…because I’m an economist and a mom–that’s why!

This Ain’t Gonna Be Pretty

September 22nd, 2009 . by economistmom

The Baucus proposal for health care reform is about to get “modified” in the Senate.  Some politicians would claim “improved”–because they’ll get more of what they want (and what they think their constituents want).  We should expect to see more generous subsidies (i.e., a more costly bill) and yet more vagueness about the necessarily-higher offsets (if they stick to their target of deficit neutrality)–because that’s how things get negotiated in the Senate.  Evidence?  This afternoon the Washington Post reports (emphasis added):

Sen. Max Baucus (D-Mont.) said he revised the package he introduced last week to make it more affordable for low- and middle-income Americans while keeping it from adding to the federal deficit. “This modification incorporates important ideas from my colleagues on both sides of the aisle,” he said in a statement explaining the new provisions.

Baucus said the new package “is estimated to cost less than $900 billion” over 10 years, an increase of about $50 billion from his earlier price tag. Among other provisions, he said, the revised plan increases the “health care affordability tax credits” that enable low- and middle-class people to buy health insurance, reduces limits on out-of-pocket costs and cuts penalties for those who fail to obtain health insurance…

“There are a lot of things I can support in this package,” [Republican Senator Charles] Grassley said, praising the bill’s “fiscally responsible” approach of fully offsetting its costs. But he asserted that it imposes a variety of new taxes, fails to prevent taxpayer funding of abortions and leaves medical malpractice reform unresolved. He also charged that it does not do enough to prevent federal subsidies from going to illegal immigrants, failing, for example, to block the use of fake Social Security numbers.

In addition, Grassley blasted an individual mandate to purchase insurance coverage, calling it “an intrusion into private life” that would require extensive new enforcement tools…

Sen. Olympia J. Snowe (R-Maine), like Grassley a member of the Gang of Six, praised elements of the bill, which eschews a government-run “public option” for health insurance in favor of nonprofit cooperatives in a new system of “exchanges.” She said, however, that she is still worried about the affordability of health insurance for middle-class families that would have to purchase it, and she called for a further expansion of proposed subsidies

And this is even before we’ve heard the details of the more than 500 amendments (the Post reports 564!) that will be considered.  This ain’t gonna be pretty.  Or maybe it will look pretty on the outside (generous, meaningful, substantial, and helpful) and yet be pretty ugly on the inside (in terms of courage and fiscal responsibility).  More here as it’s revealed. (Wait ’til you see what they do to really muck up the excise tax offset and the various larger leaps of faith we’ll have to take regarding future Medicare savings.)

19 Responses to “This Ain’t Gonna Be Pretty”

  1. comment number 1 by: Brooks

    It’s simple. Just increase the projected savings from elimination of Medicare waste, fraud & abuse (Politically plausibility of the assumed cuts is apparently not a requirement) and PRESTO! Instant deficit-neutrality.

  2. comment number 2 by: Underwriterguy

    Nancy Reagan had it right, “Just say no!”

  3. comment number 3 by: murf

    Isn’t that the way ANY big bill by Congress comes out? Pretty on the outside and ugly on the inside.

  4. comment number 4 by: SteveinCH

    Hehe. Look at this. And we honestly believe that this crew is going to cut $500 billion from Medicare.

  5. comment number 5 by: SteveinCH

    And just for fun, here’s a little behavior that would land a public company CEO in jail

  6. comment number 6 by: JohnB

    VERY disappointed to read of the Republican opposition to mandatory health insurance. Without that, key reforms such as forbidding denial of coverage become unworkable.

    As a (former?) moderate Republican, I’m very disappointed that politicians oppose personal responsibility measures such as mandatory health insurance.

  7. comment number 7 by: SteveinCH

    What? How is mandatory health insurance a personal responsibility measure exactly? Responsibility is agreeing to be accountable for yourself not being required to buy something by the government

  8. comment number 8 by: Brooks


    If we lived in a world in which no one covered for anyone else no matter how desperate the latter was, then your rhetorical question would be a valid point (although not the point about buying something from the government, since everyone would be able to choose from whom to purchase insurance). But we live in a world of healthcare cost-shifting externalities: when an uninsured person can’t cover his medical expenses, the cost gets shifted to the rest of us, so an individual who forgoes insurance is putting others at risk of bearing that cost, and as a segment, it’s not just risk — they are predictably imposing costs on the rest of us. Hence, requiring them to either purchase health insurance or pay some penalty to offset that cost-shifting externality is indeed asking them to be personally responsible, as opposed to shifting responsibility to the rest of us.

