An Open Letter to Andrew Sullivan

Andrew,

You recently wrote:

The explosion in medical costs since 2000 or 2003, along with the brutal recession, and a greater awareness of the real suffering this has created, has also convinced me that systematic reform is necessary, as long as it is fiscally responsible.

This comes after a long string of posts in which you've encouraged Congress to "pass the damn bill." I understand the sentiment, but it still seems like you’re missing the point.

I agree that any genuine conservative should support a “fiscally responsible” health care reform plan that expands health coverage to millions of Americans. You’re right to criticize congressional Republicans who – in spite of their protestations to the contrary – seem to be aligned against any kind of meaningful reform.

But there are legitimate concerns as to whether this bill would actually be deficit-reducing or even deficit-neutral. Many of the key cost-saving provisions will likely be excluded (or diluted) if the bill is pushed through in reconciliation. And even in its current form, the Senate bill seems to contain an awful lot of cost-saving gimmickry that was thrown in to achieve an attractive score from CBO.

I’m not sure how you can read David’s latest column without at least pausing to consider whether the kind of systematic reform that we’re likely to get is truly going to control costs or simply create another large, unsustainable entitlement.

You continue to assert that the bill is “fiscally responsible” without – as far as I can tell – seriously addressing the concerns of those who suspect otherwise.

What's the deal?

Update: Is Andrew becoming an ideologue on this issue?

This response to Megan McArdle's criticism makes absolutely no sense to me. Are we looking at the same scatter plots?

Maybe I'm missing something . . .

Stupak and the NYT

In criticizing the Stupak Amendment this past Monday, the NYT Editorial Board wrote:

The bill brought to the floor already included a careful compromise that should have satisfied reasonable legislators on both sides of the abortion issue. The vast majority of people expected to buy policies on the new exchanges would pay part of the premium and receive government tax credits to pay for the rest. The compromise would have prohibited the use of the tax subsidies to pay for almost all abortions, but it would have allowed the segregation and use of premium contributions and co-payments to pay for such coverage.

I'm opposed to the Stupak Amendment and broadly in favor of abortion rights, but I don’t see how this original compromise could be considered “reasonable.” Money is fungible. There is no way to 'segregate' the tax subsidies from the abortion coverage. Either the federal government funds abortion or it doesn't.

This seems a rather obvious point. In fact, read what the NYT Editorial Board wrote just over a year ago in its commentary ('Money Really is Fungible') on executive pay caps:

Just weeks after the Treasury Department gave nine of the nation’s top banks $125 billion in taxpayer dollars to save them from unprecedented calamity, bank executives are salting money away in billionaire bonus pools to reward themselves for their performance.

Outraged? The bankers (who didn’t anticipate the subprime crisis) were ready for that. So they are assuring everyone that this self-directed largess won’t be paid with the same dollars they got from taxpayers. They’ll use other ones.

What we want to know is will they be marking the bills so they can be sure which is which?

Is there any real difference between these two situations, other than the fact that the former involves abortion and the latter involves greedy bank executives? How can you recognize the absurdity of one scenario, and consider the other “reasonable”?

If the NYT Editorial Board was honest, it would make the case that abortions should be publically funded. Instead, it has decided to chastise abortion opponents who refused to accept an illogical compromise.

Update: Conor Friedersdorf responds to Ann Friedman's post on the Stupak Amendment:

There are many women in the United States who oppose abortion, and if asked would agree that federal money shouldn’t fund it, so the assertion that the amendment throws 50 percent of the population under the bus isn’t accurate, unless one takes the position that these anti-abortion women are suffering from false consciousness.

Friedman's reply:

Actually, no matter what their beliefs about abortion, every woman in this country is indeed screwed over by this amendment. Many, many women who are opposed abortion rights have exercised those rights themselves -- whether for health reasons or because, when it came right down to it, they simply found themselves making a different choice than they thought they would in that situation.

Megan McArdle is concerned with Friedman's argument:

[A]s a response, this seems to trivialize the preferences of pro-life women in a way that I find pretty disturbing from feminists. In what other area of life is it okay to pat the little lady on the head and tell her that she doesn't really want what she says she wants, because she might regret it later?

. . .

Obviously, since I'm pro-choice, I think you can argue against abortion control in many effective ways. But this is not one of them--at least not if you hew to the feminist notion that women are entitled to their own choices and preferences as individuals, not lumped in with some vast undifferentiated mass of women who all want the same thing.

