The New Robber Barons

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image002Previously, Marcy Wheeler noted the unsavory blending of the private interests of health insurance companies with the power and hand of the US government:

It’s one thing to require a citizen to pay taxes–to pay into the commons. It’s another thing to require taxpayers to pay a private corporation, and to have up to 25% of that go to paying for luxuries like private jets and gyms for the company CEOs.

It’s the same kind of deal peasants made under feudalism: some proportion of their labor in exchange for protection (in this case, from bankruptcy from health problems, though the bill doesn’t actually require the private corporations to deliver that much protection).In this case, the federal government becomes an appendage to do collections for the corporations.
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The reason this matters, though, is the power it gives the health care corporations. We can’t ditch Halliburton or Blackwater because they have become the sole primary contractor providing precisely the services they do. And so, like it or not, we’re dependent on them. And if we were to try to exercise oversight over them, we’d ultimately face the reality that we have no leverage over them, so we’d have to accept whatever they chose to provide. This bill gives the health care industry the leverage we’ve already given Halliburton and Blackwater.

Marcy termed this being “On The Road To Neo-feudalism” and then followed up with a subsequent post noting how much the concept was applicable to so much of the American life and economy, especially through the security/military/industial complex so intertwined with the US government.

Marcy Wheeler is not the only one recently noting the striking rise in power of corporate interests via the forceful hand of US governmental decree (usually at the direct behest of the corporate interests). Glenn Greenwald, expanding on previous work by Ed Kilgore, penned a dynamic description of the dirty little secret (only it is not little by any means) afoot in modern American socio-political existence:

But the most significant underlying division identified by Kilgore is the divergent views over the rapidly growing corporatism that defines our political system.

Kilgore doesn’t call it “corporatism” — the virtually complete dominance of government by large corporations, even a merger between the two — but that’s what he’s talking about. He puts it in slightly more palatable terms:

To put it simply, and perhaps over-simply, on a variety of fronts (most notably financial restructuring and health care reform, but arguably on climate change as well), the Obama administration has chosen the strategy of deploying regulated and subsidized private sector entities to achieve progressive policy results. This approach was a hallmark of the so-called Clintonian, “New Democrat” movement, and the broader international movement sometimes referred to as “the Third Way,” which often defended the use of private means for public ends.

As I’ve written for quite some time, I’ve honestly never understood how anyone could think that Obama was going to bring about some sort of “new” political approach or governing method when, as Kilgore notes, what he practices — politically and substantively — is the Third Way, DLC, triangulating corporatism of the Clinton era, just re-packaged with some sleeker and more Read more →

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Why Can’t Bill Supporters Say “Affordable”?

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Like Nate, I appreciate having a discussion based in facts and details. And Nate says several of the cost estimates I used to show why the health care bill is unaffordable for middle class families “are on the high side.” I appreciate him checking my numbers–as I have said on several versions of the post I have done on affordability, I’d like to have a real discussion about these costs.

Nate’s numbers are too low

Nate uses a different method than me; rather than building costs up from individual estimates as I did (indeed, Nate never shows what my hypothetical family’s budget would look like), he looks at BLS data, and argues that either, “this is significantly more than most two-child families will be spending on these services — probably by a margin of $10,000 or so,” and/or my hypothetical family, “does not have a reasonable and responsible gameplan to begin with.”

Now, Nate hasn’t actually shown that. Instead, his primary source of numbers shows what the average family in this income bracket ($50,000 to 69,999) would spend. And that family is older (average adult age of 47) and smaller (2.7 people, with just .7 kids) than the family I was discussing. That’s significant in ways that make his costs too low on several counts. For example, over a fifth of the people in the BLS estimate own their home outright. A significant portion are single or couples. Adding older home-owners and singles needing smaller homes into his consideration almost certainly means Nate’s housing costs are too low for a family of four or even three. Similarly, Nate’s figures for food expenses are low by $1,324 (and his average family eats out, which USDA assumes my average family of 4 does not for its calculations).

