Obama’s Waterloo

Few were impressed by Senator Jim Demint’s “healthcare will be Obama’s Waterloo” analogy. His gist was shamelessly partisan and it was disappointing for many to find that healthcare reform has become a battle and not a collective project. But in some respects Demint unknowingly made an apt comparison. Just as Napoleon fatefully tried to challenge all of Europe at once, Obama’s healthcare offensive is looking to tackle an axis of disparate issues—as a result, things in Congress have turned chaotic.

We refer to “healthcare” as a singular topic, but there are several different aspects that need to be addressed in different ways. Our system is plagued by skyrocketing costs and we already spend over 50% more on healthcare than any other country. We also have an ever-growing population of uninsured Americans which the recession is likely to swell further. Fiscally speaking, we have the largest government healthcare system in the world, which is defrauded by tens of billions of dollars annually, wastes tens of billions more, and is daunted by the prospect of an aging population bulge. It was overambitious to approach all these foes in one breakneck charge and the result has been chaotic.

The conflation of these topics is making it difficult for Americans to understand the debate and the various players’ objectives. Recent media coverage has reflected this. Victor Hugo called Waterloo “an enigma, as obscure for those who gained it as for him who lost it. Look at the reports; the bulletins are confused; the commentaries are entangled; the latter stammer, the former stutter.” News on healthcare reform could not be more accurately described. The town hall skirmishes have erupted because Americans have only the vaguest idea of what healthcare reform might actually look like. Congress is simultaneously juggling a dozen separate issues.

We don’t see healthcare reform taking tangible shape, nor do we understand even the most basic details of how we might pay for that reform. The only clear reality is that—as Napoleon himself once said—“the battle has degenerated into combat.” Healthcare reform has turned into a fracas of special interests, lobbyists, partisan sniping, and ducking-for-cover.

But Obama and the democrats are invested in this; there’s no going back, no surrender. So the most likely outcome—it seems—will be a pyrrhic victory. In the process of forging a compromise, Congress will overload and convolute this bill with earmarks, drastically scale back the extension of coverage, and leave it critically under-funded. The Democrats have already backed off the “public option” and the cap on tax-exempt healthcare benefits. The final product will only vaguely resemble the lofty campaign dream.

There is a real need for permanent and drastic change in our troubled healthcare system. But Americans need to prepare for a long, arduous process. Obama needs to divide and conquer. Rising medical costs; the uninsured; the health insurance industry; the future of Medicare and Medicaid—all of these need to be hashed out individually and discussed specifically. They are related, but they all have different ideological and logistical issues that need specific attention from the President, Congress and the American public.

Tax Exclusion for Employer Provided Healthcare – The Devil We Know

In last month’s ‘State of Healthcare Reform’ address, President Obama said that voters and legislators “prefer the devil they know to the devil they don’t know.” Judging by the disappointing news on recent healthcare reform, Congress does indeed seem to prefer ‘the devil they know’—and it’s in the details. Specifically the details of the Internal Revenue Code, Section 106, P.L. 83-591. This says that healthcare benefits that employers provide are not to be taxed. This ‘tax break’ is inequitable and distorts our system in many ways, yet Congress is trying to ignore it.

Over half of Americans receive this employer-provided health insurance. Thanks to the tax break, they’re saving about $1,200-$4,000 a year, depending on what kind of policy their job provides and what tax bracket they’re in. People who don’t get insurance from their job or government healthcare are expected to pay for health insurance with “after-tax” dollars, while over half of the country doesn’t. For this, the government loses roughly $200 billion in potential tax revenue per year.

The average family that benefits from this tax break saves over $100 dollars a month. According to recent census analysis from the Employee Benefit Research Institute, nearly three-quarters of those families make above-average income. An official report on the exclusion commissioned by Congress last November said: “When these tax savings are viewed purely as an economic subsidy, this pattern seems unfair if not wasteful. It is unlikely that an insurance subsidy program using appropriated funds would be designed in this matter.”

The tax break also functions as a “hidden subsidy” for the health industry, particularly insurance. Doug Elmendorf, the nonpartisan Congressional Budget Office’s director, recently declared that “widespread support among health analysts” was for “changing the preferential tax treatment of health insurance.” What Elmendorf calls “bending the curve,” is the most serious task as medical costs are projected to soon represent one-fifth of our national spending dollar. Last month Senator Kent Conrad, a Democrat of North Dakota, said “virtually every economist that’s come before us has said you’ve got to reduce that tax subsidy as part of an overall strategy to really contain costs.”

