Strange Brew

Hey folks, I have a guest post up for “Catharsis Week” over at The Incidental Economist. It’s a satirical piece expressing regret for the Boston Tea Party and arguing in favor of undeclaring independence from Great Britain.

Incidentally, I watched David Cameron, leader of the British conservative party, on Charlie Rose last night, which nearly made me want to drop the satire posture and advocate reunion for real. British conservatives, like our own, also take an absolute and unwavering stance on healthcare—but in favor of universal, government-provided care.

Anyway, so check out my piece. Commenters have so far uniformly found one word to describe it. That word is “strange.”

And if you want to read about health policy from someone who has actual, you know, expertise in it, read The Incidental Economist.

SOTU

I was underwhelmed by the State of the Union address. I agree with Peter Beinart’s take, that it was a good speech, but painful:

The painful part was that by so effectively beginning a new conversation about jobs and financial oversight, he subtly acknowledged that he has lost the old ones: over health care and cap and trade. He didn’t even explain what cap and trade is, let alone take on the Republican objections to it. And while he discussed health care in greater detail, his decision to leave that discussion until so late in the speech spoke volumes. What’s more, his discussion of why reform is necessary was less than compelling. While he offered a laundry list of problems with the current system, he didn’t encapsulate the case for his version of reform in a simple, memorable way. And this may have been his last chance.

It didn’t soar. It didn’t really even glide that much. It missed precious opportunities to educate. The President showed some interesting human vulnerabilities: admitting failures, weaknesses, and basically pleading for lawmakers to participate in good faith. But once political self-interest has undone the norms of restraint and decorum, how do you ever go back?

Of course, my whole experience of the speech was warped by my hopes for some kind of magical turnaround on healthcare—like a dramatic confrontation over the filibuster, with the President explaining (not just mentioning) the supermajority math and how it is an affront to majority rule; or a direct appeal to the American people to urge their representatives to pass the bill. But then, it’s ideas like these that show why I should probably keep my thoughts about political strategy to myself.

Good Advice for Centrist Democrats

Jonathan Bernstein has some wisdom and sound advice to share with centrist Democrats in Congress. He says it’s a “serious political error” to think “that Democrats can avoid attacks from Republicans by being careful about their actions.”

Democrats can be assured that Republicans will attack them, regardless of what they do.  Democrats could eliminate the estate tax permanently, slash the capital gains tax, repeal the Clean Air and Clean Water Acts, invade Iran, and pass a Constitutional Amendment outlawing abortion, and Republicans would still attack them — with exactly the same vehemence and vigor that Republicans have now.  That’s politics. 
[...]
My advice to Democrats unsure about what to do is this: think about the actual bill, and what its effects would be if it became law.  If in your judgment those effects would be bad for your constituents, then odds are they will dislike it, blame you for it, and you’ll be in trouble.  If those effects would be good for your constituents, then vote for it.  Then figure out how you’re going to sell the thing and yourself, based on that vote.  But don’t back off of it because you think it will open you up to attacks; you’re wide open right now, and you’ll remain wide open regardless of what you do. 

Ring Ring

I just called my representative, Congressman John Lewis (D-GA), and left a message urging him to do two things:

(1) Vote to pass Senate healthcare bill. The Senate bill is imperfect, maybe not as good as House bill in some respects, but it is light years better than no bill at all. Any problems with it can be addressed in a follow-up reconciliation bill.

(2) Use all his influence to persuade fellow House Democrats to pass the Senate bill.

A pared down bill won’t work, and there is no time to start over. Allowing health reform to fail now would be an unforgivable betrayal of Democratic voters on the single most important issue facing the country.

If your representative is a Democrat, he or she could use some encouragement.

Is the Excise Tax Good Policy?

Now that the Democrats have lost control of the 60th vote in the Senate, the only option for immediate legislative action on healthcare is for the House to adopt the bill already passed by the Senate. I join the chorus of those who have called for the House to buck up and pass the bill now and revise it later through reconciliation. But House Speaker Nancy Pelosi has now announced that she does not “see the votes” for adopting the Senate bill without modifications.

Most of the discussion of whether the House should pass the Senate bill has been about political strategy. But the House’s number one complaint about the Senate bill has been the excise tax on high-cost health insurance plans, largely because of labor unions’ opposition to the policy. The recent deal struck between the White House and labor leaders softened that opposition and introduced some sensible refinements to the tax, but that deal is moot if no further action is possible in the Senate.

So, leaving the politics aside, is the excise tax good policy?

The balance of opinion in my blogroll seems to be for it, more or less. But there are a few reasons I just haven’t been able to close the deal. (Though again, just to be clear, I very much believe the House should pass the Senate bill and work to improve the details later.)

