The Finance Buff Gets Listed
I’m proud to be associated with high quality such as can be found at The Finance Buff (TFB). TFB launched me into blogging when its founder (also known as TFB) invited me to co-blog on his site last March. I joined him there until starting a blog of my own–with TFB’s assistance–at the end of June. I’ve been happily posting here since.
Meanwhile, TFB continues to attract audience and attention. Most recently the blog has been listed in some blogrolls of prominence including the NY Times’ Bucks blog and Money Magazine’s More Money blog (more in TFB’s post today).
Congratulations, TFB! And keep up the good work.
Public Debt and the Public Option
As health care reform goes down to the wire, one concern raised by opponents of the public option is the impact on the national debt. This concern seems strange, since according to the CBO, both the House and Senate bills including a public option would reduce future deficits.
Some have argued that notwithstanding the express provisions in the bills that a public plan must be funded entirely by premiums, once it is established, we won’t be able to help ourselves from expanding it with deficit spending. Perhaps this is a sad fact about Americans. But is it generally true?
If public financing of health care generally tends to produce public deficits, one might expect countries that fund a greater portion of their health care costs publicly to accumulate greater public debt. To examine this hypothesis, I ran a multiple regression analysis of public debt to GDP as a function of the publicly funded portion of overall health care spending for twenty-eight of thirty OECD member countries from 2000 to 2007, controlling also for overall health spending in proportion to GDP, and taxation as a proportion of GDP. I found no statistically significant correlation.
Now this result does not exclude the possibility that the effect of public financing of health care on public debt may be hidden by the effect of some omitted variable. But it does suggest that such an effect is not obvious. And those who assert that the effect exists have not done the careful work that would be required to substantiate their claim.
Thoughts on an Ex-Turkey
This afternoon, as I have on this day for the last several years, I drove to a small organic farm in the verdant White River Valley north of Mount Rainier and picked up the Thanksgiving turkeys that I will cook for my family tomorrow. Their lives were neither nasty nor brutish. If they were short, well, two out of three ain’t bad.
Such great concern for the welfare of food animals in life and glib indifference to the fact of their death is the target of a column by philosophy professor Gary Steiner in last Sunday’s New York Times. Steiner claims that today’s conscientious omnivores simply fail to consider whether it is wrong to kill animals for human consumption. Speaking for myself, at least, I can say that Steiner is wrong. I have not failed to consider whether killing and using animals is wrong. I simply do not grant the premise.
Steiner attributes two straw-man arguments to unapologetic omnivores, one religious, and one based on intelligence. But he fails to consider that those who don’t already share his moral intuitions require no further justification than eating and using animals and their products confers enormous utility. In favor of his moral intuitions, he offers a parable by Isaac Bashevis Singer in which the protagonist recognizes the equal dignity of a scuffling mouse. It’s not an argument. But even if entertained, it cuts the opposite direction.
If we are not on a different moral plane than animals, why should we show any greater compunction about killing animals than any other animal that derives utility from doing so? If we are no better than the lion, why should we be obliged to behave as the lamb? This is one paradox of ethical vegetarianism. Perhaps there is a sound argument that resolves it. But I have not heard it from Steiner.
In the meantime, I’ll enjoy my free-range, organic, heirloom turkeys with a clear conscience–and gravy.
Happy Thanksgiving!
I’m taking a much needed blog break for the holiday. The next new post will appear on Monday, November 30. In the meantime, if you’re in need of reading material try this post from the archives.
If that isn’t enough, to the right of this post (if viewed on my site) you’ll see a list of popular posts from the past, below which is a menu of archives by month and links to posts by category. Finally, if you scroll down and look at the far right sidebar you’ll see the site’s tag cloud. Click on a tag and start reading.
Have a happy and safe Thanksgiving.
Childrens’ Books About Money
One year shy of kindergarten, my oldest daughter has become interested in receiving and spending money. She now gets a tiny allowance and with it I’m teaching her about how to save, count, and use currency. These are the first steps in a long-term financial literacy curriculum.
