Is the Obamacare problem a public or a private problem?

November 1st, 2016 at 10:12 am

My WSJ greets me on the front stoop this AM with the banner headline on the “Depth of Health Law Woes,” based on the rise of “thin” markets with too few private insurers to generate cost-saving competition. The piece focuses on Arizona, where in 2017, “Arizonans will find in most counties only one insurer selling exchange plans.”

First, while the Journal article is surely informative, it violates my rule #1 in this space: when writing about private exchanges, declare up front that we’re talking about 7 percent of the population. That’s the share that get coverage through the non-group market, the part of the market served by the exchanges. In Arizona, it’s 4 percent.

Those shares don’t negate the thin market problem at all, but they do give it essential context. Most people still get their coverage through their employer (about 50 percent) and Medicare or Medicaid (34 percent).

But my question today is whether this spate of articles is accurately framing this problem. That is, diminished competition among insurers in various markets is invariably framed as an architectural flaw in Obamacare, and thus, a government failure. But it could just as easily be seen as market failure, or more specifically, a pricing-calibration problem. If so, the problem isn’t too much government intervention; it’s too little.

The theory of the case when the law was being crafted was, for both policy and political reasons—the latter being buy-in from private insurers, whose powerful lobby couldn’t be ignored—that the exchanges would be populated by private insurers competing for customers in the (relatively small!) non-group market.

The insurers would get a bunch more customers, most of whom would come to the table with a tax credit to help pay the cost of their subsidy, a non-trivial deal sweetener for the private insurers (not to mention the mandate, further nudging customers into the exchanges). In return, they’d have to accept a set of rules designed to promote adequate coverage, like accepting applicants with pre-existing conditions and “community rating:” no price discrimination based on health status.

At the time, there was a robust argument about the wisdom of this path. While it was the least disruptive to a major industry, the long history of the uneasy relationship between health care and markets, along with the experience of other advanced economies, led many to worry that private insurers could not be depended on to meet the demands of a newly regulated individual market. They had an incentive, for example, to set their initial prices too low to get customers, which would mean actuarial losses and a big jump in premiums (one solution was to add a program to limit losses to such insurers: the so-called “risk corridors”).

This was partially the motivation for adding a public option, but the politics blocked that option (some will argue that the administration, of which I was then a member, didn’t push hard enough; I’d argue the votes just weren’t there). The private folks didn’t want to compete with anything like Medicare, which consistently posts lower price growth than the privates—it is non-profit, after all—and their message was thus, “we got this.”

Well, it turns out they don’t got this, though again, this is less a failure in the structure of the program than growing pains as insurers learn to price their products based on the health of those coming into the exchanges. If there’s a structural flaw in Obamacare, it’s that it doesn’t include the public option. Those of us who pulled for it had it right in that we saw the need for just such a backstop.

To be fair, a public option is itself a tricky bit of work, and it’s too easy to make it sound like a hand-wave, miracle solution (see Jacob Hacker’s excellent discussion of these issues here). But you know what else is a big, old hand wave?: the miracle of competition, allegedly solving everything that ails the health care market.

Obamacare is a public/private hybrid, and this recent episode with the 2017 premiums should teach us that dialing back the public side is not the way forward. To the contrary, the private sector never has and never will provide the health care Americans want and need on its own.

Trade deficits, excess savings, and $ policy

October 31st, 2016 at 11:27 am

Over at the WaPo today, I’ve got a piece that looks at a key contributor to our large and economically distorting trade deficits: savings gluts in East Asian countries. Riffing off of an important new paper by economist Brad Setser, I argue that as long as these countries suppress spending relative to savings, it will be very hard to bring down our trade deficits.

The question is, what is the policy agenda to accomplish this goal?

Setser outlines a granular, country specific set of ideas for these countries to consume and invest more of their excess savings internally, in health care, anti-poverty programs, more progressive fiscal policies, and old-age pensions. But as I note, he’s realistic as to how heavy a lift it is to nudge other countries away from short-term mercantilist strategies toward longer-run internal investment/consumption strategies.

I did want to extend one bit of my rap in the WaPo piece—the bit about trade deals. I touted my work with Lori Wallach on the “new rules of the road” but suggested that while bringing these macro issues into the negotiations is very important, it’s not obvious that trade deals can’t accomplish the goal of reduced external imbalances either.

There is, however, one thing in this space that could make a positive difference: enforceable rules against currency manipulation. One way countries make the play Setser writes about is by using their surplus dollars to buy dollar-denominated assets, thereby boosting the value of our currency relative to theirs (and making our exports to them expensive relative to theirs to us). Taking concrete action against this play would block a prime motivation for maintaining large trade surpluses.

How do you block currency manipulation? Many ideas abound, including countervailing tariffs and—my preferred approach—reciprocity: disallow one-way purchases of foreign exchange. IE, if a country can buy dollars, we must be able to buy their currency, essentially sterilizing their attempted manipulation.

Yet another swingin’ Friday musical interlude

October 28th, 2016 at 3:42 pm

I got some very positive feedback from the cats and kittens who enjoyed my last foray in the swingin’ world of late bop, so let’s revisit, this time with a live blues from Wes Montgomery. If I don’t listen to Wes every week or so, I get unhappy and grumpy. So here’s the antidote, a great romp wherein the master starts his solo by tuning up a string, then just holds forth for a good, long stretch, moving through his patented octave lines, to a great section of chords where his guitar becomes Basie’s big band. Note especially how carefully drummer Jimmy Cobb is picking up on Wes’ groove, which is, by the way, the deepest of the deep groves.

And I’d be horribly remiss if I did not adequately tip the beret to Wynton Kelly’s solo post Wes as he also swings his a__ off.

