Topic: Health Care & Welfare

Could It Be Unconstitutional to Raise the Obamacare “Tax” for Not Purchasing Health Insurance?

As many predicted, especially us at Cato, the Affordable Care Act is beginning to make health insurance less affordable for many Americans. Part of the problem, in a nutshell, is precisely what my colleague Michael Cannon described in 2009, the young and the healthy avoiding signing up for health insurance and choosing to pay the fine, or, as Chief Justice John Roberts would call it, a tax.

MIT economist Jonathan Gruber, often described as an architect Obamacare, recently said that some of these problems can be alleviated by increasing the “tax” on those without insurance. “I think probably the most important thing experts would agree is we need a larger mandate penalty,” said Gruber.

Depending on how high the penalty goes, there could be a constitutional problem with that. In the opinion that converted the “penalty” into a constitutional “tax,” Chief Justice Roberts described the characteristics of the “shared responsibility payment” that made it, constitutionally speaking, a tax rather than a penalty. One of those characteristics is that the penalty was not too high: “for most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the ‘prohibitory’ financial punishment in Drexel Furniture.” In Drexel Furniture, also known as the Child Labor Tax Case, the Court struck down a 10 percent tax on the profits of employers who used child labor in certain businesses. One reason the Court struck it down was because its “prohibitory and regulatory effect and purpose are palpable.”

Fewer Choices and Higher Premiums in the Affordable Care Act’s Exchanges

People shopping around on the insurance exchanges when the Affordable Care Act’s Open Enrollment period begins next week will find that the choices they have are limited and that insurance premiums have gone up significantly. A new brief from the Department of Health and Human Services reports an average increase of 22 percent for benchmark plans, and consumers in some states will face hikes as high as 116 percent in Arizona. 

The high profile exits of Aetna and UnitedHealth were covered at the time, but the report gives new insights into the aggregate effects of smaller exits and discontinuations as well. In the states included in the HHS brief, there was a net reduction of 73 issuers from last year, with Iowa and Maine being the only states to see a net increase in the number of issuers.

As might be expected, this significant drop in the number of issuers has led to a corresponding reduction in the number of choices available to consumers in most states. The trend prior to this year had been a reduction in the number of counties with only one insurer, but that quintupled this year in the wake of insurer exits, from 182 last year to 960 this year according to calculations by Sarah Frostenson.  In this year’s open enrollment 21 percent of the consumers in the 38 states the HHS brief included only had one issuer to choose from, and only 56 percent had three or more. The weighted average number of qualified health plans to choose from in a county dropped from 47 to 30.

Not So Fast on a Universal Child Benefit

Sam Hammond and Robert Orr of the Niskanen Center have published a very thoughtful paper proposing the establishment of a Canadian-style Universal Child Benefit. They make a compelling argument that replacing the current mish-mash of child-centered social welfare programs with a single cash benefit would be both more efficient and more humane than what we have today. But, before we get carried away and rush down the road to another new entitlement, there are many questions that need further exploration.

Hammond and Orr call for the elimination of eight existing programs (the dependent tax exemption, the portion of food stamps (SNAP) going to child recipients, five separate school nutrition programs, and the dependent care credit). They would also fold the existing Child Tax Credit (CTC) into their new benefit. This would free up $147.5 billion annually, allowing for a $2,000 per child cash grant on a budget-neutral basis.  The benefit would be phased out for incomes above $75,000 for single heads of household and $110,000 for a married couple.

There are several important advantages to this approach. First, cash is almost always preferable to in-kind programs. Cash payments are transparent, treat recipients like adults, and allow for greater flexibility of individual preferences and circumstances.  Moreover, the shift to cash will help break up the concentrated lobbying power of special interests who benefit from in-kind programs, reducing the constant pressure to increase benefits.  In general, as I have argued, we should be transitioning our entire social welfare system to cash.