  9. comment number 9 by: Jim Glass

    “I’m very disappointed that politicians oppose personal responsibility measures such as mandatory health insurance.”

    The framing rhetoric is working, one sees.

    Let’s say that I am well off and take 100% full responsibility for my medical expenses, such as by having my own health insurance — or by being a multi-millionaire and self-insuring. I’m Bill Gates!

    Am I, thus being already a fully responsible for all my own expenses, exempt from all the “fees”, er “taxes”, that the Baucus plan is going to drop on me to mandate my personal responsibilty??

    No, of course not. There is no “since you already are fully responsible for yourself, you can opt out” option.

    Because the purpose of the plan is not to force me to be responsible for myself — as I already am! — but to take that money from me and use it to subsidize others who have higher expected medical costs than me, so they can pay lower premiums than they do now.

    As Hennessey puts it: “The combination of guaranteed issue [madatory purchase] and community rating mean the bill would dramatically lower premiums for those with predictably high health expenditures, and would dramatically increase premiums for the relatively young and healthy.” The young and healthy overwhelmingly being the ones who don’t have insurance.

    That’s a tax and transfer, plain and simple, even if they work it through a mandatory payment sent to an insurance company converted into a public utility first.

    Now, you may deem that transfer to *lower* one group’s premiums at the expense of another group *good* or *bad* as you will — but it is a transfer payment, and about “personal responsibility” it ain’t.

    The rhetoric about “we shouldn’t be forced it pick up the medical costs of the uninsured” is far more posing than substance. Those costs are in fact a near trivial amount of total health expenses — nobody would re-work an entire industry just for them — and this program is going to do near *zilch* to relieve that problem to the extent it does exist.

    Say today you *have assets and income* but don’t have insurance, simply because you choose not to, as you are young ane healthy, when a medical bill arrives.

    What happens is *you pay the bill* out of your assets and income, just like any other liability you incur. You get an installment payment scheme voluntarily, or you involuntarily get a lien slapped on your house or other assets, so you pay. Just like you’d pay the liability you incur when buying a car, or incurring a bill to the IRS.

    The only people who have their bills picked up by the public are those who *don’t* have assets and income.

    And — guess what — those people are *still* going to have their bills picked up *by the public* under the Obama/Baucus/Whatever plan. In fact, even more so! (In spite of that being so “bad”.)

    So this issue is marketing, not substance.

    Hey, personal responsibility is a good thing — so how can government imposed and mandated personal responsibilty not be a good thing too? (Marketing-wise, sure beats calling it a “tax!’)

    It’s just like government-mandated volunteerism, an idea this Administration has also favored in other quarters. Volunteerism is good as we all know — so mandatory volunteering has to be good too. (Sure beats calling it “indentured servitude”!)

  10. comment number 10 by: Brooks


    Your “Bill Gates” self-insurance argument is a bit of a straw man. Sure, if one is willing and able to maintain sufficiently liquid assets as reserves of a sufficient amount to cover their own catastrophic and/or chronic illness care should it become necessary (or put up most of it combined with purchasing re-insurance to cover an extreme scenario), such that there is no risk of an externality that would shift costs to others, then their doing so would not be “irresponsible” or a “free rider” dynamic. But what percent of the population would you say are able to maintain such reserves?

  11. comment number 11 by: Brooks


    Also, I just want to try again to get a reply from you at

  12. comment number 12 by: SteveinCH


    So what you’re saying is because we’ve set up a payment system where people aren’t responsible for themselves (the current payment system), we now need to require people to purchase insurance to make sure they are “responsible” within the system?

    Were it up to me, I’d be happy to create a payment system where those who are unable to pay are covered (as I recall, it’s called Medicare).

    You also have to keep in mind that it’s one thing to require catastrophic insurance (to cover truly financially unpredictable events). It’s quite another thing to ask people to buy insurance that covers a $75 doctor visit because it’s part of the guaranteed minimum requirement.