Plus, Nate doesn’t point to the places where my estimates (based on real expenditures) are quite low, according to the numbers Nate uses. I said this family spent $1,500 a year on heat, electricity, and water; his numbers say the average 2.7 member family would spend $2,823. I said this family would spend $1,200 for all telecom services; Nate’s data says this 2.7 member family would spend $1,253 on telephone services alone, with cable, at least, presumably included in the $1,141 of audio and visual equipment and service. So, accepting Nate’s numbers for these services would mean both my costs and probably his, too, for utilities and telecom are still too low for a 4-person family.

And the BLS data Nate uses appears to not account for child care at all (please correct me if I’m wrong here). Nate points out rightly that, “not all families will have a pre-school aged child. The typical child spends 3-4 years in pre-school, but then 12-13 years in the public school system,” but doesn’t account for the fact that I used costs for just one kid in child care, and not the more expensive infant or toddler rates. Also, if these kids were school aged, it would mean the family would spend $1,353 more on food because of the growing kids’ higher calorie requirements. Also, note these costs don’t necessarily have to include child care. Unmanageable college loan debt, unplanned major house repairs, existing medical debt, or credit card debt could all get my middle class family into the same plight without any child care costs and without, necessarily, making this family at all unusual or frivolous.

And then there’s the most ironic place where Nate’s calculations–finding my estimates $10,000 too high–are themselves too low: health care. The BLS data Nate uses shows this family of 2.7 spends $3,229 yearly on health care. Yet, the majority of this pool would get health care through work, a significant number are single, and some (though not many) are on Medicare.

Even Nate’s numbers show this plan is unaffordable for a middle class family

But what’s remarkable is that, even assuming Nate’s numbers are correct and mine are high, those numbers still show that this plan is unaffordable for a family of three paying some child care.

Nate’s numbers show the average income in this bracket is $59,319, with $58,610 left after taxes (note, a family of 3 at 301% of poverty would make $55,131, so this hypothetical 2.7-member family would still fall into the same income bracket I used in my original post). This average family would spend $50,465 a year. So to show what happens when this average family has to pay child care and spend 7.9% of its income on mandated insurance, I’m going to take out the BLS health care costs and add in the 7.9% this family would have to spend under the mandate. And because I argued earlier that these families aren’t spending all that much on entertainment (and therefore couldn’t save money by cutting entertainment expenses), I’m going to back out entertainment costs too. And because Nate said my estimates for taxes were too high, I’m going to take out those, too (though not FICA, which this family would have to pay).

$50,465 (total expenditures)

-$3,229 (less health care expenses)

-$2,936 (less all entertainment costs)

-$709 (less income taxes)

$43,591 (Nate’s numbers less health care, entertainment, income taxes)

+$4,686 (7.9% of $59,319 in income–or the amount paid before opt-out became possible)

+$6,216 (child care for just one four year old in MI)

$54,493

$4,826 (total income less total expenses)

In other words, this family would have just $4,826 left to spend on entertainment (what Nate originally said this family could cut back on) and out-of-pocket health care expenses.

That says a family expected to pay 30% of out-of-pocket health care expenses would blow their entire discretionary budget after $16,086 in medical costs. More than what my other hypothetical family might spend, but still not a catastrophic medical event. And this hypothetical family would have to go $3,147 in debt before government subsidies would pick up the rest of their out-of-pocket expenses. Read more →

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“Affordable” Health Care

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I’ve been seeing a bunch of single, relatively young men with comfortable incomes argue that the health care reform is “affordable.” But seeing Nate argue that the high costs the middle class is still being asked to bear under the Senate health care bill is just a matter of  “having to cut back on vacations, entertainment and meals out versus filing for bankruptcy or losing one’s home,” I wanted to hit the question of affordability one more time, to show that this isn’t a matter of eating home more often, but rather of precisely the debt problems that Nate says reform will prevent.

Here’s a version of one family’s total household costs under the plan: a middle class family with two cars and some child care costs. Note, in this scenario, I’m assuming the middle class family will pay 7.9% of its income for health insurance premium, significantly less than the 9.8% the plan assumes that family could pay to get the subsidies available. This, then, shows what a family would be required to pay (or incur a penalty) under the 8% opt-out rule.

