Krugman on Health Care Myths

Paul Krugman had a good op-ed in yesterday's NYT.

He rails against what he deems the three big "myths" about the health care bill, namely: that it's a government take-over of the the health care sector, that it does nothing to control costs, and that it's fiscally irresponsible.

I agree with the first two points, but the third is kind of a bait-and-switch. It's true that the bill would not be anything like a "government take-over." And certainly there are some cost-control measures in the bill, even though it's unclear whether the most important measures will really be inserted into the final version.

In regard to fiscal responsibility, Krugman argues that even some of the more cynical projections show that reform would only raise total health care spending by about one percent, while expanding coverage to tens of millions of Americans. This, he suggests, is a "good deal."

Covering tens of millions of Americans while only adding one percent to total health care spending does sound like a pretty amazing bargain. The problem is that, if the projections are even remotely accurate, we're already on an unsustainable path. What we need to do is bend the cost curve down dramatically.

One percent would be fine if health care spending weren't expected to envelop the federal budget and substantially weaken our economy over the next several decades. According to CBO's intermediate projections, health care spending could reach nearly 50 percent of GDP by 2080.

Telling people that, after reform, health care spending would only reach 50.5 percent of GDP is not very comforting.

Krugman Gets Nostalgic

Paul Krugman has a good column today railing against secret holds -- a procedure that enables a small number of Senators to temporarily (and anonymously) block a motion from reaching the floor.

No one really seems to be too fond of holds . . . until they're in the minority:

What gives individual senators this kind of power? Much of the Senate’s business relies on unanimous consent: it’s difficult to get anything done unless everyone agrees on procedure. And a tradition has grown up under which senators, in return for not gumming up everything, get the right to block nominees they don’t like.

Krugman's point is well-taken. But, of course, he couldn't resist throwing in some partisan hackery:

Readers may recall that in 1995 Mr. Gingrich, then speaker of the House, cut off the federal government’s funding and forced a temporary government shutdown. It was ugly and extreme, but at least Mr. Gingrich had specific demands: he wanted Bill Clinton to agree to sharp cuts in Medicare.

Today, by contrast, the Republican leaders refuse to offer any specific proposals. They inveigh against the deficit — and last month their senators voted in lockstep against any increase in the federal debt limit, a move that would have precipitated another government shutdown if Democrats hadn’t had 60 votes. But they also denounce anything that might actually reduce the deficit, including, ironically, any effort to spend Medicare funds more wisely.

This seems a little unfair. The key feature of the Republican alternative health care proposal is tort reform, and the CBO examined this aspect of the Republican proposal in detail:

[I]mplementing a typical package of tort reform proposals nationwide would reduce total U.S. health care spending by about 0.5 percent (about $11 billion in 2009). That figure is the sum of a direct reduction in spending of 0.2 percent from lower medical liability premiums and an additional indirect reduction of 0.3 percent from slightly less utilization of health care services. (Those estimates take into account the fact that because many states have already implemented some of the changes in the package, a significant fraction of the potential cost savings has already been realized.)

Enacting a typical set of proposals would reduce federal budget deficits by roughly $54 billion over the next 10 years, according to estimates by CBO and the staff of the Joint Committee of Taxation. That figure includes savings of roughly $41 billion from Medicare, Medicaid, the Children’s Health Insurance Program, and the Federal Employees Health Benefits program, as well as an increase in tax revenues of roughly $13 billion from a reduction in private health care costs that would lead to higher taxable wages. [My emphasis]

These aren't huge savings, but if Democrats were really interested in bipartisan compromise, why did they exclude any meaningful tort reform provisions from the final version of their bill? There doesn't seem to be any good reason for this. A clear majority of American support caps on medical malpractice lawsuits, and these caps would reduce the deficit and curb health care inflation.

Refusing to incorporate the Republicans' central idea into the health care bill -- even when that idea is popular and sensible -- seems just as petty as anything the Republicans have done.

Update: Ruth Marcus has a wonderful op-ed on this subject:

[A] summit aspiring to be more than show would require Obama to deliver his promised break from politics as usual. A cardinal rule of political negotiation is never to give something for nothing. But what if the president were to offer Republicans an inducement -- say tort reform? He has pointed to defensive medicine as one contributor to rising health costs. If "that's a real issue," as Obama told doctors last June, why not add it to the existing Democratic plans?

I can see them in the White House now, snickering. Would this kind of preemptive strike entice Republicans to cooperate? Not en masse, but enough such flexibility might pick off a few. It would show a Democratic Party willing to stand up to its own special interests for the public good, and a Republican Party -- assuming it balks -- unwilling to compromise.

If you're going to serve chicken soup, Mr. President, you might as well ladle some meat into the bowl.

Ezra Klein scoffs:

Indeed, one of the notable elements of this process is that at no time has a Republican or a group of Republicans released a specific list of policies that Democrats could add to the bill to ensure their vote. Concessions might be good for PR purposes -- unilateral bipartisanship and all that -- but that's all they seem able to do in this process.

This makes almost no sense. Maybe Democrats could, uh, look at the Republican alternative health care proposal to get some sense of the specific policies that they endorse? Or maybe they could listen to what Mitch McConnell said on Meet the Press. It's pretty clear what the Republicans want: tort reform and interstate competition.

There is no question that most Republicans are being deliberately defiant. And it's probably true that many Republican senators will not vote for a health care reform bill, even if clear concessions are made. But the majority doesn't need many Republicans. They need one or two.

Making sensible concessions could easily sway some more moderate Republicans.

What is Paul Krugman Talking About?

I just reread Paul Krugman's old post on why there is no problem with the Social Security Trust Fund assets.

His argument:

The Social Security system won’t be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security. That’s not going to happen. So legally, mechanically, 2018 has no meaning.

. . .

What we really have is a looming crisis in the General Fund. Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?

To be honest, I don't really understand Krugman's point.

The assets in the Social Security Trust Funds represent a claim against the United States Treasury. In other words, Treasury has borrowed from the Social Security Trust Funds to finance its current spending, and it will eventually have to repay that debt.

When the Social Security program begins to cash in those assets (probably some time in 2016), Congress has three (potentially interchangeable) options to finance the repayment of its debt: raise taxes, cut spending, or add to the already unsustainable deficit.

None of these options is particuarly appealing. The combined Trust Funds contain approximately $2.6 trillion in assets, which means that the federal government will have to find $2.6 trillion in revenue over the next few decades.

Krugman wants to reframe the problem as a crisis in the General Fund rather than the Social Security Trust Fund itself. And, technically, he's probably right. But how does this really change anything? The federal government still has to make a series of difficult choices ahead. Choosing the wrong path could still place the Social Security system and the entire federal budget in jeopardy.

Viewing the problem this way may be politically appealing to Krugman, but it's not exactly helpful.

How Do We Gauge the Stimulus?

Greg Mankiw responds to Paul Krugman's self-righteous assault on "conservative economists" who question the veracity of the administration's stimulus numbers.

Mankiw writes:

I do not object to claims such as,

A: "Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus."

But it is absurd to suggest that you can say,

B: "We have measured how many jobs the stimulus has saved or created, and the number is X."

Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is, of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you "learn" that 110,185.36 jobs have been created or saved in California alone.

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?

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.