To reduce earnings inequality, we must first reduce healthcare insurance coverage costs

Given the tremendous amount of focus on income inequality these days and the common knee-jerk reaction to push harmful and counterproductive wealth redistribution policies as a palliative, it is timely and important that Mark Warshawsky of the Mercatus Center at George Mason University recently published a working paper exploring the largely heretofore ignored impact to earnings inequality of employer-based healthcare coverage as a component of total compensation.

The punchline is this: healthcare coverage costs have consistently risen faster than wages for most Americans over the past four decades. Given that healthcare coverage is relatively equal across the income ranges (it is roughly the same cost to an employer to cover a family of four in the lower 30th decile of earners as that of a family of four in the highest 10th decile of earners), rising healthcare costs will harm and encroach more grievously on the employer’s ability to increase take home earnings for lower income earners. In other words, increasing healthcare costs, even if growing at the same rate for lower income workers as higher income workers, will eat up more of a percentage of total compensation and restrain actual take-home earnings for lower income workers. Furthermore, most studies, including the high- visibility and high impact to public policy book by Thomas Piketty, Capital in the Twenty-first Century, have used after-tax earnings data to compare wealthy and poor, resulting in loud alarm bells on inequality. The impact? Politicians across the globe, including President Obama, declared income inequality the defining issue of our time, but based upon partially constructed data! Warshawky’s research more appropriately focuses on total compensation, which provides a more comprehensive assessment of what is going on, and in this picture is revealed a more tightly coupled growth between the income poles. This is not to say that inequality in earnings is not a problem we should address, it is more to say that policies to address it should focus on the actual cause – which is not the perceived ability of the wealthy to extract wealth at the expense of the poor, but a direct result of the pernicious impact of rising healthcare coverage costs that crowd out earnings growth for those in lower income categories.

Warshawsky uniquely pulls directly from the Bureau of Labor Statistics, which provides a full assessment of the total compensation aspects of American workers. Contrast that with most studies’ data sources from the IRS and Social Security that only include cash earnings, and one develops an understanding that Warshawsky has the superior data set. In previous research using BLS data from 1999-2006, Warshawsky was able to demonstrate that if it had not been for increases in healthcare coverage costs, earnings growth between income levels would have been roughly the same. In order to understand and present the data more clearly and in layman’s terms, I have taken Warshawsky’s data and plugged in and extrapolated where I could while backing into implicit assumption numbers on baseline earnings, healthcare coverage costs, and fringe benefits for middle decile income and comparing them to top 1% incomes from 1999-2006. The patterns revealed are that while overall total compensation increased in the same percentage range over the course of seven years (34% for middle income earners and 36% for high income earners), the differences were more substantial and divergent within the earnings and healthcare coverage components of total compensation. Whereas for middle income earners wages increased only 3.5% per year, wages increased by 4.4% per year for high-income earners. This may not seem like much for any given year, but over time the differences become pronounced – over the course of seven years, the compounded gain for high income earners was 35% growth in take home earnings compared to only 27% for lower income earners. The key constraint in earnings growth for middle income earners is the fact that healthcare coverage costs rose much faster as a percentage of total compensation – rising at an annual rate of 9.9% compared to a more modest 6% for higher income levels. As Warshawsky indicates, this meant a rise in healthcare coverage as a percentage of total compensation for middle income earners from 7.2% in 1999 to 10.4% by 2006. In comparison, higher wage earners saw a modest increase of 4.0% to 4.3%.Graphs 1 and 2 visually show the impacts. While the slopes of the topline are similar between the two income groups (both rising at annual rates just over 4%), the relative mix of earnings, healthcare coverage, and fringe benefits is dissimilar; healthcare coverage costs are constraining earnings increases for middle income earners. Graphs 3 and 4 represent the percentage of total compensation aspects of the different components of total compensation, further visual evidence of the forces at play here – healthcare coverage increases for middle income earners takes up a larger percentage of total income and constrains earnings growth.

Graph 1

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Graph 2

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Graph 3

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Graph 4

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For anyone interested in a more fulsome review of the examples and scenarios I have created on top of Warshawsky’s values, I have attached the spreadsheet at health-care-costs-inequality. The detailed numbers simply provide another view in support of what Warshawsky states in the working paper, “Though rising healthcare costs eat away at wage growth for everyone, the effects will be largest for the working and middle classes because their healthcare costs are so large relative to the rest of their compensation package.”

