Viking Economics (part 3)

June 28, 2017

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Even the wealthiest, most economically developed countries in the world face serious challenges in the years ahead. An important question for the future is whether a more egalitarian social system is an advantage in dealing with these challenges. If so, that makes the Nordic model even more relevant to current policy discussions.

Globalization

In much of the developed world, globalization has benefited capital more than labor, as global corporations profit by offshoring work to cheaper sources of labor. Nordic countries have a long history of global trade. Countries like Norway “lacked the extensive land, abundant resources, and large population that enabled countries like the United States and Germany to generate robust, internally driven economies.” But Nordic countries also have a strong commitment to high employment and good wages. Can they sustain that in the global economy?

One way of reconciling an openness to foreign trade with a desire to protect domestic workers is a policy of “flexicurity,” a Dutch concept that has become central to economic policy in Denmark. “The Danes changed the social contract between the state and the workforce. Instead of guaranteeing workers their existing jobs, the government would guarantee workers ongoing support and retraining so they could get new jobs.” By providing the universal services of education, training and a strong social safety net, Nordic countries help their workers cope with a world of enhanced foreign competition.

Although immigration is a controversial issue almost everywhere, Nordic countries have also had the confidence to extend economic assistance to newcomers. Both Norway and Sweden have about a 14 percent foreign-born population, even a little higher than the US’s 13 percent. Norway will support immigrants for a year while they learn the language and culture and receive job training. “Norway is ranked number one among the twenty-seven richest countries for its policies on migration: acceptance of asylum-seekers and refugees, open borders to immigrants and students from developing countries, and friendly integration practices.”

That is not to say that conflict between immigrants and natives is nonexistent. Sweden has experienced youth riots in immigrant neighborhoods, especially during the period after the mid-1980s, when it was cutting public spending and allowing inequality to grow. In general, however, Lakey believes the Nordic model goes a long way to reduce social conflict. While American-style inequality “institutionalizes scarcity,” making people of different races and ethnicities compete for too few opportunities, the Nordic model:

generously funds agencies and programs that assist people who otherwise might lack opportunity. It seeks out barriers to advancement, such as burdens of childcare and dependent elders, and tries to alleviate those to free everyone to move ahead. By universalizing such programs, as well as health care, vacations, access to public transportation, and other enhancements that otherwise can become racialized for disadvantaged populations, the model carefully avoids setting categories of people against each other.

Of course, doing all these things is costly. But who can calculate the social and personal costs of our failure to do them?

Climate change

As I have argued elsewhere, environmental issues highlight the tension between private gain and public cost. Fossil fuels provide profits for producers and cheap energy for consumers, but their market success depends on not factoring in the social and environmental costs of climate change and other environmental damage. Renewable energy will become cheaper and more profitable over time, but the government may need to put a big thumb on the scale to discourage what is publicly dangerous and encourage what is publicly good as quickly as possible.

Because Nordic countries are more receptive to market interventions for the public good, they have generally been leaders in national and international action on climate change. Sweden, Denmark and Norway were among the first to impose taxes on carbon emissions, back in 1991. Denmark has been a world leader in wind power, because of national policies like incentives to form local wind energy co-ops. In 2013, Sweden was already getting over half of its energy from renewable sources, compared to an average of 15% in the European Union and even less in the U.S.

Norway is in an awkward position on climate change, because oil accounts for almost half of its exports. How much of the Arctic oil reserves it can actually develop without unacceptable environmental damage is a vital but unresolved question. On the other hand, Norway’s large public pension fund has divested from coal, as well as from Canadian tar sands oil. Norway also doubled its carbon tax in 2012 because the government wasn’t satisfied with the country’s rate of emission reductions.

Automation

Lakey does not discuss the potential impact of automation on employment, but it is a challenge that is receiving more and more attention. I recently reviewed Martin Ford’s Rise of the Robots, which warns of a “jobless future” for millions of workers whose jobs are vulnerable to automation. Ford and others envision an expansion of public welfare programs to support the jobless multitudes.

Lakey has described Nordic countries not as welfare states, but as “universal service states.” They place a strong emphasis on helping people to become productive citizens with good jobs. Does that make them more or less prepared to cope with a more automated economy?