    Individual mandates for financial security reasons are one thing. Mandates that require comprehensive insurance are quite another

  13. comment number 13 by: Brooks


    If you are responding to my reply to you (as opposed to my reply to Jim), I think you missed my point. I was speaking of the cost-shifting externality, the fact that people who don’t have insurance (private or public) and who are unable to pay for medical care often receive it anyway, leaving the uncompensated provider (hospital, physician, etc.) to, in effect, shift that cost to the rest of us.

    Again, if we had a situation in which the law and public and private providers simply denied any treatment to anyone without either insurance (particularly if we exclude Medicaid, but even if not) or payment upfront (or perhaps a demonstrated individual means to pay and some payment plan), then you might have a point that some men are indeed islands, so to speak, although there would still be the fact that others would pick up the tab in some cases via private charity so that the person could get badly needed medical treatment. But that’s not the society we live in (nor would I want it to be, nor do I think most Americans would want it to be), and the reality is that people without insurance and who can’t/don’t pay for it end up getting care and the cost is shifted to the rest of us.

  14. comment number 14 by: SteveinCH


    Fair enough, but why not change the norm? Make people reponsible for their own payments but allow them to address that as they see fit? If you want an insurance policy with a 5K deductible that you agree to pay, then you can have one.

    The dilemma I have is that many people want an individual mandate and “minimum insurance” that is well beyond what is minimally necessary to fulfill one’s social obligation.

    I could live with the mandate if there were real choice in how to fulfill it.

  15. comment number 15 by: Jim Glass

    Jim, Your “Bill Gates” self-insurance argument is a bit of a straw man … what percent of the population would you say are able to maintain such reserves?

    Brooks, you’ve ignored near everything I wrote on this subject — most notably that your externality costs “are in fact a near trivial amount of total health expenses — nobody would re-work an entire industry just for them — and this program is going to do near *zilch* to relieve that problem to the extent it does exist.”

    Specifically, the best estimates of the costs of the uninsured that are picked up by “the rest of us” are in the range of 2% to 3% of health care costs. For instance:

    “uncompensated care’ (that is, not paid for either out-of-pocket or by a private or public insurance source) … received by the uninsured [totalled] 2.8 percent of total personal health care” in 2001.

    So we must dramatically restructure 16% of the entire economy because of less than 3% of the sector’s costs?? Hello?

    Moreover, Obama-Baucus-care wouldn’t meaningfully change anything with this anyhow. Remember, uninsured costs get paid two ways (1) if the individual has income/assets, by getting a bill like for any other cost; (2) if not, by “the rest of us” paying — and that is exactly how it will remain with Obama-Baucus-care. The low-income will still be paid by “the rest of us” via taxes and subsidies — and illegal immigrants, who incur a disproportionately large amount of the 2.8%, aren’t covered at all!

    So while the “enforcing personal responsibility to others” argument sounds good — hey, who’s against responsibility? — when one looks at the actual data and facts, there’s near zero substance to it. It is a poll-tested framing device and marketing line. That is all.

    In fact, here’s a tip: whenever the “externality cost” argument enters politics, you can be 90% sure right away that it is just a rhetorical ploy being used to lever more government control over something away from market actors.

    That 90% goes to 100% when you look and see the externality cost isn’t quantified. Three examples come right to mind:

    [] Pigou Club-type “gas taxers” argue for higher gas taxes in the US to cover externalities of internal combustion. OK. But when you look at the actual calculations of the externality’s cost, it is fairly modest — and gas taxes in Europe are far too high.

    Have you ever heard anyone make an externality cost argument to reduce those gas taxes?

    [] The history of the NYC subway system is a fascinating continuing illustration of political incentives in action. You know the history — created and run by private operators it was a marvel of the world … then the city politicians took it over and near totally destroyed it, as anyone who watches NYC-set TV shows and movies from the 1970s knows. From which it has since partially, and very expensively, come back.

    The “externality argument” played a big role in the political takeover. The subways clearly provide benefits to members of the public other than riders, so the politicians had to take responsibility for the services to non-riders … um … somehow. (They certainly couldn’t quantify the positive externality and just pay the private operators a bonus for it!) Once the politicians started “directing” the subway’s externalities though its operations, politicized management and even more politicized unions took them over and drove them to ruin in a generation.

