Employer-paid Health Insurance

Amid all the talk about changing health insurance and health care in the USA, changing employer-paid (employer-based, employer-provided) health insurance rarely gets attention. One article -- eight years old -- does.

Changing the tax treatment of employer-paid health insurance would be a big improvement in my opinion. Make the cost taxable income to the employee (retirees included). If the employee buys his/her own insurance -- not employer-provided and include family coverage -- make the premium tax-deductible or allow a partial credit, perhaps scaled by income. This would enlarge the individual insurance market (below age 65), make it more competitive, and make consumers more cost-conscious. According to the Kaiser Family Foundation about 49% of the US population has insurance coverage that is wholly or mostly paid for by an employer. As a result most of them have little or no concern about the cost.

Financialization #2

Orhangazi's book gives three approaches of explaining financialization.
1. The long-waves approach is a historicist one. According to it, each long cycle of capitalism consists of two segments: an increase in material production followed by a crisis due to over-accumulation and a financial expansion cycle.
2. The neoliberal approach stresses how the neoliberal philosophy -- strong private property rights, free markets, and free trade -- structures governmental institutions and regulation, which in turn help shape the business environment. It encourages shorter time horizons with greater attention to the interests of investors and creditors. Palley, the author of Financialization and very critical of neoliberalism,  is not mentioned.
3. The governance approach focuses on the changing relationship between financial markets and non-financial corporations. It has this in common with #2, but focuses more on the particular interests of investors, creditors, and managers.

I find the the third the most convincing, but even it doesn't include any of the empirical factors I gave in my Amazon review of Palley's book.

The first two approaches are favored by Marxists and /or Post-Keynesians.

The second approach used a new term to me -- coupon pool capitalism, described as follows. Capital is often seen as merely an intermediary between savings of household and production firms. Coupon pool capitalism says capital is not limited to an intermediary role. It also regulates the behavior of firms and households.

House Reveals Proposed Health Care Revision #4

The Republicans led by Speaker Paul Ryan planned to bring the proposed American Health Care Act to a vote in the House of Representatives yesterday. Before the day was over, it was obvious that there would not be enough yes votes to pass it, so Ryan withdrew it from consideration.

President Trump had endorsed it, and threatened repercussions to Republicans who would vote against it. Every Democrat was expected to vote no. There were several reasons for the expected no votes. A big one was less federal money to the states for Medicaid (block grants rather a percent of Medicaid spending to the states*). Health care providers do not like their revenues reduced, nor do many people want to see less money available to give health care to poorer folk.

This was a big setback for both the Congress and Trump. The President's alleged deal-making skills failed.

* The federal government paid for 62.8% of Medicaid spending in 2015. Obamacare enabled a higher percent (100% initially) of spending for newly-enrolled people to states that expanded Medicaid. Here is a short quiz about Medicaid from the Kaiser Foundation.

Financialization #1

A point I made in my review of Financialization (Mar 11) was as follows: "In the latest 40 years or so, transaction costs for trading stocks and other securities fell dramatically. That plus the number of individuals doing transactions rising due to 401(k) plans and IRAs has raised the volume of trading. The rise in the volume of trading has raised the number of people employed in the infrastructure for trading, which is part of the financial sector."

I'm reading another book -- Financialization and the US Economy by Orhangazi. Unlike Financialization, the author isn't so biased and presents some data. The average daily volume of shares traded on the New York Stock Exchange rose from about 19 million in 1975 to 1,602 million in 2005. That's about 84 times.

Financial sector employment as a percent of total employment rose from around 3% in the 1950's to more than 5% in the mid-1980's, but fell to about 4.7% by 2006. It was even lower around 2000-01 while the stock market dropped sharply and many brokers were laid off.

House Reveals Proposed Health Care Revision #3

Trump OKs changes in GOP healthcare bill to win conservative support

Agreeing to add more Medicaid curbs to the House Republican healthcare bill to bolster support from some conservative lawmakers, President Trump spoke in favor of the Republican proposed healthcare bill. "I just want to let the world know I am 100 percent in favor" of the measure, Trump said at the White House after meeting around a dozen House lawmakers and shaking hands on revisions. "We're going to have a health care plan that's going to be second to none."

