Krugman on the Cadillac-as-Chevy

A number of people have pointed to this Krugman post, in which he seemingly agrees with the excise tax apologists.

I think that states his position too strongly. What Krugman does is argue is that it makes sense to limit the tax exclusion for benefits. At the same time, he admits there are problems with imposing the excise tax as a flat dollar amount, not least because it’ll end up targeting older workers and those with chronic medical issues. In that stance, Krugman endorses a key point raised by excise tax critics–that it is taxing people who need the insurance, rather than just the affluent.

Here’s how Krugman weighs in on the Excise Tax Raise claim.

Second, there’s the argument that any reductions in premiums won’t be passed through into wages. I just don’t buy that. It’s true that the importance of changing premiums in past wage changes has been exaggerated by many people. But I’m enough of a card-carrying economist to believe that there’s a real tradeoff between benefits and wages.

Maybe it will help the plausibility of this case to notice that we’re not actually asking whether a fall in premiums would be passed on to workers. Even with the excise tax, premiums are likely to rise over time — just more slowly than they would have otherwise. So what we’re really asking is whether slowing the growth of premiums would reduce the squeeze rising health costs would otherwise have placed on wages. Surely the answer is yes.

I’ll come back to that, but first I want to treat his rebuttal of the third complaint about the excise tax–that it targets unions that have exchanged salary increases in the past for benefits–because I think it is illustrative to the question of the Excise Tax Raise.

The last argument is that this hurts unions which have traded off lower wages for better benefits. This would be a bigger issue than I think it is if the excise tax were going to kick in instantly. But it won’t, giving time to renegotiate those bargains. And bear in mind that this kind of renegotiation is exactly what the tax is supposed to accomplish.

Krugman suggests, I think, that the unions that will be disproportionately affected by this tax will have three years to negotiate new contracts that (presumably) take more compensation in wages and less in health care.

Nationally, one of the unions that will be most affected by this is AFSCME–national, state, and local government workers. The teachers unions are also likely to be affected.

So what do you think the chances are, in an economic environment in which many states are struggling to close budget deficits, in which states are cutting basic services and educational resources dramatically, that any contract renegotiation in the foreseeable future would involve a one-to-one swap of wages for health care costs or even any raise at all? What are the chances that elected government officials would give public employees salary increases when all their constituents were struggling, rather than putting that money back into the services that constituents need?

Not. Gonna. Happen.

In another economic environment, unions might be in a position to negotiate for raises to offset hits to their benefits package. But not in this economic climate, not these unions.

Which brings me back to Krugman’s take on the Excise Tax Raise.

Krugman starts by ceding that “the importance of changing premiums in past wage changes has been exaggerated by many people.” “The Shrill One” is being polite here in not naming names. But the report he links–the EPI report I’ve cited–introduces the claim this way:

Jonathan Gruber, an economics professor at M.I.T., argued in an op-ed in the Washington Post on December 28, 2009:

And when firms reduce their insurance generosity, they make it up in higher pay for their workers. We saw this in the late 1990s, when the rise of managed care temporarily lowered insurance costs, and wages rose in real terms for the first time in many years. But as soon as managed care was weakened and health costs rose again, we once again saw flat or declining real wages in the United States. (Gruber 2009)

The paper then goes on to name Ezra Klein and NYT’s David Leonhardt as the others making this claim.

In other words, Krugman starts by saying that Gruber and others are exaggerating the degree to which wage increases in the late 1990s were caused by a slowing rise in health care premiums. So Krugman’s rebuttal is, in part, a Nobel Prize winner affirming that the excise tax’s biggest boosters are overselling their case.

And in fact, Krugman’s endorsement of the relationship is much more measured. He reformulates the one-to-one claim that excise tax boosters are making this way:

Maybe it will help the plausibility of this case to notice that we’re not actually asking whether a fall in premiums would be passed on to workers. Even with the excise tax, premiums are likely to rise over time — just more slowly than they would have otherwise. So what we’re really asking is whether slowing the growth of premiums would reduce the squeeze rising health costs would otherwise have placed on wages. Surely the answer is yes.

I find the claim that “slowing the growth of premiums would reduce the squeeze rising health costs would otherwise have placed on wages” completely uncontroversial. Yes, health care cost is one element in the overall calculation of wages, and if it continues to skyrocket, it’ll contribute to continued wage stagnation. Yes, if employers are paying bajillions in health care, they’re probably not also paying bajillions in salary, unless the employer in question is Goldman Sachs.

By by reformulating this from a one-to-one correspondence into one source of pressure on wages, Krugman allows for the inclusion of a bunch of other factors in the calculation. One of the reasons wages rose in the late 90s–particularly among the almost half of workers who don’t get health insurance through work that the EPI looks at–is because the labor market in general was tight. That gave employees–whether they had health care or not, whether they were unionized or not–the leverage to negotiate for higher wages (and health care, in some cases).

One of the points I have been making when I challenge this Excise Tax Raise myth is that, in this job market, the claim that employers are going to share any savings with employees is just farcical. Hell, in this competitive business environment–in which businesses in most segments are struggling mightily to stay profitable–they’re not going to do it. The fundamental problem with the Excise Tax Raise myth is that it gives no consideration to the overall state of the economy in its calculations. If we have a booming recovery between now and 2012, when employers will begin to make changes in anticipation of the excise tax, workers might have the leverage to demand raises. But everything my favorite Nobel Prize winning economist says about the recovery makes me doubt it will be that strong.

Which brings us, finally, to this part of the statement.

we’re not actually asking whether a fall in premiums would be passed on to workers

We’re not?

Seriously, I’d love to have Krugman actually look at this claim and look at the JCT’s numbers, because I think that is, in fact, what JCT has assumed, and I think that is, in fact, what Gruber claims will happen. Here’s what JCT has said:

We expect that consumers will seek less costly policies that will reduce their exposure to the excise tax. Cost reductions could be achieved through several strategies, ranging from managed care plans and limited provider networks to more out-of-pocket cost sharing by consumers. When employers offer employees less costly plans, the employees will have less compensation in the form of non-taxable health care benefits and more in the form of [taxable] cash compensation. [my emphasis]

All that language about “less costly” and “cost reductions” sure seems to envision savings, all in an environment in which health care costs have never ceased rising.

JCT calculates that the primary source of revenues from the excise tax will come from raises that workers will get. So even assuming the recovery is stronger than I think even Krugman or I believe it will be, if you’re assuming raises that wouldn’t otherwise happen, aren’t you in fact, assuming that those raises would come from somewhere. Or, assuming the JCT assumptions are wrong, doesn’t the excise tax at least depend on employers’ having profitability that they wouldn’t otherwise have?

My understanding–and I’m not an economist of any sort, much less a Nobel Prize winning one–is that the excise tax is assuming that there will be new funds available to employers that–they implausibly claim–will mostly be passed onto workers. And if not, it will result in new profits that can then be taxed.

The biggest problem with this claim is that employers have already been making precisely kinds of moves that excise tax supporters argue they’ll do in response to the tax: moving from Platinum or Gold insurance plans to Silver ones as a way to minimize the increase in costs in health care they have to pay. And we’ve not seen the raises or, even, much increase in profitability.

Businesses are already doing precisely what the excise tax incents–and they’ve been doing it for years (as an economist named Jonathan Gruber has pointed out).

Yet that doesn’t seem to have had a noticeable affect on tax revenues, much less a noticeable affect on wages, not in this crappy economy. Rather, it is the overall economy, and not the benefits calculations that individual employers are making, that seems to be the real driver of wages and tax revenues.

Again, I’m not an economist, so if someone actually wants to do the calculations of the effects of all the down-shifting in health care plans that has occurred over the last decade, I’d like to see it. I’d really welcome some evidence to support these arguments. But I’m not seeing it.

But all this comes back to the big problem with Gruber’s undisclosed role in the Administration’s formulation of this policy. Krugman suggests (though he doesn’t say it directly) that Gruber has been exaggerating. Yet Gruber has, in some way, provided the basic assumptions behind the Administration’s plans. Did he use more realistic assumptions when he did his simulations? Or did he exaggerate the benefit of the excise tax in his assumptions? And what is the relationship between the JCT prediction about the excise tax and any simulations Gruber did before them?

  1. Minnesotachuck says:

    Here’s how Krugman weighs in on the Excise Tax Raise claim.

    Morning Marcy!

    Are you sure you got this link right in the original of this sentence? It’s to one of your own posts, not one of Krugman’s. I thought you might be quoting him but I’ve tried to find several strings from the quote in your post but can’t.

  2. bystander says:

    Again, I’m not an economist…

    Well, if it’s any consolation, you sure ask the kinds of questions they ask, in precisely the same way they might ask them. Nice job parsing, and then challenging, Krugman.

  3. SaltinWound says:

    Personally, I am more concerned with how the Cadillac tax affects those in the private sector than those in the public sector. As a Californian, I would not mind if government workers received less in benefits, and that was not offset by a gain in salary. State employees are living in a world of full benefits and defined pensions that few in the private sector enjoy.

    • PJEvans says:

      Most of them are paid less than they’d get in the private sector, I suspect.
      (I think the only really well-paid state employees below management level are prison guards, and they have a very strong union.)