Second, Hammond and Orr’s approach would treat families more equitably.  For example, current benefits reward parents who purchase external child care services, but do not benefit traditional stay-at-home parents.  Existing programs also tend to benefit those individuals, often more educated and even middle-class, who have the time and expertise to navigate the bureaucracy, rather than those families most in need.  A universal child benefit would extend benefits to many who have not been able to access them.

And, third, a universal child benefit could help reduce poverty.  Hammond and Orr estimate that their proposal would reduce poverty by 1.7 percentage points and bring some families out of deep poverty, using the Supplemental Poverty Measure.  If we can reduce poverty without any increase in expenditures, that has to be considered a positive.

Why then am I cautious about heading down this road?  First, while Hammond and Orr are sanguine about the effect on work incentives, I am less so. No doubt, the availability of funds for child care would help many mothers enter the labor force. But, at the same time, previous studies with guaranteed cash benefits have resulted in a decline in work participation.  Most recently, a study by David Price and Jae Song found some evidence that cash-assistance could lead to unintended and unanticipated long-term reductions in work effort for adult recipients, although it’s not yet clear what the underlying mechanisms are.

We should also recognize that a child benefit is a reward for having children, not for work.  Should we be in the business of redistributing from childless families to those with multiple children?  For that matter, should we be in the business of rewarding child-bearing by families well above the poverty level?  We may well want to offset the cost of having children for the poor, but do we want to do the same for the families earning $110,000?  And, what does this say about the relationship between individuals, the state, and the choices we make?

Finally, and most importantly, Hammond and Orr envision their proposal as a substitute for existing social welfare programs.  In this regard, they are heading down the road to a Universal Basic Income (UBI) advocated by Charles Murray. However, many liberal advocates of a UBI or child benefit see such a program as being added on top of existing welfare programs. Indeed, Hillary Clinton has called for doubling the current credit for children ages 4 and under, and eliminating the earnings exclusion for refundability.  Such an add-on approach would both increase dependence on government and be unaffordable. 

In particular Hammond and Orr’s call for eliminating child SNAP and school nutrition benefits would be heavy political lifting.  The demagoguery from advocates of the current welfare state would be amazingly easy.  That doesn’t mean that it’s an approach that shouldn’t be pursued.  It does mean that it should be pursued with great caution.

Surge in Emergency Department Use Persists in New Oregon Medicaid Study

One of the main arguments proponents of Medicaid expansion make, at least on the fiscal side, is that it would save money as people gaining Medicaid coverage would reduce their use of expensive visits to the Emergency Department (ED). An earlier study from the Oregon Health Insurance Experiment threw some cold water on that theory, as it found that getting Medicaid actually increased the number of ED visits by 40 percent. Some analysts postulated that this increase was only temporary because it was due to either pent-up demand for health care services, or because new enrollees did not have established relationships with doctors. The thinking was that after enrollees became familiar with their coverage or addressed long-gestating health problems, the reductions in ED use and the associated cost savings would materialize.

A new report analyzing a longer time horizon finds that this is not the case, and there is “no evidence that the increase in ED use due to Medicaid coverage is driven by pent-up demand that dissipates over time; the effect on ED use appears to persist over the first two years.” This is another blow to the oft-repeated claim that Medicaid expansion will lead to significant savings from reduced Emergency Department utilization, and the effect actually seems to work in the other direction.

The Oregon case is important because it is one of the few instances of random assignment in health insurance, as the state wanted to expand Medicaid but had funding constraints, so it employed a lottery to determine who would get coverage. 

In this new update, the researchers see if there are any time patterns or signs of dissipation when it comes to the impact of Medicaid percent of the population with an ED visit or the number of ED visits per person. They expand upon the earlier utilization study to analyze the two years following the 2008 lottery and break up into six-month segments to see if there are any signs of the effects dissipating.

