Understanding the House Democrats' health care bill

Understanding the House Democrats' health care bill

Yesterday I posted and described the draft Kennedy-Dodd health care bill. Today I would like to do the same for an outline produced by House Democrats.

Here is a three-page outline of “Key Features of the Tri-Committee Health Reform Draft Proposal in the House of Representatives,” dated yesterday (June 8, 2009).

The three committees are:

  • The House Ways & Means Committee, chaired by Rep. Charlie Rangel (D-NY). The Health Subcommittee is chaired by Rep. Pete Stark (D-CA).
  • The House Energy & Commerce Committee, chaired by Rep. Henry Waxman (D-CA). The Health Subcommittee is chaired by Rep. Frank Pallone, Jr. (D-NJ).
  • The House Committee on Education & Labor, chaired by Rep. George Miller (D-CA). The Health, Employment, Labor and Pensions Subcommittee is chaired by Rep. Robert Andrews (D-NJ).

The document suggests this is a joint product of the three committees and/or their subcommittees. My sense, however, is that it is Speaker Pelosi who is driving the bus. This is in contrast to the Senate, where the committee chairmen (Kennedy/Dodd and Baucus) appear to have the pen, in less well-coordinated efforts.

Kennedy-Dodd and the House bill outline are remarkably similar. Whether this represents House-Senate coordination or parallel thought processes is unclear.

I think the easiest way for me to present the House bill outline is in comparison with the Kennedy-Dodd bill. So here my description from yesterday of the Kennedy-Dodd bill, with today’s comparison to the House bill outline in red. I hope it’s comprehensible and useful this way. If you read yesterday’s post, you can skim the text in black and focus on the new text in blue.

Here are 15 things to know about the draft Kennedy-Dodd health bill and the House bill outline.

  1. The Kennedy-Dodd bill would create an individual mandate requiring you to buy a :qualified” health insurance plan, as defined by the government. If you don’t have “qualified” health insurance for a given month, you will pay a new Federal tax. Incredibly, the amount and structure of this new tax is left to the discretion of the Secretaries of Treasury and Health and Human Services (HHS), whose only guidance is “to establish the minimum practicable amount that can accomplish the goal of enhancing participation in qualifying coverage (as so defined).” The new Medical Advisory Council (see #3D) could exempt classes of people from this new tax. To avoid this tax, you would have to report your health insurance information for each month of the prior year to the Secretary of HHS, along with “any such other information as the Secretary may prescribe.” The House bill also contains an individual mandate. The outline is less specific but parallel: Once market reforms and affordability credits are in effect to ensure access and affordability, individuals are responsible for having health insurance with an exception in cases of hardship.
  2. The Kennedy-Dodd bill would also create an employer mandate. Employers would have to offer insurance to their employees. Employers would have to pay at least a certain percentage (TBD) of the premium, and at least a certain dollar amount (TBD). Any employer that did not would pay a new tax. Again, the amount and structure of the tax is left to the discretion of the Secretaries of Treasury and HHS. Small employers (TBD) would be exempt.The House bill outline also contains an employer mandate that appears to parallel that in Kennedy-Dodd: “Employers choose between providing coverage for their workers or contributing funds on behalf of their uncovered workers.”
  3. In the Kennedy-Dodd bill, the government would define a qualified plan:
    1. All health insurance would be required to have guaranteed issue and renewal, modified community rating, no exclusions for pre-existing conditions, no lifetime or annual limits on benefits, and family policies would have to cover “children” up to age 26.The House bill outline is consistent with but less specific than the Kennedy-Dodd legislative language. The House bill outline would “prohibit insurers from excluding pre-existing conditions or engaging in other discriminatory practices.” I will keep my eye on what “other discriminatory practices” means in the legislative language. Does that mean that a health plan cannot charge higher premiums to smokers? Like the Kennedy/Dodd bill, the House bill outline would preclude health plans from imposing lifetime or annual limits on benefits: “Caps total out-of-pocket spending in all new policies to prevent bankruptcies from medical expenses.” This would raise premiums for new policies. The House bill outline “introduces administrative simplification and standardization to reduce administrative costs across all plans and providers.” I don’t know what this means, but suggest keeping an eye on it.
    2. A qualified plan would have to meet one of three levels of standardized cost-sharing defined by the government, “gold, silver, and bronze.” Details TBD. Same: “… by creating various levels of standardized benefits and cost-sharing arrangements…” It also contains this addition relative to Kennedy-Dodd: “… with additional benefits available in higher-cost plans.” But note the “various levels of standardized benefits.” This appears to be more expansive government control of health plan design than in the Kennedy-Dodd draft.
    3. Plans would be required to cover a list of preventive services approved by the Federal government.This is unspecified in the House bill outline. We’ll have to wait to see legislative language.” The House bill would require plans to “waive cost-sharing for preventive services in benefit packages.”
    4. A qualified plan would have to cover “essential health benefits,” as defined by a new Medical Advisory Council (MAC), appointed by the Secretary of Health and Human Services. The MAC would determine what items and services are “essential benefits.” The MAC would have to include items and services in at least the following categories: ambulatory patient services, emergency services, hospitalization, maternity and new born care, medical and surgical, mental health, prescription drugs, rehab and lab services, preventive/wellness services, pediatric services, and anything else the MAC thought appropriate.This appears parallel but is less specific for now: “Independent public/private advisory committee recommends benefit packages based on standards set in statute.” I find the “standards set in statute” interesting. It suggests that provider and disease interest groups will have two fora in which to lobby for their benefits to be mandated: Congress, and the advisory committee.
    5. The MAC would also define what “affordable and available coverage” is for different income levels, affecting who has to pay the tax if they don’t buy health insurance. The MAC’s rules would go into effect unless Congress passed a joint resolution (under a fast-track process) to turn them off.The House bill outline is silent on this.
  4. Health insurance plans could not charge higher premiums for risky behaviors: “Such rate shall not vary by health status-related factors, … or any other factor not described in paragraph (1).” Smokers, drinkers, drug users, and those in terrible physical shape would all have their premiums subsidized by the healthy. The House bill outline says it would “prohibit plans [from] rating (charging higher premiums) based on gender, health status, or occupation and strictly limits premium variation based on age.” If the bill were to provide nothing more, this would appear to parallel the Senate bill and preclude plans from charging higher premiums for risky behaviors.
  5. Guaranteed issue and renewal combined with modified community rating would dramatically increase premiums for the overwhelming majority of those Americans who now have private health insurance. New Jersey is the best example of health insurance mandates gone wild. In the name of protecting their citizens, premiums are extremely high to cover the cross-subsidization of those who are uninsurable.The House bill outline is silent on guaranteed issue and renewal. I’m going to make an educated guess that the bill includes these provisions as part of “other discriminatory practices,” and they have just left them out of the outline. Given the philosophy behind this outline (with which I disagree), it would be a striking omission. But for now, the outline says nothing specific on these topics.
  6. The bill would expand Medicaid to cover everyone up to 150% of poverty, with the Federal government paying all incremental costs (no State share). This means adding childless adults with income below 150% of the poverty line.The House bill outline “expands Medicaid for the most vulnerable, low-income populations,” so we have no specifics other than that there’s an expansion.” I cannot tell if this is expanding eligibility or benefits. The outline also “improves payment rates to enhance access to primary care under Medicaid.” I assume this means the bill would expand the Federal share paid of each dollar spent by a State Medicaid program on primary care, rather than the Federal government actually mandating specific payment rates to be implemented by States. Federal micromanagement of specific Medicaid provider payment rates was eliminated in the mid 1990s.
  7. People from 150% of poverty up to 500% (!!) would get their health insurance subsidized (on a sliding scale). If this were in effect in 2009, a family of four with income of $110,000 would get a small subsidy. The bill does not indicate the source of funds to finance these subsidies.The House bill outline has a sliding scale up to 400% of poverty. If this were in effect in 2009, a family of four with income of $88,000 would get small subsidy.
  8. People in high cost areas (e.g., New York City, Boston, South Florida, Chicago, Los Angeles) would get much bigger subsidies than those in low cost areas (e.g., much of the rest of the country, especially in rural areas). The subsidies are calculated as a percentage of the “reference premium,” which is determined based on the cost of plans sold in that particular geographic area.The House bill outline is not specific on this point. I would not expect it to be – this is something you can tell only from legislative language.
  9. There would be a “public plan option” of health insurance offered by the federal government. In this new government health plan, the federal government would pay health care providers Medicare rates + 10%. The +10% is clearly intended to attract short-term legislative support from medical providers. I hope they are not so naive that they think that differential would last.The House bill outline “creates a new public health insurance within the Exchange … the public health insurance option competes on ‘level field’ with private insurers in the Exchange.” There are no specifics on how the public plan would work, or on provider payment rates.
  10. Group health plans with 250 or fewer members would be prohibited from self-insuring.” ERISA would only be for big businesses.The House bill outline is silent on this point.
  11. States would have to set up “gateways” (health insurance exchanges) to market only qualified health insurance plans. If they don’t, the Feds will set up a gateway for them.The House calls it an Exchange rather than a Gateway. While the Senate bill would tell each State, “Create a Gateway or we’ll create one for you,” the House bill outline says to each State, “We’re creating a single new national Exchange. You’re in it unless you develop your own State or Regional Exchange.”
  12. Health insurance plans in existence before the law would not have to meet the new insurance standards. This creates a weird bifurcated system and means you would (probably) be subject to a different set of rules when you change jobs.The House bill outline appears to parallel the Kennedy-Dodd draft: “Phases-in requirements to benefit and quality standards for employer plans.” This means that new plans will be more expensive than old plans. It also means they’re creating a bifurcated system with all sorts of perverse unintended consequences for employment flexibility.
  13. The bill does not specify what spending will be cut or what taxes will be raised to pay for the increased spending. That is presumably for the Finance Committee to determine, since it’s their jurisdiction. The House bill outline lists specific topics for changes to Medicare reimbursement:
    • Changing (how?) the Medicare reimbursement for doctors, called the “Sustainable Growth Rate” (SGR).
    • “Increasing reimbursement for primary care providers”
    • “Improving” the Medicare drug program. I won’t be surprised if, when I see the specifics, I disagree that their changes are “improvements.” In the past this has meant having the federal government mandate specific prices for drugs.
    • Cutting payments to Medicare Advantage plans.
    • Expanding low-income subsidies for seniors and eliminating cost-sharing for all preventive services in Medicare.