In Parts 2 and 3 of my discussion of Ford’s book, I described my somewhat different vision of the future, emphasizing the transformation of work rather than just the elimination of jobs. I have no doubt that robots will take over many tasks that they can do more efficiently than humans. But as in the transition from farming to manufacturing in an earlier time, I would hope to see human labor shifted to new frontiers of economic activity, especially in the area of skilled personalized services. I would also like to see the extension of the twentieth-century trend of shortening the typical work week, which would have the effect of spreading the available work to more people. As the twentieth-century experience showed, fewer hours is compatible with high pay as long as workers have the skills and the technological support to achieve high productivity. That in turn depends on the development of human capital, which requires broad access to education, health care and other human services, industries that both create jobs and equip people to get jobs. Since the development of human potential is a public good that not every family is able to pay for, a strong public role in such areas as health insurance is called for. There is also a role for non-market work–labors of love if you like–which can flourish when people have the leisure to balance their work and family responsibilities and participate in volunteer work.

Although I hadn’t read Viking Economics when I developed these ideas, the Nordic model seems relevant to everything on my list. The same “flexicurity” policies that reduce fears of globalization can also reduce fears of automation. If you lose a job, you can expect help in finding and qualifying for a new one. The Nordic work week is already shorter than ours. The universal services model is more conducive to the development of human capital, and citizens are already accustomed to paying high taxes to support it. Finally, “Thanks to an economic model that fosters work/life balance, people have abundant time to volunteer in the community.” It’s a way of life that compares favorably to the American system, where workers cling to technologically and environmentally obsolete jobs like coal mining because they expect little help to become something new. We can do better.

 

 

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Health Insurance Losses Remain High in Senate Bill

June 27, 2017

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Today I will interrupt my discussion of Viking Economics in order to report on the Congressional Budget Office’s analysis of the “Better Care Reconciliation Act” proposed by Senate Republicans. Although the bill differs from the House Republican bill in many of its details, its effect on health care spending and insurance coverage is projected to be similar.

According to the CBO, the Senate proposal would reduce the number of people with health insurance by 22 million over ten years, compared to 23 million for the House bill. It would reduce Medicaid spending by $772 billion, compared to $834 billion for the House bill. It would reduce tax credits and subsidies for purchasing health insurance on the individual market by $408 billion, vs. $276 billion for the House bill. It would eliminate most of the Affordable Care Act’s taxes, which were aimed primarily at medical corporations and the wealthiest taxpayers.

At first, fewer people would have health insurance primarily because penalties for not having it would be eliminated. Some individuals would choose not to carry insurance, and some large employers would choose not to offer group plans. Although young and healthy individuals would be less inclined to obtain coverage, CBO expects that enough of them would do so to keep most insurance markets stable and generate the revenue insurers need to cover the sick. In a few sparsely populated areas, insurers would not have enough customers to keep them in the market.

As other provisions of the Senate bill took effect, more of the uninsured would be people who found insurance less available or affordable than it was under Obamacare.  That could be for a number of reasons.

Reversing the Medicaid expansion and spending less on Medicaid in general would result in an expected drop of 15 million in enrollment over ten years. (That would be an especially big blow to nursing home residents, the majority of whom rely on Medicaid because they have exhausted their savings.)

Many people who are not on Medicaid would be priced out of the market because of higher premiums. Insurers might have to raise rates in order to compensate for the loss of premiums from healthy people who elect to go without insurance. Older buyers would also face higher premiums because insurers would be allowed to charge them up to five times as much as younger buyers; that limit was three times as much under Obamacare.

For many people, the problem would not be higher premiums but less government help in paying for them. Tax credits would offset a smaller percentage of the premiums than under Obamacare, and they would phase out at a somewhat lower income level, 350% of the poverty level instead of 400%.

