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.