In the rest of the paper, Warshawsky provides empirical evidence updates dating through 2014 using the same BLS approach as well as discussing supporting and conflicting studies. The conclusion is the same as the data above that cuts off in 2006, so I won’t drone on at length on it here. The policy implications are much the same as well – relief from healthcare coverage costs and decoupling health insurance from employer-based coverage, allowing American citizens to demand and receive higher wages with which they can then decide how to spend will do more for the lower and middle classes than any economically distorting wealth redistribution program.

 

 

 

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“What I learned in 2016”

Since I think that most news is overblown fluff, I have little sympathy for the endless pieces about “What we’ve learned about the world in 2016.”  Against the background of all of human history, 2016 taught us next to nothing.  If you just discovered that horrible people often gain vast political power with widespread popular support, you’re in dire need of remedial history.  If you’ve just discovered that politicians’ personalities matter at least as much as their policy views, you’re in dire need of remedial political science.  If you’ve just discovered that demagogic appeals to national identity work, you’re in dire need of remedial psychology.  I am only a messenger.

Still, if you compelled me to articulate what I learned in 2016, here is the most I’ll admit.

1. American voters are at the moment even more irrational than I thought they were in 2015.

2. Republicans are at the moment even more nationalist than I thought they were in 2015.

3. Democrats are at the moment even more socialist than I thought they were in 2015.

From Economist Bryan Caplan from George Mason University at his Econlog blog. I concur!

 

A Fatuous Defense of the Affordable Care Act

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“There are three kinds of lies: lies, damned lies, and statistics.” – Benjamin Disraeli

The L.A. Times provides a nice set of cherry picked data to justify the Affordable Care Act. The author is also fond of the word fatuous to describe Republican plans to repeal and replace Obamacare, so I feel compelled to maintain usage of the word my thoughts on the matter.Ignoring the long descent that healthcare has been on for decades now, and then claiming that slowing the growth rate of healthcare spend, while it still moves above the general rate of inflation and much of the decrease in observed to expected growth is related to the recession, is analogous to giving a kid a blindfold and a bat and told to hit the piñata in the tree in your backyard, meantime you have tied the piñata to a forest in the park two miles away. When the kid swings and misses, you take the blindfold off and tell him to try again, and declare success when he at least swings level at the air. The point being, even if Obamacare impacted these selective statistics, it is still miles from being where it needs to be.

To wit, there is many citations of costs decreasing, but the author conveniently ignores that those costs are going back up and projected to once again hit their stride of 6% a year, double the rate of inflation, for the foreseeable future. The recession was a temporary halt in healthcare spend, so it is really convenient to leave that fact out. Consider that in 1946 the average inflation adjusted hospital stay was $30 per day whereas today it is an astounding $2,200, a 70-fold increase. Trumpeting a modest decrease in this awful record is quite a bit like missing the forest for the trees.

Plus, while there is a lot of current debate about the tactics of repeal and replace given the slim Senate majority and how to use arcane Senate rules on budget reconciliation, Paul Ryan and others have come up with plans on replacing Obamacare, all under the banner of the Better Way moniker, which I detail in further detail elsewhere. Apparently this journalist is too lazy to look that up. But yes, I do hope that Republicans don’t take the risk of getting repeal without replace and do both at once. I honestly am not holding my breath given Republican ineptitude in the past.

It’s nice that the uninsured rate is going down, but of course a federal mandate to buy health insurance upon pain of hefty tax penalties is going to increase insurance rates. Would you praise a parent who upon their child spilling a drink or dropping food forced them to do 40 push-ups before eating again and then declaring to Facebook, “my child can do 40 pushups!”? No, I think not. At any rate, the real question is whether this metric on its own is the most important one and decoupled from the irrefutable evidence that healthcare costs and insurance premiums continue to skyrocket at a double-digit pace. Plus, recent research from economist Mark Warshawsky indicates that skyrocketing health insurance premiums have held down take home wages, as health insurance coverage has gone up for the lower and middle classes as a percentage of their total compensation from 4% to 12% in just a couple of decades – meaning they are not getting raises in take home pay because it is getting swallowed up in health insurance. Since inequality is a focus these days, look at the failures in our government run healthcare system as a main culprit.

