Assessing the cost of the Baucus bill

I haven't read it, but I've read various people summarizing it.  A few observations:

1. CBO scoring is a very useful institution, for purposes of fiscal discipline, but you shouldn't confuse it with true cost estimates.  Often a negative CBO score isn't as bad as it sounds and a positive CBO score isn't as good as it sounds.  The deadweight cost of taxation matters, and we should fear future government insolvency, but at the margin a revenue transfer is simply that — a revenue transfer and not a social cost per se.

For instance a "cheaper" bill often just means that the insurance mandate carries a higher implicit tax.  For some families — I believe in the range of 60,000 for a family of four — the mandate will consume 13% of income as it currently stands.  That's a big tax increase — yes I will call it that — and it's not on the super-rich. 

2. The main benefit of the bill is greater financial security, vis-a-vis health care expenditures, for many U.S. households.  This doesn't show up as a benefit in standard estimates of gross revenue flows.

3. The bill will, over time, create a economic and political dynamic that turns health insurance companies into regulated public utilities.  You might think this is good or bad, but its one of the most important changes.

4. I fear what else might end up jammed into the required insurance policy.  The political dynamic here has not been thought through very well and this will be important for the long-run fiscal impact.

5. Ezra Klein discusses some harmful employment disincentives in the current bill.

6. The Baucus bill, and some of its cousins, is a bit like cap and trade in the sense that it postpones a lot of the expenditure-cutting pain into the future.  If Obama — a relatively popular President with a Democratic Congress — can't do it now why should we think we will find fiscal discipline in the future?  With revisions this problem is likely to become worseThe proposed pilot programs for cutting costs I view as postponements of tough decisions, not impressive starts on the problem which will be pursued scientifically.

7. How will the mandate evolve if income
inequality increases?  What if, in a distant future, "roughly equal
health care access" means the mandate consumes forty percent of middle
class income and thus proves unworkable?  What here is the "morally
objective" account of the medical needs of the poor and what here is
the "historically and socially conditioned account" of the medical
needs of the poor?  Or do we stick at rough health services equality by squishing, taxing,
or otherwise limiting the gold-plated plans?  Is that move politically sustainable
as a revenue source?

8. Let's say the previously uninsured do start getting more and better care.  Soon we will need to think very hard about increasing the supply elasticity of doctors.  This is an under-reported angle, but once the plan is in full swing the difficulty of getting to see a good doctor will be a story.

9. My best guess is that the Baucus bill will cement a dysfunctional health care system into place at the provider level.  Of course it is reasonable to believe we wouldn't have scrapped our dysfunctional system in any case, but still the case for the bill blends into the case for many aspects of the status quo more than many bill advocates would like.

An alternative view, and a view I do not dismiss, is that the Baucus bill will lead the U.S. to abandon fee-for-service medicine at many margins.  If true (and at the very least this is true probabilistically), this may be the most important long-run effect of the bill, for better or worse.  Also note that we get to these changes, most likely, only by bringing the program to the brink of fiscal collapse.

If you are evaluating the bill, think rigorously about the future scenario for health care as a whole.  Choose your probabilities and match them to an assessment of each outcome (cement in dysfunctional system, overturn dysfunctional system with something possibly better or possibly worse).  Don't in your mind mix and match mutually exclusive outcomes to either a) feel better about the bill or b) villainize the bill.

Comments

6. The Baucus bill, and some of its cousins, is a bit like cap and trade in the sense that it postpones a lot of the expenditure-cutting pain into the future. If Obama -- a relatively popular President with a Democratic Congress -- can't do it now why should we think we will find fiscal discipline in the future? With revisions this problem is likely to become worse. The proposed pilot programs for cutting costs I view as postponements of tough decisions, not impressive starts on the problem which will be pursued scientifically.

I do not think this will be unique to any health care bill that will introduced.

"but at the margin a revenue transfer is simply that -- a revenue transfer and not a social cost per se."

While technically true, its so rarely true that a revenue transfer isn't a social cost, that you can almost always treat them that way, imo.