Thinking it’d be nice to get a few age-appropriate books with money themes I asked my mother to do some research. In her internet exploration she found Tennessee Saves, a University of Tennessee program affiliated with the national America Saves campaign. America Saves and its affiliates provide educational materials, support, and advice to encourage individuals and families “to pay down debt, build an emergency fund, save for a home, save for an education, or save for retirement.”
The Tennessee Saves website, and likely those of other America Saves affiliates, has a lot of good educational material, including resources for kids. Among them is a list of children’s books about money (pdf). The list includes dozens of books, among them many for children as young as four. Looks like a good resource.
Health Incentive Plans
That the word “insurance” but not “incentive” appears in “health insurance plans” misses a key point and leads to some confusion. Perhaps the most accurate name would be ”health insurance and incentive plans” but I’d settle for just “health incentive plans” as a reasonable alternative and one that puts the emphasis where it belongs.
Of course, health insurance plans are insurance in that they transfer risk from the policyholder to the insurer. In most cases they really do insure against financial catastrophe due to a serious illness. High deductible catastrophic coverage-only plans serve this role and this role only. But they risk throwing the baby out with the bathwater.
Most health insurance plans do more than insure against financial disaster. They provide coverage for minor costs of less-than-catastrophic events, many of them elective. Such coverage has appropriately come under criticism since it provides an incentive for overuse of unnecessary care, a moral hazard effect. If only the patient bore more (or all) of the cost of services for minor health events there would be a greater incentive (on the part of the consumer) to use care more judiciously.
However, not all relatively low-cost care is frivolous. Some of it is genuine preventive care that preserves health and saves money in the long run. Take hypertension as an example. It can be asymptomatic, and yet is a major cause of cardiovascular morbidity for which control usually requires lifelong treatment with medications. Good adherence to medications is difficult for patients to maintain and is a challenge to successful management. Making hypertension medications inexpensive for patients removes a proven disincentive of use, namely cost.
Charging copayments that vary with the efficacy and cost-efficiency of the service is an important concept in benefit design. A “benefit-based” or “value-based” cost-sharing system sets copayment levels lower for therapies proven effective and higher for costly benefits with little or no clinical value. Today health insurance plans do a poor job of aligning cost incentives with benefits of therapy.
I don’t blame insurers. It is a genuinely hard problem, and there is a lack of data on what therapies are more effective compared to substitutes. Moreover, even when data exist attempts to change provider practice and consumer utilization patterns based on it can be controversial. Nevertheless, in time and with more research health plans and the health system in which they operate can, should, and must do a better job of aligning incentives with efficacy. Part of the solution is to think of health plans not only as insurance but as health incentive plans.
Health Reform Mandates: House/Individual
This post is on the House health reform bill’s individual mandate. Posts on its employer mandate and those of the Senate bill are found under the “health insurance mandates” tag. My sources for this post are the Center on Budget and Policy Priorities (CBPP) report by January Angeles and Judith Solomon, the Kaiser Family Foundation’s summary of the House bill, and a Health Affairs blog post by Timothy Jost.
Under the House bill individuals must purchase health insurance or pay a tax of 2.5% of their adjusted gross income above the income tax filing threshold up to the cost of an average insurance policy.
The CBPP report has a very nice table that lists side-by-side the required premium contributions by income for the House and Senate bills. In brief (and ignoring a few small details) under the House bill families with incomes below 150% of the poverty line would be eligible for Medicaid for which there would be “very minimal” or no premium requirement. Premium contribution requirements for households with incomes between 150% and 400% of the poverty line follow a sliding scale from 3% to 12% of income. Wealthier families receive no subsidy. An individual with access to employer-based coverage is eligible for the premium and cost-sharing credits (described below) only if the cost of the employee premium exceeds 12% of the individual’s income.
The House bill also includes cost-sharing credits for families with incomes below 400% of poverty. The effect of these credits are summarized nicely in a table in the CBPP report and vary from providing 97% of the actuarial value of coverage (for those below 150% of the poverty level) to 70% (at 400% of the poverty level). In addition, there is a schedule of out-of-pocket spending limits that ranges from $500 (below 150% of the poverty level) to $5,000 (at 400% of the poverty level) (values doubled for families).