301% of Poverty Level: $66,370

Federal Taxes (estimate from this page, includes FICA): $8,628 (13% of income)

State Taxes (using MI rates on $30,000 of income): $1,305 (2% of income)

Food (using “low-cost USDA plan” for family of four): $7,712 (12% of income)

Home (assume a straight 30% of income): $19,275 (30% of income)

Child care (average cost for just one pre-school child in MI): $6,216

Health insurance premium: $5,243 (7.9% of income, max amount before opt-out w/o penalty allowed)

Transportation (assume 2 cars, 12,000 miles each, @IRS deductible cost of $.55/mile): $13,200*

Heat, electricity, water: $1,500

Phone, cable, internet: $1,200

Total: $64,276 (97% of income)

Remainder (for health care out-of-pocket, debt, clothing, etc.): $2,091

In other words, assuming this family had no debt (except for that related to the two cars), no clothing costs, and no other necessary costs–all completely unrealistic assumptions–it would be able to incur just $6,970 of medical care out-of-pocket costs before spending all that $2,091 and going into debt (the opt-out is based on an insurance plan that provides 70% of costs, so this assumes the family will pay 30% of health care costs). Yet that family would be expected to spend up to $5,882 more out of pocket before the “subsidies” started picking up its out-of-pocket expenses. (If the family paid the full 9.8% of its income on premiums–at which point it would become eligible for subsidies under the plan–it would have just $825 left to spend on all other expenses, including health care out-of-pocket expenses.)

This family couldn’t even go through a normal childbirth without going into debt.

Now, a few words about these costs. The transportation costs, while based on official numbers, seem high. But since I’ve used MI numbers–which are cheap compared to other states–for state income tax and child care, I thought it fair to assume this family had two fully average car mileages with associated costs.

The utilities costs are based on my own costs for a 1000 square foot, very well-insulated home, with the winter thermostat set at 64 degrees, and with no air conditioning use.

The one expense in here that might be high are the telecom costs–which I figured at $100/month. That amount would pay either a Comcast phone/basic cable/internet package, or a land line plus a family cell phone package with no internet or cable. So if a family did without any cable package, used dial-up internet access, and had only an emergency cell phone, the family might get by paying $45/month instead of the $100/month I’ve calculated.

Note what these calculations don’t include: First, there’s no budget line in here for vacations, and while the mileage probably would allow for visits to family, it would not otherwise allow for vacations. It also doesn’t allow for any meals out–the low cost food basket used to generate this cost assumes “all meals and snacks are prepared at home.” It also assumes the family doesn’t spend as much money on some more expensive food items–like sweets–that most Americans eat more of (the low cost food basket includes 58% fewer sweets calories than actually consumed). Admittedly, by assuming the family might have basic cable, it includes some entertainment costs, but even if it cut that expense, it would only save $360/year, not enough to pay the out-of-pocket costs expected under the plan.

In other words, this family is not doing without vacations or meals out to pay for health care: it is driving an unsafe car; it is eating less than even the USDA says it would spend; it is not paying off its existing debts. All of those things are ways for the middle class to fall out of the middle class. And this is all before it incurs any significant health care costs!

This is why the experience from MA is so critical: 21% of people surveyed had forgone necessary medical care in the previous year because of cost. That’s presumably what would happen with this family. It would pay almost 8% of its income for insurance premiums, already taxing its budget, but it would be unable to get any care aside from what did not incur any out-of-pocket care. This family would basically spend over $5,000 a year for yearly check-ups.

Obviously, this does not take away from the fact that the poor will get health care, with subsidies more realistically set to income levels. It does not take away from the biggest group of uninsured will get some kind of coverage. For those, reform is a vast improvement.

But for the middle class–those above 300% of poverty–this remains unaffordable, and the mandate threatens to put those families into debt without giving them health care in exchange.

*As dagoril pointed out in comments, the IRS is lowering the mileage deduction for next year from $.55 to $.50.  So as of next week, these calculations would change, suggesting this family would spend $12,000 on transportation, giving them another $1,200 to spend.

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Ezra: The Senate Plan Is Just Like What Obama Campaigned On–Except for All the Ways It’s Not

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This is pretty funny. Ezra has a post up arguing that, the Senate health care bill “is very close to the health-care bill that Barack Obama promised.”

And then he proceeds to list 8 ways that the bill is not like what Obama campaigned on.

