Health care spending and health care costs: they’re not the same thing!

March 19th, 2017 at 12:34 pm

Health economist David Cutler offers sage thoughts on the R’s health care plan. I like where he starts. When Paul Ryan said that what his plan brings to the table is the “freedom” for healthy people not to have to subsidize the sick, many progressives pointed out that…um…that’s kinda how insurance works, Paul.

But as Cutler points out:

Critics were probably too quick to dismiss Ryan’s remarks as ignorant. What he said reflects a long-standing vision of many on the right about who should pay for the chronically ill. Spreading the costs so that healthy people pay more than their own care likely will warrant in a given year is one option. But that’s not the solution Republicans have traditionally favored. Their answer for health care, as for old-age support, is to put a greater burden on individuals to pay for the costs they incur. In that mode of thinking, the unraveling of risk pools is a virtue, not a vice.

In other words, in their YOYO world (“you’re on your own”), risk pooling is a socialist, not an actuarial, tool. As Cutler suggests, this helps explain their antithesis to any version of social insurance.

What he doesn’t get into is that this is really just a stop on the path to the ultimate goal of turning the resources that support social insurance over to the wealthy in tax cuts, a very obvious play in the ACHA. (Heads-up: Ben S and I feature the author of that link, CC Huang, along with health expert Shelby Gonzales, in our next episode of the On the Economy podcast, out Tuesday.)

However, Cutler goes on to explain that:

Even under this philosophy, though, Ryan’s American Health Care Act is fatally flawed: It does nothing to address the high and rising cost of chronic illness.

Along with a must-read tutorial on the cost structure of chronic illness, Cutler’s key point, also relevant to the next piece I’ll discuss, is that in this debate, you don’t want to conflate spending with costs. It’s easy to cut spending. It’s hard to cut costs. With their emphasis on high deductibles and less comprehensive insurance, R’s cut spending by shifting costs onto people who are now getting more government assistance. But they do nothing to reduce costs, leading to a very dangerous collision between those with low and moderate incomes and their health needs.

I thought NYT columnist Ross Douthat fell into this trap in an interesting piece about the advantages of Singapore’s health care system, where they spend 5% (!#$&?@#) of GDP on health care (we spend 17%). My bold:

Republican politicians may offer pandering promises of lower deductibles and co-pays, but the coherent conservative position is that cheaper plans with higher deductibles are a very good thing, because they’re much closer to what insurance ought to be — and the more they proliferate, the cheaper health care will ultimately be for everyone.

No, no, no! Read Cutler. The cheaper health coverage will be, not health care.

Of course, all of this begs the question: how can we reduce health care costs?

Cutler mentions a key factor emphasized by Dean Baker: the extent to which the patent system adds literally hundreds of billions of dollars per year to the cost of American pharmaceuticals (see Chapter 5 here).

Revealingly, in his praise for aspects of Singapore’s single-payer system that keeps the private sector in the mix, Douthat fails to mention the main way they control costs: government cost controls (see Chapter 4 from this useful review by William Haseltine). The government sets prices in the dominant public sector, and the private sector must follow suit.

Haseltine:

One study comparing healthcare systems among the developed Asian nations described the Singapore government as “micro-managing provision,” ensuring that public hospital charges are kept at acceptable levels, and in turn relieving pressure on Medisave accounts [mandatory health savings accounts]. It went on to say that the government “uses funding (and hospital ownership) in a calculated manner to control service costs and subsidize care, in turn limiting expenditure from insurance accounts and providing incentives for private providers to keep costs down.”

Medicare helps shape the private market to a lesser extent here, and there’s some compelling evidence that states that took the Medicaid expansion had lower premium costs charged by private insurers in the exchanges, along with reduced costs of uncompensated care.

It’s never hard to reduce spending in government programs. Reagan did it in the 1980s by throwing poor people off of the welfare rolls, and his present day disciples do so in the ACHA by cutting Medicaid spending by 25% by 2026.

But spending isn’t costs, which people either have to somehow pay or suffer the consequences of their illnesses. As this debate lumbers on, it is essential to recognize that many of the factors most associated with reduced health-care costs (vs. spending)–single payer, government cost controls, patent reform, incentives for quality care over quantity–involve a level of government intervention with which I’m totally comfortable but many others, like Douthat, are surely not.

ICYMI: 8 problems with Trump’s ‘budget’ (with a side of thoughts about defense spending)

March 17th, 2017 at 7:35 am

Over at WaPo.

One thought about point #7:

7) While analysis of this budget proposal has been extensive, there is one point on which I’ve seen too little analysis: Does the Defense Department really require an extra $54 billion to meet its mission? Lawrence Korb, who has street cred in this space, emphatically says no here. “Just as the sequester is a non-strategic and unwise way to limit a budget, increased funding that is not connected to a sound defensive strategy for the demands we face today will be non-strategic, wasteful, and do more harm than good.”

For someone who’s deeply interested in fiscal policy, I don’t research/write enough about defense spending. That’s a problem, and not just because it’s about 15% of the budget, but because it gets so little scrutiny. To be clear, this is not a knee-jerk claim that we must slash spending in the sector. While we spend many multiples more than other countries (eg, Russia spends $50 billion/yr, less than Trump’s requested plus-up), knowledgeable analysts like Michael O’Hanlon think the current budget is in the right ballpark.

But my issue is that too many progressives, myself included (and this critique applies to many liberal think tanks in the fiscal biz too), fail to learn as much as we should about defense spending and thus have little to say at moments like this, when the president proposes turning ploughshares into swords on the backs of the poor and the environment.

A few other links that are worth checking out (the WaPo’s been doing great work on the many shortcomings of this budget):

–When it comes to the Meals on Wheels program, all the sudden team Trump cares about evidence. But they get it wrong, big league.