      • fatster says:

        Surveys are periodically made of salary and benefits levels for jobs in the private sector that are very similar to those in the public sector. Typically, salaries are lower in the public sector (even after adjustment resulting from the surveys), but benefits higher. That is a trade-off, and a recognized one.

        Yep, seems clear to me that pretty soon in CA there will be two types of jobs available: WalMart workers and prison guards.

      • BigJess says:

        Are you out of your mind? That used to be true, up to about 20 years ago. (I know, my mother was a local city employee.) But since then things have changed. Unions learned how to use campaign contributions and volunteer manpower to elect enough candidates to capture control of city councils and school boards. Once some public entities raised their pay and benefits packages, other entities had to keep pace or lose employees to the better-paying cities, districts, etc. Now, public employees here in CA have wages and benefits waaay, WAAAY above those of people doing comparable jobs (many even superior jobs) in private industry. And the pension benefits they get when they quit working are even better. We’ve got people retiring at age 50 or 55 at 90% of their salary, PLUS annual Cost of Living adjustments PLUS they get their health care paid from time of retirement until they become eligible for Medicare at age 65. (Not “Cadillac” health care benefits, you understand, but “Rolls Royce” benefits.)

    • fatster says:

      All the more reason to push for those in the private sector to have the same (or better) level of benefits as those in the public sector. Don’t trade what you’ve got for what others don’t have; raise hell to get for the others what you’ve got.

    • donnadiva says:

      Ya know, I despise this attitude. It’s the direct result of 30 years of anti-union divide-and-conquer rhetoric from the business community. Sad to see how well it has worked even on some progressives.

      You want to drag workers who have a little better deal down to your level rather than banding together with them to raise everyone’s level? Really?

      • SaltinWound says:

        Only the workers whose salary I pay for, in the face of a huge deficit. You think we should go into debt to give public employees a better deal than they could get in the private sector? Why?

  4. orionATL says:

    krugman understand better than most that the us and world economies are in a very unstable period.

    He writes, more than once of the dangers to the economic of premature tightening of interest rates /credit and inadequate fed govt boosts to the economy.

    Inthis unstable short term with millions of moderately well educated Chinese and Indian laborers available I doubt there could be much
    Negotiating room for unions, even govt worker unions.

    Furthermore there will be pressure on American corporate from a weak internal economy and a highly competitive world economy.

    And wages can rise for any reason in such an environment?

    Do you believe in Santa claus?

    • phred says:

      From your link:

      Romer says there could be exceptions made for older workers who rely more heavily on health insurance and those in dangerous jobs such as first-responders in law enforcement.

      This is pretty weak tea and no mention of considering alternatives, but we’ll see what happens on Monday…

    • phred says:

      I’d rather see a Wheeler/Gruber debate. I suspect Wheeler and Krugman would agree far more than they disagree and that wouldn’t make for much of a debate.

      • emptywheel says:

        Yeah, I’m not really disagreeing with what Krugman said in his post. If we were to have a debate, it would almost immediately devolve into me peppering him with questions about how this really works. Where’s the sexy conflict in that?

        • Loo Hoo. says:

          Okay, discussion instead of debate. Gruber wouldn’t debate you, Krugman might come for a discussion.

  5. oldnslow says:

    Thanks for helpin out those of us still trying to wrap our heads around this issue, Marcy.

    One thing that continues to trouble but remains unaddressed is this; employers match a certain percentage of payroll withholdings. Given this, if benefits are taxed as income won’t the employers contribution increase also?

    Or is this particular tax just some bastard created to punish the middle class while indemnifying business without doing any fucking thing at all to help stop the stratospheric rise in health insurance costs?

    • PJEvans says:

      Or is this particular tax just some bastard created to punish the middle class while indemnifying business without doing any fucking thing at all to help stop the stratospheric rise in health insurance costs?

      Because Congress, insurance companies and banks are so much more important to the future of this country than actual workers. /s

    • papau says:

      there is wage matching for some benefit calculations, but I’ve never seen “W2 income” matching where the number used in the calculation included the value of things like the value of excessive group life insurance- an item on your W2. In this case the W2 would have another addition – value of excessive health insurance – and that would not affect the calculation of any benefit that used “wages” is the calc

  6. JTMinIA says:

    One of the key advances in economics is the recognition that people are not rational. Conversely, it’s not an accident that psychologists get Nobel Prizes in economics (since there’s no prize in psychology, itself).

    Here’s an example. If you tell a person that they must choose between losing $100 and having a 50/50 chance of losing $200 (note that these two options have identical expected values), then they’ll give a different answer from when they must choose between gaining $100 and having a 50/50 chance of gaining $200, even though these are – in the abstract – the same question. The lesson is that losses and gains are psychologically different.

    Not only would losses and future gains be treated different by workers, the same sort of thinking applies to employers. Most of all: it’s one thing for an employer to assign a large proportion of future savings in health-care costs to wages, instead. This involves giving up money that the employer never really had in his or her hand. It’s a whole other thing for an employer to suddenly increase wages when health-care costs suddenly drop. This is money that the employer does have in his or her hand, so it would be seen as a real “loss” to give it to the workers.

    In short: there’s very good reason to believe that the distinction between “passing on, in the form of increased wages, any future savings achieved by slowing the *increase* in health-care costs” and “passing on, in the form of increased wages, any immediate savings achieved by cutting the cost of health-care.” It is quite possible for the first to be true while the second is false.

    Krugman is above average – IMHO – as economists go in being at least somewhat aware of the role of psychology in economics. It would not surprise me one bit is he’s thinking in terms of losses vs gains while the MIT loser is not.

    • qweryous says:

      “One of the key advances in economics is the recognition that people are not rational.”


      What does this say about the dismal science?

      “people are not rational.” Can you imagine the debate that ensued over this?

      Of course some previous conclusions might be called into question if rational decision making cannot be assumed.

      Has anything else other than people being irrational been overlooked?

      A book recommendation: “The Dismal Science: How Thinking Like an Economist Undermines Community” Author Stephen A. Marglin

      A review of the book from Amazon:
      “In this timely and eloquent critique of the conventional economist’s “ideology of knowledge,” Stephen Marglin pinpoints a huge blind spot at the heart of this powerful discipline. They can’t see community. It’s not that the people of the earth are, for the economist, bereft of community. It’s that he imagines them as interest-maximizing tin men who don’t need it. So as Wal-Mart mows down local communities in America and NAFTA mows them down in rural Mexico, the conventional economist stands silent on this issue. Economists and non-economists alike should read this book, and pass it around to friends in their community–if it’s still there.
      –Arlie Russell Hochschild, University of California, Berkeley and author of The Time Bind and The Commercialization of Intimate Life”

      Perhaps the conventional economist also assumes that any marginal dollar in the employers pocket would be passed to the employee.Thus more money for the employer means more pay for the employee.

      Wait.. They wouldn’t really come to that conclusion would they?

      Special case exception: If the employer is an investment bank it may well be true, but only because the employees have in effect seized the business in order to run it for their own benefit.

  7. klynn says:

    Your work on the mandate affordability and then addressing those who are pro excise tax has been the best investigative work out there.

    To date, no one has answered your concerns.

    I have been asking myself “why” haven’t the private sector corps jumped up and down regarding the health care policy discussions.

    Your work has answered my question.

  8. orionATL says:

    Eons ago, say 10 months, when the health reform debate was heating up, there were comments about the impact health care insurance costs had on the competitiveness of American corps.

    It is a least conceivable that reducing these costs is a coequal or even a greater goal for the obama admin than health insurance for all citizens. That might explain some of the apparent oddities in the senate bill, especially the political dynamite of an excise tax paid by individuals because they had gotten a good deal on health insurance from their employer.

    • PJEvans says:

      The problem is that the Senate bill isn’t likely to reduce costs, because it has no regulation of the insurance companies or their rates.

      The excise tax they’re pushing will, at best, shift costs from employers to individuals, who probably won’t be able to afford as much coverage as they had under an employer-paid plan. That’s not an improvement, IMO.

    • moonwood says:

      I don’t think “Cadillac” plans are a good deal for anyone. They encourage people to over use Doctors, Hospitals, and drugs, and have been shown to not keep anyone healthier. I think they are just a tax dodge by employers to make employees think they are getting something better.

        • eCAHNomics says:

          The “entity” that abuses “Cadillac” insurance is docs, not patients. In particular those docs whose colleagues have just opened up a MRI operation and need to pay off their loans.

        • Rayne says:

          Think there’s also a point missed here that the folks most targeted by taxation on so-called Cadillac plans are blue collar workers who pay a steep price physically on the job. Think I’ve read that 44% of chronic pain sufferers are people who’ve had on-the-job injuries and the majority of them are laborers.

          So when we’re labeling something “overused,” are we talking about the health care plan, or are we really talking about human beings?

  9. Frank33 says:

    Why should we even care about a neo-con economist with a bogus “simulation”. An economist might be the least relevant voice in the health care debate. There are plenty of economists who are the PAID SHILLS of the International Banksters, such as Timmy Geithner and Larry Summers. Gruber is certainly a PAID SHILL, and I guess he is a “neo-liberal” which is the same as a neo-con.