Our legislature looks to ignore this chorus of rational voices. Now it appears as though this tax break will survive healthcare reform completely untouched, with the Senate recently shelving the idea of capping the exclusion for high-value plans. Despite strong support from the Finance Committee’s director, Max Baucus, the proposal has been dropped. President Obama and Democratic Party leaders have taken pains to indicate that they will not accept any withdraw of the exemption.

Why quash an idea that every expert is backing? One reason is the fierce lobbying effort put forth by unions; they’re trying to protect better-than-average health benefits they’ve accumulated over years of negotiation. But for President Obama, and the rest of the Democratic Party, there’s an even simpler, bleaker reality. If this exemption were removed, 62% of the additional tax revenue gained would come from families earning over $100,000. These upper-middle class Americans are the mainstay of tax revenue. And, to the Democrat’s misfortune, the mainstay of America’s voting public. Making the right call on this issue would require Obama to break his campaign promise of not raising taxes for families that make under $250,000 dollars a year. Even more daunting would be the project of asking over half of all Americans to begin forging a new relationship with their healthcare.

It’s an ugly prospect for congressmen facing mid-term elections next year and for our president, who needs to remain popular for his early years in office. But if we hope to manage the serious issues in our healthcare system, we’ll need them to step up and re-examine this tax policy.

Dr. Jonathan Gruber, an MIT Economist, for NJEM, on the HC Income Tax Exemption

A short, simple description of the best way to finance healthcare reform and fix a lot of its problems in one big step.

http://content.nejm.org/cgi/content/full/NEJMp0904855

Slate’s Darshak Sanghavi on Overdiagnosis and Hypochondriatic Consumers

Since advertising deregulation in 1997, the pharmaceutical market has flooded our 60 Minutes commercial breaks with drug ads touting treatments for diseases we’ve never heard of.  Sometimes its not even clear what we’re supposed to have–the ad is structured as a sort of concerned interrogation:

Do you ever have trouble getting out of bed in the morning?

Is your sex life just not as good as it use to be?

Do find yourself sometimes needing to go to the bathroom?

These are the types of idle worries that pill-pushers can capitalize on.  The latest big pharmaceutical innovation was not the product of labwork, but rather a marketing push.  It’s want-creation.  Is A, B, or C wrong with you?  Then you have disease X, and the only thing that can help you manage this serious illness is pill Y.

This trend is not confined to Big Pharma.  There are all kinds of new diseases that sometime seem more like neurosis than anything else.   And even well-established conditions seem more loosely interpreted these days, starting with asthma, allergies, arthritis…

A group of preachy doctors are calling it the “epidemic of diagnoses,” and I wholeheartedly agreed with their assesment as recently as this morning.

But to drag this new industry phenomena into the healthcare debate is a grave mistake, as I’ve recently been convinced by a Slate contributer. He’s Darshak Sanghavi, a Boston-area pediatric cardiologists, and a stellar esayist.  He’s reminding us that people have the right to seek treatment for whatever bothers them, or whatever they think bothers them…

http://www.slate.com/id/2223372/

On the infamous WHO report that ranks American Healthcare in 37th place:

This ranking was released in the WHO’s annual report back in 2000, and since then it has steadily bounced around in blogs, the media, and even Congress. With the building momentum for healthcare reform, it has become a handy sound-byte that’s often misused. The strident, more liberal supporters of reform were the first to snatch this up—Michael Moore’s documentary “Sicko” made much of this stat back in 2003 when it was released, and now it has even found its way onto wikipedia’s “Healthcare in the United States” entry, and into the public memory, as the following random blog excerpt shows:

“…for being the US [our] ranking is pretty crappy, ranked 37th… but more interesting, on the Total Expenditure on Health , we are ranked [1st] So why….we do we have to pay the most expensive healthcare in the world, but we get 37th service? We are getting screwed over…” Find it Here.

The details of the WHO’s comparative system are rarely mentioned in the pro-reform camp. The surprisingly low ranking is constantly misunderstood. The above reaction is logical enough, but the blogger is probably not considering the WHO’s unique methodology here, which is not actually intended to provide a standardized method for comparing all the national systems:

In designing the framework for health system performance, WHO broke new methodological ground, employing a technique not previously used for health systems. It compares each country’s system to what the experts estimate to be the upper limit of what can be done with the level of resources available in that country. It also measures what each country’s system has accomplished in comparison with those of other countries .

So this assessment is like a test where grades are provided in relation to each students maximum potential aptitude. This explains for glaring underdogs in the upper-ranks. Oman, for example, ranked in eighth place despite its infant mortality rate, which was over twice that of the U.S. at the time, and its life expectancy, which was over 4 years lower than that of the U.S. population. The U.S. undoubtedly has some of the highest “available resources,” but the WHO doesn’t think we’re making the most of them.

