By ROBERT H. FRANK
New York Times
March 15, 2007
Economic Scene

When asked to identify the two most important items from their list of 10 public policy commandments, most antigovernment crusaders pick (1) public spending shall be kept to an absolute minimum and (2) the state shall not transfer income from rich to poor.

No government heeds these admonitions in any literal sense. Yet they have had a profound impact on public policy decisions, especially in the United States. Often, however, their impact has been the opposite of what antigovernment crusaders intended.

The problem is that many compellingly advantageous public policies cannot be enacted without violating the two commandments. Every significant policy change benefits some people and harms others. If the gains to winners substantially outweigh the costs to losers, solutions can always be found that allow everyone to come out ahead. But those solutions often involve higher taxes and income transfers to the poor.

Regulations that limit auto emissions are a case in point. Because these regulations increase car prices, legislators in most jurisdictions exempt older vehicles to avoid imposing unacceptable costs on the mostly low-income motorists who drive them. Yet the cost to society of this exemption far outweighs its benefit for the poor.

For example, although fewer than 10 percent of the vehicles in Los Angeles are more than 15 years old, these cars account for more than half the smog. Exempting the old cars thus necessitates much stricter regulations for new ones. But the cheapest ways of reducing emissions from new cars have long since been adopted. According to a RAND Corporation study, meeting air quality targets by further tightening new-car standards is several times as costly as meeting those targets by eliminating the exemption for older vehicles.

By raising taxes on high-income motorists, the government could finance vouchers that would enable low-income motorists to scrap their older vehicles in favor of cleaner used cars of more recent vintage. The required taxes would be much smaller than the resulting savings from not having to adopt such costly standards for new vehicles. Both rich and poor motorists would win.

The problem is that taking these steps would violate the two commandments. Antigovernment crusaders have prevailed for now. The ostensible champions of economic efficiency, they have kept government budgets smaller and blocked some transfers to low-income families. In the process, however, they have made everyone poorer.

Some believe that minimal government is synonymous with economic efficiency. But it is not. As the emissions example illustrates, economic efficiency sometimes requires that government play a larger role.

This example is part of a much broader pattern. In health care, for example, the private insurance system employed in the United States delivers worse outcomes at substantially higher cost than the single-payer system employed in virtually every other industrial country. But switching to the single-payer system would require higher taxes and increased benefits for low-income citizens, steps that would violate the two commandments. So for now, we remain saddled with a system that everyone agrees is dysfunctional.

In the realm of antipoverty policy, most economists agree that raising the earned-income tax credit would be the most efficient way of increasing the living standard of the working poor. Under this program, general tax revenues support income subsidies to those whose earnings fall below a given threshold. Its compelling advantage is that unlike a higher minimum wage, it does not discourage hiring. But raising taxes to increase the earned-income tax credit would violate the two commandments.

Because the most efficient antipoverty policy is deemed politically unfeasible, many economists support current legislative proposals to raise the minimum wage for the first time in a decade. If this legislation passes, antigovernment crusaders will be able to claim, truthfully, to have prevented an increase in the federal budget. But they will have won a hollow victory. For unlike an increase in the earned-income tax credit, an increase in the minimum wage not only limits job creation for the least- skilled workers, it also raises the prices of goods they produce. Over all, it would have been cheaper to raise the earned-income tax credit.

Antigovernment crusaders have also prevented the adoption of energy policies that would produce better outcomes for all. For example, economists of all political stripes have argued that a stiff tax on gasoline would relieve traffic congestion, reduce greenhouse gases, accelerate the development of energy-saving technologies and reduce dependence on foreign oil. But it would also impose significant economic hardship on low-income families, making it necessary to increase transfer payments to those families. Both the tax on gasoline and the transfers to low-income families would be clear violations of the two commandments. And so gasoline taxes continue to be far lower in the United States than in other industrial countries.

That democratic forces limit the economic hardship that government can impose on low-income families is a good thing. But sometimes imposing hardships on those families would create far larger gains for society as a whole. In such cases, we can always devise solutions that make everyone better off. But it is impossible to put these solutions into practice without violating the two commandments.