    Gruber’s brilliant simulation is basically just corporate propaganda to support taxpayer subsidies to Insurance Companies. Gruber’s and “The President’s” neo-con health insurance fraud will never succeed, because the Insurance companies only want more and more.

    There are plenty of successful health care models to emulate, such as Canada, that are superior to corporate health care. We certainly need predictions and research, but we need them from people who have some understanding of medical science. Economics is not a science, and what profession has failed us more, such as when Goldman Sachs raped and looted the country. Gruber is just a puppet of our incompetent neo-con overlords.

  10. Teddy Partridge says:

    Wages won’t go up in an economy where 10% employment prevails, or prevailed in recent memory. Health insurance cost moderation didn’t raise wages in the nineties; full employment did. Once unemployment hit 4% wages improved, not before. Anyone who thinks health insurance costs will have more of an impact on wages than full employment skipped freshman economics.

  11. klynn says:


    Based on the information I emailed (the foreign study) I assume there are economists in other countries who are able to do microsimulation of their own health car,e delivery of care and relative costs?

    Can we seek their perspectives? Ann Harding perhaps?

    • klynn says:

      I know, replying to myself! Going ever slightly OT…

      But what in the world is the GOP’s, The Lewin Group, doing presenting at an International Microsimulation Association Annual Conference this past June regarding Microsimulation of Health Reform in the United States?

      And the Senior VP of The Lewin Group at that?

      And what microsimulation data did he present and who crunched the data?

  12. Mary says:

    I think you’ve parsed Krugman well. I also think he’s sensitive to how fidgety everything is now and he really wants to get the ball rolling with something, before the Dems start getting kicked back to the curb by someone other than each other. So he has some interests in keeping his criticism of the bill lo-toned, while not being misleading, imo. I think he sees a bill with mandates going through as pretty much setting the scene for future change – bc once there is mandated coverage, there is going to be a constant return to issues like the public option. I’m not sold on needing to get a program going bc it will be changeable in the future, given how much more significant the lobbying interests have become and how stymied and deliberately un-informed or disinformed Congress is – but I think that’s partly where he’s coming from on motivation and that’s the filter through which I read his more recent pieces. fwiw.

    OT – Politico piece pushing Obama to ditch Panetta and put Brennan into the top slot – with endorsements from Fran Townsend and Pete King.

    • Surtt says:

      Give the insurance companies the prophets from the mandates for 3 or 4 years and then try to take it away?
      Good luck with that.

      • bobschacht says:

        Give the insurance companies the prophets from the mandates for 3 or 4 years and then try to take it away?
        Good luck with that.

        Prophets? They got them, too?

        Bob in AZ

    • Cujo359 says:

      I think you’re right, both about what Krugman’s thinking is, and why he’s wrong. The other reason that I think he’s wrong is that giant bureaucracies tend to obtain their own constituencies in Congress after a while. Congressmen are not going to readily get rid of the “exchange manager(s)”, nor whoever is in charge of disbursing the subsidies.

      In short, it’s likely to be harder to change this thing when it’s in place, rather than easier.

      Of course, a huge shift in public opinion could prove me wrong, but we’ve been like frogs in hot water for so long it’s hard to see that happening.

    • klynn says:

      And, he was the keynote speaker at that!

      Really, how did that happen? Amazing.

      Still want to know who did the microsimulation data for him.

  13. earlofhuntingdon says:

    It seems wrong to evaluate the wage-benefits relationship as solely inverse, that is, when one goes up, the other goes down and vice versa. The two are combined in cost of labor. When labor has the leverage to increase its share of its own productivity, wages and/or benefits go up. When labor loses leverage, one or the other or both go down or stay flat.

    The mix between wages and benefits is a function of many things, as it is with executive compensation, which constantly adjusts cash, stock, options, perks, benefits, retirement packages, business space luxuries and the like to circumstances at the firm and, most of all, to their tax cost.

    With labor, the choice between labor and benefits is often tax driven, too, hence, my concern about Krugman’s blithe comment that “on balance” this is a “good tax”. Other factors also influence labor’s choice of cash now or benefits later. Those might include their level of wages comparable to the market, general inflation or deflation, inflation in specific costs, such as transportation (eg, gas prices) or health care.

  14. earlofhuntingdon says:

    Krugman claims that an excise tax will encourage labor to look for less expensive insurance. That means accept less health care, because there won’t be less expensive insurance that provides better care, not without single payer, a public insurer, or significantly better regulated health insurance products.

    Krugman’s claim, on the surface, is an observation from Econ. 101, but one that misses the political context in which he makes it. An exaggerated metaphor, to make the point, is that the excise tax is the government denying aid (in that it removes a tax exemption) to a deposed democratic faction, but giving it generously to the military junta who deposed them.

  15. Arbusto says:

    The effect of lower premiums can be sliced and diced like so much chaff on a Ginsu knife commercial. At Wonk Room, a study shows: Health Care Reform Could Create 250,000 – 400,000 Jobs Annually . Where “excess” or virtual money end up, should premiums be reduced, is anyone’s guess. Since our job creators, shortsightedly, seem more concerned with Consumers (consumption) than Workers (expense), I’d come down on the side that any cost avoidance in premiums by companies would go to stockholders, or of course the ubiquitous executive bonus. Corporations gamed the Administration and Congress as Perlman plays a Stradivarius. And of course there’s always China.

  16. Becca says:

    To turn this all around and put it more simply: Most people have seen their insurance become increasingly crappy over the last 20 years. Co-pays used to be minimal, now they’re a significant barrier to seeking needed medical treatment and medicines. Formularies have become ever more restricted. ‘In Network’ systems have become increasingly byzantine and many people cannot find any doctor who will take them on. Deductibles have gone through the roof.

    In the meantime, premiums have STILL skyrocketed.

    To have the kind of insurance coverage we had 20 years ago, the ONLY people who have that are those paying even more outrageous premiums.

    So we’re being told that the solution isn’t to make insurance better, to make health care more accessible for everyone. No, the solution is to punish those with the kind of coverage our parents used to take for granted — and which in the day didn’t cost 10-20% of their income.

  17. qweryous says:

    Information please.

    What are the considerations in posting excerpts from these papers?

    I haven’t done so, but there are cases where a few short sentences might be quoted.

    The intended purpose would be to encourage people to go and read for themselves from the original document.

    Not to encourage people to take apart the analysis performed within; but for people to read for themselves what assumptions are made, and how those assumptions then drive the analysis and conclusions reached.

    I am sure that many here think that they cannot understand what is in these papers, but I question if that is correct.

    As EW states above:
    “Yet Gruber has, in some way, provided the basic assumptions behind the Administration’s plans. Did he use more realistic assumptions when he did his simulations? Or did he exaggerate the benefit of the excise tax in his assumptions? And what is the relationship between the JCT prediction about the excise tax and any simulations Gruber did before them?”

    For what is at stake here citizens need to look at the assumptions behind the analysis that has supposedly helped to drive the policy here.

  18. SaltinWound says:

    Bmaz, yes, prison guards union is the worst. Gitcheegumee, of course I was against the give-aways to Wall Street as well. On what basis are you assuming I am not internally consistent about this?

  19. pdaly says:

    Thanks again, emptywheel. All this push back from you coming before the President’s State of the Union. Hoping it will keep Obama from making a 16 words mistake–although I am getting the feeling he wanted his yellow cake in there. Curious to see how this will play out in the next few days.

  20. pdaly says:

    A question I have about Cadillac plans:

    I understand that the definition is based on exceeding a specified “dollar amount” that the employee plus employer contribute to that employee’s health insurance plan and not based on the amount of coverage that dollar amount buys the employee in his/her particular city/state.

    Is the employer’s contribution currently a tax write off to the company? or paid for with pretax dollars?
    If yes to either of the above, then this implies the employer offered the employee health insurance in lieu of higher salary in the past, because it was cheaper for the company at the time (more profit for the company).

    Is the employee’s contribution currently a tax write off? or paid for with pretax dollars?

    To whom is the proposed excise tax levied? The individual, the employer, or the insurance company?
    It seems it is the insurance company from what I have read. But how is the insurance company or employer taxed under the new plan without the company (companies) shifting that new “cost” onto the employee or the end consumer?

    • cosperl says:

      I too wonder about this. I am a retired person, 63yo, who has an individual policy that costs more than 10k annually. High deductibles and co-pays. It is daunting to think that I might be taxed on this policy without the ability to deduct it from taxes in a straight-forward way (as present tax policy is set up). In most years, my use of the medical system does not come close to the deductible, but there have been times when it surpasses. That is what insurance is supposed to do, I thought. Balance it out.

      One of the ways that employers use to lower their costs of health insurance is to push more of the costs onto employees bwo higher deductibles and co-pays. This dynamic has been going on for quite a while now, I doubt if it will stop if the senate bill goes thru. Indeed, it seems that the point of the excise tax is to make employees/individuals bear more of the costs of their health care via deductibles and co-pays.

      Now, another hidden assumption that needs to be discussed in the open, is that libertarian, free-market, Newt Gingrich assumption that if people had to pay more out of pocket for their health care, they would make more “efficient” decisions. This assumes, unreasonably, that it is the consumer/ patient who makes “efficient” decisions and not the medical practitioner who the patient hires to act on his/her behalf. In reality, it is the medical professionals who make “efficient” decisions, or not, and there are many perverse incentives for the medical professionals to do more, not less, to treat their patients while hiking up the costs of care.

