Marginal tax rates of 70% for the working poor

[drscott]

Greg Mankiw points to this back-of-the-envelope calculation that suggests the working poor will find 70% of their increased income taxed or clawed back under the proposed health insurance reform bills (but since the details remain to be settled, a complete appraisal is not yet possible.)

This means many poor families will discover there's almost no incentive to taking a better, higher-paying job.

This, along with the high hidden tax in the form of compulsory, higher-cost insurance premiums for healthy younger people, makes this proposal one of the largest transfers of wealth in history from young working stiffs to over-50 slobs with lifelong bad habits.

While the proposals do allow for rewards to company-insured people who maintain good habits, on the whole it removes any financial incentive to maintain good diet and exercise habits for almost everyone else.

Comments

[pklexton.livejournal.com]

I'm trying to restrain myself from my natural inclination to comment on everything, but I'm having trouble with that. So just to be difficult, I'll pose this question. Wouldn't any expansion of health insurance almost by definition (i) transfer wealth from healthy people to unhealthy people and (ii) remove some of the financial incentive to maintain good diet and exercise habits? Isn't the whole point that people are unsatisfied with the degree to which the current system rations healthcare based on wealth?

The marginal tax rate point sounds like a legitimate criticism. Perhaps the subisidies need to be increased further up the income strata to avoid such a sharp dropoff. (I'm being sarcastsic; I'm sure that's not your point. :))

[dr-scott.livejournal.com]

The problem with the whole process is that the bills are being written by interest groups. You have the hospital association saying they won't support the Senate bill because it doesn't force enough new customers into the insurance scheme, the doctors have protected and increased their incomes by bargaining, and the insurance industry is in "don't throw me into that briar patch" mode -- the bills mostly set them up for increased revenues and profits. Meanwhile, no ne has informed 25ish sorts that they will be paying in $50-100 more a month than the cost they would pay under normal age-rating.

Here's my reply to some FB comments (to save me the time of repeating it):

@Roger: The correct argument is that the poorest of the working poor are much better off, even if the assistance is reduced rapidly if their income increases, than they would be without the help. But it does *appear* to set up a situation where some people will be discouraged from doing even better. And since currently the working poor often get free (if haphazard) care, forced insurance *may* actually leave some of them worse off. Many of the details remain to be decided.
@Erez: Most of the population is going to discover how this affects them only after the fact, which is a recipe for disaster. The actual costs and benefits need to be fully disclosed.

And no, you could expand and subsidize insurance for poorer and uninsured folks without all this cross-subsidizing and price-levelling; currently insurance companies rate for age and smoking and pre-existing conditions, but it is possible to imagine a system where pre-existing conditions are covered by the companies who insured the person when they were discovered, and rating is allowed on many other health habits -- with discounts and rebates for those who demonstrate they are taking better care of themselves. The bad statistics on US health compared to smaller EU countries have to do more with bad eating and exercise habits than with health care access.

[pklexton.livejournal.com]

My instinct is to agree with your closing statement - and specifically chalk it up to bad eating habits. My own anecdotal experience tells me I don't think our exercise habits are horribly worse than Europeans (although we certainly spend more time in cars as opposed to walking), and if anything they are worse as regards smoking, but it's our eating habits that kill us. Frankly, fast food and junk food are just too cheap and plentiful and convenient in this country. Although the gap is closing, and they are getting tubbier by the day over there too.

[balanceinchaos.livejournal.com]

Uhm... okay... but I have to point out that for myself, and many of the people I know who either work very hard to eat well, live healthy, be fit... or to return to such a lifestyle... "insurance incentives" don't even show up as a blip on our play fields. I have to also say I've never heard a single client of mine come to me for exercise/fitness advice/training with a stated reason of "insurance costs".

I have NEVER received an incentive from my doctors or my insurance companies to do anything to improve my health... WHY?!? because they use outdated and farsical measurements of health (*cough* BMI *cough*) to rate whether or not I was healthy.