If we are concerned with people not seeing the doctor, providing a stipend for catastrophic insurance and flexible Health savings accounts would have done the same thing without the enormous bureaucratic bloat that has led to skyrocketing premiums. And uncompensated care is an important gap to close, but this is all a bunch of cost shifting. What used to be covered through disproportionate share payments at the county and state levels, where great board oversight could be applied with local knowledge, is now being soaked up by cross-subsidies through the federal tax code – out of sight, out of mind, no accountability, and requiring hospitals to create a new administrative burden to work through the ACA and all its complexity.

This also ignores the many blatant failures of Obamacare, which I helpfully capture here. https://wordpress.com/post/gymnasiumsite.wordpress.com/117

If we must target wages for poverty reduction, wage subsidies > minimum wages

If we agree that poverty and welfare reduction are valuable goals that government should enact and that we want to supplement wages as a result, then this quick four minute video provides a simple explanation as to why wage subsidies are drastically superior to minimum wage policies. I would add that much of the muddle that we make of poverty reduction – whether it be food purchasing programs or healthcare financing, and all of those programs’ attendant bureaucracy, could be made much more efficient and effective through a wage subsidy. Plus, we could actually target poverty directly while supporting jobs and in turn reducing the rest of the inefficient welfare state.

Of course, those in government always prefer the minimum wage – it gives voters the impression that they did something to reduce poverty while shoving the consequences off of the government liabilities and accounting books, the problem being that it is less effective, drives down employment, and/or increases prices to consumers. In general, Marginal Revolution’s economics videos are always brief but insightful.

No, pumping up demand through government intervention is not “basic macroeconomics.” In the long run, only great ideas in a free market create economic growth.

In a recent social media debate, I found myself engaged in a discussion about whether government regulation and intervention can create economic growth and jobs. Readers here won’t be surprised at which side I am on generally with this topic . My opposite interlocutor ended his closing argument with something to the effect of, “government can help to increase the velocity of money (and therefore GDP). Just basic macro.”

“Just basic macro” is how progressive economists and those in never-ending faith in big government view the “expert” technocratic interventions in the market. The basic concept is one in which during market downturns, there can be a multiplier effect that ripples throughout the economy when government spends money. Thus, a $1 spend out of government (read taxpayer) coffers can magically create $3 out in the broader economy, and at least in theory results in economic growth and a positive return to the taxpayer for their “investment” which happens to have been forced upon them via the government’s monopoly on violence (if this statement seems dramatic to you, try not paying your taxes one year and see what happens). A true win-win! However, while this concept may be “just basic macro” to John Maynard Keynes, Paul Samuelson, and Paul Krugman, to the Austrian school economists and those of us toiling away on Main Street, we can grasp a sense of what the elitists in Ivory Towers can’t. To put an economic term to it, these “prime the pump to multiply” government interventionists inevitably always fail to account for opportunity costs. In layman’s terms, opportunity costs are defined as the next best alternative that was not pursued because of decisions to use scarce resources to pursue some other objective end. Very often, the opportunity cost can be larger than the objective end that was ultimately pursued. To use a simple analogy, think of an investor with $1,000 in 2006 who chose to invest in Microsoft rather than Apple. While the Microsoft investment may very well have been positive, it paled in comparison to the return on the investment in Apple. In this scenario, the cost of a foregone opportunity exceeded the option that was actually pursued.

On this topic, I am gaining some great insights as I am slowly and deliberately making my way through Deirdre McCloskey’s incredible book Bourgeois Equality, which is the final installment of a trilogy in which McCloskey sets out to prove a remarkable thesis that can be broadly summarized as follows: the global outlook and economic growth changed dramatically for the better when some geographic regions’ ethics changed substantially in the direction of valuing and dignifying the bourgeois class of traders, merchants, bankers, businessmen, etc. The slow and deliberate pace is due to my desire to fully absorb all of the insights and jot down and highlight the key sections to commit to memory, so to the extent that this post is one-part book review, please don’t let my pace suggest lack of interest in the book or that it is  a difficult and laborious read, because I assure you wholeheartedly that this is far from the case. The thesis is essentially that all of the conventional notions of what caused rapid economic development since the 1800s, such as sound government institutions, development of the rule of law, property rights, the Industrial Revolution, and so on, are all sideshows, byproducts, and/or elements that had long existed in a world in which for most of history, life was nasty, brutish, and short, and which most of humanity lived on a mere equivalent of $3 a day. McCloskey powerfully asserts, backed by an unparalleled mountain of facts and her own research, along with quotes from the global history of economics, sociology, philosophy, and literature, that it truly was the ethics and growth of the bourgeois engaging in open competition, resulting in what she calls “trade-tested betterments” that catapulted us to over 1,000% economic growth (from the $3 a day base) in developed parts of the world. Trade-tested betterments is a term coined uniquely by McCloskey, and is just one of many examples of the creative and brilliant mind of the author. One might mistakenly call what McCloskey calls trade-tested betterment “innovation,” but McCloskey stresses the importance of innovators being forced to face competition and global trade to truly push remarkable and rapid innovation to fuel economic growth. In essence, innovation at its best occurs when we don’t allow trade restrictions and competition, both forces that are inevitably rife when a government intervenes in the market.