      The Senate bill is a mess. The excise tax is stupid, if the intent is to reduce costs overall.


  21. R.H. Green says:


    Last nite I offered a comment about the reasonableness of the interpretations drawn from the graph presented in the article. Your response seemed to reflect that I wasn’t clear enough to dissuade you from continuing to draw conclusions from that data. But I want to put that aside, at least for the moment, to take up a larger matter relating to the same thing that has come up in today’s penetrating analysis.

    You write that Krugman wrote that Gruber wrote that: “We saw this in the late 90s, when the rise of managed care temporarily lowered insurance costs, and wages rose in real terms for the first time in many years. But as soon as managed care was weakened and health care costs rose again, we once again saw flat or declining wages in the United States (Gruber 2009).”

    When I read this statement, I did a double take as I quickly visualized the graph from yesterday’ article. “Is he taking this conclusion from the data in that graph?” (I take it that it IS his graph, not Klien’s).My recollection, and subsequent review confirmed, that this interpretation better fits the data shown for the early, not mid to late, 90s (including the period after 2000 as I pointed out). My comment last nite had to do with the unreliability of the trends that make such conclusions difficult. Here Gruber seemes to be just making stuff up, or seeing what he wants to see, as the graph readily supports.

    However, a possible consideration is that the scenario Gruber describes above is not based upon that data-graph, but upon another set of data, not consistent with the graph. If so,(and if it is Gruber’s graph) it seems this is also a good indicator that the data is being cherry picked to support whatever myth(s) being pushed as politically desirable for the moment, factoids all clothed in a polished scientific-looking format.

  22. JTMinIA says:

    The other, huge danger in taking correlated trends (i.e., rise in this with rise in that; or rise in this with fall in that) as evidence of a causal relationship between the two is that *any* two trends, regardless of whether they are causally related will always produce a correlation. (If you’re into this stuff, a non-causal correlation is technically spurious.)

    You need to look more closely at the data. Rather than looking at the entire trend, from start to finish, you need to look at each adjacent pair of values from each variable, testing whether the specific rise (or fall) in one time-step of one variable is predictive of a rise (or fall) in one time-step of the other variable.

    Example: X = 10, 15, and 17 at times 1, 2, and 3. Y = 10, 12, and 17 at the same three times. You look at the overall trend and start jumping up and down. Look! you say. X and Y rose together over the same time period. Must be something to that positive relationship, no?

    But now look at the pair-wise steps. X goes up 5 and then 2. Y goes up 2 and then 5. At the detailed level, the positive correlation you had between X and Y is now a negative correlation.

    I really don’t care very much about whether, over a 5- or 10-year period wages were doing the same or the opposite as health-care costs. I want to know what the relationship was in year-to-year time-steps. For all I know (from what I’ve seen so far), this Golden Age when health care was *overall* flat while wages rose, followed by the Dark Ages when health care rose and wages were flat, could actually exhibit a positive relationship at the year-to-year level. In other words, for example, when the company made lots of money, it bought the workers better health care AND paid them more in cash. When the company had a bad year, they cut health care AND wages.

  23. perris says:

    Krugman suggests, I think, that the unions that will be disproportionately affected by this tax will have three years to negotiate new contracts that (presumably) take more compensation in wages and less in health care.

    I guess he doesn’t realize most unions are being forced to negotiate down and give back

    so long as there are more applicants then positions there will be downward pressure on wages

    a union can possibly mitigate some of that downwared pressure but not so much

  24. Fenestrate says:

    I can follow most of the discussion here, except one thing. This, typified by a quote from Krugman, but an idea I’ve seen elsewhere:

    Even with the excise tax, premiums are likely to rise over time — just more slowly than they would have otherwise.

    I get that if you add up all premiums paid throughout the country and calculate the average, then the excise tax would decrease this average. What I don’t get is how a mass exodus from high-priced plans would do anything to premium creep one way or the other.

    IOW, how does the excise tax effect the rate of price increase of the cheaper plans? Or are folks not claiming that and I’m just misreading?

  25. JTMinIA says:

    In general, it doesn’t affect the price of cheaper plans; it merely brings down the average price, since fewer expensive plans are bought.

    At the nuts-and-bolts level, it can also, potentially (but only slightly) lower the price of the cheaper plans in the following way. The profit margin on the cheaper plans is actually higher than that on the “Cadillac” plans, since the cheaper plans (mostly because of their higher deductables and co-pays) are utilized less. So, if adding an excise tax results in a reduction in the number of “Cadillac” plans, the insurance companies will make more money and, therefore, in the Polly-Annish world where insurance companies pass on savings to the consumer -(I’m sorry, but I need to stop for a minute to laugh at myself for writing that)- the price of cheaper plans will decrease.

    [Note that health insurance is another place where the middle-class gets screwed. If you’re rich and have a “Cadillac” plan, you get something close to your money’s worth. If you’re poor and have no health insurance, any health-care you get is, effectively, free. But if you’re in the middle, you have to pay for your health-care (as well as that for the poor, since hospitals pass on the added costs of treating the indigent to everyone), but don’t actually get your money’s worth, since your deductable and co-pay is high. Why does America hate what the Right refers to as “real Americans?”]

    • papau says:

      I believe the move down in plan means a move up in out of pocket not covered by insurance which then means a decrease in seeing a doctor so as to avoid the out of pocket – so “health costs” go down.

      Of course the general health of the population also goes down – but those early deaths that currently make our life span 5 years less than some other countries and 3 years less on average (and even less than in Cuba) are really an Federal budget economic plus as Social Security folk die earlier.

  26. JTMinIA says:

    One addition/correction.

    I’m aware that, for example, some auto-workers have “Cadillac” plans but should not be lumped into the category “rich.” But that doesn’t change my argument that the middle-class is being screwed. First the auto-workers give up salary for better health-care. Now they are going to have their better health-care either taxed or reduced. But will they get higher wages in return? Ha!

  27. fatster says:

    Here’s the ticket:

    Amish families exempt from insurance mandate
    HEALTH REFORM: People with religious objections can opt out


    We are all Amish now.

  28. fatster says:

    O/T, our on-going topic (Torture):

    NY Judge To Hear From Guantanamo Suspect’s Lawyers

    “A judge was set to hear arguments from lawyers Monday before deciding if a terrorist bombing suspect’s rights were violated when he was held for five years for questioning at Guantanamo Bay and in secret CIA-run camps abroad instead of being prosecuted promptly in a U.S. court.”


    • fatster says:

      David Dayen over at Newsdesk had a link to this related court case:

      U.S. appeals court wary of habeas corpus challenge by detainees in Afghanistan


  29. fatster says:

    And a nice round of applause to Professor Lowry:

    Retired professor applies search technology to huge reform effort

    “The retired Franciscan University of Steubenville business professor has released a searchable copy of the Senate and House bills on a free Web site,, so people can track down specific areas of interest in the combined 725,000-word documents.”


  30. JTMinIA says:

    Has the following argument ever been made in a US court?

    Allowing a person to opt out of something because of their religion, while not allowing someone else to opt out of the same thing for a non-religious reason, constitutes (illegal) recognition of religion by the gov’t.

    (I suppose the most logical place for me to look is in conscientious objection to military conscription, but I was hoping that a legal expert [Bmaz?] would know off the top of his or her head.)

  31. earlofhuntingdon says:

    A nit. Should this post not be entitled Chevy-as-Cadillac. The tax treats as a luxury full coverage insurance plans because that cover a wide variety of health care services at low cost to the patient/insured. The kind of insurance-health care coverage most employers gave your parents thirty years ago.

    This tax attempts to characterize those plans as if they were luxuries, treating a Chevy as if it were a Cadillac. For many, that remains a pejorative term. It represents a standard of luxury they can’t afford, a middling quality performer sold at a high price, and the former vehicle of choice for the stereotypic ghetto pimp. A characterization the Right would like to amplify given the White House’s current incumbent.

    The tax is intentionally meant to get people and businesses to choose less expensive coverage. That will mean less care, redefined as “normal” or “optimal”. That will remain so until insurers face significantly more competition from private or public competitors and until insurers are much more heavily regulated than this president or Congress would ever contemplate.

    The tax is also sold as if it were designed to hit senior executives and workers alike. Here I strongly disagree with Krugman because labor, organized or not, has little leverage in this economy or job market. What leverage it has is likely to go down. Executives, on the other hand, have seen their comp go up – as a percentage of the total – for thirty years, while rank and file incomes have been stagnant. Consequently, employers will top up executive costs to make them whole for the burden of this tax, leaving only average employees stuck with making trade-offs to pay for this tax. That’s a typical Beltway example of a “fair” distribution of pain and gain.

    • earlofhuntingdon says:

      Well you still can’t park in a Ford lot in a Caddy or Chevy, or the reverse, and expect a pleasant greeting or to sell your wares. It’s funny though, given how competitive auto is globally, that American auto manufacturers and suppliers will still occasionally pick up Toyota or Nissan execs in a Honda or Acura.