I don't agree that the health care model we have today will remain in place as a result of the legislation, and therefore some cost estimates will be lower, and I do believe that the high cost/no value pieces of the current system will remain but will rather erode through competition:
1. Internet access for sale of insurance through the exchange will disintermediate insurance agents. This will impact costs of distribution for insurance policies in both market and insurance exchange.
2. With mandated coverage, and pre-existing insurance coverage, insurance companies will be writing policies more like community rated products. This is a big deal. With everyone in a pool, and pre-existing condition exclusion, writing a health policy will be more like writing a fire insurance policy by an insurance company. The role of an underwriter to exclude applicants will disappear...this, I believe accounts for 30% of initial premium cost. [If you want to learn more about social insurance and the finance issues driving costs down with mandated pool participation, or if you don't believe me, go to Bob Shiller's Yale Finance course (free on the internet, whoopee), and look for the video lectures on insurance. Go to oyc.yale.edu and go to the economics tab. (There is also a great class on game theory, but that is another matter). All you need to know is the law of large numbers.]
3. CBO models do not include the value of a saved life, or a repaired body.
4. CBO models do not include the value of restructuring or market reforms--easier entry by insurance companies through national plans on an exchange.
5. CBO models do not include changes in competitive dynamics which will reduce costs. So, let's say you are an insurance company. Everyone of your competitors is charging close to the same rate on a community rated plan (i.e., one with no preexisting exclusion, have to take anyone, rate based on age)--how do you make any money. Well, you start doing more managed care, developing networks of providers who offer discounts, compete on following Mayo protocols, etc. If price is competitive, then carriers focus is on other attributes of the plan, other ways to control costs, etc.
6. There is a dark side, too. I am worried that the insurance companies will dump bad risks in the public pool. They can do this by designing plans that have no value to sick people, the way the do for Medicare Advantage programs. Here's how you do it: have a high sticker price, but offer discounts for the use of a gym or healthclub. (Non-ambulatory need not apply). Or, offer special benefits to new mothers and well baby programs (over 50 persons need not apply--unless you're pregnant)
7. The other dark side is what is in the minimum package that has to be offered to the public. If we start adding acne treatment, etc. into the plan because dermatologists lobby for it we are in deep tapioca.
8. CBO estimates are for the most part estimates of government expenditures. They are not estimates as to the value of other attributes like those listed above.

TIE beat me to it. Libs like Ezra Klein are always railing about how great the minimum wage law is and that it should be raised for this or that reason, and oh it's only a little bit of money and it will have no effect on employers' decisions to hire (or fire) low-wage workers. Yet at the same time, the free-rider provision is the harbinger of the apocalypse for low-wage workers since it will raise the cost of said low-wage employees and make an employer not want to hire them. Sorry Ezra, can't have it both ways.

Uh, the Baucus bill is dead, dead, dead. We need to actually wait until the Democrats come up with a bill they will vote for.

anon,

Mandatory health care is basically an attack on personal autonomy.

I wonder if there's a solution to this issue that invokes federalism. The blue states could form a multi-state compact to have universal coverage (including public option) while the red states can continue to leave people uninsured, etc.

Admittedly, there might be a small externality if sick people leave red states for blue states to get health care. However. the federal government could reduce the net amount of money the blue states currently send to red states, thereby internalizing this externality. Even if there was no compensation, citizens of blue states, who are relatively wealthier, would probably be willing to pick up the tab to help out their fellow Americans, just as they now do with other forms of income support, farm subsidies, etc.

Bill,

That argument is about as convincing as the "ticking time bomb" argument in favor of torture. Very few of us will ever be in that situation; emergent care like that is a very % of overall health care costs annually or over our lifetimes.

Seward, Medical bills caused half of the 1.4 million bankruptcies in 2001 and affect about 2 million people each year. See http://www.consumeraffairs.com/news04/2005/bankruptcy_study.html

Who pays for the health care of sick, bankrupt families?

The answer is not "no one", nor should it be.

@anon Do you have any constitutional problem with the government mandating that you have your kids educated?

Yes, I actually do have a problem with that. And apparently so do millions of other people, which may be why we're seeing so many children homeschooled. And many of those homeschoolers have no religious component in their schooling.

And your example is no example at all. Where in the Constitution is the state required to provide medical care for me? Or for you? You set up a straw man. You're attempting to use your (perceived) higher moral authority to impose on my (and your) liberty, ignoring the limits placed on state power by the Constitution.

Most importantly, you still didn't answer the question: where in the Constitution is the federal government given the power to mandate that I must buy health insurance? We (still?) live in a country where you can't just make up state powers out of whole cloth.

And the person who said: there is a moral question to be asked about it, which is, if a head of household will not pay 13% of income towards family health insurance, what moral standing does s/he have to call on others to pay any of their income towards that purchase. highlights something important: too many are conflating (their) moral imperatives with the Constitutional limits on federal and state power.

It's easy to get lost in the policy details, overlooking fundamental Constitutional problems, policies that impair liberty.

The further the state encroaches on liberty, the greater the risk that many will see the state as illegitimate.

And don't kid yourself that all of those who see this kind of encroachment are attending "tea parties," yelling at their elected representatives, are reactionary "right wingers," or any other popular caricature.

I fear what else might end up jammed into the required insurance policy.

As others point out, an obvious "slippery slope" starting point is auto insurance. But it is instructive to look at the full continuum of choices that were/are open.