McCloskey’s Chapter 16 in her book is titled, Most Government Institutions Make Us Poorer. This chapter resonates with the point of my blog post today and ties back to the debate in which it was declared that government intervention grows the economy and creates jobs as “Just Basic Macro.” McCloskey begins the Chapter with a quote from 19th Century French Economist Frédéric Bastiat that is apropos:

“The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen….Whence it follows that the bad economist pursues a present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

Again – the bad economist ignores opportunity costs, moral hazards, and tramples on the rights of citizens with their arbitrary wealth redistribution schemes.

But what if government technocrats could prove themselves truly capable of beating the next best alternatives? Here is what McCloskey has to say about that:

“The fact suggests that the projects of betterment enacted by governments, compared with voluntary deals made among consenting adults free of force or fraud, will fail, as they regularly have, because they are directed not at general betterment but at enriching special interests at the expense of generality, or merely spending mindlessly what money the government can appropriate under the threat of violence. The modern social-democratic habit of regarding the government as a wise and honest distributor of public goods ignores the unseen, the contents of Swiss bank accounts and the misdirected expenditures in aid of the prime minister’s second cousin, which practices govern most of the world. It supposes that every government is like Denmark’s, New Zealand’s, or Finland’s (which together govern 2 percent of the world) when most are instead like Russia’s, China’s, or India’s (39 percent). In James Madison’s words in 1787, ‘If angels were to govern men, neither external not internal controls on government would be necessary.’ Angles are rare, if unseen.”

McCloskey closes the chapter with a sweeping declaration comparing government intervention and regulation with a free market:

“The relevant comparison is not of some unattainable utopia of perfect trade-tested betterment with actual, imperfect government regulation. It is the comparison of the actual record of liberated trade, and the betterment it has brought to the powerless of the world, with the actual record of populism, fascism, socialism, and thick regulation bettering a few favored groups of the poor, every Party official, and most of the owners of the bigger enterprises able to corrupt the government, all at the expense of the rest.”

Once again, the ignored opportunity costs, the actual historical record of how bad governments are at market interventions (either through regulation or prime the pump spending), and the abuse of power and moral hazards it creates, means we as citizens should be extremely skeptical of these interventions.

Taking a quote from one my my favorite blogs, Cafe Hayekfurther illustrates the point of how Keynesians fail to capture the true essence of economics when they reduce everything to their formulas and theories.

Quotation of the day is from page 40 of Arnold Kling’s excellent new book, published this year, Specialization and Trade: A Re-introduction to Economics (link added):

[Paul] Samuelson and his successors taught that the economic machine had a gas pedal that could be used to avoid economic slowdowns.  That device was “aggregate demand,” which could be increased by the government’s printing money, running a budget deficit, or both. In this economic subfield, known as macroeconomics, the concept of specialization is forgotten entirely.  Instead, economists employ an interpretive framework in which every worker performs the same job, toiling in one big factory that produces a homogeneous output.  Macroeconomics replaces specialization with that GDP factory.

Indeed, it’s not too much to say that macroeconomics in the Samuelsonian-Keynesian mode abstracts away from most of what is essential in economics.  Market processes and entrepreneurial searches for profit; specialization; the complementarity of different capital goods with each other and with labor; the role of relative prices; the reality and importance of institutions; the reality and importance of the fact that politicians are relatively uninformed and self-interested agents. These important aspects of economic and social reality are either ignored or treated haphazardly in too much of what is called “macroeconomics.”

In short – “Just Basic Macro” is shorthand for legerdemain to justify government abuse, power, and expropriation of citizen wealth that in aggregate would have created higher economic growth (especially in the long run) than all the government experts in the world pumping out formulas could ever achieve.

