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?

Incentive Problems and the American Health Care System

If you're willing to spare an hour to consider some of the incentive problems inherent in the American health care system, I'd recommend listening to the most recent episode of This American Life.

The episode is called "More is Less." And it's actually very, very interesting.

Public School Song in Praise of Obama

There are two things that strike me about this video of New Jersey public school children singing songs in praise of President Obama's agenda and accomplishments.



First, it's not that big a deal.

This is a relatively trivial issue that conservatives have been eager to exploit for political gain. Rush Limbaugh has been pounding away at this story for more than a week, and Fox News has been feverishly churning out exposés and airing clips about the incident.

In some cases, the hysteria from right-wing pundits has been extremely offensive. Tucker Carlson, for example, recently likened the song lyrics to Khmer Rouge tactics. We should all be extremely concerned about this kind of hyperbole in our political discourse.

Second, some of the lyrics to these songs were inappropriate, and I can't believe that anyone on the left is trying to argue otherwise.

Here's a good example:

Hooray, Mr. President we honor your great plans, To make this country's economy number one again!

Whether or not you personally believe that President Obama's economic policies are admirable, public school children should not be 'honoring' the president's "great plans" to "make this country's economy number one again." Many of the president's fiscal plans are highly controversial, and instructing young students to honor his plans amounts to political and intellectual coaching. If these same public school children were expected to sing songs 'honoring' the economic plans of Ronald Reagan, many parents on the political left would be justifiably upset.

Elementary school teachers should never give the impression that they are endorsing a sitting president's plans in a specific policy area. Yes, Tucker Carlson is wrong, but that doesn't make the teachers in this story right . . . .

Is the Baucus Plan the Way to Go?

David Brooks has another brilliant column in today's NYT.

Please, please read it.

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.

Ezra Swallows His Pride

This is why I respect Ezra Klein:

I've been a big proponent of affixing calorie counts to menus. There's substantial evidence suggesting that people wildly underestimate the calorie content of dishes at restaurants, and have a lot of trouble reliably guessing whether one dish is lighter than another dish. There's also evidence that people want to eat better than they do. It seemed like the sort of situation where information could result in action.

The first big study out of New York City, however, suggests that menu labeling has been a bit of a bust in changing ordering habits at fast food restaurants in low-income neighborhoods. The researchers identified 14 outlets and, using Newark (where there's no calorie labeling) as a control group, conducted interviews and receipt checks to see how ordering patterns changed. The answer? They didn't. If anything, the calories per order went up a smidge.

. . .

I'm still a supporter of calorie labeling on the simple grounds that people should have this information, no matter how they choose to use it. But so far, the evidence suggests that it's not going to make a dent in obesity rates.

Why Doesn't Ken Conrad Support the Public Option?

In a recent interview with Ezra Klein, Ken Conrad explained:

I don't think a government-run plan best fits this culture. A plan that's not government-run has the best chance of succeeding in being passed into law.

Second, and this is very important to my thinking, the public option as defined by the committee of jurisdiction in the House, the Ways and Means Committee, is tied to Medicare levels of reimbursement. My state has the second-lowest level of Medicare reimbursement in the country. If my state is tied to that reimbursement, every hospital goes broke. People say, "Just fix it." I've been on the Finance Committee more than 15 years. I've been trying to fix the unfair aspects of Medicare reimbursement all the time. We run into the House. Membership is determined by population, and the big population states write levels of reimbursement that unfairly treat hospitals in states like mine. My hospitals get one-half as much as urban hospitals to treat the same illnesses.

A key argument against the "strong" public option -- one that would pay Medicare reimbursement rates -- is that we already have an enormous degree of cost shifting onto private insurance plans. Another Medicare-like plan could potentially widen the gap between government reimbursement rates and private reimbursement rates, and ultimately do little to reduce aggregate health care costs.

Conrad's position is quite different, and I think far more interesting. He's doesn't seem to be concerned about the cost shifting. Instead, he's focused on the regional variations that we've seen among Medicare reimbursement rates.

According to Conrad, these variations are impossible to correct because the membership in the House of Representatives is, by Constitutional design, proportional. Thus, hospitals in states with larger populations -- and more Congressional representation -- will always see relatively decent Medicare reimbursement rates, while hospitals in states with smaller populations will always get shafted.