The CBO analysis talks about premium declines as well as premium increases. In the short run, insurers might have to raise premiums on the sick because fewer healthy people were signing up. But in the long run, the premium on a “benchmark policy” could drop 20-30%. The “benchmark policy” is a standard policy that is the basis for calculating your tax credit. You are expected to pay a certain percentage of the premium, and the government reimburses the rest. The main reason why the benchmark policy would be cheaper is that the bill allows it to cover less of expected health care costs. It only has to cover 58% of the cost instead of Obamacare’s 70%. So the premium is lower, but that is offset in two ways: your share of the premium is a little higher, and your deductible will be higher when you need care. The drop in premiums is a somewhat illusory benefit, since your out-of-pocket cost is higher. Obamacare has some additional subsidies to help with out-of-pocket costs, but the Senate bill eliminates them.

Inexpensive policies would also be available because states can obtain waivers from Obamacare’s strict rules on benefits (requiring “essential benefits” and prohibiting annual or lifetime caps on payouts). That might work for someone who wants a policy without maternity benefits. For people who need a comprehensive policy with no caps, the cheaper policy is very risky.

Low-income people not covered by Medicaid would often face a choice between having to pay too high a premium for a good plan, or having to pay too much out-of-pocket because their cheaper plan doesn’t cover very much. As a result, the CBO predicts that “few low-income people would purchase any plan.” For the 43% of the population with incomes below 200% of the poverty threshold, CBO predicts that the percentage who lack insurance would rise from 17.6% to 34.8% in the 19-29 age group, from 19.8% to 36.7% in the 30-49 age group, and from 11.2% to 25.6% in the 50-64 age group. For the entire population under 65 (all income levels), the percentage uninsured would rise from 10% to 18%. The CBO is too non-partisan to say so, but that sounds like regress, not progress.

Although President Trump initially endorsed the House Republican bill, he later acknowledged that it was too “mean”.  Now he is endorsing the Senate bill, which is about equally mean. One wonders whether the President even understands what he is supporting, since it is so far from what he originally promised. Most Republicans do not seem to care very much what’s in the bill either, as long as it pleases the Republican base by repealing Obamacare and cutting taxes for the wealthy.

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Viking Economics (part 2)

June 26, 2017

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How did the Nordic countries, which are in many ways similar to other developed countries, arrive at their unusual blend of economic equality and prosperity? Lakey tries to answer that question with a narrative featuring some of the key events and personalities, but he does not attempt any serious comparative analysis of countries to sort out causes and effects.

One thing that is clear is that the Great Depression of the 1930s was a significant turning point, as it was in the United States. Strong pro-labor parties succeeded in moving politics to the left and gradually building mass support for egalitarian policies. For some reason, those policies went further in the Nordic countries, perhaps because those countries were economically weaker to begin with and more vulnerable to economic downturns. Once a distinctive Nordic model became established, it was able to weather some counterattacks from more conservative elements, as well as financial crises that forced governments to make tough political choices.

From conflict to consensus in Norway and Sweden

Lakey emphasizes that the more egalitarian Nordic model did not emerge without a struggle. He describes the countries a century ago as having huge wealth gaps and politically dominant elites.

In Norway, the early twentieth century was a period of trade union organization, formation of cooperatives, and rising nationalism. Norway dissolved its union with Sweden in 1905. The Norwegian Labor Party flirted with radicalism, joining the Communist International in 1918. Five years later, however, the movement split over the communist issue. Some workers left to form the Communist Party of Norway, but the Norwegian Labor Party became more dominant by attracting many farmworkers, small farmers and students as well as politically moderate workers.

During the Depression, some business owners and right-wing politicians supported violent measures to suppress the labor movement, but the movement proved too popular for them. In 1935, owners and labor leaders forged the “Basic Agreement” recognizing the rights of both capital and labor. “Labor leaders agreed that the owners could continue to own and guide their firms. Labor expected that their political instrument, the Labor Party, would restrict owners through government regulation and control the overall direction of the economy.”

For the next three decades, labor dominated politics. By the time the Conservatives got a change to govern, the basic elements of the Nordic model were established, with policies to promote full employment, regulate markets, and provide universal benefits paid for by taxpayers.

Similarly in Sweden, a violent government crackdown on striking workers in 1931 led to the fall of the government and the election of the labor-based Social Democrats. “Swedish voters reelected the Social Democrats to lead their society almost without a break until 1976, by which time the Nordic model was firmly established.”