–Underscoring my point #8 re the president’s own party resisting his budget. Nice point by General Mattis in there, btw: if you cut diplomacy, you’re going to need to spend more on bullets.

–On the basic philosophy of this budget: paying for defense by cutting poor people’s programs.

–CBPP’s president, Bob Greenstein, on the budget.

My favorite remaining institutions: the justice system and the Fed

March 16th, 2017 at 11:17 am

There are at least two American institutions that remain venerable, albeit vulnerable: the justice system and the Federal Reserve.

On my way in this morning, I learned some details about the Hawaiian judge’s rejection of President Trump’s travel ban v2.0. While team Trump believed they’d removed the problematic language from their first run at this executive order, the judge disagreed, in part—and this is what really moved me—due to Trump’s unequivocal anti-Muslim rhetoric during the campaign.

From the NYT, my bold:

Judge Watson flatly rejected the government’s argument that a court would have to investigate Mr. Trump’s “veiled psyche” to deduce religious animus. He quoted extensively from the remarks by Mr. Trump that were cited in the lawsuit brought by Hawaii’s attorney general, Doug Chin.

“For instance, there is nothing ‘veiled’ about this press release,” Judge Watson wrote, quoting a Trump campaign document titled “Donald J. Trump is calling for a total and complete shutdown of Muslims entering the United States.”

So, what Trump said still matters in the justice system. Contrast this with the laugh Trump’s spokesman Sean Spicer got from the press corps the other day when he said now that Trump’s president and the numbers are favorable, the jobs data are, at least for now, believeable. Or Trump’s claim that there’d be no cuts to Social Security, Medicare, and Medicaid, given that the latter gets gutted by 25 percent by 2026 in the Republican’s Obamacare replacement bill he’s now supporting.

I’ve long held that societies that abandon facts can glide on momentum for a while, but eventually, an economy, environment, and government built on lies cannot survive. While it is often imperfect, the pursuit of truth remains the heart of the justice system. I only hope it can stay there.

As for the Fed, as I wrote yesterday, they’re calling it like they see it on the economy, projecting trend growth rates of 2 percent, and not buying into the administration’s phony claims that tax cuts and deregulation will generate 3-4 percent growth rates.

To be clear, I’m not saying the Fed’s policy path is the only sensible or defensible one, nor am I saying their decisions are free of outside influences, including political ones. Like everyone else who follows their work, I often hear Fed governors say things with which I disagree.

I’m saying that they’re trying to meet their mandate of full employment and stable prices through economic analysis, without spin and without yielding to political pressures, ones that I forecast will pick up in coming months.

Obviously, a key factor these two institutions have in common is political independence. Again, no institution is free from political influences, and in fact, with two, soon to be three, open seats on the Fed’s board of governors, and one seat open on the Supreme Court—all of these seats are presidential appointments (with Senate confirmation)—the afore mentioned vulnerability to political pressure is real. But for now, there are still at least two places where facts can still show up without fear of being assaulted.

Trump’s 2005 tax return: I’m more worried about his tax reform than his tax return

March 15th, 2017 at 8:39 am

Just a quick note on the Trump tax return from 2005, the first few pages of which were released by the White House last night in advance of the much touted release on MSNBC.

To me, the thing smells like the dangle-the-key move–“look over here, not over there!”–I’ve come to expect from the Trump admin when things aren’t going their way. The House Republican’s health plan, which Trump was aggressively backing, is looking like a real dud (a “trap,” according to some fellow R’s), and I can see why the White House would like to quickly change the subject, as is their wont.

But isn’t his tax return a politically dangerous subject for President Trump to point at? Not in this case, because the pages he released do not appear to incriminate him much at all. He reportedly paid $38 million on income of $150 million ($185 million in today’s dollars), for an effective rate of 25%. As is typical of returns from people at these income levels, there’s a lot of steps to get to that AGI, including a claim of $100 million in real estate losses (likely a carryover from an earlier loss), along with reported income from business sources, capital gains, royalties, etc.

But the reason this smells funny to me is that most people will surely find “nothing to see here, so move along, folks.” No zero tax rate, no Russian loans/investments, and while 25 percent is below the effective rate paid by those in the top 1%–31% for families with kids in 2005, according to CBO–it’s not far below, and most people who hear he paid almost $40 million in taxes will not see anything like a smoking gun here.

In fact, the most salient part of this episode so far is the point that Trump’s return shows the importance of the Alternative Minimum Taxes for complex returns like his that claim large losses.

The AMT snagged him for $31 million that year; without it, he would have paid a 5% effective rate. The punchline: the president’s tax reform plan gets rid of the AMT. Unless they’re willing to also get rid of all the special privileges that enable wealthy taxpayers to write off much of their liabilities, which they’re not (they may get rid of some, but they’ve also proposed others), that’s a very bad idea.

Anyway, I don’t see why he wouldn’t have released this information to the public a long time ago. I was frankly surprised to see the 25% effective rate, and assumed that he was hiding a much lower rate. I guess the return suggests he’s not the multi-billionaire he claims to be, but various leaks already led me to believe that to be the case. And surely there’s more “interesting” information on the many more pages we’re not seeing.

David Cay Johnston, the tax expert who anonymously received the document and then presented it on the Rachel Maddow show, apparently wondered if it had been leaked to him by the White House in the first place. That sounds plausible to me.

What I’m left with here is something I’ve thought for a long time but haven’t said. Sure, I’d like to see a full release of Trump’s recent returns–I suspect there’s a lot more incriminating stuff in there then we learned about today. But I’m far less worried about Trump’s tax returns than Trump’s proposed tax reforms.