As they explain, “there is no statistical or substantive evidence of any time pattern in the effect on ED use on either variable.” In the first six-month tranche Medicaid coverage increased the number of ED visits per person by about 65 percent relative to the control group, and the estimates for the following three periods were similar and mostly statistically indistinguishable from each other. They also find that Medicaid increases the probability of an ED visit in the first period by nine percent, and the impact in the subsequent periods does not differ significantly. 

Estimated Effect of Medicaid Coverage on Emergency Department Use over Time

Source: Finkelstein et al., New England Journal of Medicine (2016).

Texas Wisely Concedes Economic Liberty Case

Last month, I wrote about a case challenging medical-licensing rules that prevented an innovative health-services company, Teladoc, from using advanced technology to provide care to hard-to-reach patients. The Texas Medical Board, which isn’t supervised by any branch of state government, oversaw the restrictions, which a district court threw out on antitrust grounds. After the board appealed, Cato filed a brief supporting Teladoc. And we weren’t alone; the range of briefing was impressive, particularly for a case that hadn’t yet reached the Supreme Court.

Well, today the Texas attorney general’s office filed an unopposed motion to dismiss the state’s own appeal. That should be the end of this case. Although I’m sure Teladoc and its fellow plaintiffs would’ve loved to finish litigating the appeal and get a favorable Fifth Circuit ruling, it’ll take this win all the way to the economic-liberty bank.

It’s always hard to know what impact an amicus brief has – even when you’re cited, it might be for a tangential point, or indeed to counter your argument – and this case illustrates that lesson: there’s not even a court ruling here, but the quality of amicus briefs certainly contributed to Texas’s decision to abandon the medical board’s appeal.

Congrats to Teladoc, its counsel, and the people of Texas!

Looking in the Wrong Places for Social Security Reform

Democratic Vice Presidential nominee Tim Kaine suggested in the debate last week that a Clinton administration would address Social Security’s unsustainable fiscal trajectory by “focusing primarily on the payroll tax cap,” increasing it substantially from its current ceiling of $118,500. Proposals along these lines portray raising the tax cap as a way to address the rapidly deteriorating fiscal health of the program by enacting a modest tweak that would simply return the program to the way it has always operated, and that this additional tax burden would fall solely on high-earners. However, the current cap is not significantly out of line with the program’s historical experience, and the U.S. has a relatively high taxable maximum compared to many peers. These factors, along with the resulting adverse economic consequences and the need for further increases in the future, illustrate why the focus on this aspect of reform is misplaced.

It’s certainly true that at some points in the program’s history, a significant portion of workers had earnings above the tax cap, but this was in the earlier years of the its operation when more than a quarter of workers were above it. Over the past 30 years this share of workers has fluctuated in a narrow band around 6 percent.

Looking at it another way, the percentage of total earnings that are subject to the tax was 82.7 percent in 2014. While this is slightly below the high point in the early 1980s, it is just below the average since 1950.

Percent of Total Earnings Subject to Tax

 

Source: Social Security Administration.

Obama’s Housing Toolkit: A Mixed Bag

Something striking happened last week: the Obama White House released its Housing Development Toolkit and Obama’s economic advisor, Jason Furman, wrote a follow-on op-ed about land use regulation’s negative consequences. While White House reports tend to be geared toward partisan political objectives, these two publications could have been written by non-partisan economists. Nevertheless, although the honest application of economic theory is welcome, libertarians will still find points of disagreement.

What’s good? The report highlights zoning policies’ influence on increasing housing prices, immobilizing workers in job deserts, creating costly uncertainty for developers, increasing inequality and racial segregation, and suppressing economic growth. These negative outcomes were attributed to “excessive barriers,” “unnecessarily slow permitting processes,” and “arbitrary or antiquated” zoning and land use regulations.

The White House even went so far as to say that “even well-intentioned land use policies” can have negative impacts. So far, so good.

What’s bad? The worst part of the report is the declaration that the President’s 2017 HUD budget includes a $300 million proposal for grants to help cities “modernize their housing regulatory approaches.” Since when does it cost $300 million to reduce regulation, which is all the “modernizing” that needs to be done?