The senator suspects that we would see a similar pattern with a "strong" public option that offered a Medicare-like payment scheme.

But what about the "level-playing field" public option proposed by Chuck Schumer, which would not be empowered to dramatically undercut private insurance rates? Why did Ken Conrad vote against this version of the public plan?

My guess would be that Conrad simply doesn't trust the claims of his big-state party members . . . .

What do you think?

Moore's Immoderation

Judith Warner questions Michael Moore's approach to activism:

I listened to Moore talk, in the morning, of “us.” (“I know where you come from,” he addressed an absent Barack Obama, his tone oddly menacing. “You come from us.”) I listened, in the evening, to him talk of “them”: “the rich … the Goldman boys.” I heard him threaten Blue Dog Democrats (“We will come after you, and we will remove you from office”), watched him whack a meaty fist into his palm — thwack! — as he recalled the hardball tactics of health care reform’s most stalwart opponents, and as he reveled in the thought of bringing down those who now oppose a public option: “It will make what was going on at those town meetings in August look like a tea party!”

“This is why some of us admire the other side,” he said. “Because they’re relentless. They never stop.”

. . .

And I found myself thinking, over and over again, of Molly Melching, the founder and executive director of the nongovernmental organization Tostan, which works to teach human rights and democracy and has helped more than 4,000 communities in Africa end the traditional cutting of girls. Melching, who has succeeded where any number of other women’s rights and global health organizations have failed, explained to me in an interview this summer that the secret to her group’s success lay in the fact that she had learned, through years of trial and error, that to reach people you had to meet them where they were. Respect them. Acknowledge their social norms, beliefs and practices. Find common ground. Build on shared human aspirations — for safety, for dignity, for a better life for one’s children — then discover how those shared aspirations might reasonably translate into ending practices that cause suffering. “If you come in and say, ‘You are awful people,’ people tune out and say, ‘Who do you think you are?’” she told me, speaking first from Senegal, where she has lived for the past 35 years. “Making people feel bad about what they’re doing doesn’t work; they only get defensive. What does work is getting people to discuss together what are their rights and what they mean. It’s not just a question of blaming and shaming people but educating and empowering them.”

“It’s a question,” she elaborated in her D.C. office last month, “of changing the script.”

. . .

These thoughts came back strongly while listening to Moore chuckle and brag, and while sitting through his new 127-minute opus of vilification. Moore’s script is the farthest thing possible from Melching’s truly radical — and, as it turns out, effective — vision of change. In fact, watching “Capitalism,” it felt as though he’d dusted off an old playbook, as though he was reliving the battles of the beleaguered Bush/Cheney years, just for the sheer fun of it.

Evolving African-American Studies

John McWhorter -- whom you may recognize from some of his brilliant commentaries on NPR -- has written an excellent piece on "What African-American Studies Could Be" (via Andrew Sullivan).

McWhorter summarizes his argument here:

It’s time that African-American Studies departments let go of the sixties imperative to defend blacks as eternal victims of racism. Black people can do their best even under imperfect conditions--and if that reality is irrelevant to an African-American Studies curriculum, then we must question the value of said curricula to those whom they purport to speak up for: real people in this real world. This real world which will never be perfect--even for descendants of African slaves.

In 2009, the study of blackness must be the study of a race most of whose members are now victors, not victims. Certainly the victims must be studied--but only within a genuine commitment to saving them, not chronicling them as helpless until America turns upside down in a fashion no one could seriously imagine will ever happen.

Two things are crucial in my piece at Minding the Campus.

First, I do not argue that African-American Studies departments should not exist. Any claims that this piece is “against Black Studies” will be, as Obama said in his speech on health care not long ago, lies.

Second, I do not assail teachers within them as charlatans or anarchists. At all. I know they are all working at the top of their abilities. I just question what the guiding imperatives of their departments are, and ask them to address a wider range of arguments.

This piece is simply a call for a true African-American Studies paradigm: a study of black people entire, with ample room for views from all sides. Black conservatives should be read alongside Du Bois and Baldwin, with no clucking and hedging. Any hovering consensus that leftist positions are “truth” should be a mark of failure.

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.