Friday, March 26, 2010

Political Process and Consequence

Political maneuvering often alienates the average constituent, leaving him discouraged or disgusted after witnessing a round of deal-making, concessions, and debate.

The latest strategy employed by Democrats to pass health-care legislation most likely left at least one-half of the political spectrum….bummed.  According to recent polls by Rasmussen and Gallup, 45% strongly oppose the health-care bill and 26 strongly favor it.  In all, 54% of likely voters oppose the legislation and 41% are in favor.
Mid-term elections loom in November and Republican’s made Democrats pay dearly for the House Democrat’s use of ‘reconciliation’ to pass their health-care legislation.  Kimberley A. Strassel's article in the Friday, March 26 WSJ explains the 'reconciliation method.'

...reconciliation allowed Republicans to bring up unlimited amendments.  Because Majority Leader Harry Reid could not allow the reconciliation bill to be changed in any way--which would send it back to the House--his party was obliged to vote down every one of those amendments.  And every one had been designed to make even hardened pols whimper.
Democrats voted 'No' when asked to include the following the health-care bill.
1) Government will not subsidize erectile dysfunction drugs for pedophiles and rapists.
2) Wounded soldiers shouldn't be subject to the new tax on medical devices (like wheelchairs).
3) Critical access rural hospitals should not have their funding cut.

Strassel explains:
And so on it went...All Democrats in favor of taxing pacemakers? Aye!  All Democrats in favor of keeping those seedy vote buyoffs? Aye!  All Democrats in favor of raising taxes on middle-income families? Aye!  All Democrats in favor of exempting themselves from elements of ObamaCare? Aye!  The record now shows that Arkansas's Blanche Lincoln in on board with higher premiums, that Colorado's Michael Bennet is good to go with gutting Medicare Advantage, that Nevada's Harry Reid is just fine with rationing, that New York's Kirsten Gillibrand is cool with taxes on investment income, that California's Barbara Boxer is right-p with employer mandates.

In November, the Republicans will have a huge stockpile of controversial topics that they will use to back Democrats into corners.  They will ask, "How could you support giving Viagra to child molester," or "Why would you oppose allowing veterans to get a tax break when they have to buy a wheelchair after losing their legs in the war in Iraq?"  Reconciliation got health-care passed.  But it could destroy the Democrat majority this November.

Thursday, March 25, 2010

In today's WSJ, Marcus Walker and Alessandra Galloni outline the European Union's current struggles with Greece, organized labor, and infighting amongst union members.

Greece's primary struggle centers around bringing to heel its massive government debt.  Steps towards this end have been termed 'austerity measures' by the global media.  Multiple steps are under consideration, but perhaps the greatest in magnitude and most controversial is the slashing of benefits and pensions given to the country's current and former workers.  Nationwide protests greeted the measures as thousands of unionized labor participants poured into the streets and deemed the austerity measures as unfair or even unnecessary (by those who understand little about how economies work).

Cutting government entitlements in order to prevent economic collapse does not seem protest-worthy.  To put another way, protesting against the economic survival of your own nation seems reprehensible and unfathomable.  For this reason I cannot accept that the average protester understands that maintaining their benefits, pensions, and jobs will come at the expense of the entire nation's economy and result in Greece expulsion from the EU.
Walker and Galloni rightly point out that Europe has a choice to make.  The EU can choose to create a society with broad and generous social safety nets and sacrifice economic growth, or they can cut spending on pensions, benefits, and social programs.  The term 'austerity' brings something harsh to mind, but harsh measures are exactly what walking countries like Greece back from the edge of economic abyss requires.  Countries in socialist-leaning Europe will need the willpower to break the back of organized labor.

The following excerpt from Walker and Galloni's article represents the thinking prevalent in many European workers:

Even in France, some erstwhile oppoents of reforms are changing their tune.  Julie Coudry became a French household name four years ago when she helped organize huge student protests against a law introducing short-term contracts for young workers, a move the government believed would put unemployed youths to work...Today, the 31-year-old Ms. Coudry runs a nonprofit organization that encourages French corporations to hire more university graduates.  Ms. Coudry, while not repudiating her activism, says she realizes that past job protections are untenable.  "The state has huge debt, 25% of young people are jobless, and so I am part of a new generation that has decided to take matters into our own hands," she says.  "We've decided that we can't expect everything from the state." 

Let's hope America's youth never get to the point where they have to decide that the state isn't their provider.

Wednesday, March 24, 2010

What Now?  How About Health-Care Reform

Holman W. Jenkins, Jr. Opines in Today's WSJ that after passing health-care reform, we are in a great position to carry out some health-care reform....

Jenkins argues that the president, congress, and politics in general have failed this country by writing legislation requiring everyone to have insurance.  The result of this legislation is that rising health insurance costs is no longer the health insurance industry's problem since consumer's cannot respond by dropping insurance.  Jenkin's argues that root cause of our health-care industry woes is the $250 billion-a-year tax benefit for employer provided insurance (EPI).