Is it better to solve a problem by spending two extra dollars in the private sector than by spending one additional dollar in the public sector? The two commandments insist, preposterously, that it is.

Economic efficiency is a worthy goal because when the economic pie grows larger, everyone can have a larger slice than before. Antigovernment crusaders deserve credit for emphasizing the importance of this goal. But as events of recent years have repeatedly demonstrated, they are often the biggest obstacles to its achievement.

Robert H. Frank, an economist at the Johnson School of Management at Cornell University, is the author of “The Economic Naturalist,” which will be published this spring. Contact: www.robert-h-frank.com.

Healthcare Costs Could Hit $12,320–or 25% of Income–on Premiums and Deductible Before Insurers Pay for Any Care

Total Out-of-Pocket Costs Could Exceed 36% of Household Income

California Nurses Association
Press Release
March 15, 2007

Gov. Arnold Schwarzenegger’s health plan could cost the typical California household from 25% to 36 percent of their family income, according to data released today by the California Nurses Association.

Schwarzenegger’s health proposal, based on a new Massachusetts law, would require all California residents to purchase health insurance. But with no controls on rising premiums — which have risen 87 percent this decade — most Californians are likely to opt for bare bones plans that carry a heavy price tag and limited benefits.

Under the Governor’s minimum plan, the typical California resident would likely be expected to pay $12,320 per year in medical expenses and premiums—before any medical care is paid for by their insurance company.

Schwarzenegger has proposed that the minimum, cheapest plans include a $5,000 deductible prior to an insurance payment. The deductible is on top of the insurance company’s premium charges, which are likely to cost up to $7,320 per household, the amount established in eastern Massachusetts for those required to buy health insurance.

For the typical California household, that means being forced to spend 25 percent of their income on medical costs—before any care is paid for by the insurance they are forced to buy (based on the median household income of $48,440 as of 2003 U.S. Census Bureau data).

The real costs could be far more. Schwarzenegger’s proposal further says that out-of-pocket costs could rise to $10,000 per household if more extensive care is needed — which would drive out of pocket costs up to 35 percent of the median family income. (Any hospital stay would expose a family to the $10,000 cost quickly; the average hospital charge per discharge in California is nearly $33,000.)

And since the Governor’s projected costs are for the least expensive coverage, it is likely that most families would have to spend extra for dental, vision, mental health, long-term care, and other care.

“Many families may end up having to make the terrible choice of assuming more medical debt which can lead to financial ruin, or foregoing needed care,” said CNA President Deborah Burger, RN. “Schwarzenegger’s healthcare plan could lead to financial ruin and bankruptcy, instead of nursing them back to health.”

Health care experts say health costs constitute a “financial burden” if they exceed 10 percent of a family’s post-tax income. In testimony to the House Ways and Means Committee in January, Diane Rowland, vice president of the Kaiser Family Foundation, noted that one in six adults who are privately insured “report having substantial problems paying their medical bills” and that two-thirds of the privately insured who have medical debt have family incomes of up to $75,000.

Additionally, a recent study by the American Academy of Pediatrics found that high-cost, high-deductible insurance plans are a hazard to patient health, because they provide parents and other patients with an incentive to skip or delay preventive care, immunizations, compliance with recommended treatment, and other needed care.

SB 840 Would Provide Affordable Care to Californians:

CNA has long advocated for a universal, single-payer healthcare plan as the only affordable and fair way to ensure that every patient receives a single standard of high-quality care. Governor Schwarzenegger vetoed just such a plan, Sen. Sheila Kuehl’s SB 840, last year.

Upon reintroducing her bill this year, Senator Kuehl remarked, “SB 840 works by pooling our health care resources so everyone — state and federal government, income earners and employers – contributes something and we all get coverage. This allows us to consolidate the administrative functions of thousands of different insurance companies and plans into one comprehensive insurance plan, saving businesses and consumers, as well as the state, billions of dollars in the first year alone.”

CNA is the principal sponsor of SB 840 and is engaging in an active campaign to ensure its passage, including direct mail to households, a radio ad, and a new web site, www.SinglePayer.com.