This isn’t a particularly bold claim to make. Indeed, the U.S. has some disappointing problems given its economic and infrastructural strength. What would be a bold claim to make is that we actually get worse healthcare than people in many of the higher-ranking countries like Oman. But this is not the WHO’s claim. The idea, in the WHO’s system, is that Oman was utilizing its economic resources with great efficiency.

Efficiency—in the WHO’s opinion, has a lot to do with fairness. The assessment is broken down into five key categories:

• overall level of population health
• health inequalities (or disparities) within the population
• overall level of health system responsiveness (a combination of patient satisfaction and how well the system acts)
• distribution of responsiveness within the population (how well people of varying economic status find that they are served by the health system);
• the distribution of the health system’s financial burden within the population (who pays the costs).

Three out of the five categories are focused on “disparities” or “distribution”. It is telling that in “responsiveness,” which measures patient’s satisfaction with the care they receive and the manner in which they receive it, the U.S. was ranked #1.
Healthcare luddites were quick to dismiss this popular tidbit, fairly pointing out that it is used out of context. Nonetheless, many of their attacks betray a persistent misunderstanding of the report. Take, for instance, this (http://www.cato.org/pub_display.php?pub_id=4664) article by the Cato Institute’s Julie Chan, rejecting the WHO ranking for three reasons, none of which include their potential-to-reality method.

First Chan attacks their varying sources of national data, which is a lame criticism to wage on a global organization which has undertaken an admittedly Herculean task. On the contrary, their data is generally reliable for broad comparison, if not ideally precise.

Second, Chan chooses to question their use of Disability-Adjusted Life Expectancy, which does overlook societal attention to the disabled and the elderly, but still only accounts for one out of several dozen criteria that the WHO uses.

In her final and most legitimate point, Chan ‘exposes’ the WHOs explicit anti-market position on healthcare and the “authors underlying distaste for individual choice”. This is a dramatized but still important point. The WHO study emphasized the organization’s values, which center around health equality, and the explicit institutional credo that there should be equal access to health of equal quality. This is perhaps just not in line with U.S. political culture. Our spending is, indeed, largely out-of-pocket compared to other countries. Nations with similarly high out-of-pocket spending at the time—namely Brazil, New Zealand, Canada—also ranked low.

Nonetheless, the fact that Chan overlooks this explicit and essential feature of the rankings—to compare healthcare realities to potentialities—is surprising to me, and I wonder if she has failed to actually read the report just as her liberal opponents have. To be fair, it is a 200 page watered-down lecture on vague healthcare concepts—but still, it only takes a brief skim of the first 20 pages to understand this defining feature of the rankings.

This report was published almost a decade ago and has since been ubiquitously mischaracterized by both those seeking to endorse or reject its implications for the US system. Perhaps it’s time we forget all about it.

Evaluating the effect of AB 2449 in San Francisco stores

On September 22, 2008, ULS released A Qualitative Study of Grocery Bag Use in San Francisco. The study was conducted from September 14th through 17th and summarized findings of 25 grocery store checks in the City to determine the effectiveness of the Plastic Bag Recycling Act of 2006 (Assembly Bill 2449). Key conclusions drawn from the study include the switch to paper bags by establishments affected by the plastic bag ban, a minimal number of consumers who remembered their reusable totes as well as nonexistent or hard to find recycling bins in stores whose employees were unaware of the bins.

The author found that to-date, AB 2449 had no noticable effect on the environment because of the small number of people who brought reusable totes and the overwhelming switch from plastic to paper — often double bagged — which uses more energy, produces more waste and generates more greenhouse gas emissions than plastic bags. Although the environmental effects of the ban were too small to measure, the study revealed there was large public support and awareness of the value of recycling programs by consumers in San Francisco.

New York and NYC Plastic Bag Update

A Leader in Plastic Bag Recycling Programs (link)

Americans consume approximately 84 billion plastic bags annually and 1 billion of these bags have historically come from New York City. However, that figure will likely drop in the coming years following the approval of the New York City Plastic Carryout Bag and Film Plastic Recycling Law, which creates the necessary infrastructure for consumers to voluntarily return plastic bags to grocery stores for recycling.

In January 2008, Mayor Bloomberg approved of the bill mandating all ‘large retailers’ to provide resources for customers to recycle plastic bags, such as placing numerous recycling bins in prominent places. Stores over 5,000 square feet as well as those with 5 branches or more within New York City limits fall under the category of being a ‘large retailer’ required by law to meet these regulations. These retailers are also required to sign contracts with outside agencies to properly dispose of recycled bags. More information on this law can be found on the city’s Waste Le$$ website.