    • fatster says:

      We’re applying all our analytical skills to answer your question, Bob, even as I type. We await your theory, too.

    • bmaz says:

      Yeah, I have looked. To make a long story short, we may have had a FUBAR moment. The comments are now attached to a draft Marcy has for later, but it is not complete now. So for now, work on this post and we will be along in a while. Sorry folks.

      • klynn says:

        Hey bmaz,

        I would stop the participation in the disinformation campaign on the other thread. This poster has an interesting internet history on all liberal blogs.

        • qweryous says:

          Which one please (not going to waste any time trying to figure it out).
          Several possibilities there now.
          Increased trollery equates with importance of topic? ( I think its a possibility!)
          Also brief history of the trollery via link perhaps?(interested where it comes from).

      • skdadl says:

        But but but … I posted a link! Do you know what effort it takes for me to do that? And it was important: Carol Rosenberg, Miami Herald, GTMO. Conversation between me and Jim White ensued, with links to Jim’s very fine diary on the eighth anniversary of GTMO (go and read if you haven’t already).

        And then Petro turned up for the first time in a long time so I said hi and made a cheap joke about bbq and our country being shut down until March, and … presto chango! Thread gone!

        I blame Stephen Harper. For sure, CSIS read this blog, and they have their orders.

        • bmaz says:

          It is undoubtedly the fault of those crafty Canucks! The comments, and your link, will still be there when Marcy comes along and finishes the new post and puts it up. Don’t really know what happened. Normally it would probably be my fault, I am a digital idiot and dangerous, but I have not had time to do anything but respond to a couple of comments today.

  32. maryo2 says:

    it is sad that the Senate’s bill is to draw a line in the sand, place workers on one side and their employers on the other, and then say “Okay you guys fight it out. And, oh by the way, if the employees win anything we will tax them on it.”

  33. earlofhuntingdon says:

    Do click over to the main site to read Jane’s defense of Marcy and FDL over Krugman’s criticism of the “fake scandal” Marcy is making of Gruber’s failure to disclose.

  34. Synoia says:

    “And when firms reduce their insurance generosity, they make it up in higher pay for their workers. We saw this in the late 1990s, when the rise of managed care temporarily lowered insurance costs, and wages rose in real terms for the first time in many years.”

    Non causal. Opinion. They are many factors. Fucking bullshit, and poor science, and very poor math.

    • eCAHNomics says:

      The reason for the rise in real wages in the late 90s is that the unemployment rate approached 4%, a rate at which (in the U.S.) corps are forced to bid workers away from each other. Marcy referred to that in her post, more mildly, by saying labor markets were tight.

    • Cujo359 says:

      Like, for instance, it was also a time of high employment, particularly in the computer and biomedical fields. It was the DotBomb time, don’t forget. Gruber was employing post hoc reasoning on a grand scale there.

      • eCAHNomics says:

        See my 100. How any reasonable economist couldn’t attribute the rise in real wages to tight labor markets deserves to have his epaullettes stripped.

        • Cujo359 says:

          … his buttons ripped off, his sword broken, and his butt kicked out into the desert. But I digress.

          Yes, I suppose another way of saying it was that Gruber’s analysis didn’t take all the variables into account and control for them. Probably because he didn’t want to, would be my guess. Cripes, there were high school graduates with computer skills being offered $100k salaries to build web sites back then. It was crazy for a while.

          Nothing like today’s job market, that’s for sure.

        • eCAHNomics says:

          Gruber falls into my no-command-of-the-obvious category.

          To show how low that is, Teh Mustache of Wisdom is in my moderate-command-of-the-obvious category.

          And as for Krugman, yet another idol with feet of clay. I’m pretty good at early identification of bad guys, but a complete failure on my selection of good guys.

        • Cujo359 says:

          Yes, you could be right about Gruber. Heck, Michael Behe is a professor. Still, it’s just amazing that he could overlook something that basic. Even we idiot savant economists know to look for things like demand for a resource before assuming that whatever change we’re focused on was what caused things to get better or worse.

          If by “Mustache of Wisdom” you mean Tom Friedman, then yes, he has his good days and his bad. When he is having a bad one it’s usually easy to tell.

          As for Krugman, he’s good on international finance issues for obvious reasons, and seems to have some grasp of how the national economy works. But even in the latter area, I think Ian Welsh has been more accurate lately. Someone mentioned Dean Baker, and he seems to have done a better job of foreseeing things, too. I’m sure there are others, but economics isn’t my field.

          It just screws up things in my field. ;)

        • eCAHNomics says:

          What kind of economist are you?

          I got into the field indirectly, from a hard science background. I found & find the level of analysis in economics to be substantially substandard. Which was great for me, as I had a competitive advantage, but not so much for the level of discourse.

        • Cujo359 says:

          No kind of economist at all. I joke about being an “idiot savant” economist, because as an engineer I’ve had to learn how a very small segment of the economy works pretty well. (I once shocked a project leader when he just casually asked how much of the project money we’d used already after about a year, and I got it right to a few percent after thinking about it for a few seconds.) You have to understand how much labor costs and why, and you have to understand how much supplies, tools, and related services cost. You have to know how much your management costs. It’s just part of the job.

          So, there are times I can know what makes sense and what doesn’t. I don’t know jack about how a national economy works, but there are bits that I know pretty well, and sometimes those bits scale to paint a larger picture.

          Edit: The first time I used that term, BTW, was here, where I was trying to relate my own experiences with the housing market to why we were seeing the things we were seeing.

        • eCAHNomics says:

          Sounds reasonable. The only time your micro take might be wrong macro is if there are behavioral consequences that you might not have considered. AKA Law of the Unintended Outcome.

          But my science and your engineering background does really give us a leg up on economists. Take my word, I lived with them professionally. Don’t know how to generalize quite yet, as I’ve met some really sensible ones, but many are pure charlatans. And they don’t even know it.

        • Cujo359 says:

          Yes, there are times, and this article of Krugman’s is one of them, when I get the feeling he has no idea what it’s like to run a business or push a product out the door. It really is important to know that if you’re trying to judge how an economic measure is going to affect businesses, wages, or the availability of goods and services. Either that, or you have to listen to the opinions of people who do know those things as a sanity check.

          At the moment, Krugman doesn’t seem to be doing either.

        • solerso says:

          “And as for Krugman, yet another idol with feet of clay. I’m pretty good at early identification of bad guys, but a complete failure on my selection of good guys.”

          I think that’s because there really aren’t any good guys in washington or NY right now. how do we grow a movement that cant be bought off at the top. im not suggesting that krugman was ever a part of a “movement”, unless it was an ass-ociate member the neo liberal movement in economics. the events of 2009 all point out how hopeless it will be to effect “change” here until we shut off the money flow into politics.

  35. earlofhuntingdon says:

    I assume Mr. Krugman agrees with the characterization that the full coverage, no questions asked medical care provided to Congresscritters fits the lay person’s description of an “unaffordable luxury”.

    Ditto that the insurance plans at MIT and Princeton, which offer faculty generous provision for health care payments, are equally unaffordable luxuries, at least to the extent that “on balance”, it would be a good idea to tax them along with similar plans negotiated over many years by CEO’s and union workers alike.

    That way, faculty and universities could be “prodded” into providing less expensive insurance, an economic good (for someone, never mind whether that provides access to adequate health care). Query, whether the pay of Mr. Krugman’s colleagues (he’s justifiably at about the top of the scale) or access to health care will go up because of it.

  36. zeabow says:


    You are too smart to be stupid. You are being way too fair to krugman IMO … and for God’s sake when are people going to wake up and stop being impressed by f’ing establishment awards. They are given out by the establishment too often to point at someone who promotes their ideology and tell us that this guy is really smart and that we ought to listen to him. krugman suffices becoz he, just like every other “respectable” jackass in his pathetic profession, is fervently pro free trade … and that is what he got his establishment award for. If you want to get all blindingly impressed by establishment awards, Marcy just imagine the pulitzers that litter free trade zealot tommy freidmann’s mantle, the nobel peace prize that kissinger got for NOT bringing peace to vietnam, obama’s nobel peace prize for absolutely nothing but empty words, and then take some time to look into what krugman got his for: explaining stuff that already happened. What a f’ing joke!!!

    I’ll leave you with what I wrote in a post on this subject below:

    krugman is an democratic party establishment lapdog … one who cheered on nafta and almost any free trade agreement. He’s been MAJORLY overrrated by the liberal blogosphere …. digby is utterly enthralled, but then again they both share an unhealthy loyalty to anything to do with clinton.

    At first, he was against obama becoz he was pro-clinton in the primaries … and attacked obama unfairly IMO … but now that he got his pat on the head and got invited to some of their meetings, he is willing to attack anybody that goes against obama. And he’s more than willing to cover for his fellow academics in his corrupt field of study.

    Don’t be fooled by krugman’s establishment award in one of the most corrupt fields of study in this country, krugman is not intellectually honest, he’s a selfish hack.


    • eCAHNomics says:

      Economics Nobels are as much a farce as the PP.

      I watched Krugman’s acceptance speech. It was pretty inconsequential. Among other things, he showed a map of early RRs in the U.S. and pointed out that economic development occurred on those routes. Wow. Color me unimpressed.