Representing 75,000 RNs from California to Maine, the California Nurses Association/National Nurses Organizing Committee is the fastest-growing association of direct-care RNs in the nation. Learn more at www.CalNurses.org

Legislative Committee Clears Two Differing Approaches To Health Care Reform

By DIANE LEVICK
Hartford Courant Staff Writer
March 14 2007

A bill to create a single health insurer in Connecticut – an anathema to the industry – won half-hearted approval Tuesday from a legislative panel, which also passed a reform bill the industry favors.

The Insurance and Real Estate Committee, in a 12-7 vote, approved a bill aimed at creating a “single-payer” system to ensure coverage for all Connecticut residents not on Medicare.

Several Democrats on the committee, including committee Co-chairman Brian J. O’Connor, said they were voting for the Connecticut Saves Health Care bill simply to keep reform debate going despite misgivings about potential job loss in the insurance industry.

State Rep. Christopher R. Stone, D-East Hartford, who voted yes Tuesday, said he wouldn’t support the bill on the House floor.

The bill’s proponents, though, scored the vote a victory because it showed a major shift in the climate for universal health care and keeps the single-payer idea afloat.

The Connecticut Saves Health Care program would replace the current system of employer-based and individually purchased policies, taking away much of the role of private health insurers. However, they wouldn’t be prevented from selling supplemental coverage.

The insurance committee is known for preserving the role of insurance companies in health care, but “what they’ve said today with their vote is the system is broken and we need to change it,” said Phil Sherwood, legislative director of the Connecticut Citizen Action Group. “I think that rang loud and clear.”

Legislators of both parties, however, voiced worries about insurance industry jobs in Connecticut, should there be a switch to a single-payer system.

State Sen. Louis C. Deluca, R-Woodbury, the committee’s ranking member, said Iowa has become as big or bigger a mecca for insurers than Connecticut because of legislators’ actions here over the years.

“We continually give them reasons not to be here,” he said. “I believe this would be another one.”

Keith Stover, a lobbyist for the Connecticut Association of Health Plans, warned that “If Connecticut wants to maintain its pre-eminence as an insurance state, I would think that passage of single-payer would be about the worst possible message you could send to the industry.

“It’s a lot of families that are supported by the insurance industry, a lot of mouths are fed, a lot of children put through college, and the idea that people are willing to just chuck that is extremely disturbing.”

But state Rep. John C. Geragosian, D-New Britain, praised the single-payer concept, saying, “Insurance companies don’t add any value in this [current] system” and that “it’s time to take some bold action” to solve the health care crisis.

Stover blanched at that, saying after the meeting that “essentially every innovation in health insurance, from chronic disease management to consumer-driven health plans, etc., all come from the minds here in Hartford, in Connecticut.”

Tuesday’s vote was a “victorious first step toward comprehensive change,” said Juan A. Figueroa, president of the Universal Health Care Foundation of Connecticut, which had pushed the single-payer bill.

The vote, he said, “acknowledges that incremental steps are not the way to fix our state’s broken health care system.”

The vote for a single-payer system also drew praise from Council 4 of the American Federation of State, County and Municipal Employees, the largest AFL-CIO union in the state, and from Citizens for Economic Opportunity, a labor-community coalition.

But a single-payer system is “potentially unsustainable” from a funding standpoint, said Eric George, associate counsel at the Connecticut Business and Industry Association, which has “grave concerns” about the idea.

The state already under-funds Medicaid payments to hospitals, driving hospitals to make up a part of the shortfall through reimbursements from private insurers, George said. In a single-payer system, health care providers wouldn’t have private insurers to fall back on, he said.

The insurance committee removed funding provisions from the bill because there was no consensus, measures that would have levied a 50 percent surcharge on the state income tax and an 8 percent payroll tax on employers of a certain size. The bill now goes to the Senate.

The committee also passed a revised version of the Healthy Steps bill, which Stover said “provides the most rational framework for ongoing discussion” and relies on a market-based system.