In praise of decentralized government

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I have lived everywhere from a tiny Texas Panhandle farm community, a turkey farm in the rural Ozarks of Missouri, a college town (Gig ’em!), the West Texas border town of El Paso, all the way to the great northeastern communities of Hanover, NH and Boston (a slight difference in size between them),  Kansas City after a brief tour in Orlando, and recently back down to the West Texas city of Lubbock. I have witnessed and lived with many different communities that ranged quite starkly in their habits, ethics, socioeconomics, religion, and political compositions.This has given me a tremendous sense of appreciation for the diversity our great land possesses and the different strengths, weaknesses, and decision tradeoffs that each unique community dealt with, and how they responded to their own local needs. As a result of these peregrinations, it is a marvel to me that we don’t force governments to allow more of our substantial decisions on taxation, education, health, and welfare to the lowest possible level that reflects the unique natures of these far-flung communities. This post, then, is an attempt at defending the idea of taking back more control from our central government and in the spirit of federalism that this nation was founded upon, devolving more of it to the communities in which we live and therefore can more directly influence.  Whereas most of my topics on this blog focus on limiting government in the aggregate, this post is directed at the virtues of decentralizing the government and reducing it to the lowest possible polity possible. With this concept of fostering greater use of decentralized tax and spend policies I hope to someday appeal to my progressive friends under the guise of more freely allowing you to build communities on the model that suits you and to craft them in direct competition to your more conservative cousins. If you hate that democracy and the federal government can result in a Donald Trump ruling over the spoils and levers of government, then by all means, join hands to limit the power of central government and remain free to build progressive communities of your own making. Make San Francisco even better than you believe it to be, since you will send less money to the centralized coffers and can retain it in your own backyard. Obviously, for my part, I would like to believe that being unyoked from the decisions that progressives have taken centralized government since the FDR era that in turn limited and decentralized government communities would thrive and grow into my idealistic vision for communities – vibrant, dynamic, innovative, growing, and combining virtue and charity with competent and accountable local government, which is able to bring more decision making into its remit on account of what the central government has given up. Even poorer communities could make decisions that are more efficient and optimized for their needs, lifting them up faster than any central planner could ever do.

The cataclysmic and visceral reactions to last night’s election got me to thinking about why the Presidential and other federal elections matter so much to us as a people. The simplest of ways to reduce the problem logically is that the stakes are extremely high given how much the two dominant parties and their core adherents are fighting over the spoils of big government. The desires and end goals are quite different, but too often the centralizing mechanisms and controls over the levers of government are the same. Recognizing that there is tremendous power and centralized decision making in everything from military base posture, entitlements, health, energy, education, environment, and many more, it is little wonder that the controlling levers are so bitterly contested. If we want to get out of this cycle of high stakes gambles, we will necessarily have to devolve more of these fought over powers to lower levels of government. Tying this back to my list of locations that I have lived in, this devolution has the great benefit of allowing each of these municipalities to focus on the tax and spend and regulation policies that make sense given its populations and all its attendant mixture of demographics, ethics and philosophical beliefs. Lubbock,TX may need greater focus on their water access to aid cotton farmers while Granby, MO may need greater focus on Farm to Market road to support turkey transport trucks. Pulling back money blindly sent to state and federal programs allows them greater flexibility to focus on their unique needs. Getting more specific, the deliberate decentralization of government has many benefits that I find completely intuitive:

