Repeal and Delay with the Norquist problem

Right now, the current Republican plan is Repeal and Delay as the NY Times reports:

Republicans in Congress plan to move almost immediately next month to repeal the Affordable Care Act, as President-elect Donald J. Trump promised. But they also are likely to delay the effective date so that they have several years to phase out President Obama’s signature achievement.

This emerging “repeal and delay” strategy, which Speaker Paul D. Ryan discussed this week with Vice President-elect Mike Pence, underscores a growing recognition that replacing the health care law will be technically complicated and could be politically explosive.

The mechanics of the repeal bill are fairly straightforward. A reconciliation bill would be written to sunset subsidies and Medicaid Expansion money after two (or three) years while a Replace bill is cobbled together. The individual mandate tax would be dropped to zero even if it was not technically repealed and all of the taxes that fund the ACA would be dropped immediately. This blows up the insurance market fast. There are discussions and rumblings that some Republican wonks are trying to make this point to Republican leaders. Someway of shoveling a massive amount of cash to insurers would be needed that would perform the same function as risk corridors and reinsurance but called something else is the most likely response.

And then there would be some type of Replace bill that would offer skimpier subsidies and much higher cost sharing than current law.

That Replace bill will cost money. It won’t cost as much money as the ACA but it will cost money.

That is a major problem as the major funding streams from the ACA (Cadillac Tax and high income tax surcharges) are gone. Nicholas Bagley at the Incidental Economist flagged this very early on:

You’ve got to bear in mind that passing the reconciliation bill would represent an immediate $346 billion tax cut over ten years to the wealthy—$123 billion from the Medicare tax surcharge and $223 billion from the tax on investment income. All of that money—every dime—will go to people making more than $200,000 a year.

The other major source of funding for the ACA is the Cadillac tax in the out years and Medicare Advantage payment equalization. The Cadillac tax is popular with health economists who, when they concentrate for an annual convention, might have sufficient political power to elect a county commissioner in an NFL market and no one else. The Republican Replace plans use modified Cadillac plans that usually apply regular income tax rates to health insurance benefits at far lower thresholds than the Cadillac tax. But I digress.

The Replace plan will cost money. And here is where we run into the Norquist problem. It is Republican orthodoxy that once a tax cut is passed it can never be re-enacted. The Replace Bill would not be signed for at least six months (absurdly optimistic case scenario) after the Repeal bill that wiped out the high income taxes that fund the ACA. The Congressional Budget Office (CBO) would score Replace based on current law which means no high income surcharges as offsets. Republicans can’t vote for higher taxes per Norquist even if those are taxes that just got cut.

Assuming Norquist is still a major political enforcer of Republican orthodoxy, my best bet is that any Replace Bill will be like the 2003 Medicare Modernization Act (MMA) in that it is almost completely deficit financed.

Double D’s and Subsidies

I always like to look at the 12-DD box on my W-2.

This box tells me how much my employer sponsored insurance (ESI) actually costs between premiums and Health Savings Account (HSA) contributions. The 12-DD box was a requirement of PPACA and its goal is to make people slightly more aware that their health insurance at work really costs them more than $47.56 every two weeks.

My employer is starting the annual open enrollment education process. We’ll get weekly e-mails from Human Resources about all of the different options and how the networks interact. There are no major changes to network or plan design for employee insurance this year. There is a small diabetes disease management program and a reference pricing experiment but for most people there will be very few visible differences between the 2016 policies and the 2017 policies. For people at my pay grade, we are seeing a 4.2% increase in premiums explicitly taken out of our paychecks. The company is “covering” roughly 85% of the cost of 85% Actuarial Value coverage for my family. Economically, the company contribution is “just” cash income transformed into a tax advantaged compensation but I don’t see the money so it does not feel like I am paying the full price of my insurance coverage for my family.

I do get two explicit subsidies. The entire premium of the policy is tax deductible. That is worth 4% of my families income. We also put away some money into a tax advantaged savings account that is worth another .5% of my family’s income for the year. So we get a total of 4.5% of family income subsidy help to pay for a good insurance package.

