by Mario Rizzo
For some time I have been interested in the dynamics of public policy – specifically, how particular policies make further policies more likely. Glen Whitman and I explored this in general terms in our paper, “The Camel’s Nose is in the Tent” and our own Sandy Ikeda’s book, The Dynamics of Interventionism offers a different, but largely compatible, general dynamic framework
I believe that dynamic-tendency (or slippery-slope) analysis — if carried on in a coherent theoretical framework with plausible empirical assumptions — can be a powerful supplementary critique of public policy.
The healthcare area seems especially prone to the dynamics of the slippery slope. In this post I wish to point to several factors that will ensure that the current proposals, if adopted, will not constitute a policy-equilibrium. Thus, they will likely lead to more and worse intervention by the state.
The “moderate” Democratic proposals, in general, push us toward increasing politicization of healthcare as their logic and the logic of years of piecemeal intervention play themselves out.
The New York Times reports that the lobbying efforts to reduce the cost control features in the now-current Senate (Baucus) bill are picking up steam. So let us, for the moment, put cost-cutting off the table as we consider the policy dynamics.
There are many aspects of the current proposals that hide costs to taxpayers and therefore must be considered simply dishonest. But that is not all. These are some of the very features of the Senate Finance Committee (Baucus bill) and related proposals that will set in motion political momentum toward expansion of government involvement. To see this, we must dig beneath the surface fantasies.
Dynamic Tendency 1. One important factor that is just now becoming evident is that there is a high implicit marginal tax (also here) in the current Senate Finance Committee proposal. This amounts to as much as 70% for lower income groups, not including food stamps and other benefits to those of lower income.
The higher additional marginal tax rate (additional to the existing marginal tax rates) also applies to middle-class workers buying on the insurance exchanges. For them it is around 20%. Add that to the existing taxes and you get a marginal tax rate of more than 50%.
This not a policy-equilibrium. It will produce a legislative incentive to reduce that marginal tax rate by continuing all or part of the subsidy to still higher income groups.
Dynamic Tendency 2. People in the same income bracket will receive a much greater subsidy of their insurance premiums if they purchase from health insurance exchanges (set up by the government) than if they receive coverage from their employer. The latter are ineligible to purchase on the exchanges. From a family of four at twice the poverty line the shortfall amounts to about $5,000. Will the latter be satisfied with the lesser subsidy? There will be legislative pressure to raise the subsidy to those receiving employer-coverage.
Dynamic Tendency 3. At the same time, for many middle-class wage earners there will be a rise in their insurance rates as government mandates take hold. For example, it would no longer be possible for insurance companies to deny coverage to people with pre-existing conditions. (This problem mainly affects people who do not have access to employer-provided health insurance.) They would have to community-rate these people which would drive up rates for younger, healthier people. These in turn would be forced to buy insurance to avoid the adverse selection problem.
The younger, poorer, healthier would subsidize the older richer sicker. With the impending bankruptcy of Medicare and Social Security the burden on the younger was already scheduled to increase; this increases the burden still further. However, the new burden will not appear as taxes but simply as higher insurance premiums.
It will be said that the young who are trying to start families and save for their retirement, etc. should not be so unfairly burdened. A higher subsidy might seem reasonable.
Dynamic Tendency 4. However, we are now seeing another approach — a watering down of the fines and subsidies levied on those (presumably younger low-risk) people who might not want to buy insurance.
If this tack is taken then many of the health-insurance exchange policies may go broke because the mandated new benefits will be hard to provide at affordable prices. (The young and healthy provide premiums but without incurring high medical expenses.)
And then we would get a strengthening of demand for the “public option” which will further the exiting of the remaining private options as the latter fail to compete. The major House proposal currently has the public option but the Baucus bill does not, as of the moment.
Overall, it seems pretty clear that the proposals we are now seeing are not political equilibria. Already, as noted above, we can see the unraveling not only of cost-control, but also of the political support to place higher burdens on taxpayers or younger people through higher insurance premiums.
The political dynamic is becoming clear. Increase the cost of private insurance through mandates. Subsidize the private plans, but not by enough to keep them alive. Provide a public option or trigger for one. See the public option gain market share as more and more private plans become unaffordable or simply go broke.
Those not eligible to buy insurance on these health-insurance exchanges will look on with understandable envy. Why do these people get a better deal?
At that point myopic politicians will probably see no alternative to the public option for all. A subsidy-heavy public option for all will crush all in its way.
And there you have it: fast track to the single payer.
I hope the proverbial wrench will be thrown into this process.