A brief description EPI's evolution follows: Prior to WWII, EPI was rare.  During WWII, prices and wages were frozen.  However, employers could get around the wage freeze by offering health benefits packages, EPI.  EPI was not taxed by the IRS for several years, and when they finally did get around to taxing it there was a strong public backlash.  Congress acted to make EPI tax exempt.  From this point on, individual consumers did not have to face the reality of their health care choices.  The rest is a history of rising costs caused in part by consumer choices made in the absence of responsibility. 

For example: if I participate in a basketball game and the next day my ankle is tender, through my insurance I can seek out the best podiatrist in the region, pay out a small deductible, and receive first rate diagnosis and treatment. However, if I were faced with paying the full cost of my care, I would most likely choose more economical means of alleviating the tenderness of my ankle (ice).

The current health-care bill does nothing to change my incentive to seek out the priciest health-care options available.  It does nothing to bring health-care costs back home to the consumer.  As long as consumers continue to choose the priciest, and often unnecessary, treatments available through their insurance, health-care costs will continue to rise.  However, as Jenkins argues, that is no longer the insurance industry's problem.

The problem is now the government's and ours.  The government must provide subsidies to the required additional 32 million insured mandated by the current health-care bill and tax payers must provide the government with funding for the subsidy.

To sum: increases in health care costs continue unabated.  The government requires everyone to have insurance and will subsidize poor households so they can meet this requirement.  Health insurance companies will increase their premiums to pay for rising costs of health-care, thus requiring greater subsidies to the poor.  The government will fund the increasing costs of its subsidies to the poor by increasing income and investment taxes on the wealthy.  There is no reason to believe this process will not spiral out of control until something gives.

Tuesday, March 23, 2010

Health Care Bill (Part III, What Brought About the Current Health Care Climate?)

The following are paraphrased excerpts or direct quotes from an article by Milton Friedman with the headline "A Way Out of Soviet-Style Health Care."  The article was published in the WSJ on April 17, 1996.

1) Prior to WWII, individuals were responsible for their own medical care.  They could pay for it out of pocket or they could buy insurance.  "Sliding scale" fees plus porofessional ethics assured that the poor got care.  On entry to a hospital, the first question was "What's wrong?" not "What is your insurance?" 

2) First major change to this arrangement was a byproduct of wage and price controls imposed during WWII.  Employers could not offer high wages to potential and current employees so they began offering benefits packages.  These included employer provided health insurance which was a new phenomenon and was not regulated by current tax regulations.  So employers treated it as exempt from withholding tax.
3) The IRS eventually caught on and issued regulations requiring employer-provided medicare costs to be included in taxable wages.  This sparked a storm of protest from employees and Congress eventually passed legislation exempting employer-provided healthcare from both the personal and the corporate income tax.  This removed the employee from the medical care decision process.

4) Second major change was the enactment of Medicare and Medicaid in 1965.  "These added another large slice of the population to those for whom medical care, though not completely "free," thanks to deductibles and co[payments, was mostly paid by a third party, providing little incentive to economize on medical care.  The resulting dramatic rise in expenditures on medical care led to the imposition of controls on both patients and suppliers of medical care in a futile attempt to hold down costs." 

5) "The best way to restore freedom of choice to both patient and physician and to control costs would be to eliminate the tax exemption of employer-provided medical care.  However, that is clearly not feasible politically.  The best alternative available tis to extend the tax exemption to all expenditures on medical care, whether made by the patient directly or by employers, to establish a level playing field.
Health Care (Part II)
From Harvard Economist, Greg Mankiw.  He explains how I feel probably better than I could myself.

Healthcare, Tradeoffs, and the Road Ahead

Well, it appears certain that the healthcare reform bill will become law. One thing I have been struck by in watching this debate is how strident it has been, among both proponents and opponents of the legislation. As a weak-willed eclectic, I can see arguments on both sides. Life is full of tradeoffs, and so most issues strike me as involving shades of grey rather than being black and white. As a result, I find it hard to envision the people I disagree with as demons.

Arthur Okun said the big tradeoff in economics is between equality and efficiency. The health reform bill offers more equality (expanded insurance, more redistribution) and less efficiency (higher marginal tax rates). Whether you think this is a good or bad choice to make, it should not be hard to see the other point of view.

I like to think of the big tradeoff as being between community and liberty. From this perspective, the health reform bill offers more community (all Americans get health insurance, regulated by a centralized authority) and less liberty (insurance mandates, higher taxes). Once again, regardless of whether you are more communitarian or libertarian, a reasonable person should be able to understand the opposite vantagepoint.

In the end, while I understood the arguments in favor of the bill, I could not support it. In part, that is because I am generally more of a libertarian than a communitarian. In addition, I could not help but fear that the legislation will add to the fiscal burden we are leaving to future generations. Some economists (such as my Harvard colleague David Cutler) think there are great cost savings in the bill. I hope he is right, but I am skeptical. Some people say the Congressional Budget Office gave the legislation a clean bill of health regarding its fiscal impact. I believe that is completely wrong, for several reasons (click here, here, and here). My judgment is that this health bill adds significantly to our long-term fiscal problems.

