The focus on Federal taxes as a Robin Hood-type redistribution tends to focus on economic classes – is the middle class a winner or a loser, etc. Except, Representatives don’t represent classes. They represent states.  And, looking at the redistributive effects of taxes on a state by state basis, the Republican party comes across as just a machine in directing benefits their way.

If we look at net Federal spend (spend less taxes) by state, Republican states get a net benefit of $284B, while Democratic states are net losers by $216B.  The top 5 winning states include one Democratic state – Maryland – and 4 Republican states.  This reverses for the bottom 5 states, with only one Republican state – Ohio – represented, along with 4 Democratic states. Closer to home, California weighs in dismally short at $29B.  It will get worse as some of the relatively more punitive measures in the new tax legislation hits residents in Democratic states the hardest.  Specifically, on being able to deduct state taxes on Federal tax returns.

Maybe it’s no surprise Republican party colors are red.  Democratic states need better representation

The skinny repeal was to do away with the individual mandate where individuals are required to buy health insurance or face penalties. It is a bag of lemons.

George Akerlov won the Nobel Prize in Economics for a paper he published in 1970 called “The Market for Lemons: Quality Uncertainty and the Market Mechanism”. In it he said that markets could collapse if one side of the transaction had more information on the quality of the product than the other. For example, if a buyer could not tell apart a bad car (a “lemon”) from a good car (a “peach”), they would not be willing to pay a price greater than the average quality of the car they expected to buy. That would lead sellers of peaches to withdraw from the market, since the price they would get for their car would be less than the value they knew it to hold. And, we would be left with a market in which only lemons were sold.

This is obviously an example taken to an extreme, but does indicate the directional impact of doing away with the individual mandate. People who are more at risk would be more likely to buy insurance, leading to a riskier pool, and put upward pressure over time on premiums. Rising premiums would, in turn, push people who are on the fence, i.e., the relatively lower risk participants, to not seek insurance in the future. Thereby putting additional pressure on premiums. And so on.  Potentially leading to a non-functioning market.

Obamacare also does not allow premiums to be based on pre-existing conditions. This, in some ways, is the other side of the glove of the individual mandate.  In that it allows premiums to be priced purely on age, and not on other health considerations. We could argue the merit of that. But then, we abut against philosophical considerations on insurance. The purpose of insurance is to pool risk. I may not be sure on an outcome to me any given year, but by putting myself in a much larger pool, I tie myself to the security of the group outcome. Obamacare helps insure that.  Pricing based on individual health considerations, however, reduces this pooling of risk. And taken to the extreme, each of us gets a health plan tailored to our specific needs, and pays the premium associated with it. Which really means no insurance at all, at least from a pooling perspective. Let the chips fall where they may… And given the cost of health care, very few people really want that.

Which brings us full circle to the fundamental problem faced in the country with health care. Costs have been on a tear pretty much since the 80s. The skinny repeal does not address this increase in cost. In fairness, Obamacare does not either. But, neither can it be blamed for it. Cost is a pre-existing consideration that is being ignored by both our great parties.

I am not an expert on health care. But, the level of discourse across the political spectrum is uninformed even to me. And, incredibly disheartening, given how important it is to the country.

As I see it, there are two fundamental issues with healthcare. One is the size of the uninsured U.S. population. This was the focus of Obamacare. By objective measures, Obamacare has had success in addressing this issue.

The other is cost. Health care costs have been rising at an eyewatering rate. Both prior and subsequent to Obamacare. No matter the success with level of insurance coverage, if cost is not addressed, the country will be unable to afford healthcare.

While it may be fair to say that Obamacare did little to dampen cost, it is churlish and disingenuous to blame Obamacare for the continuing rise. Cost has been, so to speak, a preexisting condition. Further, the rise in cost will not be addressed by Trumpcare.