Counter-movements and financial crises

In the 1980s, around the same time that Ronald Reagan and Margaret Thatcher were promoting tax cuts, reductions in government spending, and financial deregulation, similar policies were tried in Nordic countries. The failure of the Labor government to curb “stagflation,” a period of high unemployment and inflation, helped the Norwegian Conservative Party take control. In Sweden, the Social Democrats continued to govern, but also adopted some conservative measures to limit the power of government.

Lakey sees a direct link between financial deregulation in the 1980s and financial crisis in the 1990s. Banks had more freedom to make riskier and more speculative investments, often resulting in asset bubbles with prices reaching unsustainable levels. When the bubbles burst and banks experienced massive losses, Nordic governments moved to re-regulate banks and protect depositors, but not to bail out the banks and their shareholders. Both Norway and Sweden nationalized some of the largest banks, at least temporarily. By the time of the 2008 financial crisis, both countries were in a relatively strong position to handle it. “By 2011, the Washington Post was calling Sweden ‘the rock star of the recovery,’ with a growth rate twice that of the United States, much less unemployment, and a strong currency.”

The story in Iceland is different because it was less an exemplar of the egalitarian Nordic model than Norway or Sweden. Its labor-based political party, the Social Democratic Alliance, had always been a minority party, and the government spent less on health and education. Iceland did have collective ownership of major banks, through government and cooperatives, but they moved toward financial deregulation and privatization in the late 1990s. “The now-private banks leveraged their capital base [that is, used it to borrow and speculate] to buy up assets worth several times Iceland’s gross national product.” When the crash came in 2008, the entire banking sector collapsed, taking the country’s currency with it. The political result was Iceland’s first left-wing government, a coalition of the Social Democratic Alliance and the Left Green Movement. Although Iceland needed assistance from the International Monetary Fund and other countries, the new government resisted IMF demands for austerity, insisting on a deal that protected workers, homeowners and depositors while letting banks fail. Lakey describes the Icelandic recovery as an economic success, getting unemployment down to 3.2% by 2015.

Having come through a time of political and financial upheaval with their social democratic principles largely intact, Nordic countries may now be in a good position to tackle the challenges of the global, high-tech economy.

Continued

 

 

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Viking Economics

June 25, 2017

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George Lakey. Viking Economics. Brooklyn: Melville House Publishing, 2016.

This is a book about the economies of four Nordic countries whose peoples have Viking ancestry–Norway, Sweden, Denmark and Iceland. It focuses especially on Norway, where the author, who was born in the US, has spent the most time. Lakey himself is a sociologist, not an economist. Although he draws on the work of economists, the book is not very technical. Lakey supplements his own reading and observations with many interviews and anecdotes.

For people who feel that US economic policy has been moving in the wrong direction, the Nordic countries are a good place to look for alternatives. They have been accomplishing something we have not been lately–a high level of national income without an extreme degree of economic inequality.

According to rankings by international agencies like the IMF and World Bank, the Nordic countries are among the richest in GDP per capita. Norway ranks higher than the US and the others a little lower. According to a Gallup international survey, Norway, Sweden and Denmark are all ahead of the US in median household income. So much of the income from America’s national production is concentrated at the top that households in the middle do not do as well. The Nordic countries have done a better job of maintaining a thriving middle class at a time when the American middle class has been shrinking.

Among 32 developed countries in the OECD, the four Nordic countries studied in this book rank in the top ten for economic equality. The US and the UK rank near the bottom. The OECD has also surveyed the populations of these countries on their life satisfaction. The same Nordic countries are consistently near the top of the rankings, while the United States is only a little better than average. Lakey also draws on research by Richard Wilkinson and Kate Picket on other social indicators that tend to be associated with wide disparities in income: “They find that inequality highly correlates with negative statistics in physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, violence, teenage pregnancy, and child well-being.”

Equality, productivity and innovation

Lakey acknowledges the widespread belief that differences in economic reward motivate people to do their best, and especially to devise better ways of doing things that the marketplace can reward. “The belief is that inequality motivates, by increasing both the risk and potential reward, attracting talented people who love adventure. The bold ones make the breakthroughs that propel invention and innovation. It sounds reasonable.”