First, I have a hard time believing it will be a real game-changer on cost control. And if it doesn’t come through on cost control, then it doesn’t amount to much more than a convoluted device for raising revenue.

Second, I think there’s a legitimate concern that, to the extent the excise does rein in spending, it will do so by shunting people into plans with high deductibles and co-pays, which might result in patients avoiding needed visits to the doctor—instead of doctors avoiding unneeded tests and procedures.

Cost Control

The theory behind the excise tax, says Jonathan Gruber, is this:

It would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending. In other words, it “bends the curve.”

This biggest question mark for me is the mechanism by which the tax is supposed to slow the growth of health spending. Health policy analysts broadly agree that the root cause of our healthcare cost crisis lies in structural defects in the way care is delivered and paid for. Fee-for-service medicine incentivizes inefficiency and waste, as Atul Gawande famously illustrated. This suggests that reform must reach the payer-provider relationship if it is to have any hope of slowing the growth of spending.

But the excise tax targets the other side of the system: the payer-consumer (or insurer-insured) relationship. So how is this supposed to translate into reform on the payment side? Austin Frakt:

[I]n theory anything that is taxed should experience a lower demand. Therefore, one would expect that individuals and employers will seek lower premium plans to avoid the tax. In doing so they have to give up something and it can only be benefits or show up in the form of increased cost sharing. That could induce lower utilization and therefore lower costs overall. Perhaps insurers will try harder to create plans with lower premiums (to woo employers). One way they could do so is by negotiating lower rates with providers if they can. Economic theory would suggest they already get the lowest possible rates given market power. So I don’t know that there is much to gain there.

Tim Jost drives the point home:

The excise tax would not give insurers more bargaining power in dealing with hospitals, doctors and drug companies. It would not create new innovations in delivery systems. It would not generate credible evidence to “manage” care. It would not do anything but force insurers to offer cheaper plans to whoever had unhealthy enough employees to qualify for the tax.

My takeaway from all this is that the tax may trim some excess in the form of luxury benefits (more on that below), which could indeed reduce costs. But, because it doesn’t reach the underlying problem of provider incentives, it is highly doubtful that it will succeed in reducing the rate of growth of costs. It targets the wrong side of the equation. Which brings me to my second area of concern about the policy: its fairness.

Fairness

At least three separate fairness concerns have been raised repeatedly by critics.

First, the excise tax has been said to unfairly burden people on plans in high-cost regions of the country and plans that are expensive as a result of the age or gender profile of the risk pool. These concerns were to be addressed (in bill-merger negotiations) through special adjustments to the threshold at which the tax kicks in.¹ But without the ability to pass a modified bill in the Senate, this issue remains a serious one.

Second, a common concern, recently articulated by Maggie Mahar, is that employers will pocket the savings that result from switching to cheaper plans, rather than passing the savings on to their employees as increased wages. Economists tend to answer this concern by pointing to the tradeoff between benefits and wages. Basically, it is axiomatic among experts that every dollar of compensation you receive in benefits is a dollar you give up in wages. As Austin Frakt has put it, “Workers pay the premiums even if employers appear to.”

I’m not sure the economists’ answer will satisfy critics of the excise tax, though. I think the critics’ point is really that employers will try to game the transition, exploiting the opportunity to lower employees’ overall compensation. But even if some employers do engage in mischief, the labor market will eventually force the numbers into line. It’s possible I’m too trusting of the experts here. But my intuition is that, if employers are able to get away with undercompensating their employees, they’re probably already doing it. And if they are, that’s a problem, but it’s not a problem created by the excise tax.

The third fairness concern is the one that troubles me most. There are only two ways to get people onto lower-priced plans without lowering the actual costs of care: (A) to cut plan benefits, or (B) to offer plans with higher out-of-pocket costs (deductibles and co-pays).

(A) would be smart policy if benefits were extravagant. And maybe they are sometimes. But a recent study in Health Affairs found only 3.7% of cost variation between high-cost and low-cost plans can be ascribed to benefit design. That suggests that there is not a lot of fat to trim from Cadillac plans without cutting into core benefits.

The trouble with (B), and arguably with the excise tax in general, is that it puts the burden of reining in spending on the consumer and seems as likely to prevent sick people from getting care as anything else. The excise tax cuts spending by squeezing utilization on the consumer side.² But it is the providers who are making all the important utilization decisions. We just do what we’re told. Doctor’s orders!

