system trump the scientific consensus in deciding their position on the matter. That’s exactly what Rubio said, too. And that’s exactly what everyone jumped on him for.
Indeed, the arguments Phil Plait, Alex Knapp, and others made for why Rubio’s statement was objectionable were all of the same “pull one thread and the whole fabric falls apart” variety. If Rubio thinks science was wrong (or possibly wrong) when it determined the Earth is 4.54 billion years old, what does he make of radiometric dating? Or our reliance on the speed of light as a constant? As Plait asked, what does he make of the science that lead to “cell phones, computers, cars, machinery, medicine, the Internet, manufacturing, communication, agriculture, transportation, on and on.” The ideas and evidence and observations and theories that made all these advances possible intellectually interlock. The whole process of science over time is the attempt to get them to interlock better. By implicitly, if not explicitly, questioning the science behind the age of the Earth, Rubio creates unavoidable intellectual ripple effects that call into question more or less all of the modern technological world.
Anyway, that’s the argument. And it makes perfect sense on the abstract and intuitive level. But if you actually think about the nature of faith for a moment, or just the practical realities of human behavior, it’s clearly balderdash. Read the rest of this entry »
Reihan Salam dubs Ryan’s budget the “put up or shut up” budget, in that it forces confrontations with the unspoken unpleasantries that would accompany either the Democrats preferred spending or the Republicans preferred cuts:
[A] March 2012 report from the Tax Policy Center by Eric Toder, Jim Nunns, and Joseph Rosenberg examines the top marginal tax rates we’d need to bring debt to sustainable levels without significantly altering the federal government’s spending trajectory and they are strikingly high. This is part of why a number of neoliberals, including Matt Yglesias and Josh Barro, have argued that we need significant tax increases on middle-income households: the spending cuts we’d otherwise need to achieve fiscal balance are in their view unacceptable…
Democrats declare Ryan’s proposed spending cuts unacceptable without acknowledging that broad-based tax increases are the most realistic way of avoiding them. Republicans, meanwhile, have not generally thought through the impact of (in particular) the Medicaid cuts envisioned in the Ryan budget.
The math of this is correct. I’m firmly in the Yglesias camp on this. You can’t make the kind of government I’d prefer fiscally sustainable without hiking taxes on the middle class.
However, you also can’t talk about this stuff without acknowledging the unique political environment of an economic depression. Americans are freaked out by the deficit in the abstract. But they don’t want their taxes hiked — reasonable, given that we’re in a depression — and they don’t want their government support cut — also reasonable, given that we’re in a depression. Politically, this should lead everyone to a pretty straightforward policy response: Don’t cut the deficit!
Happily, that response is fully consistent with Keynesianism and textbook macroeconomics. You don’t reduce deficits during economic depressions, through sending cuts or tax increases, because this sucks demand out of an already struggling economy. In fact, in the short run, you increase deficits through new spending to help drive the economy back to its prior level of output. Once the economy is back on its feet, then you reduce the deficit.
With robust economic growth, the tax hikes or spending cuts needed to reduce the deficit become much less politically fraught. People tend to feel more secure in their circumstances, which makes them more tolerant of higher tax rates or lessened government support. I think this point is woefully under-appreciated. Depressions don’t just make deficits harder to close on a policy level, they make them harder to close on a sociological level as well. Conversely, getting back to robust growth lessens the hurdles on both fronts.
This should reemphasize what a godawful tragedy not getting a sufficiently large fiscal stimulus actually was. (Or sufficiently large monetary stimulus, for that matter.) We pumped enough demand into the economy to prevent a full-scale meltdown, but not enough to boost us back out. That left us limping along in a prolonged period of high unemployment, thus low revenue, thus expanded deficits. It also left us limping along through a prolonged period in which most Americans are already on the ropes, and thus vociferously opposed to any of the steps necessary to close the deficit. So both good politics and good policy converge on just not cutting the deficit right now.
Unfortunately, the Republican Party has made such an agreement all but impossible. While no politician ever suffered at the polls for increasing the deficit, fears of runaway deficits operate as a stalking horse in the public’s mind for a bad economy. So in a depression, demagoguing the deficit becomes a very effective short-term political tactic. And now that the Republicans have demagogued the deficit, they can’t very well turn around and agree to a policy program that blows it up over the short term, and they’ve mad it much harder for the Democrats to do so as well.
One other point: Your average European country not only has a broader, more regressive tax system than American — it also has a much more generous and expansive social safety net as well. I take that as evidence of an implicit deal required to satisfy your average populace of western voters. Low and middle income voters only tolerate significant tax burdens if those burdens are in equilibrium with generous government support programs. The kind of tax system American conservatives prefer has to be balanced against the kind of social safety net American liberals prefer, for political sustainability as well as fiscal sustainability. Right now America has neither.
You could argue that this is good reason to reduce both the tax burden and the size of government concurrently. But I think it’s pretty clear that the free market, absent significant government intervention, creates circumstances and distributions most Americans find utterly unacceptable. And we’re already pushing that boundary of the voters’ tolerance on that front.
William Galston is worried that if they go overboard in criticizing Paul Ryan, Obama and the Democrats may hamstring their own ability to sell future reforms to the American public.
In 2008, John McCain wanted to treat employer-provided health insurance as taxable income, a policy that many economists in both parties favor as helping to slow the pell-mell increase in health care costs. The Obama campaign went on the attack, to great effect. But in the process, they made it impossible to include any robust version of that policy in the architecture of the Affordable Care Act. […]
A number of Democrats once believed—and some still do—that a well-crafted version of premium support is part of a balanced and sustainable long-term fix for Medicare. If the effect of the Ryan choice is to take not only the Ryan budget’s version of premium support off the table, but also the kinds of approaches that Alice Rivlin and Ron Wyden have proposed, then we’ll be left with far less appealing options for stabilizing Medicare… If Obama wins the election by playing on the fear of change, which is very real, then the election will settle nothing, and our already dysfunctional political system will be mired in gridlock indefinitely.