Mandatory car insurance is a way of forcing people to internalize the externalities of their driving. We can argue about how effectively it does this (I think, extremely poorly, given that there is still a sizable enough tier at the bottom who can't afford to drive legally, and can't support themselves without driving that states like Texas have turned this tier into a healthy revenue stream via courts). Why not ask why we don't mandate drunk driving insurance for those who would need it as well? If you put aside moral impulses, the difference in externalized dangers between really bad, sober drivers who are on the road now and "experienced" drunk drivers just barely over the legal limit might well flow in the opposite direction than our current policy assumes. (Legal justifications along the lines of "right, not privilege" are useful historic fictions for enabling policies. If you disagree, ask yourself what rights trade-offs between cars and guns your average person would be willing to make today.) What externalities besides obvious public health contagion issues do lack of healthcare currently impose on others?

It is also interesting to ponder the line between opportunity cost and externality. Obviously, if Steve Jobs had died of TB in his 20s due to lack of insurance, I would not own an iPod, and from any real-world rights-framework I've seen doesn't give me a tort against lack-of-iPod. But, the lack of the existence of iPods would make the world a slightly worse place in a way that is external to any profit Jobs has made.

I have nowhere in these Obamacare debates heard anyone deal with the problem of expatriate Americans--those who like me spend many months or even years residing overseas. How the hell does Obama plan to provide us health care?

This is not a frivolous concern, since right now Medicare does not provide Part A, Part B or Part D to anyone living overseas, student, tourist, missionary or businessman.

@ a student of economics,
You've seriously overstated the medical bankruptcy study. It says that medical factors, not just medical bills, are "a cause" of approximately 37% of all bankruptcies. And the study has been heavily criticized.

@ anon

I was not conflating moral questions and Constitutional limits. I did not mention any legal questions in my comment. My point is that the legislation,whether or not Constitutionally permitted, is argued for on moral grounds and my point is to show that the moral claim is suspect.

I'm just throwing this out there...concerning quality care....when was the last time anyone met a young american doctor educated in this country?

@ Nicholas,

A Modest Wristband Proposal

For those who, in the above comments, believe they are 1) made of steel and will never need healthcare 2) if they need it, will be able to afford paying for it out of pocket or believe that they currently can get adequate coverage and 3) are willing to promise never to ask me to pay for their healthcare, I have the following proposal to make

THAT YOU WEAR a TITANIUM WRISTBAND THAT CANNOT BE REMOVED UNLESS YOU'RE DEAD
Which states as Follows:

I AM RESPONSIBLE FOR MY OWN HEALTHCARE. YOU SHALL DENY ME CARE IF I DO NOT AGREE TO PAY YOU FOR YOUR SERVICES. I WILL NOT ACCEPT CHARITY. I WANT TO DIE OR BE DISABLED IF I CANNOT PAY YOU FOR YOUR PRODUCTS OR SERVICES AS I WOULD NOT ASSIST OTHERS IF THEY ASKED ME FOR THE SAME.

This program will be enforced by Libertarian Death Panels.

Honestly, farm subsidies are one of the bigger liberal abominations out there.

Hoover ran in 1928 promising to address farm prices; the farmers had been suffering greatly during the 20s while other parts of the economy were booming. The first farm bill was passed in 1929 with a solid Republican Congress. The same conservative Congress passed Smoot-Hawley.

But more on topic, like minimum wage, and the poor, and uninsured, the question is what is the answer to what is a life/death situation. Farmers were struggling to survive; during FDR we have good records in photos of the poverty of many people, especially rural areas. Today we have data indicating significant numbers die or suffer from lack of health care because they can't afford care.

Malthus was at least objective in stating that nature solves the problem through war, plague, starvation.

The denial of reality is objectionable, as is the dismissals - "well, it is just someone else's kid that died, not mine or any of my friends kids, so kids dying isn't happening to many I can see, so it isn't a big deal."

Ok, you don't like the present solution: come up with your own. The thing is so many have been tried its doubtful you can offer something that hasn't already been tried, and deemed unacceptable. This applies to poverty, health care, environment,....

Ok, so I am of the the people deeply worried about a double dip recession. Three reasons. First, Commercial Real Estate which although a lagging indicator could put the brakes on growth and could cause more financial panic. Second, state budget gaps because cutting spending and/or raising taxes will be as Paul Krugman said "like 50 Herbert Hoovers" and those problems will continue into next year. Third, the two variables above combined with the fact that things could slow after the inventory rebound makes a double dip quire possible.

Thats my little analysis, but I do have a question. Does the Baucas or any other bill have a Medicaid expansion that alleviates state budget shortfalls?

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