And there are, to be sure, some differences. The public option did not survive the Senate. The individual mandate, which Obama campaigned against, was added after key members of Congress and the administration realized that the plan wouldn’t function in its absence. Drug reimportation was defeated, and a vague effort to have government pick up some catastrophic costs was never really mentioned.

But the basic structure of the proposal is remarkably similar. Here’s how it was described in the campaign’s white paper:

The Obama-Biden plan provides new affordable health insurance options by: (1) guaranteeing eligibility for all health insurance plans; (2) creating a National Health Insurance Exchange to help Americans and businesses purchase private health insurance; (3) providing new tax credits to families who can’t afford health insurance and to small businesses with a new Small Business Health Tax Credit; (4) requiring all large employers to contribute towards health coverage for their employees or towards the cost of the public plan; (5) requiring all children have health care coverage; (5) expanding eligibility for the Medicaid and SCHIP programs; and (6) allowing flexibility for state health reform plans.

We don’t know what the employer mandate will look like once the House and the Senate merge their bills, and the exchanges look likelier to be run by states or regions than by the government (though there will also be a national exchange overseen by the Office of Personnel Management), but those are really the only differences. And it’s not even clear they’re differences.

Nor were there aggressive cost controls outlined in Obama’s white paper but abandoned amid the legislative process. The Senate bill is quite a bit stronger on controlling costs than the campaign paper, which makes no mention of prudential purchasing or the excise tax on high-cost health insurance or the Medicare Commission or specific delivery-system reforms.

So let’s review. Ezra lists the following things that Obama promised, but failed to deliver:

  1. Public option
  2. No individual mandate
  3. Drug reimportation
  4. Government coverage of catastrophic costs
  5. Employer mandate
  6. National, rather than state level, exchanges

And then adds two things that Obama didn’t promise but are in the bill (and note, I agree the delivery system reforms are great improvements, but the case for the excise tax is riddled with problems and is a big attack on the unions that supported Obama in the campaign).

  1. Excise tax
  2. Delivery system reforms

And from that, Ezra judges, that the Senate bill is very close to the bill Obama promised!

That’s the funny part. There are parts of this that aren’t funny at all.

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Brainstorming Future American Neo-Feudalism Today

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Picture 174See if this sounds familiar to you:

…governments and global elites pursue short-term economic gain above all else. Their aggressive focus on growth, efficient markets, and robust trade eventually causes financial volatility as a result of poorly organized uncoordinated responses to crises in global health, environmental change, and other international issues. The global economic system appears robust and successfully promotes prosperity, but this type of globalization has a dark side: trafficking of illicit goods, human rights violations, and a widening gap between rich and poor. Health and environmental disasters—some sudden and others slow-burning—frequently overwhelm domestic agencies, which are increasingly understaffed. Climate change becomes an acute concern, exacerbating resource scarcities and damaging coastal urban centers.

While it’s not an exact match, it sounds pretty close to what I was talking about in my post on health care as a significant step towards neo-feudalism, or Glenn Greenwald’s must-read piece on corporatism.

The piece is from an Office of Director of National Intelligence Scenario developed for the Quadrennial Intelligence Community Review. It is, ODNI seems to think, just one possible future–a future it places in 2025, 15 years away–though not the most likely one.

I raise it because Congress’ failure to pass health care reform that actually promises health care, and its upcoming failure to pass climate change legislation that actually fixes climate change (which was one of the things preventing Copenhagen from being more successful) show that key elements of this scenario are already in place. The reason Mary Landrieu and Joe Lieberman and Ben Nelson (though Landrieu is the only one who will consistently admit this) refuse to pass legislation that will introduce competition in the health insurance industry is because they want to ensure that the health care industry remains at its 16% of the economy, if not grows. The profits of our corporations are effectively taking precedence over the urgent need to both give everyone health care and cut the amount of money we use doing it. And while the health care bill will put off the time when our failure to do what every other industrialized nation has managed to do causes a major crisis, it will not prevent it.