The PWC Report and the Tax on High-Cost Health Plans

Ezra Klein rips into Megan McArdle for her long-winded defense of the PWC report (pdf) that was comissioned by AHIP, a political advocacy group for the American health insurance industry.

He writes:

McArdle goes to bat for the most indefensible element of the analysis: the decision to avoid estimating the response to the tax on high-cost insurance plans (which is, in fact, the whole point of the tax), and simply pretend that everything will remain unchanged except that a lot of people will pay a large new tax that they don't have to pay. Moreover, she conscripts the Congressional Budget Office to help with the argument: "You might think that everyone is going to structure their benefits to get around this tax," McArdle writes. "But the CBO expects us to collect quite a bit of money from this tax."

Not quite. The Congressional Budget Office projections (which are, in this case, the Joint Committee on Taxation's projections, as the CBO doesn't estimate tax revenues) actually suggest that the bulk of the tax's revenues will come from the response to the tax, not the payment of the tax. As the New York Times reports, the JCT believes that "about $142 billion of the 10-year total of $201 billion to be raised by the [excise tax] would come from increased income and payroll taxes." In other words, the vast majority of the revenues would come because employers would "structure their benefits to get around this tax." Workers would receive more of their compensation in wages and less in health-care benefits, and because wages are taxable and health benefits aren't, tax revenues would go up.

(Megan did, in fact, acknowledge this error prior to Ezra's post.)

There is at least one broader issue with Ezra's point. Common sense tells you that a tax on "Cadillac" health insurance plans will encourage employers to offer cheaper benefits packages. It's ridiculous to argue otherwise, unless you have strong empirical evidence to back up your claim. Pigovian taxes are, after all, designed to alter behavior in exactly this way. So Ezra is clearly right on the merits here.

But, if Ezra is right, isn't this a huge problem for the administration? If workers with good health benefits will likely be forced into cheaper plans, how can the president continually claim that those who like their health insurance can keep what they have?

FactCheck has already called out the president for this canard, but his argument seems particularly disingenuous now that JCT is actually basing its revenue projections on the idea that some employers will offer cheaper benefits packages if the America's Healthy Future Act (pdf) passes.

Don't get me wrong, I'm a big fan of taxing health insurance -- especially Cadillac plans. I think it's good policy, and it's a step away from the employer-based health insurance system. What frustrates me is the president's insistence that we can have our cake and eat it, too.

If we want to control health care costs, we have to discourage overuse of the system. That means pushing people away from big benefits packages, not telling them that they can always keep their current health insurance.

Update: One more point about Ezra's previous post on the PWC report. Ezra apparently takes exception to the authors' assumption of "full cost-shifting of cuts to public programs." This is another way of saying that doctors and hospitals will try to make up for cuts to their reimbursement rates from public programs by increasing their reimbursement rates form private programs.

He writes:

Have you ever heard of that before, in any industry? If Blockbuster decides to cut costs to consumers by negotiating lower payments to movie studios, does Netflix send out a sorrowful e-mail explaining that it will have to increase its membership fee because it now needs to make higher payments to movie studios?

Well, no. But that analogy makes absolutely no sense. The health care industry is different from the movie rental industry -- and pretty much every other industry -- for a number of reasons. (I would again encourage you to listen to the latest episode of This American Life.)

Ezra must know this. Paul Krugman -- whom Ezra once interviewed -- has repeatedly argued that the health care market is like no other market . . . and, in fact, shouldn't be treated as a market at all.

So why is Ezra suddenly trying to pretend that buying health care is in any way equivalent to renting videos? Maybe he's right that cost-shifting won't be a problem, but this comparison is totally spurious.

Update II: Ezra takes a more nuanced position on cost-shifting:

To be clear on my position here, I think there's probably some level of cost-shifting that's between the zero percent that some advocates would like and the 100 percent that the insurance industry suggests. The Lewin Group estimated (pdf) 40 percent, and that sounds reasonable enough to me, though I'd be open to further evidence.

He also makes another rather obvious point:

It's true that a hospital's costs are relatively inelastic on a year-to-year basis, but they're more elastic over time: if they had to adjust to less revenue than they'd like, they'd make certain changes to the way they do business.

Well, yeah. Isn't that, like, the definition of the long-run?

Has the Nobel Peace Prize Jumped the Shark?

According to Alex Massie, it has.

I like President Obama and I admire what he's trying to do, but after less than ten months in office, this seems a bit premature.

Can Obama already be "the person who [has] done the most or the best work for fraternity between nations, for the abolition or reduction of standing armies and for the holding and promotion of peace congresses"?