President Trump again shows his chronic habit of hyperbole and a boasting facade of having a Midas touch. The prospects of success in the House (and the Senate later) remain iffy.

In January Trump vowed, "We're going to have insurance for everybody" (link). The proposed bill doesn't do that. He also vowed to not touch Medicare. Promises, promises, not often kept.

Yet some Trump supporters have faith in his health-care plan. How deluded some people can be continues to amaze me.

House Reveals Proposed Health Care Revision #2

There is more to the Republican proposal to replace Obamacare than eliminating the mandate for individuals to buy health insurance and tax credits for doing so. Another big issue is Medicaid funding, which affects state governments that administer Medicaid and providers such as hospitals and doctors. The Republican proposal calls for a fundamental change to Medicaid. No longer will the federal government commit states to cover a certain set of benefits; rather, it will be a fixed block grant from the federal government to the states based on current costs, adjusted annually to reflect inflation. Long-run this likely means less money for Medicaid. Providers, especially hospitals, have criticized the proposal. 

“When Colorado expanded Medicaid coverage under former President Barack Obama’s health care law, the largest provider in the Denver region hired more than 250 employees and built a $27 million primary care clinic and two new school-based clinics.

"Emergency rooms visits stayed flat as Denver Health Medical Center directed many of the nearly 80,000 newly insured patients into one of its 10 community health centers, where newly hired social workers and mental health therapists provided services for some of the county’s poorest residents. Demand for services at the new primary care clinic was almost immediate.

"The hospital system, like others around the country, now is facing enormous uncertainty under the health care overhaul proposed by congressional Republicans.

"The GOP plan would scale back the Medicaid expansion and take away direct federal subsidies to help consumers pay their health insurance premiums, replacing them with age-adjusted tax credits.

"Denver Health could see revenue losses between $50 million and $85 million by 2020, which is between 5 and 9 percent of their annual revenue, according to the hospital’s chief financial officer. Adding to the financial anxiety is that Denver Health and many other hospital systems and medical providers across the country still would be required to care for many of the same patients, even if they lost their health coverage. That would leave hospitals, state and local governments, or privately insured patients to foot the bill" (link).

“The Congressional Budget Office on Monday projected that the House leadership’s American Health Care Act would result in 24 million Americans losing their health insurance while raising premiums for those covered on the individual market. Their bill would lower federal deficits by $337 billion over 10 years, largely as a result of cuts to Medicaid that would reduce its enrollment by 14 million, according to the estimate.

“Democrats had criticized Republicans for advancing their legislation through two key committees without a cost projection from CBO [and] anticipating … that the CBO would validate their claim that the GOP bill would strip coverage from millions. Republicans, meanwhile, have been downplaying the CBO for days in an effort to take the sting out of its projection and prevent wavering members from withdrawing their support" (link). 

Review of Financialization

My book review of Financialization is here.

House Reveals Proposed Health Care Revision

The Republican-led House of Representatives revealed their legislative proposal, called the American Health Care Act (AHCA), to revise health care/insurance. It was touted to repeal and replace Obamacare. It contains some significant changes, but “repeal” exaggerates. It revokes the individual mandate to buy health insurance and penalties for not buying insurance. On the other hand, even some Republicans call it ”Obamacare Lite.”

The AHCA appears to give more coverage choices to individuals buying medical insurance and getting a premium subsidy to do so. Obamacare established so-called "marketplace exchanges" with tight rules about what a policy must cover, deductibles, etc. What I’ve read so far doesn’t specifically address these exchanges, but it seems they could be abandoned or less controlled.

The AHCA calls for a new scheme of (refundable*) tax credits for buying health insurance. The credit is age-based, from $2,000 for a young person to $4,000 for a person age 60+. The family limit is $14,000. CNN complains that Obamacare offers much higher premium subsidies for low-income folks. That’s true, but the amounts under Obamacare are very complicated, varying by income and zip code. An income-based phase out of the AHCA subsidies starts at $75,000 for a single person and $150,000 for married filing jointly. (The Wall Street Journal says for every $1,000 in income over $75,000 the tax credit would be reduced by $100. That’s presumably for a single taxpayer). This subsidy will be available to a larger number of moderate- and lower-income folks, since buying coverage is not restricted to a “marketplace exchange.” The tax credit will not be available for employees who contribute to employer-provided health insurance.