Yes it does. No modern society pays all economic contributors the same. It hardly follows, however, that the extremes of wealth and poverty we see in the United States are optimal for encouraging productivity and innovation. Lakey reports, “Rates of start-up creation in Norway are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States….” He suggests a couple of ways that economic equality supports potential entrepreneurs: giving them access to education without burdening them with debt, and providing a stronger safety net so they can afford to take risks. People can leave a job to try something new without worrying about losing their health insurance, since coverage is universal. More equal societies do a better job of developing talent across the economic spectrum, and they have higher rates of social mobility.

Lakey also cites research showing a positive association between high productivity and strong unions. This may be counterintuitive, at least for Americans, since “U.S. unions sometimes defend inefficient labor practices and outmoded organization of work, even though undermining productivity–whatever it takes to keep workers in jobs.” However, Lakey argues that this is because the American system leaves workers so insecure. When union membership is higher, high wages are more universal, and the social safety net is stronger, workers have less to fear from productivity-enhancing innovation. In addition, companies may have to boost profits by increasing productivity, since it is harder for them to do it by cutting wages.

Another feature of social organization that contributes to both productivity and equality is the Nordic tradition of cooperatives. They have industrial co-ops, farm co-ops, consumer co-ops, housing co-ops, even parent co-ops providing child care. People are motivated to contribute because they know they will share in the benefits.

Nordic countries are also noted for developing the talents and productivity of women. Their rates of female employment exceed that of the United States, although women are still underrepresented in the highest managerial positions. Rates of employment for men are also higher than they are here. The Nordic countries do more to support employed parents, by subsidizing child care and providing paid family leaves for parents of both sexes. And although more adults are employed, annual work hours per worker are lower, for example 1,418 in Norway vs. 1,791 in the US in 2012. That’s 373 more hours off the job, or about 10 weeks. National production does not seem to suffer, since productivity per hour is higher in Norway.

Keeping poverty low

International comparisons of poverty rates often use a relative definition of poverty. They determine what percentage of a population lives on less than the national median income. That could be misleading if two countries have very different medians; a very poor country could appear to have little poverty if it had little variation around its very low median. For countries that are all pretty affluent, the relative definition makes for pretty fair comparisons. UNICEF calculated child poverty rates for the Nordic countries in the range of 4.7% to 7.3%. The rate for the US was 23.1%, the second worst among OECD countries. We should all think about the damage to human potential that figure represents, and its impact on our national productivity and well-being.

Lakey wants to correct the impression that Nordic states are just generous “welfare states,” since their strategy for fighting poverty involves much more than just handing out cash and other benefits to poor people. It is, first of all, a strategy emphasizing full employment and good wages. Norway has a pretty good record for holding unemployment down, keeping wages up, and preparing people for jobs with educational and training opportunities. “Free post-secondary schooling is available for technical fields like seafaring, business, engineering, and agriculture; for arts fields like performance and visual arts; and for professions like medicine and law.” Adult education is so common that one-sixth of the population is taking courses in any given year.

When jobs are available and wages are fairly high, the government can provide some cash assistance to families with children without worrying that the payments will destroy people’s motivation to work. That’s especially true when such benefits are universal rather than provided only to the very poor and unemployed. You have everything to gain and nothing to lose by taking a job.

Universal services and taxation

Programs designed just for the poor don’t have a very good track record for actually eliminating poverty. They tend to be inefficient because a lot of administrative effort has to go into determining eligibility, and potential recipients may try to cheat. They tend to be under-funded because popular support for them is limited (especially when there is a longstanding racial divide between the affluent and the needy). They tend to be stigmatizing for the people who participate in them. They tend to be too individualistic, helping one person at a time instead of changing social conditions more generally. “The twentieth-century descendants of the Vikings figured out that the individualistic charity model of the nineteenth century simply could not alleviate poverty. In each country, the designers turned against programs for the poor and created universal systems instead.”

Among the publicly-funded services available to Norwegians are tuition-free higher education, paid maternity and paternity leave, affordable child care, subsidized public transportation, subsidies for family farms, vocational counseling and job training, free health care and universal public pensions.