Maggie Mahar argues:

75 percent of our health care dollars are spent on patients suffering from serious chronic diseases such as cancer, heart disease, stroke, and chronic obstructive pulmonary disease.
* * *
[C]hronically ill patients don’t make the decisions on big ticket items such as surgery, hospitalization, a battery of expensive tests, or a drug that costs $50,000 a year. Doctors and hospitals tell them what they must have to survive. Co-pays and deductibles will not make these patients more “cost-conscious.”  Cost-sharing will only give a distraught stroke victim another reason to worry.

Patients do make small decisions. Should  I visit the doctor? Should I have my blood pressure checked?  Should I try a smoking cessation clinic? And here, research shows, that if they face a co-pay, there is a 50/50 chance that they will make the wrong decision, foregoing needed care.

However, Mahar does acknowledge that the Senate bill (§ 2713(a)) prohibits co-pays on preventive care recommended by the US Preventive Services Task Force. That presumably reduces the scope of this concern. But it still seems a legitimate one.

Conclusion

Supporters of the excise tax are apt to say reasonable things like this, from Krugman:

[W]e really don’t know what it will take to rein in health costs, but that’s a reason to try every plausible idea that experts have proposed. Limiting tax deductibility is definitely one of those ideas.

I think that is the right attitude to have. I also think it’s important to remember that there will be lots of time and opportunity to tinker with the details later, and for now the most urgent need is to pass a bill so that there will be details to tinker with. Austin Frakt puts the excise tax in perspective (and shows that I could have saved myself the trouble of writing this post by quoting him extensively):

On the whole, the tax is quite a ways removed from the real problems, which are over-utilization of low efficacy care and high unit prices. Were I to design a tax I’d want to target those things.

The Cadillac tax is blunt but it raises revenue while avoiding the politically difficult fight with providers. …. I’m willing to accept putting off the real tussle over health care costs for now just so we can achieve some important insurance market reforms and set up some structures (do some pilots and demos) to prepare for that fight later, which is what current legislation would do. But someday, and quite soon–but not this year–we’ll have to return to the cost issue in earnest.

The Cadillac tax is a stop gap measure, but nobody should fool themselves into thinking it will solve the real cost problem.

1. The Senate bill does provide adjustments for plans in 17 high-cost states. [↩]
2. A classic study by RAND known as the Health Insurance Experiment (HIE), summarized here, showed that cost sharing requirements can reduce utilization without affecting the quality of care. But doubts about the applicability of the HIE, articulated here by Tim Jost and Joseph White, also seem reasonable. [↩]

Why Piecemeal Reform Won’t Suffice

Since the special election in Massachusetts, there’s been a resurgence of the notion that it was a mistake for Democrats to lump all of health reform together in one giant package, rather than breaking it down into more manageable pieces that could be tackled separately.

The idea is that, because the legislation is so long and complicated and affects so many different interest groups and because there is so much ideological baggage in play, it has inevitably been under attack from every angle, doomed to death by a thousand cuts. If the effort were broken into smaller chunks, we are told, lawmakers could take on just one or two big interests at a time and have a better chance of getting things done. That’s the idea.

But it’s a bad idea. Reform can’t work that way. Not this reform, anyway. The problem is that the piecemeal theory ignores the difference between legislative politics and policy and fails to recognize the interdependence of policy that underlies the legislation’s many components.

Start with insurance reforms: banning exclusions for pre-existing conditions, guaranteed issue, guaranteed renewability, and community rating. Those things are going to drive insurers out of business if you don’t address adverse selection, so you impose an individual mandate. Because you’re making everyone get insurance, you have to make sure everyone can afford insurance, so you pump subsidies into the exchanges and expand Medicaid for those with the lowest incomes. Now the government is putting a lot of money into covering everyone, and it has to raise the revenue to pay for it all, so we get an excise tax, wring some inefficiencies and waste from Medicare, and cut the excess from Medicare Advantage. Because of the size of the government’s commitment to health spending—which is in fact already unsustainable—we have to slow the rate of growth in healthcare costs, so we throw in a smorgasboard of delivery and payment system demonstrations and pilot programs and an independent commission to recommend and in some cases implement cost-saving measures.

And there we are. Given the objectives and the starting point, the several components follow naturally. If you didn’t start with the private insurance reforms, you wouldn’t need mandates or Medicaid expansion; but then you wouldn’t get anywhere near universal coverage. You could do cost controls and delivery reforms before expanding coverage; but it wouldn’t make much sense to do it that way, because the effectiveness of those reforms will depend on the way we choose to pursue coverage expansion.