This rise will squeeze the rest of the economy. Healthcare expenses exceed $3T. Or 1 out of every 5 dollars that the economy generates. The result is reduced wealth creation across most households, and tragedy for some. A derivative effect is a Federal budget with no room to maneuver. The Federal government spends almost one out of every three dollars of its $4T budget administering and providing for its healthcare responsibilities. No surprise then that the U.S. has a crumbling national infrastructure. Trumpcare seems to be focused on addressing this derivative effect, i.e., reducing Federal outlay on healthcare, without addressing the underlying problem. This is shortsighted.

HHS is Department of Health and Human Services, which oversees Medicare and Medicaid.

So, what is to be done? This is a complex problem with no silver bullet. However, we ignore market forces at our peril. One defining trend that has been absent in the debate is the dramatic shift in share of overall expense from out of pocket to health insurance – 45% in 1960 to more than 90%.

When confronted with an all-you-can eat buffet, most of us will overindulge. Similarly, until the payment relationship between individuals and insurance is addressed (high-deductible plans; larger co-payment, etc., for lower premiums), we will overindulge on medical services. Which will lead to higher costs. The other truth is that insurance markets on their own will not move to a more optimal structure. This is where the coordination effort of the Federal government has a key role to play.

Sources: Peterson-Kaiser Health System Tracker; Statista; Bureau of Economic Analysis; whitehouse.gov

Thinking back to a blog post from November 7, 2016

With the U.S. Presidential election less than a day away and talk of the “blue wall” being breached, it is worthwhile to revisit the original wall. As the topic will rear up post-election.

My daughter was in 2nd grade in the last academic year. The grade culminated with a study of Mexican and Central American immigration into California and the Bay Area. Each student created their own research questions, and followed their curiosities in answering that question.

My daughter had just the one question, but it was (ahem) rather broad in scope — Why do people want to keep people out? That led to a good discussion on the topic and she decided she needed to do a survey to answer her question.

We used a recent Pew survey as a baseline and structured a survey before emailing it out. Some self-selection bias here, obviously, but the response was huge (see what I did there …) and results were very immigrant friendly. For example, only 15% of the 171 respondents thought illegal immigrants should leave the country. Note, the survey took place in May 2016, when the wall was a very big deal on the political airwaves.

Anyway, selected results of the survey are attached. In brief …

• The respondents are majority U.S. born, white, women, and well educated
• More than 90% believe immigrants (legal and illegal) make American society better; while around 20% feel that illegal immigrants do not
• 90% think immigrants (legal and illegal) make the economy better
• 5% believe that immigrants (legal and illegal) make crime worse; while around 15% think the same about illegal immigrants
• Only 15% think illegal immigrants should be made to leave the country
• Women are more immigrant friendly than men

No surprises given geography, but the main takeaway is that there is a big divide in the country. The issue is not going away and will need to be addressed fairly imminently by the next president. Best of luck to them.

One basic philosophy of the Graham-Cassidy bill was to provide decision making authority closer to where the impacts are felt, i.e., the states. Devolution of power is nice, but beware unintended consequences.

There are lots of decisions that states can make that create entirely different markets separated just by state borders. These differences could lead to migration of underserved people from one state to another and break markets.

Let’s say California maintains the ACA’s pre-existing provisions. And suppose Arizona ends up allowing insurers to charge different prices based on condition.  That will leave Arizona with a significant underserved, higher-cost population, some of whom will find California a tempting state to move to. Leading to ever increasing cost pressure on California’s medical system and higher premiums. Some 25% of the U.S. population are supposed to have pre-existing conditions. So, there is significant risk for these kinds of market instabilities.

Maybe the dream of a border wall does not end with the national border. Do states now decide to have similar walls to protect their insurance markets from collapse?

I guess my main concern is that heath care is a big, complex problem. It is one-sixth of the U.S. economy, or about the same size as the Federal Government. You just cannot rush a bill impacting so much of the U.S. without knowing much about the details or the consequences, which I figure is true of the mindset for almost all the senators, representatives and President.