To pay for such benefits, Nordic countries tax their citizens at high rates, both through individual income taxes and corporate taxes. (In contrast, although US rates may look high on paper, the tax code has so many loopholes that revenue as a percentage of GDP is among the lowest for OECD countries.) Lakey describes the general Nordic attitude toward taxes as “To get a lot, we pay a lot.” The “lot” they get includes not only the benefits they receive personally, but the general benefits of living in a more egalitarian and less divided society.

Do high taxes inhibit economic growth, as is so often claimed by economic neoliberals in the United States? Lakey cites the work of economist Jeffrey D. Sachs, who modified his own neoliberal views after examining the evidence. He compared the Nordic countries with the Anglo-Saxon countries of Australia, Canada, Ireland, New Zealand, UK and United States, countries he characterized as “low-tax, high-income countries that share a historical lineage with nineteenth-century Britain and its theories of laissez-faire.” He concluded, “On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance.”

Relevance to the United States

Maybe the culture and traditions of the Anglo-Saxon countries are so different from those of the Nordic countries that we are unable to learn much from them. On the other hand, maybe the problem isn’t as much culture and traditions as vested interests standing in the way of the public good. Lakey cites research showing that most Americans want more economic equality than they now have. “In one of the studies, participants were shown two different income distributions, in the form of pie charts. Without saying so, one chart reflected the distribution in Sweden and the second chart that of the United States. 92 percent said they preferred the first.”

Lakey also cites research by political scientists showing that in the US, the wealthy get what they want in political decision-making much more often than any other economic segment of society. He believes that politicians are so dependent on powerful financial interests that voting alone will not move a country in a more egalitarian direction. Only broad social movements featuring nonviolent direct action can bring about the desired changes.

Continued

 

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Health Insurance Less Affordable under Senate Bill

June 23, 2017

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Senate Republicans have finally unveiled legislation to repeal and replace the Affordable Care Act. Now they are in a great rush to pass it without the benefit of hearings or any reasonable time for debate and amendments. That’s a clue about how much public interest and reaction they welcome. Hopefully, we will have an analysis by the Congressional Budget Office at least a day or two before the vote, but we can’t afford to wait for that before informing as many people as possible about what’s in the bill.

What the legislation does, essentially, is deprive the government of the revenue needed to accomplish the law’s original aim. It eliminates most of the new taxes imposed by the Affordable Care Act to cover the cost of subsidizing health insurance. Those taxes primarily affected the wealthy since they targeted investment income and wages above $200,000. Repealing those taxes (except for the “Cadillac tax” on unusually expensive employer health plans) shifts much of the cost of health care from the government back to the buyers of insurance, whether they can afford it or not. Some of the law’s provisions designed to protect the quality of coverage remain–although they are weakened–but the central aim of the Affordable Care Act is seriously undermined.

Benefits continue, but with a catch

Obamacare required all health insurance policies to include ten essential health benefits: Ambulatory (outpatient) care, emergency services, hospitalization, maternity care, mental health and substance abuse services, prescription drugs, rehabilitative and habilitative services, laboratory services, preventive and chronic disease management services, and pediatric services. These requirements would continue, except that states would now be able to apply for waivers of the rules. The same is true for the rule prohibiting annual or lifetime limits on what insurers must pay. Comprehensive coverage will probably be available to most people, but it’s no longer a sure thing.

Dependents could still remain on their parents’ insurance until age 26. Insurers would still have to accept patients with pre-existing conditions and charge them no more than other customers. But as the New York Times noted, “Patients with serious illnesses may find that their coverage is less valuable if they live in a state that eliminates benefit requirements or allows limits on coverage.”

Mandates are repealed

Large employers would no longer be required to offer insurance plans to their employees. I’ll have to leave it to the CBO to estimate how many workers would lose their insurance as a result of that change. Those who did would probably face higher costs in the individual market.

The Senate bill would also eliminate penalties for individuals who choose not to carry health insurance at all. The winners here would be healthy and wealthy people who can afford to pay their health costs out-of-pocket. The bill increases the amounts that people can put into Health Savings Accounts to save for future expenses. That’s a good deal for those who can afford it, since any returns on the investment are tax-free.