    The House bill outline also uses positive language to describe things that might generate budgetary savings from Medicare and/or Medicaid. The hospital readmissions point is specific. The first two points could increase or decrease federal spending, depending on the specifics.

    • “Use federal health programs … to reward high quality, efficient care, and reduce disparities.”
    • “Adopt innovative payment approaches and promote[s] better coordinated care in Medicare and the new public option through programs such as accountable care organizations.”
    • “Attack the high rate of cost growth to generate savings for reform and fiscal sustainability, including a program in Medicare to reduce preventable hospital readmissions.”
  14. The bill defines an “eligible individual” as “a citizen or national of the United States or an alien lawfully admitted to the United States for permanent residence or an alien lawfully present in the United States.” The House bill outline is silent on this point.
  15. The bill would create a new pot of money for state gateways to pay “navigators” to educate people about the new bill, distribute information about health plans, and help people enroll. Navigators receiving federal funds “may include … unions, …” The House bill outline is silent on this point.

This would have severe effects on the more than 100 million Americans who have private health insurance today:

  • The government would mandate not only that you must buy health insurance, but what health insurance counts as “qualifying.”
  • Health insurance premiums would rise as a result of the law, meaning lower wages.
  • A government-appointed board would determine what items and services are “essential benefits” that your qualifying plan must cover.
  • You would find a tremendous new disincentive to switch jobs, because your new health insurance may be subject to the new rules and would therefore be significantly more expensive.
  • Those who keep themselves healthy would be subsidizing premiums for those with risky or unhealthy behaviors.
  • Far more than half of all Americans would be eligible for subsidies, but we have not yet been told who would pay the bill.
  • The Secretaries of Treasury and HHS would have unlimited discretion to impose new taxes on individuals and employers who do not comply with the new mandates. (The House bill outline is not specific on this point.)
  • The Secretary of HHS could mandate that you provide him or her with “any such other information as [he/she] may prescribe.” (The House bill outline is not specific on this point.)

I strongly oppose the Kennedy-Dodd bill and the House Tri-Committee bill.

If this topic interests you, I highly recommend Jim Capretta’s blog Diagnosis.

(photo credit: speaker.house.gov)

Understanding the Kennedy health care bill

Understanding the Kennedy health care bill

Over the weekend a draft of Senator Kennedy’s (D-MA) health care bill leaked. After playing with Adobe Acrobat, here is the text of the draft Kennedy bill as a text file (173 K), and as a single Acrobat file (3.4 MB). Update: I fixed the broken link to the PDF. Unlike the leaked version, both of these are searchable.

Calling it the “Kennedy” bill is something of an overstatement. Senator Kennedy chairs the Senate Health, Education, Labor, and Pensions committee, and his staff wrote the draft. By all reports, however, Chairman Kennedy’s health is preventing him from being heavily involved in the drafting. Senator Reid has designated Senator Chris Dodd (D-CT) to supervise the process, but as best I can tell, it’s really the Kennedy committee staff who are making most of the key decisions. For now I will call it the Kennedy-Dodd bill.

As the committee staff emphasized to the press after the leak, this is an interim draft. I assume things will move around over the next several weeks as discussions among Senators and their staffs continue. This is therefore far from a final product, but it provides a useful insight into current thinking among some key Senate Democrats.

Update: I now have a three-page outline of the House Democrats’ health care bill. I have a new post which contains all of the content below, and compares it to the House bill. If you read the new post, you’ll get two for the price of one: Understanding the House Democrats’ [and Kennedy-Dodd] health care bill[s].