    And TODAY the externality argument lives on! This year the transit authority went hugely broke, and was bailed out with a regional payroll tax dropped on counties up to 70 miles away from the city — because, allegedly, they reap regional externality benefits from 70 miles away!

    And immediately after that, the transit workers union — already paid like this — received an 11% pay increase from the politicians, to be funded with “stimulus” funds taken from construction. (What will the multiplier for that be?)

    [] On this blog right now there’s a post about the “cost-benefit” of cap-and-trade. The cost is visible enough, but what’s the benefit? If we don’t know, how do we know if the cost is right?

    But, as long as the externality cost at issue isn’t quantified, we can imagine the benefit is saving the entire world! Then what cost could possibly be too high??? Politically, this is just a wonderful situation for the pro cap-and-trade brigades. You want to **destroy the world**???

    And that’s how the “externality argument” almost always works in politics.

    It sounds good because it appears to call for improved cost-benefit analysis — externalities must be accounted for! — that improves cost-benefit discipline. Who can be against that?

    But when the externality at issue isn’t quantified, then the argument is inevitably being used to destroy cost–benefit discipline for political purposes.

  16. comment number 16 by: Brooks


    I was addressing just one argument you made, period. If that argument — the “Bill Gates” self-insurance argument — doesn’t hold water and/or isn’t really relevant (and you haven’t really responded with anything that challenges my negative view of it), I suggest dropping it, particularly if you have valid/stronger arguments to support your overall conclusions and position.

    I generally agree that many/most debating this issue seem to be overstating the magnitude of cost-shifting from the uninsured to the insured, particularly (but not limited to) when speaking of how much federal government healthcare spending would be reduced if the uninsured get coverage (since much of the particular form of Medicare overpayments to hospitals designed to compensate for such care would probably end up sticking even after the uninsured get coverage, just as a result of the political process). So by all means, make that point and, insofar as that is likely to lead to what amounts to a hidden, mandated subsidy/tax disguised as compensation for an externality, by all means make that argument. But I don’t see how the relevancy and (I suspect) the validity of that argument makes your super-wealthy “Bill Gates” self-insurance argument relevant and valid. Few people can self-insure such that they eliminate the possibility of receiving healthcare for which they don’t pay and thus eliminate this externality. For almost everyone, being uninsured means imposing that externality on others to some degree, whether or not the cost-shift per capita for a given segment of the uninsured equals or exceeds either an insurance premium amount or penalty imposed for forgoing insurance.

  17. comment number 17 by: Brooks


    I think your argument and position are reasonable and, although I don’t have a firm position on it, it might be my preference as well (mandating as minimum coverage only insurance with high deductible rather than more expensive coverage), from a number of perspectives — cost of federal subsidies; total demand for healthcare (and thus upward pressure on resources and pricing); high utility, high cost-effective care (because, until meeting the deductible, the prospective consumer [patient] is the payer and thus weighs benefits vs. cost); individual liberty.

    A couple of concerns I’d have:

    (1) Children. I’d want to ensure that children have/more comprehensive coverage, including preventive/routine/minor care. I know it’s — literally — paternalistic to say this, but I don’t want children to be in a position in which parents choose some relative luxury over getting some treatment or test for a child that is advisable even if not so clearly necessary that forgoing it would be illegal (parental neglect).

    (2) What impact this lesser mandate (high deductible insurance) would have on other aspects of reform and their impact. If we choose to impose on insurance companies “guaranteed issue” (taking anybody who wishes to purchase), prohibiting them from rejecting those with pre-existing conditions or from charging them more or from denying them coverage for those conditions, then an individual mandate is needed so that the insurance business model doesn’t blow up (due to individuals forgoing insurance until they anticipate higher healthcare costs than the amount of premiums, making it impossible for the insurer to avoid losses with most/all such enrollees). If people are only required to purchase relatively cheap, high deductible plans, to what extent will insurers face this same adverse selection problem with those who seek more comprehensive coverage? And will they have to charge much higher premiums for such comprehensive coverage to try to offset this tendency toward adverse selection?