Slate's John Dickerson says no.

The Peace Prize Committee has suggested that it's merely trying to encourage the president to hold fast on his commitments to diplomacy and nuclear arms reduction. Thorbjoern Jagland, the head of the Committee, said today, "It was because we would like to support what he is trying to achieve."

This seems like a well-intentioned argument -- we certainly should support many of the goals that the president has outlined -- but I think earning a Nobel Prize makes the president's job more difficult in ways both practical and political.

WaPo's Glenn Kessler has a good analysis of the problems that could arise from awarding this kind of "aspirational" Peace Prize so early into President Obama's first term.

Update: The president strikes the right tone:

"Let me be clear: I do not view it a recognition of my own accomplishments but rather as an affirmation of American leadership on behalf of aspirations held by people in all nations," he said.

“To be honest, I do not feel I deserve to be in the company of so many of the transformative figures who have been honoured by this prize."

Update II: I think Megan McArdle is right:

I guess I must hate America, but I actually think it's kind of ludicrous that anyone is even trying to argue that Barack Obama truly deserves this Nobel Peace Prize. Could he have deserved it, after he'd had more than nine months in office? Easily. But he hasn't had time to, y'know, accomplish anything. Unless they're giving out the Prize these days for stimulus bills and banking sector interventions. The committee claims they awarded it for his "extraordinary efforts to strengthen international diplomacy and cooperation between peoples"? Can even his most ardent supporters come up with any effort he's made that really qualifies as more extraordinary than those of everyone else in the world?

It's not like I want to take the prize away, and I'm certainly not angry about it . . . but I'd rather have seen Barack Obama honored for something besides not being George W. Bush.

I couldn't agree more.

Certainly, the reaction from many conservatives has been overstated (and in some cases, down right offensive), but it's absurd for some on the left to suggest that questioning whether President Obama actually deserves this award amounts to being unpatriotic.

I assume this criticism would also apply to the president himself?

Update III: NPR political commentators E.J. Dionne and David Brooks discuss whether the president should have accepted the Nobel Peace Prize.

Update IV: Peter Beinart, who blogs for The Daily Beast, writes:

The Nobel Prize Committee should be in the business of conferring celebrity on unknown human-rights and peace activists toiling in the most god-forsaken parts of the world; the people who really need the attention (and even the money). It should be in the business of angering powerful tyrants by giving their victims a moment in the sun. Choosing Barack Obama, who practically orbits the sun already, accomplishes the exact opposite of that. Let’s hope Obama eventually deserves this award. And let’s hope the Nobel Committee’s decision meets with such a deafening chorus of chortles and jeers that it never does something this stupid again.

Two Posts to Read

First, Megan McArdle destroys Paul Krugman for this excercise in partisan hackery.

Second, David Brooks offers a really interesting (and philosophical) op-ed on our current political options.

Health Care Cost Savings and the Baucus Plan

Today, the CBO released its preliminary cost estimate [pdf] of the Senate Finance Committee's health care proposal.

The new bill -- which would mandate coverage, but drop the public option -- is expected to reduce the federal deficit by about $49 billion over the next 10 years. This seems like great news. However, CBO Director Doug Elmendorf notes:

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the Chairman’s proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented. (If those changes arose from future legislation, CBO would estimate their costs when that legislation was being considered by the Congress.)

This is, of course, the same objection that Megan McArdle has made. Greg Mankiw tries to put it into layman's terms:

[T]he plan would reduce the deficit if it were carried out as written, but there is good reason based on historical experience to be skeptical that it would be.

Let me try to put CBO's point in a more familiar setting: Your friend Joe, who says he want to lose weight, asks you for an extra slice of pie after dinner. Naturally, you are doubtful about the wisdom of the request. "Ahem, Joe," you whisper, "Aren't there a lot of calories in that?"

"Yes," he says, "but the pie is part of a larger plan. I am committed not only to eating that slice of pie but also to going to the gym every day for the next week and spending at least half a hour on the treadmill. That exercise will more than work off those extra calories."

"But that's what you said last week, when you asked for piece of cake. And you didn't end up going to the gym."

"Yes, I know" he replies ruefully, "but this time I really mean it . . . . Can you please pass the pie?"

I think this is pretty on-target. Heart-wrenching stories like this not only prevent lawmakers from following through with proposed cost-cutting plans, but often force them to expand benefits and increase funding to health care entitlement programs.

Update: Time Magazine offers this primer on the Baucus health bill.