Now the interesting thing about this scenario are the things that it gets–in my opinion–wrong. For example, it suggests that citizens in this world would have the ability to demand privacy protections from the government; yet we have already ceded so much privacy to corporations, and the corporations have taken over governmental functions, I see little chance of demanding real privacy from our government, or even rolling back the surveillance the government has already put into place. (Though note the scenario’s fear that “profit motivated state actors dominate the information environment, limiting the Government’s access to critical data”–it seems the intelligence community’s big fear is that they won’t be able to continue collecting our data.) I also find it ludicrous that our IC (!) suggests that the time when terrorists and other criminals will exploit cross-border flows to further their causes lies 15 years in the future; do they really not know the degree to which this happens right now? And while the government is currently dumping stimulus dollars into our infrastructure–something this scenario envisions happening to stave off natural disasters–it’s not clear that we’re making substantive advances in our infrastructure, rather than just doing the maintenance that has been neglected for the last decade. And frankly, I think this scenario is far too placid about the types of organizations that average people will be forced to form in response to their increasing vulnerability.

It’s a weird thing, this scenario. While it recognizes the real threat of the rising neo-feudalist world, it seems more worried about whether the IC will be able to exert the power it does today than about what it means for people more generally.

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The Cadillac-turned-Chevy Wage Increase Myth

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The White House, in a post purporting to tell “The Truth on Health Care Reform and Taxes,” repeats a claim I’ve seen just about all defenders of the “They-Call-It-Cadillac-But-It’s-Really-A-Chevy Excise tax” make: that the tax will give workers a raise.

… for the small sub-set of plans that are affected, the primary impact of this provision will be to increase workers’ wages. Getting a pay raise is not what most people would call a tax increase. Economists agree by taxing the highest cost plans this provision will lead insurance companies to be more efficient and provide quality care to consumers at lower prices (see this endorsement in a letter from a group of prominent economists – including three Nobel laureates and previous members of both Democratic and Republican administrations and this analysis by CBO 2009). Even a report commissioned by the insurance industry’s trade association acknowledged that: “[w]e expect employers to respond to the tax by restructuring their benefits to avoid it.” [PWC, 2009]. As a result, employers will be in a position to increase workers’ take home pay.

I was thrilled to see those three links, because I figured it meant the White House was providing some proof for this claim where I had seen none before.

Here’s what those links say.

Economists

The letter “from a group of prominent economists” says nothing about the excise tax; it only even uses the word “tax” once, and not in the context of funding the health care reform. This is the closest it comes to tying the mode of health care delivery to wages, but this passage says nothing about how you make the health care system more efficient:

A more efficient health care system would free up resources that could be used to produce other goods and services, and to invest in the future. That would promote economic growth and jobs, along with higher wages and living standards.

So the link to the economists doesn’t even support the Administration’s more general argument for the excise tax, much less its claim that the excise tax will result in higher wages for workers.

CBO

The CBO paper linked to prove this point likewise does not support the point. It does support several related claims, though, that may reveal what the Administration is really thinking about employer-provided care. Here’s what it says in its extended section on employer-based tax.

Nearly all analysts agree that the current tax treatment of employment-based health insurance—which exempts most payments for such insurance from both income and payroll taxes—dampens incentives for cost control because it is openended. Those incentives could be changed by restructuring the tax exclusion to encourage workers to join health plans with lower premiums; those lower premiums would arise through a combination of higher cost-sharing requirements and tighter management of benefits.

CBO’s Budget Options volume discusses a number of such changes. One option would replace the current tax exclusion with a refundable but more limited tax credit. Another option would limit the amount of health insurance premiums that could be excluded from income and payroll taxes to specific dollar amounts that represented the 75th percentile of premiums paid by or through employers.17 These approaches would change workers’ incentives about how much insurance to purchase and how much care to demand, and they would increase federal revenues by several hundred billion dollars over 10 years.

17 The dollar amounts in 2010 would be about $17,300 a year for family coverage and about $6,800 a year for individual coverage.

So a CBO report the Administration claims supports their excise tax claims actually argues simply that we need to move away from an employer-based delivery model.

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David Plouffe Points to Events in November to Prove “Base” Is Happy in December

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Picture 168David Plouffe fed Ari Melber a whole bunch of bullshit in this interview defending Obama’s health care reform capitulation. But I’m particularly amused by this aspect of his argument.

Rank and file Obama supporters still have faith in the health care strategy, Plouffe insists, a conclusion he reached by listening to the “base” supporters who donated time and money to Obama.