  • Local government is more responsive and accountable directly to its constituents.
  • Centralized government is able to obfuscate and hide what they spend money on and its impact – complexity and unaccountability is the enemy of good governance and the friend of easy corruption and pet projects that favor the connected
  • Individual communities making a wide diversity of tax and spend decisions promotes tremendous competition, which is good for us individuals as “consumers” of places to live and work
  • Individual communities making a wide diversity of tax and spend decisions promotes tremendous experimentation, giving us real-world learning labs of what policies actually work versus those that fail. Contrast that with central government decisions in which if the decision is a terrible one, as they often are (see the second bullet point and then connect the logical dots to Obamacare for a great example), then we all go down in a sinking ship due to the central government’s large ability to own the “monopoly of violence” which does not allow us to opt out of their decisions. Furthermore, such sinking ships oddly have very few people with which we can directly point to as accountable for the decisions and the failures
  • Decentralized government is much more consistent with liberty and freedom and mobility. In a world in which power and decisions are increasingly centralized, we are all subjected to the same standards (witness Common Core as an example). In decentralized models and with the competition promoted therein, if we don’t like the tax and spend policies of one community, then we can move on to the next that may have a mixture of these that we personally favor.
  • Greater individual liberties as a result of decentralized government allows us to pursue more meaningful charitable work in which we see the direct and tangible impacts in our own communities, and this is of incalculable personal, spiritual, and community value. One of the most fundamental frameworks of economics is to always keep in mind the opportunity costs. An opportunity cost is the foregone opportunity that could not be pursued due to a decision. In a simple example, the fact that Dr. Jones has to send 20% of her income to the federal government to have it spent by much less accountable bureaucrats means that that same 20% was not able to be taxed by her local community, county, or state – lower levels of government who are in a progression more accountable to her tax dollar. Taking this all the way to its opportunity cost extension, it means Dr. Jones also can’t directly spend that 20% in her local business, church, or community and can’t devote that portion to the charity of her choosing, where she could have uniquely observed a direct impact that connects the community to her and her to the community, all the while boosting her spirits.

I suspect all of this seems quite straightforward but still leaves us needing specific examples to debate the points. I think some natural areas, to name but just a few in my limited time, that are ripe for debate for decentralization are education, criminal justice, health systems, health payment (i.e. Medicaid block grants), commerce, agricultural policy, and determining the role of private charity versus local municipality tax and spend decisions. Each of these topics could use its own further paragraph about the key differences in philosophy, strategies, and expected outcomes when comparing centralized versus decentralized models, but that will be a topic for another day.

 

The central government planners behave as conflicted madmen, creating a muddle of healthcare

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The federal government created the “Affordable” Care Act, which by this point is a laughable misnomer in the face of never ending premium increases, alongside the creation of payment and delivery reform structures such as Accountable Care Organizations, knowing full well that it would drive health system consolidation. In fact, one might argue this consolidation was a specific goal of the reforms in the government planners belief that newly minted behemoths would drive cost down due to scale and drive care quality up through better coordination across the system continuum up. Meantime, the same federal government is also fighting against that urge to consolidate through the Federal Trade Commission, as this Modern Healthcare Article indicates.

If we were to view a man trying to push the walk button at a busy intersection with his right hand while his left hand tugged it back, we would think him a madman. Well, this is our own government intervention into the healthcare “market” at its finest.

Let’s repeal Obamacare and replace it with something more consumer-centric

At long last, Republicans have started to coalesce their various one-off healthcare reform ideas from the past 6 years into a semblance of a comprehensive Obamacare repeal and replace proposal. There is much to appreciate in this proposal, which includes oft-repeated catchy taglines of, “a better way,” “patient-centered,” and my personal favorite, “backpack.” I will discuss more on the backpack later. The whole presentation, which I have linked above, can be watched in a recent AEI video.

What this proposal does not promote is my own personal preferences of a drastically reduced role for health insurance, a product that should be beaten back into its proper place for coverage of catastrophes only. The price-obfuscating impacts of coverage for every service and the price-decreasing impact that would ensue if consumers were able to see prices and outcomes more transparently by paying more directly out of their pockets is not part of this proposal. Nor does it address the supply-side needed reforms such as lifting the competition stifling (and therefore price increasing) impacts of the various regulatory mandates and rent-seeking political lobbying of regional monopoly hospitals that prevent new hospitals and clinics from opening. Finally, while it promotes Medicare and Medicaid reform, it leaves Medicare, which is mostly a middle class welfare and wealth transfer that has a naturally price inflating impact, largely intact. These are my caveats for why I don’t consider this a perfect proposal. That being said, the main themes presented certainly stanch the government takeover of healthcare bleeding and presents significant and politically feasible patient-centric reforms in place of the current construct of byzantine, dizzying, and unsustainable complex web of government controls and mandates. For this fact alone, this substantial reform proposal should be applauded and supported as a significant improvement to the status quo that just might get enough electoral support if Americans pay attention to it and can keep from being distracted by the ongoing Trump/Clinton circus. As a former boss of mine used to tell me, “don’t let perfect be the enemy of good.”