This concludes (for now) my flurry of posts on mandates under the House and Senate health reform bills. If you’ve stuck with me this far you earn a “Super Wonk Gold Star.” In summary, the House bill provides stronger employer and individual incentives for coverage through larger penalties. While premium subsidies are higher under the House bill in the range of 135%-250% of the poverty line they are lower elsewhere. On the other hand the House bill would provide more generous support for non-premium cost-sharing. Finally, the House bill’s employer mandate does not include any perverse incentives to avoid the hiring of individuals with low family incomes.
Health Reform Mandates: House/Employer
Having already written about the Senate health reform bill’s employer and individual mandates and subsidies, I now turn to the House bill, which is mercifully simpler (all posts on health reform mandates are found under the “health insurance mandates” tag). This post is on the House employer mandate, and my sources are the Kaiser Family Foundation’s summary of the House bill and two Health Affairs blog posts by Timothy Jost.
The House bill includes a standard “pay-or-play” provision. It would require employers to offer insurance meeting a minimum standard and to pay at least 72.5% (65%) of the premium for single (family) coverage (the “play” part). Employers failing to do so would be required to pay 8% of payroll into the Health Insurance Exchange Trust Fund (the “pay” part). This penalty is reduced in steps for businesses with payrolls below $750,000.
Employers with fewer than 25 employees and average wages below $40,000 would be eligible for a health coverage tax credit for up to two years. The credit is at most 50% of premium costs paid by employers (for employers with fewer than 11 employees and average annual wages below $20,000). The credit phases out as firm size and average wage increases. Credit cannot be obtained for employees earning more than $80,000 per year.
Finally, a temporary reinsurance program would be created for employers providing health insurance coverage to retirees over age 55 and not eligible for Medicare.
Health Reform Mandates: Senate/Individual
This post is one in a series on the employer and individual mandate provisions of the House and Senate health reform bills (all listed under the “health insurance mandates” tag). The focus of this post is the Senate’s individual mandate, and my sources are the recent Center on Budget and Policy Priorities (CBPP) report by January Angeles and Judith Solomon, Timothy Jost’s Health Affairs blog post, and CBO’s analysis of the bill.
The Senate health reform bill would require individuals to maintain “minimal essential coverage,” which can be satisfied via public insurance (e.g. Medicare, Medicaid, VA) or private employer- or individually-obtained coverage. The penalties for lack of coverage are small (relative to typical premiums): $95 in 2014, $350 in 2015, $750 in 2016 and increasing thereafter. For each uninsured dependent the penalty increases by half these amounts, though in total cannot exceed three times these amounts. Jost further explains that
[t]he penalty does not apply to persons who have to pay more than 8% of their income for insurance after applying the affordability credits, those uninsured for less than three months, persons with incomes under 100% of poverty, members of Indian tribes, and persons who receive a hardship waiver. A person who refuses to pay the penalty cannot be criminally prosecuted.
The CBPP report has a very nice table that lists side-by-side the required premium contributions by income for the Senate and House bills. In brief (and ignoring a few small details) under the Senate bill families with incomes below 133% of the poverty line would be eligible for Medicaid for which there would be no premium. Premium contribution requirements for households with incomes between 133% and 300% of the poverty line follow a sliding scale from 4% to 9.8% of income. The 9.8% value holds up to 400% of the poverty line. Wealthier families would receive no subsidy. Subsidies are available only for coverage through an exchange and implemented as refundable tax credits.
Individuals and families at various levels of income up to 400% of the poverty line would receive coverage (and subsidies for coverage) tied to specific actuarial values of generosity. Cost sharing varies across type of coverage (”platinum,” “gold,” “silver,” and the like) and is summarized nicely in a table in the CBPP report. For all income levels the actuarial value of coverage under the Senate bill are no higher (and typically well below) that of the House bill. This relatively lower level of generosity is the subject of some criticism.
Health Reform Mandates: Senate/Employer
With this and several subsequent posts I’ll be digging into the employer and individual mandate provisions of the House and Senate health reform bills (all will be listed under the “health insurance mandates” tag). This is an area of both professional and personal interest–the former because I’m a health economist and the latter because my wife runs a small business, and a member of my extended family is (or was until recently) uninsured and will likely look to an exchange for coverage in the future. For this series of posts I won’t adhere to my normal once-per-weekday schedule. They’ll just come out as I produce them. I imagine all but intense policy wonks will ignore them anyway.
This post is on the Senate bill’s employer mandate. Its individual mandate and mandates in the House bill will be covered in other posts. My sources for this post are the recent Center on Budget and Policy Priorities report by Robert Greenstein and Paul Van De Water and Timothy Jost’s Health Affairs blog post.
Under the Senate bill, firms with fewer than 50 full-time workers are exempt from any mandate or “employer responsibility” provision. (It is my understanding that some subset of small businesses would be eligible for tax credits if they provide insurance, but that this provision sunsets in a few years.) For remaining firms, the variant that applies depends on certain characteristics of the firm. In particular, the bill identifies types of firm as: (1) those that do not offer coverage, (2) those that offer coverage but require a duration of employment before qualifying for it, and (3) firms in which some employees purchase coverage through an exchange (a firm can fall into more than one category). In all cases and hereafter by “employee” or “worker” I mean a full-time one where “full-time” is 30 or more hours per week. Nothing in the Senate bill applies to part-time workers (that is, such workers don’t count–for the purposes of this post we can assume they don’t exist).
1. Firms that do not offer coverage. Firms that fall into this category but not in category 3 below would not be subject to any penalty. That’s one reason why it is correct to say that the Senate bill doesn’t include an employer mandate. It has been estimated that very few firms would actually fall into this category but not in category 3 so that makes it almost correct to say that there actually is a form of back-door mandate in the bill. On the other hand, this structure provides an incentive for labor market distortions. Firms might be tempted to manage their pool of labor so that they end up in this and only this category. To stay out of category 3 a firm cannot hire any workers from families with low enough incomes such that the workers qualify for subsidized coverage on an exchange.
2. Firms requiring a waiting period. Waiting periods longer than 90 days would be banned. Firms with waiting periods up to 30 days would not face a fee. For a 30-60 day waiting period the fee is $400 per affected worker. For a 60-90 day waiting period the fee is $600 per instance. As these are relatively small fees assessed only on affected workers this aspect of the bill isn’t really a big deal financially for most firms. Moreover, it imposes no labor market distortions. It does suggest that there could be some issues with individual workers falling into 1-3 month gaps in coverage. That’s not so great. I yearn for something simpler like a ban on waiting periods above 30 days. Since coverage is usually handled monthly a worker switching employers would experience no gap in coverage under such a rule.
3. Firms with employees using the exchange. Here’s where the real bite is. All workers offered employer coverage of sufficient generosity (I won’t go into the details) and with an employee premium below 10% of income are barred from using the exchange. All other workers are eligible for purchase of insurance on an exchange. If such a worker has low enough family income (below 400% of the poverty line) to receive a subsidy the employer pays a fee.
Before discussing the employer fee, note that this provision (number 3) is mandate-like, if not strictly speaking a mandate. That is, though it doesn’t direct employers to provide insurance (as a mandate would) it says that if they don’t provide insurance of sufficient generosity they could owe a fee. Since penalties for violation of a mandate (in the strict sense) are fees, there really isn’t a big distinction here, apart from labor market distortions which I describe below. Practically speaking I’d call this a mandate of a sort.
The penalty fee structure is a bit complicated. If a firm offers insurance then it is the minimum of (a) $3,000 per year per worker receiving a subsidy for exchange coverage or (b) $750 per worker of any type (with or without exchange coverage, with or without a subsidy). If a firm doesn’t offer insurance than only part (b) of the aforementioned fee structure applies.
If an insurance-offering firm hires few enough subsidy-receiving workers relative to its total workforce then part (a) of the fee structure is binding. In that case, the firm minimizes the fee by minimizing the hiring of workers with low family income. That’s the source of the potential labor market distortion. Note that in this case the perverse incentive to hire higher family income workers exists only if the firm offers coverage that costs it less than $3,000 per year per enrolled employee. How common is this? I don’t know.
In closing, I remind readers that I’ve hidden the issue that all of the above only applies to full-time (30+ hours/week) workers. Another way for employers to avoid penalties is to replace full-time with part-time help.
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