“I’ve been out on a book tour, I’ve seen a lot of people–the base I view are the people who gave money and volunteered in the campaign. Now, there are plenty of people who are commentators who did that too, and I thank them for that, but the heartbeat of the campaign and the Obama organization are the people out there I’ve seen the past few weeks in St Louis, in Kansas City, in Philadelphia,” he said. (The Nation interview was part of Plouffe’s tour for “The Audacity to Win.” Plouffe also highlighted that literally two million people have taken some volunteer action for health care since Obama’s inauguration.

“It’s easy to take potshots, but I’m very closely in contact with the people who make up the heartbeat of the ground level of Obama for America, who are still out there,” he said. “We’ve had a couple million people out there volunteering for health care, quietly in communities, helping maintain support. It’s different from a campaign; you’re not out there saying, ‘Register eight voters today.'” Later he elaborated, “Is it the same intensity as the campaign? Of course not… I quite frankly am thrilled that over two million people, which is a lot, have done something on health care, meaning: they’ve gone out and knocked on doors; they visited a congressional office; they helped organize a press conference. It’s happened in all 50 states, and we think it’s a small part of why health care will get done.”

So Plouffe refutes Markos’ argument that the party has “a lack of understanding of just how pissed the base is at this so-called reform,” by pointing to two things: the enthusiasm of the people he’s talked to while on book tour over “the past few weeks,” and the two million people who have been engaging in grassroots lobbying through Organizing for America.

As a threshold matter, Plouffe invokes book events that happened on November 20, November 19, and November 5 to support his claim that grassroots Obama supporters are not pissed about Obama’s capitulation to Joe Lieberman on December 14. But it’s worse than that. Plouffe hasn’t had a book event since December 10 (though he’s doing one tomorrow in Delaware, and I hear he takes feedback he gets at book events very seriously, if you happen to be in Delaware…). In other words, Plouffe is claiming that all the enthusiasm he saw on the road before Obama capitulated to Lieberman proves that the base is okay that Obama capitulated to Lieberman.

Then there’s the OFA claim. Plouffe says that the sheer number of Obama volunteers who have been fighting to support health care reform prove that the base still supports Obama’s approach to health care reform.

There’s a big problem with that. Though OFA did send out an activist blast yesterday, for much of the time these OFA volunteers were working their ass off for health care, the public option was part of the plan. Read more →

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21% of People in MA Still Forgo Necessary Medical Care

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I tweeted this factoid yesterday, but wanted to post on it too, because I think it illustrates the difference bewteen health insurance and health care.

A number of supporters of the current Senate bill have been pointing to RomneyCare to argue that mandates and exchanges can be wildly successful in providing care. But a September 2009 Kaiser Commission review of the MA experience had this to say:

According to a March 2009 Urban Institute report, health reform has improved access to health care services for newly insured and previously insured adults. Over ninety percent of adults in Massachusetts have a usual source of care and most reported seeing a doctor in the previous year. However, the affordability of health care remains a barrier to receiving care for some residents. Of the total population, 21 percent went without needed care in the previous year because of cost. People with disabilities and those in fair and poor health experienced the greatest barriers to accessing care.

There is some good in this snippet. It says that people–presumably some of them for the first time in a while–are getting primary care. But it’s also saying that more than one-fifth of them are forgoing medically necessary care because the health insurance they have is too stingy to make that medically necessary care affordable.

The MA program is not dissimilar to the Senate bill. It allows for policies with deductibles of up to $4000 for families and other out-of-pocket fees, though it actually has lower out-of-pocket limits than the Senate bill. What MA considers to be an affordable premium is not all that different from what would be required under the Senate bill. (While I don’t think all the Senate subsidy levels have been released, making a one-to-one comparison impossible, it appears that the Senate bill offers an affordability opt-out for the affluent–families making $114,401–that the MA program doesn’t have, but requires the middle class to pay higher premiums–$441/month versus $364/month for a family making $66,150; go figure, the House of Lords screwed the Middle Class again).

So we should assume that the Senate bill would have similar outcomes as the MA program (though with a much weaker mandate, it would achieve much lower levels of coverage). And one outcome appears to be that the middle class is being forced to buy insurance, but that insurance is not making health care affordable when people need it the most.