This isn’t a crazy concern. I’m one of those Democrats who thinks premium support might (might!) be a necessary part of Medicare’s future, and the employer-provided insurance kerfuluffle was, in terms of policy substance, one of Obama’s lowest points. The Affordable Care Act may still be able to unwind the employer-provided market, but the process will take far longer and be much messier than if we had just gone at the tax treatment question directly.
So I get the worry that by taking advantage of immediate political expediency, Obama could kill needed policy down the line. But it doesn’t really concern me in this instance, for several reasons.
One, political expediency can flip pretty quickly. Just take Obama’s one-eighty on the individual mandate. In fact, I’d argue the ACA’s failure to go after employer-provided coverage had a lot more to do with the GOP’s lock-step opposition than with Obama’s previous promises. If the Democratic leadership thought equalizing tax treatment could peel off enough Republican Senators to afford losing a few Democratic ones, I think they would’ve done it. They were certainly happy to compromise on a raft of other points.
More fundamentally, Obama’s promises will only bind the Democrats for another four years — assuming he wins in November – and moving Medicare to premium support just isn’t going to become a terribly pressing concern in that window. I realize this goes completely against centrist conventional wisdom, much less conservative conventional wisdom, but it’s true. The key thing to remember is that Medicare is not becoming more expensive because there’s anything particularly wrong with Medicare. It’s becoming more expensive because it happens to buy health care, and health care is becoming more expensive. And the primary engine driving that rise in costs is far and away the private markets.
The growth rate in Medicare has been well below that of the private markets, and it only covers 16 percent of Americans versus around 65 percent covered by private ensurers. Medicare rides the costs of health care, and is able to bargain them down somewhat below trend. But it isn’t driving them. You cannot treat these things as conceptually separate — if you want to fix Medicare, you need to fix everything outside of Medicare. (And Medicaid.)
This is precisely what the Affordable Care Act does. It uses Medicare’s bargaining position to inject a whole raft of delivery reforms into the market that will hopefully be taken up by private insurers. There’s evidence this is already having an effect. It also created a mechanism for forming multi-state compacts out of the exchanges, which could break down the state-by-state fracturing of the health coverage market. And it set up long-term forces that could unwind the employer-based system over time. As I said earlier, if Republicans were willing to play ball, and accept the ACA as the framework for health care reform going forward, they could probably improve the law in ways that would greatly speed up these processes.
Now, maybe you think this is all bullshit. Maybe you think the ACA is the worst thing ever, and should be repealed wholesale, and then we should nuke the employer-based system, give everyone health savings accounts, and turn the health insurance regulatory environment into a nationwide wild west. But even if this approach did work, it would bring down health care costs across the board. That would go most of the way towards fixing Medicare right there — whether you fiddle with the program itself is gravy.
This gets us to the real perversity of Paul Ryan’s position. He’s out there proposing that we torpedo the biggest overhaul to the health care market we’ve passed in decades, and instead wants to upend Medicare’s structure in ways that don’t meaningfully change its spending course from Obama’s proposal. Of course, he’d like to kill the employer-based system, do HSAs, and do cross-state competition too. But that stuff isn’t in his budgets, for the very simple reason they’d be an even more politically difficult and poisonous lift than the ACA itself was.
We barely got the ACA through thanks to a highly unusual political moment. It’s a profoundly valuable foothold. The idea that we could kill it, and then impose an even more disruptive reform on the private markets — minus all that making-sure-poor-and-sick-people-can-get-coverage hippy nonsense, of course — is just insane. But that’s just what Ryan and his cohorts are proposing.
UPDATE: Sen. Ron Wyden of Oregon is more positive on premium support for Medicare than I am. But Paul Ryan and Mitt Romney’s attempts to use the Ryan-Wyden plan as bipartisan cover are extremely disingenuous, and this interview Wyden gave to Ezra Klein sums up my own frustrations with the Medicare debate we’re having:
In the broader conversation over Medicare, the reforms in the Affordable Care Act and premium support are seen as sharply divergent paths. The ACA relies on delivery-system reform and the IPAB, while premium support relies on vouchers and competition. But you’re saying they’re not opposed at all. In fact, they’re best done together.
I’ll make a substantive point and then a political point. I feel strongly that to tee premium support up for a decade from now — which is what the white paper called for — you need the kind of delivery system reforms envisioned in the Affordable Care Act to accelerate the trend toward more coordinated care and paying for quality and bundled payments. If you don’t accept those, and Gov. Romney says just rip the Affordable Care Act up and go to our form of coupon care, you’ll never had have any of these reforms.
Number two, I’ve found that more and more Americans are coming around to this head-scratching exercise where they ask, shouldn’t we do the same things for people over 65 that we’re doing for people under 65? Can’t we start the march to an integrated system?
One frustration for me in this debate has been that Republicans have essentially lifted the insurance market structure from the Affordable Care Act, which they say will save no money, and moved it to Medicare, where they say it will save tons of money. But it’s the same idea! The Affordable Care Act’s exchanges use an almost identical competitive-bidding process to the Medicare exchanges in Ryan’s budget. I don’t see how you can say one will save money but the other won’t.
People have described it almost as ideological bedlam. You have Republicans saying that what they’re so strongly opposed to in the Affordable Care Act is exactly what they’d like to see done in Medicare. And then if you give traditional Medicare, which I think has to keep its purchasing power and we have some ideas for that, but if it did that, it would end up essentially being the public option that Democrats have been for.