Here are 15 things to know about the draft Kennedy-Dodd health bill.

    1. The Kennedy-Dodd bill would create an individual mandate requiring you to buy a “qualified” health insurance plan, as defined by the government. If you don’t have “qualified” health insurance for a given month, you will pay a new Federal tax. Incredibly, the amount and structure of this new tax is left to the discretion of the Secretaries of Treasury and Health and Human Services (HHS), whose only guidance is “to establish the minimum practicable amount that can accomplish the goal of enhancing participation in qualifying coverage (as so defined).” The new Medical Advisory Council (see #3D) could exempt classes of people from this new tax. To avoid this tax, you would have to report your health insurance information for each month of the prior year to the Secretary of HHS, along with any such other information as the Secretary may prescribe.”
    1. The bill would also create an employer mandate. Employers would have to offer insurance to their employees. Employers would have to pay at least a certain percentage (TBD) of the premium, and at least a certain dollar amount (TBD). Any employer that did not would pay a new tax. Again, the amount and structure of the tax is left to the discretion of the Secretaries of Treasury and HHS. Small employers (TBD) would be exempt.
    1. In the Kennedy-Dodd bill, the government would define a qualified plan:
        1. All health insurance would be required to have guaranteed issue and renewal, modified community rating, no exclusions for pre-existing conditions, no lifetime or annual limits on benefits, and family policies would have to cover children up to age 26.
        1. A qualified plan would have to meet one of three levels of standardized cost-sharing defined by the government, gold, silver, and bronze. Details TBD.
        1. Plans would be required to cover a list of preventive services approved by the Federal government.
        1. A qualified plan would have to cover “essential health benefits,” as defined by a new Medical Advisory Council (MAC), appointed by the Secretary of Health and Human Services. The MAC would determine what items and services are “essential benefits.” The MAC would have to include items and services in at least the following categories: ambulatory patient services, emergency services, hospitalization, maternity and new born care, medical and surgical, mental health, prescription drugs, rehab and lab services, preventive/wellness services, pediatric services, and anything else the MAC thought appropriate.
        1. The MAC would also define what “affordable and available coverage” is for different income levels, affecting who has to pay the tax if they don’t buy health insurance. The MAC’s rules would go into effect unless Congress passed a joint resolution (under a fast-track process) to turn them off.
    2. Health insurance plans could not charge higher premiums for risky behaviors: “Such rate shall not vary by health status-related factors, … or any other factor not described in paragraph (1).” Smokers, drinkers, drug users, and those in terrible physical shape would all have their premiums subsidized by the healthy.
    1. Guaranteed issue and renewal combined with modified community rating would dramatically increase premiums for the overwhelming majority of those Americans who now have private health insurance. New Jersey is the best example of health insurance mandates gone wild. In the name of protecting their citizens, premiums are extremely high to cover the cross-subsidization of those who are uninsurable.
    1. The bill would expand Medicaid to cover everyone up to 150% of poverty, with the Federal government paying all incremental costs (no State share). This means adding childless adults with income below 150% of the poverty line.
    1. People from 150% of poverty up to 500% (!!) would get their health insurance subsidized (on a sliding scale). If this were in effect in 2009, a family of four with income of $110,000 would get a small subsidy. The bill does not indicate the source of funds to finance these subsidies.
    1. People in high cost areas (e.g., New York City, Boston, South Florida, Chicago, Los Angeles) would get much bigger subsidies than those in low cost areas (e.g., much of the rest of the country, especially in rural areas). The subsidies are calculated as a percentage of the “reference premium,” which is determined based on the cost of plans sold in that particular geographic area
    1. There would be a “public plan option” of health insurance offered by the federal government. In this new government health plan, the federal government would pay health care providers Medicare rates + 10%. The +10% is clearly intended to attract short-term legislative support from medical providers. I hope they are not so naive that they think that differential would last.
    1. Group health plans with 250 or fewer members would be prohibited from self-insuring. ERISA would only be for big businesses.
    1. States would have to set up “gateways” (health insurance exchanges) to market only qualified health insurance plans. If they don’t, the Feds will set up a gateway for them.
    1. Health insurance plans in existence before the law would not have to meet the new insurance standards. This creates a weird bifurcated system and means you would (probably) be subject to a different set of rules when you change jobs.
    1. The bill does not specify what spending will be cut or what taxes will be raised to pay for the increased spending. That is presumably for the Finance Committee to determine, since it’s their jurisdiction.
    1. The bill defines an “eligible individual” as “a citizen or national of the United States or an alien lawfully admitted to the United States for permanent residence or an alien lawfully present in the United States.”
  1. The bill would create a new pot of money for state gateways to pay “navigators” to educate people about the new bill, distribute information about health plans, and help people enroll. Navigators receiving federal funds “may include … unions, …”

This would have severe effects on the more than 100 million Americans who have private health insurance today:

    • The government would mandate not only that you must buy health insurance, but what health insurance counts as “qualifying.”
    • Health insurance premiums would rise as a result of the law, meaning lower wages.
    • A government-appointed board would determine what items and services are “essential benefits” that your qualifying plan must cover.
    • You would find a tremendous new disincentive to switch jobs, because your new health insurance may be subject to the new rules and would therefore be significantly more expensive.
    • Those who keep themselves healthy would be subsidizing premiums for those with risky or unhealthy behaviors.
    • Far more than half of all Americans would be eligible for subsidies, but we have not yet been told who would pay the bill.
    • The Secretaries of Treasury and HHS would have unlimited discretion to impose new taxes on individuals and employers who do not comply with the new mandates.
  • The Secretary of HHS could mandate that you provide him or her with “any such other information as [he/she] may prescribe.”

I strongly oppose this bill.

Update: If this topic interests you, I highly recommend Jim Capretta’s blog Diagnosis.

(photo credit: kennedy.senate.gov)

How many uninsured people need additional help from taxpayers?

How many uninsured people need additional help from taxpayers?

When discussing health insurance we frequently hear that there are “46 million uninsured” in America. This figure is from a monthly survey of about 50,000 households done by the Bureau of Labor Statistics and the Census Bureau. This Current Population Survey (CPS) then uses statistical techniques to paint a picture of the entire U.S. population.

Advocates for expanding taxpayer-subsidized health insurance, and their allies in the press, repeat this 46 million number constantly. It paints the following technically accurate but misleading picture:

insured v uninsured

This looks really bad. At least there are more than 250 million people with health insurance – that is clearly a good thing that we never hear it in the press. Still, there’s a lot of red there. It means that in 2007 (15%) of Americans lacked health insurance, according to the CPS. Advocates, some elected officials, and the press round that number up to “1 in 6 Americans.” We hear that there are “46 million uninsured,” and then we jump to the conclusion that government needs to help 46 million people buy health insurance, subsidized by taxpayers.