  18. comment number 18 by: Jim Glass

    Jim,I was addressing just one argument you made, period.

    I know. Ignoring everything else I said was the problem.

    If that argument — the “Bill Gates” self-insurance argument — doesn’t hold water and/or isn’t really relevant (and you haven’t really responded with anything that challenges my negative view of it), I suggest dropping it

    Brooks, to recap what I said in gist:

    The idea that a major, conscious purpose of the Obama health plan is what they keep saying, to “enforce personal responsibilty” and stop the uninsured from imposing their costs on the rest of us, while it sounds great and doubtless polls great, is flatly contradicted by…

    1) The facts that such costs are under 3% of health care costs, and the Obama plan isn’t going to stop them from being imposed on the rest of us.

    2) The reality that if that were the plan’s purpose, then it would have no reason to drop fees/taxes on persons who already were fully responsible for themselves through adequate insurance (I did mention such people) or in the extreme case as capable of self-insuring as Bill Gates.

    OTOH, if the real function of the plan is tax-and-transfer, as Hennessey describes, then we see why Bill Gates gets hit with an excise tax for being uninsured, and as would people like me who could happily be fully responsible with much less insurance than the Obama plan requires, only a major medical for calamities, in spite of our being no threat to drop any of our costs on anybody else.

    I think #2 both holds water well and is entirely relevant, so I see no reason to “drop it”.

    However I won’t repeat it again here. My general rule is to answer a reply to a comment of mine once, then move on, it’s a free country, opinions may vary, the other person can have the last word.

    I wasn’t always so mellow. Back in my usenet days in sci.econ I kept an asbestos suit near my computer and happily donned it for flame wars that could’ve burned down half a state.

    I’d like to say I don’t do that any more because I’ve “matured” … but the reality is I have three kids now, they’ve broken me, removed my backbone, crushed my fighting spirit…

    So you can have the last word.

  19. comment number 19 by: Brooks


    I think you’re continuing to miss my point regarding the limited or lack of relevancy of your “Bill Gates” argument, even as a component of your larger argument. Just because the/a rationale for some policy doesn’t make sense when applied to some tiny fraction of the population doesn’t make the rationale invalid, let alone disingenuous. Note that I’m not saying anything about the validity or sincerity of the rationale for this mandate and related penalty of a given dollar amount, just that your reasoning is flawed, and the “Bill Gates” self-insurance example adds little/nothing and only serves as a distraction from your stronger argument, and therefore I suggested you drop it. Sure, the rationale (for imposing a mandate or penalty) of compensate others for the cost-shifting externality doesn’t make sense for Bill Gates if he chooses to self-insure, segregating dedicated cash reserves sufficient to preclude any possibility of someday shifting to others medical costs for which he can’t (or might not) pay. But for almost everyone else, lacking insurance brings at least some expected value (probability X magnitude) of this cost-shifting externality, so just because the rationale doesn’t apply to billionaires and mega-millionaires doesn’t mean the rationale is an invalid fraud, which seems to be your reasoning. So I just suggest going directly to your actual point, which is that the cost of either the mandate or the penalty far exceed this externality and thus that rationale, if that’s the only rationale, is at least partly invalid since it includes covering the cost of the externality, but exceeds it and thus forcibly extracts a subsidy.

    Re: My general rule is to answer a reply to a comment of mine once, then move on

    Such a “general rule” seems quite suboptimal if one is seeking substantive discussion/debate, since more than one iteration is often needed to gain a reasonable degree of mutual understanding of assumptions and arguments, let alone to reasonably, rationally assess their respective validity. Moreover, I haven’t seen this “general rule” in your exchanges, and perhaps it’s not really a “general rule” but much more selective, which of course may lead one to wonder if you are claiming such a “general rule” just to cop out in particular instances when something you’ve said has been refuted, which brings me back to my request, again, that you reply to me at I don’t see how you can weigh the evidence you presented vs. that couple of minutes of video and continue to maintain your position regarding Holtz-Eakin, and if, upon viewing that segment and reading my comment, you see that you were wrong about him and I was right, it would be appropriate etiquette and informational for others (after your having essentially insisted that my contention about him was obviously wrong) for you to concede as much.