    • bmaz says:

      This is unfair and pretty far out of bounds in my opinion, and not what Marcy believes or thinks to the best of my knowledge. This is not a war with either Krugman or Gruber, and no close reading of what Marcy has written would lend the conclusion that it is. The vitriol and hatred from some elements of both sides is disturbing.

      • zeabow says:

        If the truth about the hack krugman disturbs you, then go be disturbed.

        Myself, I got no respect for any jackass that promotes policies that puts americans on the streets while it makes ceos filthy rich and exploits cheap labor and non-existent environmental protections in other countries. And I can give a fuck if that disturbs you.


      • zeabow says:

        And I’m also very, very tired of people bowing to these damn establishment awards … how weak and stupid is that? … of my God, they have an establishment award so they must be right. Bullshit.

        And so I’ll point that out to get people thinking beyond what they are conditioned to think. And if that disturbs you, bmaz, again, I don’t care.


        • kgb999 says:

          I don’t need to go as far over the top with it, but I also kind of wonder about the practice of always referring to Krugman’s Nobel prize as if it is in any way relevant to the discussion.

          As best I can tell, he got the prize for his work on a computer model that showed certain benefits could be realized through applied protectionism nurturing “infant industries”. In many ways it seems he just automated a body of work primarily defined in it’s technical form by Victor Norman.

          Not weighing in on if he “deserved” the award, how does the prize have any relevance to the policy issues we are facing today? It sort of seems if that’s his primary area of expertise, he would be no more expert than any other economist with generalized knowledge of the craft.

          Isn’t it misleading to tout the Nobel when discussing areas of economics that have minimal (if any) relationship to the work for which he was awarded his prize? That seems to imply a level of specific expertise or enhanced gravitas that is simply unwarranted unless we’re discussing New Trade Theory or it’s implications.

        • eCAHNomics says:

          The economics ‘nobel’ was given to charlatans who caused the 1998 financial meltdown. No more need be said.

        • PPDCUS says:

          You mean the econ prize awarded for derivative risk analysis graphs in the shape of the Hindenburg? Yeah, that one’s my favorite, too.

        • Cujo359 says:

          According to what I read, Krugman didn’t just computerize a model, he expanded on it. I quoted some economists at the time. The links might still be good if you want to read further.

          As to your question about why we mention the Nobel Prize, it does help establish his expertise. However, it can’t prevent someone from being wrong, which most commenters here understand, I think. One or two in Jane’s Krugman thread could use a refresher on that last point, however.

        • PPDCUS says:

          It’s less about his Nobel Prize, as much as about his NYT’s persona expressed in his book — Conscience of a Liberal.

        • kgb999 says:

          My point was, if New Trade Theory doesn’t apply to the economic question being asked, don’t you imply a level of specific expertise that simply doesn’t exist? Or am I missing something? The habit seems reflexive and bugs the crap out of me.

          Thanks for the link, I’ll check it out. To be honest, I have decided that most economists are so bedazzled by their own complex formulas and ideological theories that they have apparently lost the ability to pick up a calculator and do some simple math. I take all of ’em with a grain of salt these days.

        • Cujo359 says:

          To be sure, it bothers me when that prize is presented as an indication that his reasoning can’t be questioned, except by other prize-winning economists. That is sometimes implied, I think. It’s also true that the farther we stray from his actual area of expertise, the less that means.

          I’ll pay attention to his opinions, or anyone else’s with similar qualifications, but I always have my salt shaker handy.

  37. BigJess says:

    To add on CA public employee pension crisis: last figure I saw, we were something like $190 bil in the red on the unfunded pension liabilities. During his State of the State speedh Arnold quoted one period where government revenues went up 24% while pension liabilities went up 2,000%. (No, that is not a typo.) He’s called it “unsustainable”. I’m no fan of Arnold, but on this, he’s right.

    • eCAHNomics says:

      And the reason why CA didn’t properly fund their pensions was???

      More generally the public union phenomenon is referred to as a monopoly-monopsony problem, the outcome of which is “indeterminable.” (That from old-fashioned industrial organization economics textbooks.) If labor is “overcompensated” (meaning benefits as well as wages and noting that no public employee is rich, only less poor by standards of private industry) then the responsibility is equal between the monopoly and the monopsony.

  38. robbep says:

    I think Krugman has been given his marching orders by Obama and Rahm to deceive as many progressives as he can by November 2010. Unfortunately, he appears willing to allow his good name to be used by the Obama administration to keep us in check. Once you lose your good name Professor K you wont get it back and Obama and Rahm cld care less if you do.

    • earlofhuntingdon says:

      I strongly suspect there is no direct link between Mr. Krugman, Gruber and the White House on this topic. It’s more a matter of reflexive defense for top tier economists and the tradmed against upstarts.

      As with Gruber, he probably firmly believe everything he says without having to receive marching orders from a Goldman Sachs-led team that doesn’t much care what he thinks, but does consider him an over-the-top, shrill (for gawd’s sake!), leftist economist. Which tells you how arch conservative they are and how leftist they think middle America is.

  39. Synoia says:

    Taxing Cadillac Pans and bending the cost curve.

    (God help the insured if the Cadillac plan has Cadillic suspension, but I digress).

    What’s the “cost curve” being bent?
    Medical Providers? – No. Don’t see how.
    Insurance Companies? – No. Don’t see how.
    Individuals – No, they’ll just get a plan with higher deductable & higher copays.
    Employers? – Yes, see Individuals.

    “Bending the cost curve” means employers’ costs. No benefit to consumers.

    • eCAHNomics says:

      Thank you. The bending the cost curve by making it more expensive for middle class individuals is gibberish.

      • Synoia says:

        Thank you. I’ve been struggling the the “bending the cost curve” logic for some time. I had to step back and look at the whole picture.

        I do notice now, that these is no clarification of WHOSE cost curve is being bent. Clever people these lawyers.

        • eCAHNomics says:

          Tie into a former comment that the abusers of expensive medical insurance plans are docs, not patients. Patients don’t order tests, docs do.

          The ability to rip off the customer is owing to the knowledge gap between buyer & seller. Insurance, aka third party payment, further enhances the ability of medical providers to rip off the public. However, putting the onus on medical customers, aka patients, without providing them with the information they might need to be intelligent customers (assuming that’s even possible) is a ripoff of epic proportions.

        • PJEvans says:

          Yeah, if you’re a consumer, the only way you can ‘bend the cost curve’ is to not get the tests or the treatments. Which may result in becoming very dead, but then you’re out of the system and don’t have to worry about it any more. (I had a doctor giving me what-for last summer because I hadn’t had a mammo in mumble years, and wasn’t about to make an immediate appointment for one, especially since I would be paying for the whole thing my own self. Yes, I know the statistics on breast cancer. I also know that it isn’t likely to kill me in the next year or so.)

        • eCAHNomics says:

          Yep. A perfect example of economists having no command of the obvious. FWIW, I haven’t had a mammo for even more than mumble years. Gotta die of sumthin and in this world, a short lifespan seems preferable.

        • PJEvans says:

          One of my great-aunts died of breast cancer. Sort of. She was 90 when they discovered it, and didn’t think there was much point to treatment. It’s not like being young when it shows up (which is much more likely to have a bad outcome: the other woman I knew who died from it went through at least four rounds of chemo in 20 years, and died at 50).

    • pdaly says:

      Thanks. That looks like a good lecture. I’ll have to watch it in the morning.

      BTW, has Obama announced a date for his State of the Union? (Has emptywheel delayed that date with her probing questions?)

      • PPDCUS says:

        Warren’s lecture applies ruthless arithmetic to the public policy failures and how they are decimating the middle class.

        D.C. Villagers are still on the tourist spaceship heading to the sun, because they’ll get there at night.

  40. PPDCUS says:

    RE: #149 – Aren’t there paid ads available on FDL for solicitations like this? Gives trolling a bad name, I’d say.

        • Cujo359 says:

          Beats me, not my department. If it were, he’d be gone already.

          (Moderators, we’re discussing the “comment” at #149 by akshoe…)

        • PPDCUS says:

          I recommend referring him or her to HSS for some of that easy promotional money they’ve got sloshing around to push through the Big Insurance/Pharma Permanent Profits Guarantee Act of 2010.

        • qweryous says:

          Wait, not yet!

          I clicked to check:

          Rolex women’s watch for $95.00 and coach handbag for $39.00.
          Gucci mens shoes for $37.00!
          Free shipping too!

          “Cool enough beautiful? Have brand?”
          “If you do not have words.”

          I do not have words.

          I’m going “New Year’s wearing new clothes”

          The only thing that makes me think twice:

          “(III) Generally, Goods are delivered in fast and safety way Of course, shoes and clothing will be packaged in original box with tags”

  41. ondelette says:

    I put up a scenario based answer to why the Cadillac tax can be seen as raising wages on earlofhuntington‘s diary yesterday. I’m not going to reference it, so much as flush it out. It rests on observations made in my area and in my job market. They are, however, not bad assumptions given which sectors saw growth in wages during the period that Jonathan Gruber bases his views on, the 1990s. And I think they show some avenues of attack that can be done on a qualitative basis (less importance on numbers, more importance on their change, and the dynamical landscape).