Fundamentally, health reform is complex because our goals make it complex. In fact, contrary to another common critique (that the bill is a radical restructuring of our market-based healthcare system), it is largely because our goals are so moderate that reform is so complex. We are trying to achieve near-universal coverage while preserving the status quo for as much of the system as possible and indeed while rewarding as many of the system’s major players as possible. As long as we try to achieve near-universal coverage within a largely private insurance system, reform will be a massively complex undertaking.

This is make-no-enemies health reform, moderate to the core. If it fails, it will not be because its complexity engenders enemies, but because the political process has been engulfed by a cancer and is in need of reform of its own.

Mass-ive Shift in Balance of Power

Via Ezra Klein, this graph from Joshua Tucker illustrates the startling new shift in the political landscape.

Republicans Prevail, Control Senate by –18 Votes

Democrats control 59% of seats in the U.S. Senate and have absolutely no hope of getting their agenda past the Republican superminority.

What is an Excise Tax?

An excise, or excise tax, is simply a tax. “Excise” basically denotes a tax on an event, rather than a tax on a person (a “head tax” or “poll tax”) or on land (“property tax” or “ad valorem tax”) or on something imported (“customs duty”). Sales taxes are excises. According to Black’s Law, an excise is a “tax imposed on the manufacture, sale, or use of goods (such as a cigarette tax), or on an occupation or activity (such as a license tax or an attorney occupation fee).”

So what do we need to know about excise taxes? Nothing! Don’t worry about it. Tax law semantics can be tricky, but it doesn’t make any difference to the discussion of the tax on high-cost health plans, aka “Cadillac plans.”¹

1. Tax semantics might be relevant to discussion of the constitutionality of the individual mandate penalty. It’s conceivable that those penalties would be construed as a “direct tax” on individuals, rather than as an excise or as an income tax. Direct taxes, under Art. I, § 9, cl. 4, must be laid “in proportion to the census.” See this very helpful overview of constitutional tax issues in health reform from Tim Jost. [↩]

What’s in a Name

Forget “excise tax” and “surtax,” we need infirmity offsets!

Interesting study, from Brad Plumer (again):

Test subjects were broken up into two groups, and each group was allowed to pick between pricier and cheaper versions of various items like airline tickets. Group A was told that the more expensive items included the price of a “carbon tax,” whose proceeds would go toward clean-energy development. Group B was told that the costlier items included the price of a “carbon offset,” whose proceeds would go toward clean-energy development. Exact same policy, just different names for each.

You can guess what happened next. In the “offset” group, Democrats, Republicans, and independents all flocked toward the pricier item. They were perfectly happy to pay an extra surcharge to fund CO2 reduction—even Republicans gushed about the benefits of doing so. Not only that, but most of the group supported making the surcharge mandatory. In the “tax” group, however, Democrats were the only ones willing to pay for the costlier item. Republicans in this group were much more inclined to grumble about how much more expensive the tax made things. Labels really do matter.

Things I’ve Always Wondered About: Global Warming Edition

If the hole in the ozone layer lets in harmful rays from outer space, doesn’t it also let them out? And if the hole is repaired, won’t that trap even more heat in the atmosphere? Yes, it seems. Bradford Plumer:

The bad news, alas, is that a big reason Antarctic summers are still relatively chilly appears to be the hole in the ozone layer, which strengthens circumpolar winds and shields the continent from global warming. But since we’ve banned CFCs (with good reason), the ozone layer’s slowly on the mend, and as it heals, the greenhouse effect will take over and Antarctic summers will heat up even more in the coming decades, according to Marco Tedesco, an atmospheric scientist at the City College of New York. It’s like we just can’t win.

Of course, that doesn’t mean we should just sit back, crack open a can of CFCs, and let the planet bake. It sounds like the Senate Majority Leader agrees and is planning to charge ahead with a climate bill this spring.

Credit: NASA.

The Filibuster and the Accountability Problem

Jonathan Bernstein argues that eliminating the filibuster would not favor majority rule so much as majority-party rule. That is, abolishing the filibuster would not suddenly establish a truly majoritarian, democratic procedural regime in the Senate, as many might hope. Rather, it would fortify the majority party’s control, which would not and does not always facilitate the will of the majority of senators, as the majority leadership sets the agenda and may use its considerable power to prevent measures from coming to a vote, even when such measures might otherwise garner 51 votes (say, e.g., 40 Republicans and 11 Dems).

But the problem with the Senate is not ultimately about the relative purity of majoritarian rule. It is about accountability. By allowing the minority to obstruct the majority’s program, the filibuster severs the lines of accountability between elected representatives and the performance of the government.