An added lagniappe this week is a solo version of Anyone Can Whistle from my old pal Joel Fass, a fixture of the NYC jazz scene and a dude I’ve run with for about 150 years.

Congressman Todd Young gets it wrong: Obama is not a job killer–not in the US–not in Indiana

October 26th, 2016 at 3:49 pm

“It’s a real job killer…It’s no wonder we’re not growing more jobs in this country.”

So spoke Indiana Republican Congressman Todd Young last week referring to the employment impact of the Affordable Care Act. To be clear, in the interest of sanity, I don’t listen to every debate, but I happen to be driving around and, to my great misfortune, heard this on the radio.

Mr. Young’s position flies in the face of the facts. As I’ve documented in detail, there’s no evidence to support his claim, and much evidence to the contrary. I’ll go through a bit of it again, but consider the fact that we’re in the midst of the longest stretch of total job growth on record, the ACA has clearly boosted jobs in the health sector, and the Federal Reserve is threatening to tap the interest-rate brake because they’re worried that we’re too close to full employment (I think such a brake-tap would be misguided, but their action makes it kinda tough to argue Young’s case).

In my earlier piece, I showed the absence of a correlation between the ACA’s state-level penetration, proxied by changes in coverage, and job growth. Here is one of the slides that shows which dot corresponds to Indiana. It’s right on the best fit line, which ftr, slopes up—more coverage, more job growth—precisely the opposite of Young’s statements.

Source: BLS, ACA

Source: BLS, ACA

The next figure shows a simple plot of job growth in Indiana with lines when different components of the ACA went into effect. Indiana, to their credit, accepted the Medicaid expansion in February of 2015. The employment trend continues unabated.

Source: BLS

Source: BLS

Finally, there’s this figure of job growth in the state’s health sector. These state-level data are noisy but the upward trend is clear, which makes sense given that the ACA helped to increase health coverage for 275,000 Hoosiers between 2013 and 2015.

Source: BLS

Source: BLS

BTW, you know that big dust-up the other day about how the average 2017 premium for the benchmark plan is projected to go up 25% next year? Not only does that number ignore the impact of both premium tax credits and the considerable amount of shopping consumers do, but most states also clock in well below that average.  Indiana is one of ten states – all of which have adopted the Medicaid expansion – to project an increase of less than 7%, and one of the two states that projects a decrease (of -3%).

In other words, the ACA is covering citizens of the state without adversely impacting employment while premium costs in Indiana are bucking the national trend to the downside.

If you go from these facts to “job killer,” you should probably get your vision checked.

More on the non-mystery of non-work: Germany v. US

October 23rd, 2016 at 9:20 pm

I spent a few minutes on Twitter today tweeting out some figures and links relevant to this issue of non-work among prime-age adults (25-54 year olds). The issue is getting a ton of attention, well-deserved, for sure, but why now (this NYT survey provides a useful summary, though as Dean Baker points out, women’s employment rates have also declined of late)? After all, the negative trend for men (see fig 3 below) is long-term.

Clearly, one explanation relates to the the election and the belief that much of Trump’s support comes from non-college educated white guys disconnected from the job market.

These are the figures I tweeted out, all employment rates of prime-age workers, the first two from OECD data, the third a longer term look at US prime-age men (EPOP is employment/population, or employment rate):

usgerm_women

usgerm_men

 

epop_ratchet

 

What’s important about the first two figures is that the German labor market has been hit with the same two factors typically raised to explain the increase in non-work: globalization and technology. Why have German prime-age men and women fared so much better than those in the US?

–Much more union coverage, and German unions work with both management and government to support employment through apprenticeships, training programs, and export-oriented manufacturing policies.

–This last bit is supported by their undervalued currency; as the strong man in the eurozone, the German currency would rise if it could float. As it is, their current account surplus is a whopping 8% of GDP, meaning they’re essentially importing labor demand from weaker eurozone economies.

–They’re just more “we’re-in-this-together” when it comes to labor market policies. One reason their employment rates didn’t tank in the recession was because workers essentially shared the problem of weak labor demand: instead of concentrated layoffs, broad swaths of workers took reduced hours with part of their lost earnings replaced through gov’t support. Our unemployment insurance system actually offers that option, but it’s way underutilized.

–Don’t assume that accelerating, labor-saving technology–faster productivity growth, robotics–in manufacturing is what’s dinging these guys long-term. At least not before you’ve read what Sue Houseman has to say about it. Yes, automation is in play, but so is that fact that much of our demand for manufactured goods is met through imports:

The reason for manufacturing’s anemic performance is that U.S. consumers and businesses are buying more imported products, and American exports have not risen commensurately. Instead of manufacturing their products in the United States and exporting them to foreign markets, U.S. multinational companies now often locate production overseas to take advantage of lower labor costs and taxes, among other factors.

Conservative Nick Eberstadt, according to the NYT would “…like to intensify social pressure on the cadre of men who have stopped looking for work. “Why haven’t we had the same sort of conversation about stigmatizing or shaming unworking men that we had 20 years ago about mothers on welfare?” he said. “They were not idle; they had little kids.”

I say before we go to the shaming place, let’s get the policy right. The third figure shows a clear cyclical response to ups and down in job opportunities around the negative trend, and here I show that the cyclical responsiveness has increased over time. That sense to me, given that our welfare system has shifted more towards in-work benefits. While disability insurance often gets raised in this context, the highly regarded CEA report on this topic assigned less than 10% of the decline in prime-age male work to the disability rolls.

No question, “agency,” or personal responsibility, is always in play, but from where I sit, the evidence of jobs leaving workers is more persuasive than that of workers leaving jobs.