I predict this new tax credit scheme will make tax returns more complex. Doing a return for a taxpayer in the phase-out income range will face a decision between credit or deduction and how much of the premium to use towards each.

The contribution limit to Health Savings Accounts would nearly double in 2018. AHCA repeals some miscellaneous taxes, such as on medical supplies. The Obamacare imposed tax of 3.8 percent of certain net investment income of individuals, estates, and trusts with income above certain amounts is repealed starting in 2018.

One thing the AHCA doesn’t do is sever or even weaken the tie between health insurance and a job. Employer-provided coverage remains mostly the same. Penalties on large employers not purchasing such coverage are removed, and the Obamacare tax on "Cadillac plans" is delayed four more years. In my opinion, breaking or weakening this tie is the best step towards a vibrant, competitive free market for individuals less than age 65 buying health insurance. (The Medicare supplement market for individuals over age 65 is vibrant and competitive now.)

* A refundable credit can be obtained even when one's tax otherwise owed is zero. A nonrefundable credit is limited by one's tax otherwise owed.

Link.

A Little Obamacare Nonsense

A couple got an Obamacare “unaffordable” exemption from buying health insurance while having an income 70% higher than “poverty level.” This prompted my writing the following.

Suppose two retired married couples, each person 62-64 years old, have $50,000 income in 2016. All of couple #1’s income is from Social Security. All of couple #2’s income is from a private retirement plan and fully taxable. Neither couple has any health insurance (they aren’t eligible for Medicare until age 65).

Couple #1’s federal income tax is $0. They also face no Obamacare penalty (so-called “shared responsibility payment”) for not having health insurance. They get an “unaffordable” exemption because their income is not high enough to require filing a tax return.

Couple #2 is required to file a tax return since their private retirement plan is not exempt from income tax. With the standard deduction and personal exemptions, they owe federal income tax of $3,471. They also owe an Obamacare penalty of $1,390 (= 2 * $695) for not having "minimum essential coverage."

Since employees pay FICA taxes (towards Social Security) with after-tax dollars, the income tax difference makes some sense. However, health insurance deemed “unaffordable” for couple #1 with $50,000 after-tax income, but deemed “affordable” for couple #2 with $46,529 after-tax income? That is incoherent.

Economics of Immigration #3

Supporting the author’s view that immigration has very specific causes and effects, on pages 162-7 of We Wanted Workers he relates a story about Russian mathematicians.

For decades prior to the collapse of the USSR there was little contact between mathematicians in Russia and those in Western countries. The most popular Soviet research field was differential equations, accounting for 18% of all publications. The most popular American fields were statistics and operations research, accounting for 16% of all publications. After the USSR collapsed many Russian mathematician migrated to the USA in the 1990's. Data collected by the American Mathematical Society showed a sharp increase in the unemployment rate of newly minted mathematicians and identified recent immigrants as a leading cause. The author and another person looked further. They looked at the effect the “supply shock” the Russian mathematicians had on two different groups of American mathematicians – those who specialized in differential equations and those who specialized in statistics. The number of papers published by American mathematicians in differential equations dropped sharply, while those published in statistics dropped only slightly. They concluded that the entry of the exceptional Russian mathematicians crowded out newly minted mathematicians and non-tenured faculty, especially in differential equations. The latter group moved to lower-ranked institutions (with higher teaching loads) or even outside academia, which reduced their opportunities to do research. 

While the author mentions “quants” on Wall Street, he did not speculate that the effects may have been different if the collapse of the Soviet Union had instead occurred about 10 years earlier. In the 1980’s there was a large wave of mathematicians and physicists who moved into finance jobs, especially for investment firms and big banks. They were hired to a great extent because they could solve differential equations that were needed to theoretically price financial options. The solving was far more by a numerical method (finite difference, lattice, Monte Carlo) using a computer – software needed developed – in contrast to closed form solutions (which the Black-Scholes formula is) with pencil and paper. I can only speculate about a lesser “supply shock” on American mathematicians specializing in differential equations if the Russian influx had occurred about 1980. The unemployment spike probably would have been much smaller. The effect on the number of research papers may have been less.