It’s one thing to require people to buy insurance if it is affordable and it guarantees that it’ll actually get them the care they need. But if it doesn’t (and the Senate bill wouldn’t for the middle class), then it just becomes a wealth shift from the middle class to the health care industry.

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The MyBarackObamaTax

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I did a post when Max Baucus first released the Senate Finance Committee bill, showing that for a middle class family of four, a significant medical event would leave the family with just $7,215 to pay transportation, education/child care, utilities, debt, and other necessities.

I wanted to do the same exercise again, because the Senate bill has changed to include more subsidies for those between 300 and 400% of the poverty level. As a result of those subsidies, the bill has gotten much better for the middle class. But it would still leave a family of four that had experienced a significant health care event with just $13,620 to pay for everything besides food, housing, health care, and income taxes.

I’m going to do two scenarios — one for someone just above 300% who will receive subsidies and have a premium limit, and one for someone just over 400%. While that artificially calculates the number for those who would be in the worst case scenario, as far as benefits (meaning they make just enough to miss out on some subsidies), it does give a basic idea of what this will do to middle class families (though it is inaccurate in that those over 400% of poverty have no cap on premiums, so those numbers could be higher). Since subsidies are figured on “silver” plans which allow actuarial values of 70%, this is what might happen to a family incurring around $39,666 in medical costs over the year, in which case they would pay the full out-of-pocket costs for their income level.

As with my earlier post, please let me know if you’ve got better estimates — but provide a link. Note the income tax for the lower income level is based on Brookings/Urban Institute/Census data. The state taxes are based on MI’s relatively low rates, so those numbers would be higher for most people.

301% of Poverty Level: $66,370

Federal Taxes (estimate from this page, includes FICA): $8,628 (13% of income)

State Taxes (using MI rates on $30,000 of income): $1,305 (2% of income)

Food (using “low-cost USDA plan” for family of four): $9,065 (14% of income)

Home (assume a straight 30% of income): $19,275 (30% of income)

Health Care: $14,477 ($7,973 out-of-pocket + 9.8% of income; totals 22% of income)

Total: $52,750 (79% of income)

Remainder for all other expenses (including education, clothing, existing debt, transportation, etc.): $13,620 (or 21% of income)

401% of Poverty Level: $88,420

Federal Taxes (really rought estimate based on this page, includes FICA): $13,263 (15% of income)

State Taxes (using MI rates on $45,000 of income): $1,957 (2% of income)

Food (using “low-cost USDA plan” for family of four): $9,065 (10% of income)

Home (assume a straight 30% of income): $26,526 (30% of income)

Health care: $20,565 ($11,900 out-of-pocket + 9.8% of income–though note there is no limit on premiums for this income level, so this could be higher; totals 23% of income)

Total: $71,376 (80% of income)

Remainder for all other expenses (including education, clothing, existing debt, transportation, etc.): $17,044 (or 19% of income)

I’m going to start collecting other likely costs below, to try to round this out.

Transportation costs (assumes 1 car, 12,000 miles/year, at IRS rembursement rate): $6,600

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Captive Consumers in Oligopolies Do Not Make Effective Markets

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In a post citing liberally from a Matt Yglesias post naming me,  Ezra takes on the argument that the health care bill, as currently conceived by President Lieberman, would be a bailout of the insurance industry.

There’s an argument on the left that the health-care bill represents a “bailout” to the insurance companies. Matt Yglesias puts this in the proper context:

I’ve seen Marcy Wheeler characterize the plan as an “industry bailout.” And, indeed, if I were a small government conservative one political tactic I would employ would be to start characterizing all initiatives involving government spending as a “bailout.” You could say that [the stimulus]’s provisions funding K-12 education are a “bailout for teacher’s unions.” You could call [cap and trade] a “bailout for windmill makers.” And you can call the health care bill an “insurance company bailout.” But the mechanism by which insurers can get extra money under reform is that … more people get health insurance at a price they can afford.

For the record, I’m not positive I’m the one who did say that, but I’m not opposed to the invocation of my name in that context. I do, however, find Matt’s insinuation that I’m making the same kind of cynical argument conservatives do disingenuous at best. Particularly coming from a guy who claims that requiring middle class families to pay almost 10% of their income in premiums alone–more than 3 times as much as some experts say is affordable–is “a price they can afford.”