The focus is clearly on consumer choice, portability, decentralization of decisions to state and local levels, and sustainability of Medicare. It is this concept of portability that is referenced as a backpack of items that will allow consumers to move across companies and states and maintain their same coverage and access to health services. Paul Ryan opened the session indicating that Obamacare is singularly focused on quantity of people insured, while ignoring the staggering costs in the system that Obamacare caused that are, in his words, causing the act to collapse under its own weight. Not to mention the tremendous loss of individual freedom and choice that resulted from centralized decision making and mounds of mandates arising out of D.C. Allowed to blossom, these are salient points that I believe will resonate with a public that has been remarkably skeptical and loathing of Obamacare. The marketing pitch is clear – consumers, take back your choice and freedom to choose the health plans that are right for you and not dictated by a government bureaucrat. Perhaps it is more appropriate to say take it back from thousands of bureaucrats, as one Congressman indicates in the video, there are fully 159 agencies and commissions currently involved in interpreting and implementing the dictates of Obamacare.  Several congressmen, including Budget Committee Chairman Tom Price (R-GA), Education and the Workforce Committee Chairman John Kline (R-MN), Energy & Commerce Committee Chairman Fred Upton (R-MI), and Ways & Means Committee Chairman Kevin Brady (R-TX) took turns articulating the proposal once Ryan got off the dais. Below, I have summarized the important components of the proposal, ranked in order of my opinion on which are the most important to least important.

  • Extending the health insurance tax break to individuals that businesses currently receive, and capping the amount that businesses can receive tax breaks. This concept will sever the link that causes Americans to be solely dependent on their employer for health insurance and promotes portability and accessibility of insurance. Hopefully, it results in more people taking the initiative to get insurance on their own and subsequently bargaining for higher direct compensation from their employers. The capping of tax breaks for businesses is intended to serve as a cost inflation and “over-insurance” containment provisions. Coupled with the ending of specific coverage mandates, also part of the proposal, this could go a long way towards incenting people to get more affordable coverage that makes sense for their life situation and promote innovative models such as high deductible plans, insurance coupled with wellness programs that promote actual health and wellness, and insurance that covers catastrophes only complemented with health savings accounts. These forces could make a major dent in insurance cost inflation and concomitantly overall health cost inflation.
  • Free up insurance purchasing across state lines – this simple and sensible act will drive up competition and will do much more to drive consumer choice and put downward pressure on prices than the continually failing exchanges and insurance co-ops (most of which have declared bankruptcy by now) could ever do, even though that was their ostensible original purpose. The challenge is that it is impossible to drive choice and cost containment when you also force standardized minimum levels of coverage and mandated cross-subsidization of high risk individuals.
  • Promotion of Health Savings Accounts – Provisions of Obamacare amazingly and wrong headedly penalize HSAs through the tax codes. This proposal would wisely end those disincentives and work to actively promote their use. HSAs are popular despite their government created disadvantages.. Furthermore, usage of HSAs promotes pricing transparency and healthcare service usage portability and flexibility.
  • Medicare Reform – The proposal kills off the unpopular and unaccountable Independent Payment Advisory Board and promotes consumer choice through expansion of the popular Medicare Advantage Program.
  • Provide state block grants for Medicaid – this will provide greater flexibility at the state level to craft cost saving programs at the localized level.
  • Provide for ability of Small Business Group Purchasing Associations – the proposal would allow for small businesses to band together for group purchasing of insurance coverage. While I prefer a high degree of an individualized market(which hopefully the tax breaks to consumers will promote), the fact is that most employees now expect and HR departments like to offer health insurance as a hiring incentive. Allowing small businesses to band together and to receive the same tax incentives as larger businesses will promote further consumer access with the nice boon to small business employment. Currently, Obamacare punishes small businesses through a web of complex rules that force them to either cover employees on increasingly expensive and bloated plans or pay a tax penalty per employee that they do not cover.
  • Protection of Pre-Existing conditions coupled with state incentives to create risk pools. While I would submit that a free-market system that promoted insurance for catastrophic conditions only would solve for this without the need for regulatory enforcement, this provision that is currently part of Obamacare is one of the few things that is actually politically popular. Thus, it is important from a politically feasible standpoint to keep it. One way of potentially holding down cross-subsidization amongst premiums and spiking premium costs for the average holder is to also create risk pools for certain conditions as a backstop to insurance coverage. The concept of risk pools is also promoted in the proposal.

These are simply the highlights. I will need to dig into the documented details of the plan to provide additional thoughts, but I certainly appreciate the direction this is heading.