Let’s look inside that 45.7 million number and see what we can learn. Here is our key graph:

uninsured subpopulations

First, I need to make a technical disclaimer. I had this same detailed breakdown for 2005 data, done by health experts when I was part of the Bush Administration. I now have a 2007 total (45.7 million), and so I have proportionately adjusted the components to match that new total. It is a back-of-the-envelope calculation, but I am confident that it is solid, and it does not move any component by more than two hundred thousand. In addition, the expert analysis I am using ensures that the subdivisions shown above do not overlap. I will slightly oversimplify that point in the following description of the breakdown to make the explanation readable.

Let us walk through the graph from top to bottom.

  • There were 45.7 million uninsured people in the U.S. in 2007.
  • Of that amount, 6.4 million are the Medicaid undercount. These are people who are on one of two government health insurance programs, Medicaid or S-CHIP, but mistakenly (intentionally or not) tell the Census taker that they are uninsured. There is disagreement about the size of the Medicaid undercount. This figure is based on a 2005 analysis from the Department of Health and Human Services.
  • Another 4.3 million are eligible for free or heavily subsidized government health insurance (again, either Medcaid or SCHIP), but have not yet signed up. While these people are not pre-enrolled in a health insurance program and are therefore counted as uninsured, if they were to go to an emergency room (or a free clinic), they would be automatically enrolled in that program by the provider after receiving medical care. There’s an interesting philosophical question that I will skip about whether they are, in fact, uninsured, if technically they are protected from risk.
  • Another 9.3 million are non-citizens. I cannot break that down into documented vs. undocumented citizens.
  • Another 10.1 million do not fit into any of the above categories, and they have incomes more than 3X the poverty level. For a single person that means their income exceeded $30,600 in 2007, when the median income for a single male was $33,200 and for a female, $21,000. For a family of four, if your income was more than 3X the poverty level in 2007, you had $62,000 of income or more, and you were above the national median.
  • Of the remaining 15.6 million uninsured, 5 million are adults between ages 18 and 34 and without kids.
  • The remaining 10.6 million do not fit into any of the above categories, so they are:
    • U.S. citizens;
    • with income below 300% of poverty;
    • not on or eligible for a taxpayer-subsidized health insurance program;
    • and not a childless adult between age 18 and 34.

As a policy matter, we care not about the total number of uninsured, but about the subset of that group that we think “deserves” taxpayer-subsidized health insurance. That is a judgment call that involves some value choices.

I will make one value choice for you and boldly assert that, if you are already enrolled in or eligible for one free or heavily subsidized health insurance program, we can rule you out as needing a second. That simple statement reduces the 45.7 million number down to 35 million, by excluding the Medicaid undercount and Medicaid/SCHIP eligible from our potential target population.

I think most people would also say that the 10.6 million I have labeled as “remaining uninsured” and shaded in yellow above are the most sympathetic target population.

It then gets tricky.

  • Should people with incomes near or above the national median get health insurance subsidized by taxpayers?
  • How about non-citizens? Should we distinguish between documented and undocumented non-citizens? Between those who pay taxes and those who do not? Remember that we are not talking about who should get emergency medical care, but instead who should get taxpayer subsidies to finance the purchase of pre-paid health insurance. Does that change your answer?
  • Many young adults and childless couples are in good to excellent health. Do they deserve subsidies, when they may be making what they believe to be a rational economic decision and using their financial resources for things other than buying health insurance? Should a 25-year old Yale graduate triathlete making $30K per year get his health insurance subsidized by taxpayers if he chooses not to buy it because his budget is tight?

There is no clear right or wrong answer to the above questions. You need to make your own value choices for them.

Now let us look at the effects on the totals for several hypothetical answers to these questions. Remember that the advocates, some elected officials, and press tell us that the numbers are: 46 million uninsured, 15% of the population, and 1 in 6 Americans “are uninsured.” I suggest you try to figure out which of the following is closest to your view.

  1. Ann wants to subsidize everybody, but agrees that we don’t need to double-subsidize. She excludes the Medicaid undercount and Medicaid/SHIP eligible from her target population and ends up with 35 million people. That is still an enormous amount, but it is 10.7 million less than the headline number she heard in the news. Her target population is now 11.7% of the total U.S. population, down from 15%. Put another way, she would like taxpayers to help between 1 in 8 and 1 in 9 Americans who she feels are deserving of subsidies to buy health insurance, rather than the 1 in 6 she heard in the press.
  2. Bob agrees with Ann, but thinks that subsidies should go to the poor, or at least not to those who have above the median (or near median) incomes. His target population is therefore about 25 million people, way down from 46 million. That is 8.4% of the total U.S. population, or 1 in 12 Americans. That is still a huge problem, but it is very different from 1 in 6.
  3. Carla agrees with Bob that subsidies should not go to those with incomes near or above the national median. She also thinks that undocumented citizens should get emergency medical care, but not taxpayer-subsidized pre-paid health insurance. I will guess a 50/50 split between documented and undocumented of the 9.3 million uninsured non-citizen, and I would appreciate it if someone could help me refine this. With this assumption, Carla’s target population is about 21 million, or 7% of the total U.S. population. That is roughly 1 in 14 Americans.
  4. Doug thinks only American citizens with incomes below the national median (and who are not already eligible for another program) should be eligible for additional aid. His target population is therefore the bottom two bars on the graph, or 15.6 million people. That is 5.2% of the U.S. population, or 1 in 19 Americans. If Doug were to further limit subsidies to those below 200% of poverty or 150%, his target population would be a few million people smaller.
  5. Edie agrees with Doug, but thinks that if you are a young adult without kids, you should fend for yourself. Her target population is 10.6 million people, or 3.5% of the total U.S. population. That is 1 in 28 Americans.

These are, of course, not the only possible answers, but I think they are a representative bunch. Even for the most “liberal” set of answers (Ann’s), the headline numbers we hear in the press overstate the extent of the problem by more than 10 million people.

Now even Edie’s narrowest 10.6 million target population is still a lot of people who lack health insurance. So why does it matter that the press gets the numbers wrong?

  1. If we misdiagnose the problem, we could easily design the wrong policy solution. A solid quantitative understanding of who we would like to help and why is important.
  2. Health insurance subsidies cost taxpayers tens of billions of dollars each year. If we target these funds well and prioritize, we can help more of the people whom we think are deserving of additional assistance, and fewer of those who need less help. If we target those funds poorly, we will waste a lot of money. This point is independent of the total amount we spend on subsidizing health insurance.
  3. Health insurance competes with other policy goals for an enormous but still ultimately limited pool of taxpayer funds. We should neither overstate nor understate the problem to be solved, so that the tradeoffs with other policy goals can be considered fairly.

When you hear “46 million uninsured,” or “1 in 6 Americans don’t have health insurance,” remember that this is technically correct but misleading. The more important question is, “How many uninsured people need additional help from taxpayers?”

What’s your answer?

The President's strong free trade language in Strasbourg

I would like to compliment and thank President Obama for saying this in Strasbourg, France last Friday:

As we take these steps, we also affirm that we must not erect new barriers to commerce; that trade wars have no victors. We can’t give up on open markets, even as we work to ensure that trade is both free and fair. We cannot forget how many millions that trade has lifted out of poverty and into the middle class. We can’t forget that part of the freedom that our nations stood for throughout the Cold War was the opportunity that comes from free enterprise and individual liberty.