Medicaid is slashed

The biggest losers in the Senate bill are the 69 million Medicaid recipients, especially the 14 million who signed up under Obamacare’s new rules. Thirty states chose to participate in the Medicaid expansion, which raised the threshold for eligibility to 138% of the federal poverty level. Funding for that expansion would be reduced starting in 2021, with drastic reductions in 2024. That’s where the bill creates the biggest potential for lost insurance.

In addition, the bill would put a per-capita cap on future payments for all Medicaid recipients. Here is how Drew Altman of the Kaiser Family Foundation describes it:

The Senate plan imposes a harsher formula for its cap than the House plan, which already cuts Medicaid spending by $834 billion over 10 years. Because states have to balance their budgets every year, unlike the federal government, many will struggle to compensate for reductions in federal aid caused by a spending cap. Many states will be forced to choose between Medicaid and other priorities, like education, law enforcement and prisons. The inevitable result will be a reduction in health care spending on low-income people. And you cannot cut over $800 billion from Medicaid without adversely affecting health services for the poor.

Because the Senate bill not only rolls back the Medicaid expansion, but takes a good whack at Medicaid as a whole, the poor could wind up worse off than they were before health care reform was passed in the first place.

I suppose it’s a good thing that much of the damage will be postponed for a few years, giving the political winds time to blow in a different direction. On the other hand, maybe the motivation for dragging it out is to postpone the political fallout, so that the perpetrators of the crime can remain in office as long as possible.

Premiums and credits

The effect of all the changes on insurance premiums could be complicated, and I’ll be interested to see how the CBO sorts it out. Some of what I wrote about the House bill would presumably still apply:

Premiums would be expected to rise for older people and fall for younger people, since the law allows insurers to use a 5-to-1 rather than a 3-to-1 ratio between the two. Average premiums would probably rise for the first few years, since the elimination of the individual mandate would allow younger, healthier people to drop out of the market, forcing insurers to raise premiums on the older, less healthy people who remained. In later years, insurers might lower premiums, as older people who cannot afford the high cost are the ones to drop out.

For states that obtain waivers to weaken the quality of coverage–by declining to cover certain benefits, for example–premiums could fall, but only because policies aren’t worth as much.

What is more certain is that the tax credits that offset the cost of insurance would be less generous under the Senate plan. Ezra Klein has provided a good analysis. Under the Affordable Care Act, the credit is based on the cost of a “benchmark plan,” a plan available in your geographic area that covers 70% of expected health costs. Then, depending on your income, you are only expected to spend a certain percentage of that income on the premium, while the government picks up the rest. The credits phase out entirely for incomes over 400% of the poverty threshold.

The Senate plan cuts the credits in three ways: requiring the benchmark plan to cover only 58% of expected costs instead of 70%, raising the percentage of income that you have to spend on premiums, and phasing out the credit at 350% of the poverty threshold. Credit recipients would have to pay a larger share of premiums, plus pay higher deductibles when they need to file a claim.

Obamacare also includes additional subsidies to defray out-of-pocket costs–deductibles and copayments–for low-income people. The Senate bill eliminates these entirely after 2019, although people might need them more than ever.

Klein summarizes:

The new world created by the Senate health care bill will be based around higher-deductible plans that cover fewer health benefits and cost people more. The plan degrades Obamacare’s insurance regulations, and cuts insurance subsidies so that Americans won’t be able to afford plans as generous as the ones they purchase now. If the Medicaid expansion really does die out in 2024, then the poorest of the poor will be pushed from comprehensive, low-cost health insurance to extremely high-deductible plans.

To put it most simply: Obamacare was a transfer of wealth mainly from high-income taxpayers to lower-income health insurees. The Republican bill transfers it back again, inevitably making comprehensive coverage less affordable. And as Klein notes, “In a particularly Orwellian flourish, the name of this bill dedicated to diminishing the quality of the insurance coverage Americans can afford is “The Better Care Act.” (You know it’s Trumpcare if the name of the act itself is a shameless falsehood.) It would more accurately be called “The Less Affordable Care Act.”

Underlying this tragedy is the assumption that we as a nation cannot afford to provide the universal health coverage that other developed countries have achieved. Instead we have a wealthy class who resist being taxed, a government too weak to control health care costs–the bill specifically prohibits the government from negotiating drug prices with pharmaceutical companies–and private companies that must have their big profits.

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