    It goes like this: Although real wages have been falling for quite some time, during the 1990s they rose sharply for high-tech workers during that period. The within company gains (those that came from an employer increasing a current employee’s wages) were less than COLA, as per the fact that real wages have been falling. The between company gains (those that came from switching jobs) were well above COLA. In fact, the common method of getting a substantial raise or increase in benefits was to change jobs. That is still true, were other jobs as plentiful as during that period, people could still realize more increase in wages by changing jobs than asking for a raise. That also substantially increased the within job raises in some sectors because people wanted to “retain good talent”. You’ve seen that currently as an excuse w/resp to the bankster’s bonuses.

    Now, however, there is substantial unemployment, and few jobs available, so the pressure upward on wages is either non-existent, or negative. If employment increased, there would be a threshold at which it would switch to positive, and people would switch jobs and wages would rise more swiftly.

    Notice that because there is a threshold, and that threshold is somewhere between the employment right now, and the employment in the 1990s, that you do not need numbers to decide that you can move the threshold up or down. A motion down means that whatever caused that motion has the effect of stagnating or decreasing wages, a motion up can rightfully be characterized as having an upward effect on wages — increasing wages.

    Notice that anything that makes an employee less fearful of quitting their job in search of another one is now something that increases wages. Anything that does that moves the threshold up (meaning it can happen at a higher level of unemployment). And that is factual if you accept the model, even without numbers.

    To make the model as realistic as possible, there are really two thresholds: one above which no one will leave a job at all, and one below which they will walk without another job in hand. It was below the latter that the high-tech industry found itself during the 1990s so wages had huge upward pressure.

    Now turn to health care: There are two determinants. People will be less likely to leave a job with good health care for one with less, and people in some sectors will not leave a job at all if they aren’t assured of health care continuity. So uniformity of health care between companies increases wages. And, universality of coverage increases wages.

    At this point, you can see that since the former is an effect of the Cadillac plan, it is a winner for increasing wages. However, at this point you can also see that the single payer plan will increase wages, too, since it completely removes health care quality and health care access from the consideration of whether to seek a new job. And, if you have universal coverage and a public option, you can argue that the public option places a ceiling on health care costs, and causes access and uniformity, which according to the model, bring upward pressure to wages.

    Now analyze the model in terms of what will happen if the unemployment is above the higher of the two thresholds. A single payer plan is now something that would have to be costed out to determine the relative size of the payment (to the government in taxes) versus the savings to the employer, but the employer will not turn the savings over to the consumer. The upper threshold goes up, because the point at which people are willing to change jobs changes, but it will not raise actual wages until the unemployment crosses it. The public option will decrease costs to the employer, but a mechanism for universal coverage still needs to be sought, and you need to argue that the books can balance. Again the decrease in cost is eaten by the employer, but it does move the upper threshold up. The Cadillac plan is now the plan which pays for itself, although the employer eats the savings. It may or may not change the upper threshold, since that is dependent on universal coverage, but assuming universal coverage, it has the same effect on wages as the other plans.

    Now you can see where it beats the other plans: The other plans have no intrinsic method for raising funds to pay for themselves. Paul Krugman has argued quite forcefully that, if instituted, single payer pays for itself and then some, but the accounting must be done properly to win that argument. The public option still needs a funding mechanism, and for that you need to get quantitative again. You need to be able to argue that it pays for itself (i.e. the change in coverage methods pays for the universality). Once you can do that, you can argue that it too increases wages (at least in this limited model).

    See? Much of the argument doesn’t need numbers, and if you wanted to get technical could be argued with things like the intermediate value theorem (one curve is going up, the other down, they must cross. That kind of thing). The numbers are reduced to figuring out how to pay for the change to universality. Once that’s done, all the plans raise wages, so you can legitimately ask the Cadillac people to find another argument.

    [sorry for such a long comment]

    • Cujo359 says:

      The between company gains (those that came from switching jobs) were well above COLA.

      Yes, mobility can help, but that’s mostly true in what is basically a tight labor market. It just doesn’t have to be quite so tight, I suspect. In a market like this one, mobility just makes it possible to go from one job to another without worrying about losing benefits. The new job might be more rewarding, or closer to home, but odds are it isn’t going to pay more.

      Krugman has pointed out, in fact (as have the guys I noted earlier who are way ahead of Krugman), that we aren’t going to see those low unemployment days again for a long, long time.

      Whatever we get here is what we’ll be living with for a decade.

      At this point, you can see that since the former is an effect of the Cadillac plan, it is a winner for increasing wages.

      By the terms of the Senate legislation, a Cadillac plan is a plan that doesn’t leave a middle class family broke when a serious illness strikes. Taxing those plans means there won’t be so many of those plans in a few years.

      if instituted, single payer pays for itself and then some, but the accounting must be done properly to win that argument.

      Switching to single-payer would represent a roughly 30 percent cut in costs, when you factor in differential MLR, extra administrative costs to care providers, and increased bargaining power of the government plan. If the same people (employers) were paying for it, they’d be paying 30 percent less per person. This ought to be enough to cover the other 16 or so percent of the population who aren’t being covered now.

      The government already covers the medical care of the third of our country that’s the most at risk – seniors, the poor, the military, and prisoners. Adding the people who aren’t covered should be child’s play.

      The other thing to keep in mind is that the expenses of lawsuits arising from medical problems will be just about nonexistent with single payer. Actual malpractice suits would still happen, but most of the ones related to personal injuries on the job or in auto accidents would be unnecessary. People who get all the health care they need are going to be less inclined to sue for it.

      So, you save. Next?

      • ondelette says:

        None of that (most of which I agree with and doesn’t contradict what I wrote) negates what I wrote as far as where the numbers are needed. The Cadillac plan is the best at being deficit neutral, even though it isn’t the best overall deal (the single payer is, I think we agree on that). That must have been one of the stipulations. So either forcefully argue that something not deficit neutral is worth it (characterize the startup costs of single payer as a stimulus plan since it improves infrastructure for the future economy), or come up with a version that is deficit neutral.

        What’s happened is that conservatives have pulled their favorite pair of tricks: deficit hawks are perceived as good stewards of the economy, and right to run a business, which is persuasive in a downturn even more than in boom times. Either you need a rebuttal that beats them at that game (unlikely), or you need to change the playing field. I suggest the latter: Argue that deficit spending on health care infrastructure is good for the future economic health of the country.

        Big warning: No universal plan will be neutral on current free riders, i.e. those who are saving money by not buying any health care right now. Don’t expect them to, nobody in public health believes in supplicating free riders. They’ve spent decades cogitating over how to get them to pay into the system. None will preserve glaring differences between plans, either. Those are perceived as inherent unfairnesses.

    • bobschacht says:

      You needn’t apologize for the length of your comment. It is by far the best comment I’ve seen from you in the past few days. That doesn’t necessarily mean that I agree with every step of it, but at least you have laid out a coherent argument with appropriate detail that is relevant to the present discussions.

      Bob in AZ

    • qweryous says:

      I can’t find the EOH diary you refer to.
      Where can it be found?

      “They are, however, not bad assumptions given which sectors saw growth in wages during the period that Jonathan Gruber bases his views on, the 1990s. And I think they show some avenues of attack that can be done on a qualitative basis (less importance on numbers, more importance on their change, and the dynamical landscape).”

      Is this reference to his published papers, or something else?

      Thank you.

      • ondelette says:

        I can’t figure out how to find diaries that go off the roll on Seminal, but I wrote the whole argument out in greater detail in the above comment.

        I’m specifically looking at Silicon Valley during the boom, which was the sector and location that was causing the most rapid increase in wages at the time (average real wages were falling). I wasn’t using his figures. I was trying to separate out the qualitative arguments from those that strictly needed figures, since if people here really want to go head to head with him and his kind, you need the figures, so if you do as much as you can qualitatively, then you can minimize the necessary figures. I used to do qualitative dynamics for a living.

        Bob in AZ: Thanks. I had said I had few disagreements to arguing on the merits. This column is on the merits, so I largely have no problem with it.

      • bobschacht says:

        In response to ondelette @ 155 (show text)

        I can’t find the EOH diary you refer to.
        Where can it be found?

        I found it.

        Ondelette’s comment there can be found here.

        However, it is also worthwhile to read EOH’s diary, and most of the comments.

        Bob in AZ

    • klynn says:

      Thanks for sticking with us and sharing.

      I think mobility as a means of increasing salary depends on the sector. Moving from a top tier position with a small firm may only translate to a mid tier position with a larger firm, only allowing for equal pay in the move. That was my experience recently.

      Now the comment where you got my attention:

      What’s happened is that conservatives have pulled their favorite pair of tricks: deficit hawks are perceived as good stewards of the economy, and right to run a business, which is persuasive in a downturn even more than in boom times. Either you need a rebuttal that beats them at that game (unlikely), or you need to change the playing field. I suggest the latter: Argue that deficit spending on health care infrastructure is good for the future economic health of the country.

      This comment needs further expansion. This is spot on.I hope Marcy picks up on it as well.