Plastic bag recycling has traditionally been minimal in the city, but the NYC Plastic Carryout Bag and Film Plastic Recycling Law, which went into effect on July 23, 2008 has been well-received and cities such as Albany are currently looking into the possibly of adopting a system similar to New York City’s.

Meanwhile, the New York State Plastic Bag Reduction, Reuse and Recycling Act (Assembly Bill A11725/ Senate Bill 8643-A) was recently approved by the New York State Legislature after being proposed on June 20, 2008. If the Governor signs this legislation, it would nullify the New York City Plastic Carryout Bag Recycling Law and go into effect on January 1, 2009.

Under the New York State Plastic Bag Reduction, Reuse and Recycling Act, stores that have over 10,000 square feet of retail space or those with more than 5 stores in the state and over 5,000 square feet of retail space will be required to establish an in-store recycling program. In addition, plastic bags in these stores will be required to have the message, “Please return to a participating store for recycling” printed on them and all stores must have reusable bags in stock for consumers to purchase.

If passed, New York would join Illinois, Rhode Island and California in providing statewide access to plastic bag recycling. So far, plastic bag recycling has been widely considered to be a sound policy choice that helps reduce disposable bag burning habits. As more states adopt recycling programs, increased cooperation with private manufacturers, such as Trex Co. Inc. (a manufacturer of recycled goods in Solana Beach, California), will be a practical alternative that allows states to recycle plastic bags at no cost to taxpayers.

California Plastic Bag Ban Update

Voluntary Recycling Program Encouraged Statewide (link)

In the past year, California has taken bold steps in promoting recycling of plastic carryout bags and encouraging usage of reusable canvas bags. In Los Angeles County, it was estimated that of the 6 billion plastic grocery bags distributed annually, only 1% was recycled.

To increase this rate, the original February 19th version of Assembly Bill 2058 was proposed, which initially aimed to improve the infrastructure to collect and recycle bags from grocery and retail stores statewide. The bill has been amended several times since then on 3/28, 5/5, 5/23 and 6/30.

The March 28th version of Assembly Bill 2058 introduced a 15 cent fee per bag on all disposable plastic bags. The per bag fee was raised to 25 cents in the May 5th version of Assembly Bill 2058. By passing this legislation, California would become the first state to require grocery and retail stores to recycle disposable grocery bags.

On August 7, 2008, California’s Senate Appropriations Committee failed to pass the *latest* June 30th version of Assembly Bill 2058. This version outlines that existing law requires all grocers establish an at-store recycling program that provides to customers the opportunity to return clean plastic carryout bags to that store. The new bill would prohibit a store from providing plastic carryout bags to customers on and after July 1, 2011 unless the store demonstrates an increased diversion rate of 70% in the number of plastic carryout bags provided by the store during a specified period.

The Progressive Bag Affiliates of the American Chemistry Council (PBA) estimates that the latest version of the proposed bill would have placed a $4.75 billion tax on grocery shoppers, which translates to upwards of $400 a year to the average family’s grocery bill.

As Californians continue to battle rising food costs while maintaining its reputation as having one of the highest gas prices in the nation, PBA fears

“this tax would have inevitably hurt the people who can least afford it, especially those shoppers who walk or take public transportation to the grocery store.”

So far, reviews of the proposed statewide bag fee have been mixed. According to a survey of 700 registered California voters, conducted by the American Chemistry Council between June 28 and July 2, 2008, 58% opposed the bag fee, 38% supported the bag fee and 4% didn’t know.

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Track the current status of AB 2058 at the Official California Legislative Information website.

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Welcome

Greetings! Welcome to the Northwest Economic Policy Seminar Blog. Here you will find news, reports and other information on public policy issues affecting the Pacific Northwest. We have been up and running since July 2008 and have since addressed a range of topics, including the recent headline-grabbing passage of Seattle’s “Green Fee” (which aims to place a 20 cent tax on all disposable paper and plastic bags, as well as banning styrofoam food and drink containers). You can view our analysis on the tax here.

We are also currently looking into the possibility of a free transit system throughout the greater Seattle area. Why? Because each year, according to the 2006 Metro Transit Facts posted at the county’s official website, King County Metro generates a mere $87,929,462 in revenue while spending a whopping $433,108,247 on various expenses.

We ask that you review our reports, letters, and articles to develop your own well-formulated opinion on these matters. Thank you and enjoy browing. Should you have any submissions or inquiries, please feel free to contact us.