This is important because most poeple who get ESI don’t think they are getting subsidized. Everyone is getting subsidized. People with higher incomes and ESI get a larger dollar figure subsidy than people at a lower income because tax deductions are valued at the marginal tax rate. People with higher incomes also tend to have richer benefits, higher actuarial value coverage and fewer gatekeepers so total premiums are higher.

Medicare is heavily subsidized. Part A and Part B premiums pay for roughly a quarter of the program. The rest of society subsidizes the rest of the cost of Medicare.

CHIP has subsidies ranging from 0% to 25% to 100%.

Medicaid is almost entirely subsidized.

The individual market is heavily subsidized for people earning under 200% FPL. For people who earn between 200% and 400% FPL it is modestly subsidized. For people who earn more than 400% FPL there are no explicit subsidies like the advanced premium tax credits available between 100% FPL and 400% FPL nor any implicit subsidies through the tax code.

Let’s keep that in mind when we talk about health insurance. Almost everyone is subsidized except for a narrow segment of the PPACA individual market. It is just that some of the subsidies are well hidden and non-obvious.

Federalizing Medicaid funding

And another story from Oklahoma:

Facing a $1.3 billion budget hole, the Oklahoma House has passed legislation that would cut 111,000 Oklahomans from Medicaid.

House members on Wednesday passed the bill 65-34 mostly along partisan lines and sent it to the state Senate for action.

The measure would instruct the Oklahoma Health Care Authority to seek a federal waiver allowing the state to exclude from Medicaid all able-bodied adults under 65 with dependents.

That bill failed in the Oklahoma Senate.

Oklahoma is heavily dependent on oil revenue to make their budget work. Oil prices have cratered so state revenues have crashed. At the same time as oil prices have collapsed, economic activity in the state is decreasing which means more people don’t have jobs, more people don’t have employer sponsored insurance, and more people have become Medicaid eligible. The Medicaid eligible pool is counter-cyclical. As the economy does well, the eligible pool shrinks, and as the economy does poorly, the pool grows. So the number of people who are eligible for Legacy Medicaid grows just as the state revenue needed to pay for Medicaid services drops.  This is a problem.

Legacy Medicaid is financed by the state and the Feds splitting the bill.  Oklahoma pays 41% of the cost of the medical services component of the program.  The Feds pick up 59% of the medical side and a bit more on the administrative side.  Oklahoma has a balanced budget constraint.  the Federal government does not.  That means the Feds are willing and able to spend money to meet increased Legacy Medicaid demand in a downturn but the state can not.  Instead, the state needs to cut expenses to meet its balanced budget constraint and Medicaid is a very large line item in every state budget, so that means Medicaid is often one of the major areas of cut-backs in either eligibility, services allowed or provider payments.

So what is the solution?

The long term solution is that the Federal government should take on more and more of the cost of Legacy Medicaid.  The Feds can spend in a downturn when the states have to be 50 mini-Hoovers who have to cut during a recession.  This does three things.  The first it makes sure that people can get the medical care that they need and that the continuity of care is maintained.  Continuous care is usually better and cheaper  than people getting dropped and then added back to insurance months or years later.  Secondly, it transforms Medicaid financing from a pro-cyclical activity into a counter-cyclical macro-economic stability policy.  One of the major components of the stimulus in 2009 was a Federal Match rate bump.  This moved $87 billion in Medicaid expenses from the states’ books to the Federal books.

The Stimulus bump was a short term solution that required massive supermajorities from a party that believes that the federal government faces a different budget constraint than a typical household.  The long term solution is to have the Feds continually increase their share of the costs until Legacy Medicaid is funded on the same bases as Medicaid Expansion. The Feds pick up 90% of the tab and the states pay 10%.  This will still allow for state control  which allows Massachusetts to cover different services than Mississippi but it allows for a much stronger counter-cyclical automatic stabilizer to be in place.

The attraction this should have to a significant number of Republican state level elites is that by taking Medicaid off of their books, it frees up a lot of money for easy to justify tax cuts.


What’s a couple trillion among friends

The Committee for a Responsible Federal Budget ran the numbers on the Sanders’ healthcare plan and its financing and depending on the assumptions, the Sanders plan is either $3 trillion dollars short over 10 years or $14 trillion dollars short over ten years compared to what the campaign is claiming.