      • selise says:

        klynn and ondelette, re ondelett’s comment:

        What’s happened is that conservatives have pulled their favorite pair of tricks: deficit hawks are perceived as good stewards of the economy, and right to run a business, which is persuasive in a downturn even more than in boom times. Either you need a rebuttal that beats them at that game (unlikely), or you need to change the playing field. I suggest the latter: Argue that deficit spending on health care infrastructure is good for the future economic health of the country.

        my bold. that’s one of the reasons i’ve been begging people to read wray’s book, understanding modern money, the key to full employment and price stability, for a good intro into the issue. it relies on a completely different understanding of fed deficit spending — one i have been persuaded of. orthodox economists are wrong on this and it turns upside down most conventional macro econ.

    • Watt4Bob says:

      Here’s a paper that presents an alternative opinion.

      It’s from the Economic Policy Institute.

      I’d also ask if you have thought about the relationship between our current topic, and the on-going efforts to privatize our Public Health Service, which I think of as a very dangerous, more dangerous possibility, and I suspect from reading between the lines, is something you might know something about?

  42. qweryous says:

    OT Except that it deals with another paper Jonathan Gruber coauthored.
    Presented for your information.

    Jonathan Gruber
    Daniel M. Hungerman
    Working Paper 12410
    1050 Massachusetts Avenue
    Cambridge, MA 02138
    July 2006
    LINK to full paper:

    The paper studies the effect of repealing ‘blue laws’- which restrict various commercial activities on ‘holy days’-for example Sundays. The conclusions reached I found most interesting.

    The requirement for quotations is directly quoted here:
    “©2006 by Jonathan Gruber and Daniel M. Hungerman. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including ©
    notice, is given to the source.”

    Two paragraphs from the conclusion are quoted below:

    The first:
    “Part VI: Conclusions
    The results presented above confirm the important role that secular competition can have on religious behavior:
    when the blue laws are repealed, there is a significant drop in both religious attendance and religious contributions. This is a striking finding which has a number of interesting implications.”
    (©2006 by Jonathan Gruber and Daniel M. Hungerman. All rights reserved.)

    The second:
    “Second, this finding can be a valuable input into the discussion of the regulation of religion and substitutable activities. Absent strong negative externalities, there seems little argument for restricting the
    days of the week that commerce can take place. But religious participation may be one of those activities with such externalities. As such, secular regulations such as blue laws which promote religious participation can have external effects. Whether those external effects are sufficiently large to justify restrictions on commerce is an excellent question for future research.”(©2006 by Jonathan Gruber and Daniel M. Hungerman. All rights reserved.)

    A certain detached view of such things as the meaning of living in a secular society appear clear.

    “This work was supported by the Metanexus Institute.”
    Link to the Metanexus Institute LINK:

    • bmaz says:

      Holy jeebus, did you take a gander at the “about” section and mission statement of the “Metanexus Institute”?? Um, wow, that is pretty eh …… interesting. I don’t know if these folks are smoking something organic and gazing through crystals, are some kind of new age religious cult or what. But they are certainly full of something……

      • qweryous says:

        My reply has been lost?

        Yes: I never post a link without first viewing it.:)

        Must prevent surprises and inappropriate content.

    • PJEvans says:

      I’m not sure that that conclusion actually follows … it may very well be another case of ‘post hoc’.

      Certainly, if you have something better more interesting to do on Sunday than sitting in church, you will do it if you can. If what prevents you doing it are ‘blue laws’ (such as the one they used to have in TX which restricted what kinds of items could be sold on Sunday, including certain kinds of hardware and garden items), then getting rid of those laws might result in fewer people in churches – but those would be people who probably wouldn’t be in church anyway, given a choice in the matter.
      Adding in business to the mix, I suspect that businesses will always be happier if they have more available hours in the week, provided that they don’t have to pay extra for bodies on weekends. (It doesn’t seem to have hurt banks to have branches open on Sundays, at least in supermarkets. The 9-to-3-on-weekdays bit is almost guaranteed to lose business any more.)

      • qweryous says:

        The curious should take a look.

        I am not an economist employed by MIT.

        I have slept at a Holiday Inn Express!

        With that disclosure out of the way ( I don’t work for Holiday Inn Express etc either!)

        I did give it a quick read.

        I had the post hoc and other related thoughts about this.

        I also neglected to suggest to go read the paper if you are interested.

        Go read the paper if you are interested.

    • fatster says:

      “. . . is an excellent question for future research.”

      Looking for money much?

      Much gratitude to you for finding this, qweryous. It appeals poignantly to my sense of the absurd. Public policy should always be made on such firm foundations.

  43. qweryous says:

    I left out the part where the repeal of the blue laws cause some of the lapsed church goers to :
    Partake of substances such as ALCOHOL!

    Church attendance FELL!

    Church donations FELL!


    Read this paper.

  44. helzapoppin says:

    How can Krugman not see the shell game he’s describing?? The presumed structure he is operating under is one in which insurance companies can boast about keeping premiums “under control,” by reducing benefits. And in the best-case (and highly unlikely) scenario that workers will see a dividend in their wages, that money – and more, due to still rising cost of actual CARE – will still go toward larger copays, deductibles, and general out-of-pocket expenses. All of the money will still flow in the same direction (to pay for healthcare) but now a larger proportion will come from workers’ taxable income instead of insurance coverage. And in the more likely scenario that workers do not see an increase in wages, they are hit even harder.

  45. qweryous says:

    Thank you for the links.
    Went and will read now.

    Also for future reference please:
    Where do the diaries go when they scroll off?
    ( Actually where to go to find them?)

    Thanks again.

    • dakine01 says:

      In the “Latest Diaries” list at Seminal, at the bottom is “Read More.” Clicking that takes you to a page that begins with the most recent diary at the top left hand then down the page is every diary and post in order. This is the brute force method as it takes just that to keep scrolling back to find the desired diary.

      The other option is to use der Google which probably works easiest when you have an author, date, and/or topic

      • qweryous says:

        Thank you for the info.

        I saw “read more”, but as I wanted older diaries, I was looking for “older diaries” or similar to click on.

  46. pros says:

    Since when is Krugman an expert on health care?

    I thought he was an international trade guy..

    most of writings in the NYT are nonsense.

  47. lhb58 says:

    Amazing how we’ve gone from general realization that this Bill is a POS that no intelligent progressive in good conscience could support, to arguing about the arcania of applied health care microeconomics as it applies to yet another horrible feature of this Bill, the excise tax on high value health insurance plans. A few observations:

    1) When has an excise tax on anything ever resulted in lower prices for the good that is being taxed? Never.

    2) Even if it resulted in higher wages in lieu of better insurance, what do you think most workers would desire to pay those wages for, in an era of rapidly rising health care costs? A better insurance policy, which will now cost them more because of the tax. Real incomes of workers affected by the excise tax will go down, unless the unemployment falls back down to below 5% and all workers can costlessly and immediately change jobs in response to increased competition amongst employers for their services. I hope you have longer expected life span than I do if you expect to see those days again during your lifetime.

    3) I am currently trying to “bend” the cost curve on my own by refusing to undergo 2 MRI’s ordered by a specialist I was advised to see by my primary care doctor because I don’t want to pay the co-insurance. Neither of them are pleased, and there is a possibility I might have to find another primary care doctor as a result of the friction.

    I’m an economist and could get more technical, but why bother. True Health Care Reform died when the mandate became a fait accompli. The excise tax is a serious issue, but this Bill will hurt far more workers than it will help, the major beneficiaries will be Health Insurance Providers and other major players in the Health Care Field, and Dems will be shocked when they find they can’t “sell” the reforms to the public once they find out what they will cost them, regardless of the marginal and questionable “goods” they provide, like no more denial for preexisting conditions, that can easily be offset by higher premiums for people with preexisting conditions. I guess I’m in the minority when I assert we’d be better off with the status quo until real Health Care Reform stands a chance of passage, if for no other reason than you must take a stand at some point and let those who would manipulate you into financial ruin that you know what game they’re running, and you won’t let them run it with impunity anymore.

    • bmaz says:

      Excellent points. And welcome Ihb58, I don’t believe I have seen you here before; please join in our discussions more often.

  48. orionATL says:


    I am sceptical of the term “free rider”

    As I am of “Cadillac” plan.

    They are glib in the way too much public discouse is these days.

    I also consider them both excellent propaganda terms.

    Specifically, I can’t imagine amy consequential number of Americans would deliberately avoid buying. Health imsur

  49. orionATL says:

    continuing @188

    Would deliberately avoid buying
    Health insurance unless they couldn’t aford it.

    Nor can I
    Imagine those with ” Cadillac” plans would be well-to-do citizens.

    Most folks buy what they feel they
    Need for their financial security.

    As for union workers their company’s negotiators and their union’s negotiators make those decisions.

    I consider both terms calculated pejoratives.

  50. Gitcheegumee says:

    Here’s an interesting economic blog that has some equally interesting points about the Cadillac plan, in addition to other issues:

    Capital Gains and Games | Washington, Wall Street and Everything …Capital Gains and Games. Washington, Wall Street and Everything in Between … How Much Did Capital Gains Contribute to 1990s Budget Surpluses? … – Cached – Similar

  51. christinewithregence says:

    You’ll find a lot of thought-provoking ideas about runaway health care costs at this site: