• Gruber, the Excise Tax, and the Politics of Policy

    A lot of well-meaning people and good ideas can get tarnished when they enter the realm of politics. Take Jon Gruber, who’s been in Krugman’s words, the “go-to guy on modeling reform” and a “top micro-modeling expert”. Due in small part to the fact that he didn’t disclose his contract with HHS to all people all the time, and in large part to bloggers at firedoglake he’s been accused of harboring conflicts of interest.

    Sometimes a kerfuffle is just a kerfuffle and not worthy of a lot of worry. Again, Krugman:

    The truth is that this is no big deal. Gruber’s grant is from HHS, not the West Wing; it’s basically the same kind of thing as, say, an epidemiologist receiving a grant from the National Institutes of Health. You wouldn’t ordinarily say that this tarnishes the epidemiologist’s credentials as an independent analyst on infectious diseases…

    The only reasons you might see this differently would be if Gruber were either receiving a sweetheart deal, or seemed to have changed his views to accommodate his sponsors. Neither is remotely true.

    Speaking of Gruber and small kerfuffles, he’s one of the several individuals called to task by Larry Mishel in his piece on the historical trends in health care costs and wages. But in Gruber’s case, I think this is making a mountain out of a molehill. Though Mishel has a narrow point I agree with, that wage changes aren’t entirely explained by those of health care costs, I don’t think Gruber’s words in his 28 December 2009 Washington Post Op-Ed explicitly contradict that point (though one could read his implication that way).

    Moreover, the debate over the extent to which changes in wages can be related to premiums is silly, because we know the answer. In the long-run it is one-to-one. Workers pay the premiums even if employers appear to and even if those payments aren’t the main or only cause of wage changes over the last two decades. It misses the point of the excise (Cadillac plan) tax to in any way obscure or avoid that fact. So, in my view, it is the fact worth emphasizing: workers pay the premiums.

    Workers will also pay the excise tax on premiums. That fact is receiving not one, but two levels of obfuscation in the policy debate. John Kerry is characterizing the excise tax as one that won’t harm workers because it is levied on insurers (h/t Ezra Klein). But insurers will bill their costs to employers who pay the premiums (at least in part). Employers will pass that cost along to employees, through–that’s right–lower wages. Workers pay the premiums.

    Of course the whole point of the excise tax is to raise revenue in a way that also promotes efficiency in the health care system. It will certainly do the former but it is a very imprecise and flawed way to do the latter. It’s regressive relative to removing the premium tax exemption. In the form publicly proposed to date it makes no accommodation for geographic variation in health care costs or in the risk profile upon which the premium is based. Put simply, in implementation it’s a stinker (though that could be fixed) with its main redeeming quality its intent (which is good).

    Nevertheless, it is being defended as a way to begin to remove the special status that employer-based health care premiums receive by the tax system. Again, this is a defensible and laudable goal but the excise tax would replace one flawed system for another. And I have to believe that the smart people defending it know all this. So why is it being defended so strongly? The only plausible answer I can come up with is that it is, somehow, good politics. Or, at least, it is less bad than alternative ways to raise revenue for health reform.

    When good people (like Jon Gruber) and good ideas (like eliminating the special tax treatment of health care premiums) meet politics their intent and image can get distorted. It’s a sad fact that the surest way to stay pure is to stay away and to keep your good ideas quiet. But that doesn’t help anybody but yourself.

    • “Put simply, in implementation it’s a stinker (though that could be fixed) with it’s main redeeming quality it’s intent (which is good).”

      Ah, good intentions. So it’s the thought that counts. Seriously – if the implementation is poor, then the idea shouldn’t be put in place b/c people who can’t afford it will suffer. The big fix would be to open a federal exchange to everyone who wants out of their employer-chosen plan and have a public plan in the mix from which to choose. When we see how far we’ve come from that, it seems unfair that the only part left is the thing that will drive up consumer cost and drive down quality of coverage and access to care.

      • @eRobin – I agree with some of your ideas. But I don’t see them happening with this bill and maybe not for a long time or indeed ever.

        Within the realm of the (currently) politically possible some things are less bad than others, though those judgments are subjective and the gray area is large.

        Though in the other realm (of the politically impossible) one may find utopia, I don’t spend much time centering my thoughts there. I like to stay close to the possible and nudge it in the right direction. At that margin is where one can make some progress.

    • Agreed with the utopia thing, which is why I described the situation as unfair – what’s fair, right? On the other hand, I think there’s room to push for a national exchange, which would be a first step to having somewhere for unhappy employees to flee. I also think that there’s room to fix the dreadful Senate excise tax plan. I think they’re going to fix it in the wrong way (exemptions for certain industries and by raising the threshold, which is just putting off the pain). The hope is that a real fix can be made soon and before too many families are priced out of adequate coverage and care. That really wasn’t the goal of reform as I remember. What I’m most worried about (now that I’m come to accept how terrible this bill will be) is that there will be enough pressure to fix it. I’m not sure that there will be the funding available to make a very effective push. I’m very sure that there won’t be the political will.

    • I agree with you about staying close to the possible and nudging it in the right direction. As I am currently under contract (multiple) to CMS, I have been avoiding (and will avoid here) making public comments on something I’m working on for the government and trying to do the nudging within the system. I have always believed in my government work (which is so much of what I do) that the job of the scientist is to be as perfectly honest as one can be about the “truth” but to recognize that my view of the truth is necessarily NOT perfect but biased. And then let the politicians do what they need to do. My record in the public media is pretty limited and I’ve tended to avoid commenting on things I’m working on for the government. I hear your commentary, and I guess one question is whether one is “keeping good ideas quiet” in doing that. Jon’s conundrum struck me as something that was somewhat naive though. Whenever I do talk to the media I mention that I’m under contract to CMS even as I don’t comment on what I’m actually working on ((this happens even when I often get interviewed by Boston U. journalism students doing classwork that I don’t think ever gets published)). They could easily discover this as there is a webpage comment to that effect on the Boston University School of Public Health web site.

      Since I am not working on the excise tax at all, I will say that I completely agree with you that the tax is like using an ax to perform surgery. The government has a history of doing local cost adjustments in many cases (housing, even the Medicare GPCI), so it is unclear why they aren’t doing it here. Mike Chernew’s excellent work is showing that the “conventional wisdom” of what it means to be a high cost area is more complex than any single number can convey (not a big surprise), so it still wouldn’t be easy. And we know historically that because such changes make local adjustments, that by definition disproportionately affect Congressional districts, that making specific changes later are hard. So I do hope there is some sort of geographic adjustment in the excise tax if it remains in the final bill. As someone who has worked on such questions in the past though, doing an analysis (whoever is doing it) quickly is difficult to come up with recommendations on geographic adjustment and I’ve seen no evidence that a proposal exists in the system, so if you asked me for a prediction, I’d suspect it will not be in the final bill.

      • @Jim Burgess – I agree with everything you wrote, and with what Krugman wrote about Gruber. I didn’t cite the bit he said about the fact that Gruber should have disclosed his contractual relationship more fully. It is a good lesson for all of us. But I believe it was an honest, if naive, oversight and that there is no good reason to discount or cast suspicion on the good work he’s done. At least there’s no evidence I am aware of to suspect any untoward influence of that contract.

        All this merely shows that it is a tricky world, where perception can speak louder than reality. And the implications of those forces have an effect of keeping good people and and good ideas out of the system, or contort them so they’re not what they should be. The excise tax could be far better crafted but the main forces that seem to be taking hold on it are political, not scientific.

    • via Ezra: (http://voices.washingtonpost.com/ezra-klein/2010/01/did_the_unions_and_the_excise.html)

      “Union officials seem pretty sure that collective bargaining units of all sizes will be included in the exchanges in 2017. That’s part of the excise tax deal, in their mind. If they can get a better deal in the exchanges, which have all sorts of plans and a much larger risk pool, then they should be able to go get that deal rather than sticking with pricier insurance that’s vulnerable to the new tax.”

      You were saying about the realm of the (currently) politically possible? 😉
      Fingers crossed.

      • @eRobin – Yes, this is a good development. But it is only for the unionized workforce. It is starting not to seem crazy to think that we’ll be out from under the employer-based system in, oh, 15-20 years. In fact, it isn’t even completely nuts to think that in a decade Americans will see the exchanges working nicely (hopefully), employers will suggest even more strongly that they’d like to be rid of health insurance, and perhaps a bill will pass that will open the food gates.