Response to Uwe Reinhardt
Our friend from Princeton surveys the commentary over the implicit marginal tax rate created as the ObamaCare tax subsidies in the exchanges are phased out and their impact on work. (See, for example, Casey Mulligan, who says the marginal tax rate under ObamaCare can go above 100% — meaning that when you earn one more dollar you lose more than a dollar.) Uwe then says that such a negative impact (however large) is inevitable.
Is it? Re-read Priceless, where we advocated a flat tax credit which is independent of income. Since it never phases out, it does not raise anyone’s marginal tax rate. Now, prior to ObamaCare one could argue that if everyone gets the same subsidy, the amount will be too low to make health insurance affordable for low-income families. But ObamaCare has changed everything.
For example, if we take all of the tax subsidies for employer-provided health insurance and add to it all of the revenue used to pay for the (ObamaCare) subsidies in the exchanges, there is more than enough there to give a tax credit of $2,500 to every adult and $8,000 to every family of four. As it turns out, this is what the CBO estimates is needed for new enrollees in Medicaid. So we could not only give everyone the same tax credit, we could also give everyone the option to use his credit and buy into Medicaid. And everyone on Medicaid could leave it, claim the credit and buy private insurance instead. (The public option the left is always clamoring for!)
It gets better. There is so much money on the table I believe we could also have very generous matches to HSA deposit’s for those who choose high deductible health insurance.
Right now I may be the only person in America who believes in an old socialist idea: universal coverage without means testing.
But who knows? After the Republicans and Democrats in Congress get through with their food fights, maybe more will come around and we can finally get rational health reform.
Rienhardt concludes his argument by stating that the beauty of economic analysis is that it can be done in an infinite number of ways and will yield an infinite number of answers. There are a lot of variables to be considered, especially the most unpredictable of all, politicians’ interest. Regardless of how these analyses are conducted or how sound they are theoretically, the determinant factor is how politicians implement it.
Not only how politicians implement it. You misread my piece. The operative words are: “What response coefficients economists feed into their models.”
If you believe that applied economic analusis is not driven in part by ideology, you arte dreaming.
Dr. Goodman, isn’t your tax credit proposal regressive? Wouldn’t it lead to higher inequality? From what I understand, you are stating that it would be better if every adult received a check for $2,500 (or $8,000 to a family of four) so they can spend it to purchase an insurance plan. IF people were to spend it on insurance, would it be enough to afford the basic plan offered? Also I also wonder what would happen if people buy something else with that money instead of purchasing insurance? If the government is giving tax credit for people to get coverage, if the people don’t get coverage, the problem would remain: lots of individuals without insurance and not capable of affording health care. I think your proposal is regressive because it is giving the same benefit to those who can afford insurance and those who don’t. It is an idea that in my opinion will lead to higher inequality, without improvement of the health care sector.
With that tax credit, many people will be incentivized to not spend it on insurance and to spend it on a good they value much higher. Only the sick will be incentivized to purchase health insurance.
I agree with that point.
Not at all. A #2,500 tax credit will not pay for health insurance for someone who is sick. This proposal requires everyone to have continuous coverage so that they do not get underwritten as long as they keep health insurance. (“Insurance against becoming uninsurable.”) The tax credit is meant to maximize peoples’ ability to maintain continuous coverage throughout their lives.
What should we do then, for more people to buy into your idea? Perhaps the sole concept of a “socialistic” idea scares the people and makes them reluctant towards accepting it. Historically there has been a resistance to the concept of socialism in America, but advances have been made with these ideals under different names. By changing only the name, many will buy into your idea and then there can be a reform that benefits every American.
There is a stigma around the word “socialistic.” Especially around the demographic of free market advocates. I think this policy could be good for healthcare, but I agree overcoming the concept of socialism is a big barrier to cross before implementing this policy.
“So we could not only give everyone the same tax credit, we could also give everyone the option to use his credit and buy into Medicaid.”
It sounds too good to be true. Why hasn’t Washington implemented this instead of destroying our health care system with a flawed program.
Because the government wants to continually weaken its citizens and make them dependent on them to take care of them. There is no room for actual good policies.
“There is so much money on the table I believe we could…”
That is a difficult concept to wrap your head around. If there is a policy where a broke country can deal with an issue with this kind of monetary freedom, why aren’t they listening?
I found interesting Dr. Mulligan’s piece. He is basically arguing that renowned economist forgot about Economics 101. He claims that the arguments these famous economist tend to ignore the facts of how changes in supply and demand affect the market. It is important to highlight the fact that all the issues Obamacare created could have been predicted with an intermediate knowledge of economics. It is interesting to realize that the position of, whom Obama called serious, economist tend to vary depending on their political beliefs, rather than their expertise on the subject. I applaud Dr. Mulligan for aiding the public in their efforts to understand the consequences of Obamacare. Economists like him are the ones that enhance the field of economics.
This is a great concept. I vote for darn near anything that gets rid of the nit picking subsidies and subsidy ‘cliffs’ of Obamacare.
I have not been able to find exact numbers on this proposal.
Based on the Statistical Abstract, I come up with 92 million households under the age of 65. It looks like 35 million have children, 21 million are singles, and 36 million are spouses without children.
I am not sure if the spouses without children also get $8000 a year. If they do, the total dollar volume of tax credits will I think exceed $550 billion.
That is a lot more going out than coming in.
Plus, the new revenue coming in will be about one third payroll taxes, while the revenue going out will be all based on income taxes. (this may not be a big issue)
So, more numbers please!!
A universal tax credit, as described in Priceless, completely solved this problem. Unfortunately, some Obamacare replacement plans suffer the same problem. For example, the plan put forward by Senators Hatch, Burr, and Coburn, imposes 37% marginal income-tax hikes on many late middle-aged households (http://tinyurl.com/kgcxfb2).
My only purpose was to show that a better system is possible without too much effort.
I believe the CBO’s estimate is based on the assumption that Medicaid will be community rated and that a mandate will be in place. That’s one way of doing it.
The world will be better off, however, if we adopt “change of health status insurance” and refuse to allow some pools to dump their sickest patient on other pools (including Medicaid) without penalty and if we penalize people who try to game the system, as we do with Medicare Part B, Medicare Part D and Medigap insurance — without mandate, no less!
Let me try to understand this, John. You say Medicaid would be community-rated. And what about the private insurance market. Would it be medically underwritten?
If so, millions of relatively sick people who would not get much coverage in the private market because premiums could exceed $,8000 considerable would gravitate to Medicaid, which would be community rated.
And that would not strain the Medicaid budget, with Medicaid being the Fail-Safe insurer of last resort? And what might those community-rated premiums charged by Medicaid look like them?
And there would be a mandate to be insured? For what?