I know it can be tempting to turn inward, and I understand how many people and nations have been left behind by the global economy. And that’s why the United States is leading an effort to reach out to people around the world who are suffering, to provide them immediate assistance and to extend support for food security that will help them lift themselves out of poverty.

All of us must join together in this effort, not just because it is right, but because by providing assistance to those countries most in need, we will provide new markets, we will drive the growth of the future that lifts all of us up. So it’s not just charity; it’s a matter of understanding that our fates are tied together — not just the fate of Europe and America, but the fate of the entire world.

The President’s words have meaning, especially when he is speaking overseas. It is particularly important that he said this in France. French farm subsidies and politics are a key stumbling block on the road to a Doha global free trade agreement.

I wish the President’s negotiators had pushed for language like this in the final G-20 statement.

What happened to FREE markets in London?

Thanks to Reuters’ MacroScope blog for noticing:

Keith Hennessey, a former top economic adviser to President George W. Bush, saw this one coming. He rightly predicted that the Group of 20 would drop a key word from its communique at the conclusion of the London Summit: Free.

Here is my original post from Wednesday: A quick guide to the G-20 summit.

Unfortunately the problem is even bigger than just dropping the word “free” before “markets.” Let’s compare the text of the November G-20 leaders’ declaration and the April G-20 leaders’ declaration.

Here is the key paragraph from the November summit, hosted in Washington by President Bush. Thanks to President Bush’s negotiators, led by his “Sherpa,” Dan Price, and Treasury Under Secretary for International Affairs Dave McCormick, the following text is incredible. Last November, I wrote about this paragraph: Let’s look at some important wins in the actual text of the declaration. Formerly Communist China and Russia (along with all the other participating nations) agreed to the following text.

12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living. Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.

Let’s parse it a bit:

  1. “a commitment to free market principles”
  2. rule of law”
  3. respect for private property”
  4. open trade and investment”
  5. competitive markets”
  6. “and efficient, effectively regulated financial systems.”
  7. we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows”

Now let’s examine yesterday’s text:

3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but of future generations too. We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.

Parsing this new language:

  1. “a commitment to free market principles” has been replaced by “based on market principles.” Note that the word “free” is nowhere in the document.
  2. “rule of law” is nowhere in the document
  3. “private property” is nowhere in the document
  4. “open trade and investment” has been replaced by “open world economy” (This one is fine, I think.)
  5. competitive markets” and the word “competitive” are nowhere in the document
  6. efficient, effectively regulated financial systems” has been replaced by “effective regulation, and strong global institutions.”
  7. The over-regulation caution is gone.

What makes this so disappointing is that all G-20 nations agreed to the November text. It should have been an extremely easy lift for negotiators from capitalist countries to insist that this leaders’ declaration merely repeat what the leaders agreed to last November.

Wednesday I wrote, In the short run, it is easy to see how a negotiator might give this up for a more concrete immediate objective. In the long run, few things are as important.

A quick guide to the G-20 summit

The President has arrived in London for the G-20 economic summit. I have different policy views than the President on some of these issues, but I will not criticize him while he is overseas. I will attempt to gently highlight a couple of substantive issues that concern me, but at the same time I want to send a clear signal that I support the American President and his team in negotiations with other states, even if I am not in the same place on some of the substance.

I wrote last November about the first G-20 Economic Summit, initiated and hosted by President Bush. You can see some neat behind-the-scenes photos of the gorgeous National Building Museum and read about the accomplishments of that summit. Last November the press tried to write the story “Lame duck President – not much accomplished.” That storyline was incorrect. Now we have a new American leader and one fundamental policy shift, but much of the agenda remains consistent.

There is a symbolically important change to watch for in the text of the leaders declaration, compared to that in the November text. I fear that the word “free” may be absent in the successor statement to this sentence from the November leaders declaration:

12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems.

Losing “free” would be an enormous step backward. All G-20 nations agreed to the above statement last November, so there is no good reason to change it if the U.S. objects. In the short run, it is easy to see how a negotiator might give this up for a more concrete immediate objective. In the long run, few things are as important. I hope the American team will insist on repeating this language, and in particular keeping the phrase “a commitment to free market principles,” as our negotiator did last fall.

Four of the five major topics of discussion at the summit are extensions and continuations of the November efforts. There is one big difference, influenced greatly by our new President. After reviewing the available press and talking with Dan Price, President Bush’s “sherpa” for the first G-20 summit last November, here are my expectations for the London G-20 summit.

  1. Global macroeconomic stimulus — The big difference is the new #1 agenda item for the G-20, global macroeconomic stimulus. President Obama’s first domestic economic policy effort was the enactment of a law that he argues will stimulate near-term macroeconomic growth. He is pushing other nations to take similar actions, and for the G-20 as a whole to support similar global efforts.I expect the final G-20 statement will broadly support national actions for macroeconomic stimulus, but will not include any numbers. It will say something like “Nations should do what is necessary.” It may also emphasize the fiscal actions already taken by a large number of nations.Reading between the lines of President Obama’s answer to a question in a press conference this morning confirmed this expectation.
  2. Financial market stabilization — I expect this will be a continuation of efforts in November, but with some details fleshed out. The final statement will likely highlight three subgoals to financial stabilization: restarting lending, enhancing the capital structure of financial institutions (aka recapitalizing banks), and dealing with toxic assets. This is consistent with discussions from last fall, but I expect a greater American emphasis on the last item from the new team.
  3. Regulatory reform - While financial market stabilization focuses on short-term actions the G-20 nations need to take, the regulatory reform section will focus on longer-term reforms to reduce the chance that these same problems recur in the future. The negotiators and their staffs have spent a lot of time on these issues, and I expect the final product will continue to flesh out the construct created last November, with a lot of details now filled in.I expect an emphasis on improving oversight and greater cooperation among national regulators. To my delight, I do not anticipate any mention of any sort of “single global regulator.” There is a so-called “college of supervisors” that was part of the November and prior efforts, but my expert advisors on this subject assure me that this group is about coordination, not the creation of a supra-national sovereign group. Participant nations appear interested in coordination of national efforts while maintaining national sovereignty. This is a big deal for me. Let’s work together, but Americans should have the final say in what America does.There is an interesting debate about “convergence” of national regulatory structures that underlies this question. I expect the statement will emphasize the goal of “convergent” regulatory structures. A tension exists between two goals. We want a level playing field across nations so that government policies distort capital flows as little as possible. In this respect, convergence of national regulatory structures can be a good thing. At the same time, if they converge to a consensus position that is unwise, then that’s a bad thing. My own instinct is to worry that, in a politically governed process negotiated by national governments and regulators, there will be a tendency to converge to a structure that is overly restrictive and burdensome. This is a tension that will play out in obscure international regulatory fora over months and years, and can have long-lasting and important consequences on the international flows of capital. I could be OK in theory with “convergence” language, if I knew what the final details would look like. Since no one can know that in advance, “convergence” language makes me nervous now, as it did last November.

    I further expect that the regulatory reform section will talk about the importance of better oversight of “systemically important institutions” (read: too-big-to-fail) in ways that parallel how Secretary Geithner, and Secretary Paulson before him, and Chairman Bernanke, have spoken about the issue.This will send an international signal that the problem of regulation of institutions that are deemed to be too big to fail is a critical area for future policy development. My own view is that this is the big enchilada. I trace back much (most?) of our current financial pain, as well as almost all of the tension between Wall Street and Washington, to consequences from being on the back end of a too-big-to-fail problem, where all options are terrible. I think it’s our primary long-term financial policy challenge. I wrote about the causes of the financial crisis last October, following a speech by President Bush.

    There is an important follow-on question about the relative importance of strengthening the oversight of huge banks and insurance companies on the one hand, versus expanding regulation into hedge funds and private pools of capital on the other. I am absolutely convinced that the former needs major reform. I am far less certain that the second is as large of a problem. I am in the minority in this view. This is a topic for further discussion.

    I also anticipate that the final statement will say something on tax havens. My views here on international convergence of taxation differ significantly from those expressed in the past by those who are now senior American officials. I will refrain from commenting while they are overseas negotiating. They have the ball for America.

    I expect the regulatory reform section will talk about the importance of moving the trading of Credit Default Swaps (CDS) onto organized exchanges, which parallels efforts that Secretaries Paulson and Geithner have pushed here in the U.S. This is a good and important thing.

    I expect the statement will continue to flesh out work to harmonize accounting standards. This is simultaneously mind-numbingly boring and incredibly important.

    There will also be some structural changes to the Financial Stability Forum – they will change the name to the Financial Stability Board and add more members from the G-20. They will also have language, I think, similar to that in the November document on executive compensation.

  4. Increased resources for the IMF and restructuring of the World Bank and IMF- One of the advantages of being Treasury Secretary is you get some leeway to push issues that are important to you. Secretary Geithner has spoken of tripling the IMF’s budget, and Prime Minister Gordon Brown has spoken of doubling it. We will see where the number ends up, but it’s clearly going to increase. I am interested to see how willing Congress will be to fund the increased U.S. contribution.They will also change the governance structure of the IMF and World Bank. I anticipate that China and other developing countries will get more weight in decisions of these international bodies, but only if they pay their share of the budgets. There is an important thematic here for China and India that crosses a range of international economic policy issues. In international negotiations, China and India sometimes try to have it both ways. Their negotiators argue they should have the same say in international economic policy questions as major developed economies like the U.S., Japan, and major European economic powers. At the same time, they plead poverty and argue that they cannot possibly sacrifice economic growth for the global good. My view is: in or out. You decide. If you want to be a first-tier economic nation, that’s fantastic. You play by the same rules as everyone else, and you make the same sacrifices for the global good. You cannot have it both ways.Finally, I anticipate the U.S. and Europe will give up what some call the “knightship rights” of choosing the leaders of the World Bank and the IMF. I expect one result will be some kind of new (supposedly) merit-based selection process.
  5. Fighting protectionism - This is the topic that I hope will make almost all of the G-20 leaders uncomfortable. In November the G-20 leaders agreed to a fantastic strong statement that opposed protectionism, in which they said,

    We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary.

    And yet on March 17th the World Bank reported that 17 of the G-20 nations “have implemented 47 measures that restrict trade at the expense of other countries.” The U.S. is one of the 20, and the World Bank highlighted “the US direct subsidy of $17.4 billion to its three national [auto] companies.” President Obama’s Monday announcement extending the auto loans make this a challenging topic for him in London.

    I’d like to praise World Bank President (and former U.S. Trade Representative and Deputy Secretary of State) Bob Zoellick for this excellent and well-timed study. We need more “name and shame” tools to highlight protectionist actions by governments. The fragile world economy makes it even more important that everyone push for free trade and open investment.

    Dan Price was President Bush’s international economic advisor in the White House, and also the President’s “sherpa” for the November G-20 summit. Dan suggests that President Obama could demonstrate U.S. leadership with a move that promotes both free trade and his clean technology agenda, by getting the G-20 nations to agree to eliminate tariffs on clean energy technologies. President Bush launched this effort last November, and it would be a huge win on multiple fronts for our new President if he could bring this to a successful closure. I strongly agree with Dan.

    I conclude with a warning from Dan Price, who says, “In the process of needed reform, there is a risk of political demonization of particular products or services, like CDS or securitization, that in fact perform a very useful function.”

    I wish President Obama and his team the best in their efforts to represent America at the G-20 summit.

What was accomplished at the G-20 Summit?

Here is the “Leaders Declaration” for the Summit on Financial Markets and the World Economy (aka the G-20 Summit) hosted by President Bush last Friday and Saturday in Washington, DC.

This is the second of a two-part note. Here’s the first part.

A fair amount of the press coverage followed a ready-made storyline: “Lame duck President / not much accomplished.” This storyline is incorrect. Let’s look at some important wins in the actual text of the declaration.

  • Formerly Communist China and Russia (along with all the other participating nations) agreed to the following text:

12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living. Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.

  • All 20 nations agreed to reject protectionism, to refrain from raising new trade barriers for a year, and to continue working toward a global free trade “Doha” agreement:

13. We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO�s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary.

  • All 20 nations agreed on the “root causes of the crisis.” It’s not as clear as the President’s explanation, but it’s quite close, especially given that this is the result of a 20-nation negotiation.

3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.

  • All 20 nations agreed on five key principles:
    1. strengthening transparency and accountability;
    2. enhancing sound regulation;
    3. promoting integrity in financial markets;
    4. reinforcing international cooperation; and
    5. reforming international financial institutions.
  • The document never talks about a “single global regulator” or anything approaching that. Instead, it emphasizes coordination and cooperation among national regulators.

Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability. However, our financial markets are global in scope, therefore, intensified international cooperation among regulators and strengthening of international standards, where necessary, and their consistent implementation is necessary to protect against adverse cross-border, regional and global developments affecting international financial stability.

  • The document emphasizes strengthening transparency and accountability, thus allowing well-informed market forces to provide market discipline:

We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions.

  • While agreeing on the need for financial sector reform, the leaders sounded a cautionary note against over-regulation warning that it would “hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.” This is similar to what the President said last Thursday.
  • The leaders committed to continue to work to alleviate poverty and address the needs of the most vulnerable.
  • The leaders agreed to meet again by April 30th of next year “to review the implementation of the principles and decisions agreed today.”
  • You’ll note that pages 6-10 of the declaration are an “action plan” of 47 specific to-dos. The list addresses:
    • accounting standards;
    • addressing the valuation of complex illiquid securities, especially during times of market stress;
    • requiring financial institutions to disclose more information about their risks and losses on an ongoing basis;
    • looking for opportunities to better coordinate among national financial regulators;
    • improving bankruptcy laws to allow for an orderly wind-down of “large complex cross-border financial institutions;”
    • reforming the regulation of credit rating agencies;
    • strengthening capital standards “in amounts necessary to sustain confidence;”
    • actions to reduce risk in the markets for credit default swaps;
    • enhancing regulatory guidance “to strengthen banks’ risk management practices;” and
    • steps toward reforming international financial institutions like the International Monetary Fund and the World Bank.

Skim the document and judge for yourself. We think this summit was a big success, both in the good things that were agreed to, and the bad things that were not.

The Farm Bill will be vetoed

We expect the House to vote on the Farm Bill conference report today. The President will veto this bill. Here is the President’s statement on the bill.

The final legislative language for the conference report was released Tuesday morning.

Hint: If you want to find the really bad stuff in a big bill, always start at the end of the bill’s Table of Contents.


A few of us have been debating the question “Which is the most important reason for the President’s veto of this bill?” Candidates include:

  • Too much spending: The bill increases spending by almost $20 billion over the next ten years, at a time when net farm income is at an all-time high. Much of this additional spending is disguised by budget gimmicks that take advantage of formal scoring rules to hide real spending increases.
  • New sugar program: The bill would make the government buy sugar for 2X the world price, store it, then resell it at about an 80% loss to the taxpayer. Sugar sells for about 11 cents/lb on the world market. The U.S. government would have to buy sugar for about 22 cents/lb, store it, and then auction off the excess to ethanol plants. We estimate that such an auction would net the government about 4 cents/lb. In addition, this new provision would require the government to guarantee that domestic sugar producers get 85 percent of the domestic sugar market.
  • Subsidies for rich farmers: Farmers would be eligible for government subsidy payments if their incomes were as high as $1.5 million if married, and up to $750,000 if single. We had a big fight with Congress last year over whether families with income of 3 times the poverty level should receive taxpayer-subsidized health insurance. This bill would subsidize a married farming couple with income more than 107 times the poverty level (which is $14,000 for a couple). Put another way, such a couple would be in the top 0.2% of the income distribution. You would be subsidizing their business with your income taxes.
  • Getting the best of both worlds: “Beneficial interest” is a provision of current law which allows you to lock in a government subsidy payment when the market price for your good is low, and then hold the actual good and sell it when the market price is high. You thus get the best of both worlds – subsidy payments as if crop prices were low, but profits from selling your good at a higher price. The President proposed a “pick-your-price” reform, in which you lock in the subsidy at the same time that you lock in the sale price, so you can’t play timing games. The conference report does not include this reform, and continues the practice of current law.
  • Using food aid $ inefficiently: Under current law, U.S. food assistance for hungry people around the world must be spent purchasing U.S. crops. The President proposed to allow up to 25 percent of U.S. global food assistance to be spent purchasing food from local farmers (in the country where the people are starving). This allows U.S. dollars to be spent purchasing food, rather than paying transportation costs. It also encourages the development of farming infrastructure in these countries. Congress failed to include this forward-looking policy that will help save lives overseas. This means fewer starving people will get food, and these countries’ farming infrastructures will be less well developed.
  • Earmarks:
    • $500 M to purchase a 400,000 acre property from the Plum Creek Timber Company in Montana (Sec. 8401)
    • $175 million to provide water to Nevada desert terminal lakes (Sec. 2807)
    • $170 M for commercial and recreational members of some West Coast salmon fishing communities. (Sec. 12034) Note that the salmon fishing is a classic example of a “conference earmark.” It was in neither the House-passed nor the Senate-passed bill.
    • Trail to Nowhere: Section 8303 “authorizes the Secretary [of Interior] to sell or exchange a few specific parcels in the Green Mountain National Forest designated on the map entitled ‘Proposed Bromley [Ski Resort] Land Sale or Exchange’ dated April 7, 2004. Funds from the sale of this land are to be used to relocate small portions of the Appalachian Trail or purchase additional land within the boundary of the Green Mountain National Forest.” Environmentally responsible drilling on federal lands in Alaska when gasoline is $3.72 per gallon is forbidden, but now skiing on Federal lands in Vermont will be OK. (A weekend lift ticket at Bromley is $63.) One person has labeled this provision the “Trail to Nowhere.”
  • Permanent disaster assistance: Farmers can now buy crop insurance to protect themselves from low prices or crop failures. This bill also establishes a “permanent disaster assistance fund.” We fear that this would not replace emergency supplemental requests for more money when disaster strikes, but instead supplement such requests. There would be tremendous pressure to label even minor price or weather fluctuations as disasters, when there is sufficient funding available in this new pot.

We have, however, discovered a new problem with the bill. It has to do with trade, international labor standards, and Haiti.

There is a new Subtitle D to the conference report, titled “Trade Provisions.” It’s the last title in the bill. Section 15401 labels this as the “Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2008.” This title provides enhanced trade preferences for textile imports from Haiti. This title was in neither the House-passed nor the Senate-passed bill. It’s about trade, not farming.

The bill effectively directs Haiti to establish a new program, called the TAICNAR Program: Technical Assistance Improvement and Compliance Needs Assessment and Remediation Program. This TAICNAR Program will be operated by the International Labor Organization (ILO), a U.N. agency that deals with labor issues. The TAICNAR, operated by the ILO, will write reports about whether Haiti is meeting its requirements on “core” internationally recognized labor rights, standards established by the ILO.

The bill then states that the President “shall consider” these reports as he makes his decision about whether a Haitian textile producer “has failed to comply with core labor standards and with the labor laws of Haiti that directly relate to and are consistent with core labor standards.” If he finds that the producer has failed to comply, he “shall withdraw, suspend, or limit” the trade preference for that producer.

This bill would subordinate the President’s decision-making on U.S. trade preferences to an international labor agency. It would mandate that he consider the ILO determinations on Haitian producers in granting or denying trade benefits.

We anticipate that, if a Haitian firm did not comply with an ILO standard, the new TAICNAR Program, run by the ILO, would report this to the President as a violation of its core labor standard, using the U.N./ILO criteria. If the President were to “consider” that report, and then decide not to withdraw, suspend, or limit the trade preference for that producer, the U.S. Government would be subject to endless petitions by mischief-makers, thereby forcing the President to undertake never-ending reviews to prove that he “considered” (and rejected) this U.N./ILO standard.

Q: Why should the President of the United States be required to consider determinations made by a U.N. agency as he makes a decision about a U.S. trade preference?

We’re still trying to understand the full ramifications of this provision (it’s 18 pages long). It appears that the International Labor Organization will effectively be telling the President what to do. At a minimum, it limits the President’s decision-making authority by requiring him to take certain factors into account in his decision, when the determinations underpinning those factors were not made by U.S. policymakers.


Statement by the President (13 May 2008)

If this bill makes it to my desk, I will veto it.

Health insurance for poor kids

Health insurance for poor kids

This past weekend the President signed a short-term extension of a program that finances health insurance for children, called SCHIP: the State Children’s Health Insurance Program. We expect the Congress today will send the President H.R. 976, a bill that reauthorizes SCHIP for five years. The President has said he will veto this bill, and we expect the House will attempt to override the veto.

This debate is generating much heat and little light. Our critics claim that, because he opposes this bill, the President doesn’t want to help poor kids.

That is of course untrue, so let’s look at where we agree with this bill, where we disagree, and what we would do differently.

Here’s where we agree.

  • We agree with the Congress that SCHIP should provide sufficient funding to States to finance health insurance for poor children. The President’s budget would increase total SCHIP spending over the next five years by 20%, from $25 B in total to about $30 B. The gold line below is past funding. The green line is a straight extension of current law (called the baseline). The light blue line is the President’s proposal. (Note that the light blue line shows an even bigger 30% increase, because some States have funds they have not yet spent.)

S-CHIP spending

  • We agree with the Congress that there should be no funding gap while we attempt to resolve our differences. At the same time we’re “aggressively debating” the right long-term solution, it’s encouraging that we have agreed not to allow funding to lapse in the short run. Last weekend the President signed a bill that will keep funding going to States through mid-November.

Here’s where we disagree.

  • We think the “C” in SCHIP stands for “children.” Over the past several years, adults have been added to SCHIP. Some were parents of kids with health insurance, others were adults without children. We were responsible for some of those additions, as we approved State waiver requests. We made a policy shift this year, based in part on further input from the Congress, and we’re now returning SCHIP to its original purpose. Over the next few years, our policy will return SCHIP to a kids-only program. States that are now covering adults will have to move them onto Medicaid or a State program. While the advocates for HR 976 argue they share this goal, the bill doesn’t match the rhetoric – it lets adults in some states back into SCHIP. And in six States (IL, NJ, MI, RI, NM, and MN), more than half of their projected SCHIP expenditures this year are for adults. We think this is the wrong direction for a program that should be about children.
  • We think SCHIP should be about helping poor kids. This bill also raises taxes to subsidize health insurance for some middle-income kids. New York wants to use Federal dollars to cover kids who are clearly not poor: for a family of four, they would like to use Federal tax dollars to pay 65% of health insurance costs for a family of four with income as high as $82,600. (We measure this in terms of a multiple of the “poverty line” – NY wants to cover kids up to 400% of poverty.)

This is a fundamental philosophical difference – should we collect more taxes to subsidize those in the middle class, or fewer taxes and subsidize only the poor? The President wants to focus Federal tax dollars on helping kids in families with incomes below twice the poverty line. Note that in the current debate, they count as “poor” kids.

We created a lot of heat by sending a letter from the head of the SCHIP program, Dennis Smith, to State Medicaid Directors. Basically, Dennis’ letter says to States, “You can’t expand your program to non-poor kids until you’ve demonstrated that at least 95% of poor kids in your State have coverage.” Amazingly, this simple insistence that we help poor kids first is considered controversial.

New York has announced they’re going to sue CMS. Should a childless Kansas couple with $50K of income pay higher taxes to subsidize health insurance for a New York family with two kids and $80K of income, when the Kansas family may be having trouble affording health insurance for themselves? We think not.

Congressional advocates for HR 976 argue that we have been misrepresenting HR 976 – they argue that the bill does not provide extra federal funding for all kids up to 400% of poverty. To be clear, it does not, nor have we claimed that it does. The bill does, however, provide extra federal funds to subsidize some kids who are not poor. Under HR 976:

    • In New York, kids up to 400% of poverty would be eligible and the State would be paid extra to enroll these kids. For a family of four, this is $82,600 of annual income.
    • In New Jersey, kids up to 350% of poverty would be eligible and the State would be paid extra to enroll these kids. For a family of four, this is just over $72,000.
    • In all other States, kids up to 300% of poverty would be eligible and the State would be paid extra to enroll these kids. For a family of four, this is just over $62,000.
  • We think the goal should be maximizing the number of kids with health insurance, not maximizing the number of kids enrolled in government health insurance programs. The President’s priority is to help kids without health insurance afford the purchase of private health insurance. Unfortunately, this bill would encourage families to drop the private health insurance they have now for their kids, and instead substitute low-premium government-provided health insurance. This is called “crowd out,” and it’s both undesirable and a tremendously inefficient use of taxpayer dollars. If a family drops a kid’s privately-purchased coverage, and substitutes health insurance financed by the taxpayer through the government, then you haven’t reduced the number of uninsured kids. Our numbers suggest that, under HR 976, one in three people newly enrolled in SCHIP would be people who dropped their current health insurance to get something from the government (mostly) for free. The Congressional Budget Office estimates that under HR 976, 2 million of the 5.8 million new people enrolled in government health plans would drop private insurance to enroll.
  • We don’t think you should raise taxes to pay for more spending. And tobacco taxes are regressive – they fall hardest on low-income people.
  • We think this bill is fiscally irresponsible, because it creates an unfunded and unsustainable set of promises. As you can see from the graph below, HR 976 would increase spending by 121% over five years. But it would then cut spending 65 percent over two years, to below where it is now.

comparison of S-CHIP funding

This is clearly unrealistic. Once the expectation is created among individuals and the States for $14 B / year of spending, the likelihood that the Congress would actually allow a 65% funding cut is near zero. In reality, the actual projected spending probably looks like this.

comparison of S-CHIP funding extended

The bill doesn’t pay for this increased spending in the “out years,” because technically it assumes the big cut after 2012. So it raises taxes by “only” $73 B over ten years, when a more realistic long-term spending assumption would require even higher taxes to offset the increased spending. (Astute observers will notice that the historic spending on these two graphs is different from the first graph. That’s the difference between when money is allocated to the States, and when cash actually is spent on health insurance. In the budgeting world, the first is called budget authority, and the second outlays.)

  • We believe this is a step toward a government-run system for all Americans. The President has made clear that he believes this is the wrong direction. He prefers a system in which the patient (and consumer) is at the center of decisions about his own health care. Moving toward more government financing, and more people in health plans chosen by the government, means less control for the patient, and more decisions made in Washington and in State capitals. This is bad.

In contrast, the President has worked with the Congress to enact changes that give patients more choices and more control over their health care (competing private Medicare drug plans, competing Medicare Advantage insurance plans, Health Savings Accounts), and he has proposed a host of other changes that move in the same direction (especially Association Health Plans, allowing people to buy insurance across state lines, and changes to the tax code, described below).

  • We believe we have a better way to help more people afford private health insurance, at less cost to the taxpayer. The President proposed a change to the tax code which would create a “Standard Deduction for Health Insurance.” When combined with the President’s SCHIP proposal, this Standard Deduction would result in significantly more people being able to afford (and buying) private health insurance. His proposals would combine direct assistance (through SCHIP) for poor kids, and a voluntary tax incentive for most everyone else. I’ll try to describe that in more detail in a future note.

One House Democratic leader said that a Presidential veto would be a “political victory” for the Democrats. We’re looking for those who are instead more interested in finding common ground with us on a responsible policy to help poor kids get health insurance, and to making health insurance more affordable for all working Americans.


Update: The President vetoed the bill on October 3, 2007. The House tried to get 2/3 to override and failed, 273-156.

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