The Obama administration's political philosophy is more egalitarian and more communitarian than mine. Their spending programs require much higher taxes than we have now and, indeed, much higher taxes than they have had the temerity to propose. Here is the question I have been wondering about: How long can the President wait before he comes clean with the American people and explains how high taxes needs to rise to pay for his vision of government?
Health Care Bill (Part I: Some Facts)

The health care bill has passed.  I do not want to comment on the political maneuverings employed to get the bill through the House, as I am sure readers of this post would lose all sense of security and confidence they have in the U.S. Government.  So, I will analyze the health care bill in light of facts, the incentives it creates, and the ideologies represented and rebuffed in the bill.

First, we should understand the facts of the health care bill.  According to the WSJ on Monday, March 22, 2010, the health care bill will cost $940 billion over 10 years.  It will reduce the projected deficit by $143 billion, and increase coverage by $32 million.  The number of people enrolled in insurance exchanges by 2019 will be 24 million.  There will be a new Medicare tax on unearned income of 3.8%.  The bill is 2, 562 pages long.

In the WSJ from the same day, Greg Hitt and Janet Adamy offer the following insights:
1) The legislation would expand Medicaid, the federal-state health program for poor, and create subsidies to help low-and middle-income families comply with a mandate that nearly everyone must carry insurance. 
2) Among other things, it would cut $427 billion from Medicare payments to health providers, establish a network of state marketplaces to promote insurance competition, and impose regulations on the insurance industry, including rules that prohibit them from denying coverage.
3) The CBO has said the legislation would extend health coverage to 23 million Americans now without insurance.  They also estimate the legislation as written would hold budget deficits over 10 years $143 billion lower than they otherwise would be.  Also, it ensures that 95% of legal U.S. residents have insurance by 2019, up from 83% today.
4) About 19 million lower-earning Americans would get tax credits to offset the cost of buying insurance, with the help stretching up to a family of four earning $88,000 a year.  A further 16 million people would get insurance through an expansion of the federal-state Medicaid program to make it available to family of four earning up to $29,000 a year.
5) Tax increases needed to finance the program would hit a range of industries, from insurers to tanning services.  Over the next decade, $108 billion in new fees will fall on insurers, drug makers and medical-device companies.  Families earning more than $250k a year will pay a higher Medicare payroll tax, and see that tax expanded to investment income.  High-value insurance plans will also be hit with 40% tax starting in 2018. 
A post from a physician-friend.

The Senate's inaction has allowed for Medicare payments to physicians to be cut by 21% starting Monday. This is a MAJOR problem as many practices cannot survive already due to low payouts by Medicare. Our rapidly growing population of seniors will suffer greatly from offices shutting their doors to people over 65 and to those with medical and psychiatric disabilities.
In an interview in Saturday's WSJ, Marc Rubio outlined a few of his key positions. I agree with his remarks.

Rubio is for the following:
1. Lower capital gains taxes.
2. Decrease corporate tax rates from 35% (second highest in developed world) to at the highest 25%

"The bottom line is that jobs in America are created by people who decide to start a business or expand an existing business." They will do so only if allowed to keep what they earn and don't have a "big target on their back for the government to come after them for higher taxes.

America's swelling debts will trigger a demand by global lenders that "America do something, either cut spending, which will be increasingly painful as government becomes a bigger and bigger part of the economy, or find sources of revenue." Then, amid a crisis, Democrats will force voters to accept a Value Added Tax or see dramatic cuts to Social Security and Medicare just as the baby boomers are entering retirement.

What do you think?
From WSJ Opinion Article, Friday, March 19, 2010. By Kimberley A. Strassel

Paraphrase of Article:
Jason Altmire is the Pennsylvania House Democrat who has become a key possible switch vote in his party's plans to pass unpopular health legislation. He voted no on the first house bill for the simple reason that it offended his constituents.
Mr. Altmire won his 2006 election by campaigning as a pro-veteran, pro-business, pro-drilling, pro-life democrat. He's held on to his seat by flacking his conservative credentials, most recently by flying to Haiti to help jailed missionaries. To explain why he voted no in November to the health care package, he just said "My district isn't there."

Mrs. Pelosi and the left are there, and unfortunately for Mr. Altmire, they had him pegged as a junior member vulnerable to tender persuasion. Within a week of his no vote, was up in his district with vicious ads, warning they'd mobilize against him this fall. In the past, Democratic House leaders helped get Mr. Altmire's legislation and amendments a vote, so he could show folks back home he was effective. No more. Party money-crucial for a new member in a district that leans right? No. Union dollars-more than a half-million that went to Mr. Altmire's past two campaigns? Gone.

End of Paraphrase.

What do you guys think of this treatment of dissenting members of a party. It goes on in both political parties obviously. What are the ramifications for this treatment of dissenting voters?