That Sen. Sanders has shown a commitment to paying for his new initiatives and has proposed specific concrete changes to do so is quite encouraging. However, by our rough estimates, his proposed offsets would cover only three-quarters of his claimed cost, leaving a $3 trillion shortfall over ten years. Even that discrepancy, though, assumes that the campaign’s estimate of the cost of their single-payer plan is correct. An alternateanalysis by respected health economist Kenneth Thorpe of Emory University finds a substantially higher cost, which would leave Sanders’s plan $14 trillion short. The plan would also increase the top tax rate beyond the point where most economists believe it could continue generating more revenue and thus could result in even larger deficits as a result of slowed economic growth.

Sanders is not running in the Republican primary where the ability to propose programs with multi-trillion dollar piles of bullshit is an asset.  His campaign should respond to CRFB and Thorpe’s cost estimates on a non-ad-hominem basis to explain why their estimate that single payer is a net neutral fiscal move instead of a massive budget buster.

Less stupid fucking in Maryland

At least that is the the public health take-away of a recent study analyzing the public health impacts of an increase in the alcohol tax in Maryland.

The Baltimore Sun:

Maryland recorded 7,400 cases of the bacterial infection in 2010, when alcohol, like other goods, was taxed at 6 percent. But two years later, with a 9 percent levy tacked on to booze sales, gonorrhea cases in the state dropped below 5,700, even as infection rates grew nationally.

Researchers at the University of Florida say they can only find one explanation: the alcohol tax.

“We know increasing alcohol taxes decreases alcohol consumption,” said Stephanie Staras, the lead author of the study, published in the American Journal of Preventive Medicine. “We also know that people who are using alcohol are more likely to have risky sexual behavior.”

Besides being a great opportunity to for an excellent post title, this is a good illustration of how insurance design is important but far less important to general health than general socio-enviromental factors.  Maryland was looking to raise revenue and perhaps decrease drunk driving when they increased the tax.  Tertiary impacts on sexually transmitted infection (STI) rates were most likely not part of the political debate.

However, if these results hold up, and logically they make sense as alcohol consumption leads to bad decision making, avoiding seventeen hundred STI cases avoids significant treatment cost and more importantly, it avoids significant pain and risk for individuals.  Avoidance through changing the environmental and economic matrix is far more efficient treatment than post-infection treatment.



Good news everybody

In 2014, the nominal economic growth rate in the US was 3.91%.  Not a great number but not a bad number.

In 2014, healthcare spending grew by 5.3%.  Given context that is a great number

Total spending for health care in the United States increased 5.3 percent and reached $3.0 trillion in 2014, or $9,523 per person (Exhibit 1). This was faster than the rate of growth in 2013 (2.9 percent), which was the lowest in the fifty-five-year history of the National Health Expenditure Accounts. The acceleration in health spending growth in 2014 followed five consecutive years of historically low growth, which averaged 3.7 percent. Health care spending grew 1.2 percentage points faster than the overall economy in 2014 (when the nominal gross domestic product [GDP] increased 4.1 percent), resulting in a 0.2-percentage-point increase in the health spending share of GDP—to 17.5 percent. By comparison, the health spending share of GDP remained between 17.3 percent and 17.4 percent from 2009 to 2013.

The past few years had seen healthcare spending at or below nominal growth in the economy.  That led to a stabilization or decline in healthcare spending to GDP ratio for several years which is a massive deal for long term federal fiscal planning.

But 2014 saw the share of GDP going to healthcare go up.  Did something strange happen in 2014?

Why yes, 15 million more people got coverage and they used that coverage.

If it costs .2% GDP net to cover 15 million or more people that is dirt cheap and a good value for the money.

And a final piece of intriguing potential for good news:


Cadillac tax alternatives


TLDR: Changing the Cadillac tax from a fixed rate surcharge to elimination of deductible benefits workers with lower incomes but very high health insurance compensation while keeping the incentives aligned for better cost control measures. This tweak could get some unions back on board while also simplifying the tax code. Should be a double win. It won’t be.