Ezra, for his part, argues (again) that profit is not in and of itself a bad thing.

To put this a bit more sharply, if I could construct a system in which insurers spent 90 percent of every premium dollar on medical care, never discriminated against another sick applicant, began exerting real pressure for providers to bring down costs, vastly simplified their billing systems, made it easier to compare plans and access consumer ratings, and generally worked more like companies in a competitive market rather than companies in a non-functional market, I would take that deal. And if you told me that the price of that deal was that insurers would move from being the 86th most profitable industry to being the 53rd most profitable industry, I would still take that deal.

Now, I’ve got a few nits. Ezra may not have seen the CBO directive that Jon Walker pointed to the other day, which suggests Harry Reid will be unable to insist on a 90% Medical Loss Ratio, the provision that would have forced insurers to spend 90% of premium dollars on care. And there are reasons to doubt that all the measures pressuring providers to bring down costs incent the right behaviors; while some are much-needed reforms, some may actually lead to more spending. But those nitpicks aside, Ezra rightly points out the aspects of this reform that a real improvements over what we’ve got now.

That said, Ezra’s further examples (and Yglesias’) just prove the point those of us opposed to the bill in current form have been making, because they show the importance of functioning markets.

The profit motive is not, in and of itself, a bad thing. The Apple computer I’m typing on, the Netflix movie I wish I were watching, the pork buns I wish i were eating — it all comes from profit. But Apple isn’t allowed to have slaves build its computers, Netflix can’t destroy the incentive to make films by pirating all of its DVDs, and Momofuku can’t let rats infest its kitchen because exterminators are expensive.

First, let me deal with Matt’s analogies. Some stimulus money goes to schools. That money is either appropriated at the state level through regular somewhat democratic appropriation processes (in which case it’s a bailout for states, and the teacher’s unions will be put in position of negotiating for fewer job cuts or wage decreases). Or it will be awarded to school construction contractors in localized markets that are both competitive and (because of transparency attached to the stimulus) very transparent.

Cap and trade has, in fact, been called a bailout–but of Wall Street, not wind turbine manufacturers, because it’ll just create another big derivatives market. But for companies trying to reduce their greenhouse gas emissions to meet caps, yes, they may choose to buy wind turbines. Or they may choose any number of other ways to generate power releasing fewer greenhouse gases. The point is, though, there are many choices, and some, but not all of those choices, are markets in which there is real competition (and utilities are big enough they’ve got some power to influence these markets).

Now onto Ezra’s analogies. I’m most intrigued by his Momofuku parallel, because it does point to one aspect of health care reform–the regulations requiring insurers reveal a lot more information about their businesses, which hopefully will make it easier to pressure health care providers to improve their practices. But the analogy fails on a key point: consumers’ source of pressure on Momofuku not to let rats take over its kitchen is twofold. We trust health inspectors will find the rats and issue a report making the rats public. And, very importantly, Momofuku has to compete with hundreds of other restaurants, and any hint that it’s got a rat problem would make it competitively disadvantaged compared to these other hundred restaurants. Unlike Momofuku, Blue Cross in most markets has only a few other competitors. So a better analogy than Momofuku is probably school lunch programs, which are regulated by the USDA, but which aren’t exposed to real competition. And, as it turns out, school lunches don’t match the quality of meats offered at fast food restaurants which are exposed to competition.

In the past three years, the government has provided the nation’s schools with millions of pounds of beef and chicken that wouldn’t meet the quality or safety standards of many fast-food restaurants, from Jack in the Box and other burger places to chicken chains such as KFC, a USA TODAY investigation found.

The U.S. Department of Agriculture says the meat it buys for the National School Lunch Program “meets or exceeds standards in commercial products.”

That isn’t always the case. McDonald’s, Burger King and Costco, for instance, are far more rigorous in checking for bacteria and dangerous pathogens. They test the ground beef they buy five to 10 times more often than the USDA tests beef made for schools during a typical production day.

That’s not rats, but it is a significant issue affecting quality. Increased transparency is not sufficient to force larger bureaucracies to improve quality. It’s an important element, but it’s not enough.

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