Honest and for true, the last time I got insurance on my own, I was 188lbs, 10% body fat, 6 pack abs, and 32" waist. The old-fat insurance agent looked me straight in the eye, asked my weight and height, looked at his chart and said I would have to pay $10 more a month for being "over weight"... to which I incredulously looked at him, stood up, lifted my shirt, and asked "WHERE?!?"

it didn't matter that it was quite obvious I was in peak physical health, I did not match "the charts" and therefore was an insurance risk... he just shrugged and said "that's how it is... lose weight" (I'm sure he left my house and hit dunkin donuts, fat bastard)

[dr-scott.livejournal.com]

Obviously the BMI is ridiculous. Getting insurance privately often involves a doctor visit, and there's no reason why cheap technology allowing on-the-spot lipid profiles and body fat measurements couldn't be used. The trend in many high-cost states to simply ban any discounts for being in better health is even stupider; I certainly don't pay much attention to discounts in my habits, but many people do respond, as is seen in those programs (like at Safeway) where employer-insurers reward better habits and end up cutting healthcare costs while having healthier employees. In community-rating states, insurers sneakily try to recruit the healthiest by advertising in health clubs, etc.

[balanceinchaos.livejournal.com]

damn it! don't put photos up like that when we're having a serious discussion! I miss your well constructed arguments wiping the drool off my keyboard!

[telemann.livejournal.com]

You should post this over in politicsforum, it can get very cunty there though, but there are some intelligent folks there too.

[dr-scott.livejournal.com]

That doesn't sound like much fun! I've wasted enough time on Usenet and blogs over the years... mostly I want to highlight items that haven't drawn much mainstream attention, not turn into a policy blogger full-time.

[joebehrsandiego.livejournal.com]

Curtis - Just wanted to thank you for your perspective on the issue (this post and previous ones).

My differences of opinion are all "around the margin" ... I'm pretty disappointed with how both the White House and Congress are performing.

[dr-scott.livejournal.com]

It is sort of a Devil's bargain. A fervent minority wants single-payer or government-run health insurance; our current system is falling apart as Medicare and Medicaid underpay and discourage innovative delivery modes, and clients and doctors both struggle with third-party payers.

Recognizing that the taxes to straightforwardly subsidize insurance for the poor and already-sick would not be politically possible, Congress and the administration are trying to set things up so that some people are invisibly taxed, while other hypothetical savings requiring never-before-seen Congressional resolve to cut Medicare reimbursements pay for the rest. It is complicated to hide who actually pays, and locks in some of the worst inefficiencies of the current system.

Now some people think it's better to pass something now and fix it later, but past examples of that thinking usually lead to long-term entrenchment of a bad system.

[ozdachs.livejournal.com]

A fervent minority...

The polls I have heard have a majority favoring these. Perhaps it's the wording of the question.

In any event, the status quo is horrible and one reason Obama and the democrats won the last election was their promise of reform. I see most of the attacks on reform ideas as disingenuous nit picking whose real purpose is to stop all meaningful change. It's the "I like black people, but it's that this one isn't qualified" -type of false argument.

In my mind, it'd be very hard for a changed system to be as bad as the one we have. Unless, of course, you like going around chanting "We're 37th! We're 37th! We're 37th!" to celebrate the US's position in health delivery.

[dr-scott.livejournal.com]

Megan McCardle gets this right:

Progressives are watching the whole health care legislative process with utter dismay as it produces a monster of a bill that not even its mother could love--and trying to love it anyway, on the grounds that it's a start. But this ridiculous hodgepodge, this hypertrophied Rube Goldberg apparatus, is not some startling aberration of the political process, induced by some Republican dark magic. This is the kind of thing the American political system produces. This is why all of our programs have a substantial element of the inexplicable and bizarre.

[double-ohsteven.livejournal.com]

First of all a majority (over 65%) of all Americans favor a public option, so it isn't a minority progressive position. Secondly, if you opt for the public option and put the damn insurance business out of business, you have economies of scale, bargaining power for drug prices and no middle man making a buck on the sick and (partially) insured. Not to mention the people the insurance company have rejected and thereby ejected from the health care system so they have to use emergency rooms at exorbitant cost to all of us.
As I said before, it is short-sighted to say that because I'm young and healthy now, I will always remain so. The system should be meant to put the money where it is needed, and unfortunately it is a physical fact that aging creates health problems.

And if we start over again with a directive from Obama to do Medicare for all, we will all benefit. There won't be a plan full of holes due to attempts to compromise with the uncompromisable Republicans who want Obama to fail at any cost.