The bill, which now heads to the House, would create a new Health Care Reform Commission to develop a more affordable health plan for small employers of 50 or fewer employees.

The state would contract with a private nonprofit organization that would serve as an insurance purchasing pool for previously uninsured individuals and small employers to buy coverage.

The Connecticut Connector program would offer three kinds of health plans, including a high-deductible plan linked with a health savings account.

Legislators removed from the bill a proposed 3 percent tax on revenue of health care providers in Connecticut that would have helped to fund some of the provisions. Doctors protested the tax at a committee hearing last week.

The bill would provide tax credits at varying levels to small employers that provide health insurance that meets or exceeds the standards set for the affordable plan to be developed.

The measure also calls for expansion of the state’s Husky insurance program, and increased reimbursement to doctors, dentists and hospitals from insurers serving Medicaid members.

Contact Diane Levick at dlevick@courant.com.

Copyright 2007, Hartford Courant

The Nation
[from the March 26, 2007 issue]

Editorial

The need to expand access to affordable healthcare is rapidly emerging as the top domestic policy issue in the 2008 presidential race. And no wonder: With the number of uninsured now up to nearly 47 million, and more than one-third of that total consisting of households with family incomes of $40,000 or more, lack of health insurance has become a concern not just of the poor but also of the middle class. Moreover, soaring medical costs–increasing in large part because at least one of every five healthcare dollars goes to administrative costs and insurance company profits–are a worry even to those who have some form of insurance. More than half of personal bankruptcies today are caused by illness or medical debts.

There’s no mystery about the fix Americans want: Nearly two-thirds of those surveyed in a recent New York Times/CBS poll say the government should guarantee health coverage for all Americans. Half said they’d willingly pay as much as $500 a year more in taxes to pay for universal coverage. To do that, this country needs to establish a single-payer system–one inspired by Canada and other developed countries but distinctly American in approach. There’s already legislation, with seventy-eight co-sponsors–the United States National Health Insurance Act (HR 676)–that would accomplish this by expanding and improving the existing Medicare system. The popularity of such an approach, endorsed March 6 by the AFL-CIO executive council, is illustrated by the ease with which California legislators passed a single-payer plan last year–only to have Governor Schwarzenegger veto it. In late February, the plan was introduced again, as part of a reform-from-below push that is seeing states tackle the healthcare crisis.

Ultimately, however, America needs a national fix.

Americans have lost hope that the Bush Administration will do anything to address the national healthcare crisis. Only 24 percent of those in the New York Times/CBS poll said they were satisfied with Bush’s handling of the issue. And that number will surely shrink with recent revelations about the deplorable conditions at the Army’s Walter Reed Hospital–another reminder of this Administration’s incompetence. But so far most of the major presidential candidates have failed to take advantage of Bush’s low standing to advance bold proposals.

Among the candidates, Congressman Dennis Kucinich has a long record of embracing single-payer proposals. Unfortunately, he is a lonely leader. The front-running Democratic contenders remain vague and cautious. Senator Barack Obama says, “I am absolutely determined that by the end of the first term of the next President, we should have universal healthcare in this country.” Senator Hillary Clinton says she would enact “health insurance for every child and universal healthcare for every American”–with specifics “yet to come.” Former Senator John Edwards moves beyond rhetoric to a plan: He would require everyone to have insurance and require employers either to provide coverage or pay into a fund to provide it. But although he reaches out to labor on other issues, Edwards is unwilling to embrace HR 676, which has earned support from nine international unions, seventeen state federations and sixty-three central labor councils.

Voters have to demand more if they want more. Obama at least recognizes the frustration of Americans for whom meaningful healthcare reform has been a dream deferred at least since the collapse of the Clinton Administration’s bureaucratic proposals of the mid-1990s. The Clinton plan rejected single-payer and embraced a complicated hybrid that relied too heavily on the same insurance companies that had failed to make healthcare affordable and accessible. “We can’t afford another disappointing charade in 2008, 2009 and 2010,” says Obama. He’s right. But he and his fellow front-runners should recognize that as long as they avoid talking about single-payer and continue to tinker around the edges of the current system, they are players in the charade.