In a functional democracy, representatives (and parties) should compete for electoral support and be judged by the voters on the basis of the success or failure of their policies. But, as Ezra Klein has pointed out, the arcane and convoluted cloture rules of the Senate make it possible for the minority to block the majority’s program and to benefit from the majority’s failure to enact that program. The result is that the public blames the majority for failures caused by minority obstructionism. Klein:

Small-d democrats should prefer a system in which the majority can enact its agenda and then must defend it before the voters to a system in which the majority cannot enact its agenda and must explain the complicated mechanisms behind its fecklessness to the voters.

In a system without the filibuster, the threat of repeal, as opposed to the impossibility of action, becomes the dominant player in legislative design, and it’s much to be preferred. The clear accountability of passing laws and being judged on their success is far superior to the confusing campaigns that result from promising the passage of laws and then failing to surmount a filibuster. Strengthening that crucial relationship between cause (one party got elected) and effect (they passed bills) is not only better from the perspective of assuring action on problems. It’s also a road to a better-informed citizenry that knows who to blame, and who to reward, for the condition of the country and the performance of the most recent Congress.

So can we abolish the filibuster? How? I’ll save that discussion for another post.

Funniest Paragraph of the Year

This is definitely the funniest paragraph I’ve read all year, from Emily Laut at ScienceNOW Daily News:

When it came to insect penises, Charles Darwin had it right. The famed naturalist suspected that insect genitalia, which are frequently festooned with bizarre combinations of hooks, spines, and knobs, essentially functioned like peacock tails. That is, they helped males beat out their rivals for females. Now, researchers have confirmed this hypothesis by zapping fly penises with a laser.

Via Bradford Plumer at TNR’s energy & environment blog, the Vine.

Analogy of the Day: Leverage and O-Rings

Kevin Drum, on the history of finance lobbyists seeking relaxation of regulations in the wake of financial crises:

We live in a world where leverage—as well as Wall Street’s nearly endless stream of new contrivances for exploiting it—is largely controlled not by regulators or congressional committees, but by the finance lobby. And the last thing the finance lobby wants is constraints of any kind. So Wall Street promised solemnly to take the lessons of LTCM to heart and then got right down to the business of ignoring them. In fact it spent the next decade not merely blocking reform, but making things worse by lobbying relentlessly to expand leverage, complexity, regulatory forbearance, and risk.

Now if the aerospace lobby had told us after the 1986 Challenger disaster that the key to better performance was to turbocharge the engines and quit performing preflight inspections, everyone would have agreed that they were crazy. Yet that’s essentially what the finance lobby has done over the past decade, and in some weird way we were too mesmerized to recognize it. Within months of a near catastrophe caused by one of the industry’s brightest stars, the lobbyists were busily making certain that it would happen again—and that when it did happen, it would be bigger and more disastrous than ever.

Are Americans More Conservative in Their Old Age?

A few weeks ago I wrote, “Old people tend to be conservative.” That’s certainly the conventional wisdom, anyway. But is it true?

It depends on what people mean by “conservative.” It also depends on what people mean when they call themselves “moderate” or “liberal.” And, of course, it depends on which people count as “old people.”

To get a sense of the difficulty of sorting people by ideological label, consider the term “moderate.” Some people might call themselves “moderate” to avoid unnecessary antagonism in conversation. Some use it as a hedge, giving them room to change their mind or develop an opinion later, if necessary—a smart tack if you know you don’t have all the relevant information for taking sides on a political issue.

Gallup polling from January-May 2009 confirms that the portion of the population identifying as conservative increases with age, as shown in this graph:

But the same polling shows that 21% of Democrats identify as conservative. Only 4% of Republicans identify as liberal. That imbalance should at least make us wonder whether we’re really talking about sincere and knowing ascriptions of ideology here, or if instead we’re just observing attitudes about the labels we are using. The numbers don’t appear to match up neatly with recent years’ electoral outcomes that put liberals and their partisans in charge of the White House and both chambers of Congress.

But even if it is true that Americans become more conservative in some sense when they reach 65, it doesn’t translate into gains for the Republican party, the bastion of mainstream ideological conservatism. In fact, the percentage of people identifying as Republican plunges dramatically between the ages 63 and 66 and declines steadily after that, as this next graph, also from Gallup, shows:

The trend for Democratic identification is much more stable as age increases, and even shows some steady gains among men over 65. Identification as Independent begins rising from people’s mid-20s, is relatively flat in the 40s-60s range, and begins climbing again in the mid-60s.

The long and short of it is, nobody knows what it means when 40% of Americans say they are conservative, 35% say they are moderates, and 21% say they are liberals. Maybe the only people who really know what they believe are the 4% who have “No opinion.”

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