Category Domestic Policy

On Means Testing

Danny Vinik 1 Comment

My piece on Marco Rubio’s plan to reform Social Security yesterday drew a reaction from some on the left, in particular with regards to means testing. Rubio proposes increasing the growth rate of benefits for poor seniors and decreasing it for rich ones. It isn’t a direct form of means testing, but it does change the program in a similar manner. In the article, I argued that it would strengthen Social Security and that means testing would do so as well. (When I use means test here, I’m referring to using different benefit levels, not a cutoff test as is often proposed.) There are two parts to this debate: policy and politics—and they impact each other.

Policy

The first question is whether you would means test Social Security benefits in a perfect world. In other words, if you could set up the federal government to your exact specifications, would it include means testing? I think it would. I believe the federal government should marshal its resources to help those at the bottom of the income distribution. It does not need to do anything for those at the top. There are certainly situations where government policies will benefit those at the top in order to correct market failures, but our tax and transfer system should focus on those at the bottom. If I’m given the option of giving the rich unnecessary retirement funds or not doing so (regardless of how those funds could be used—slightly lower taxes or increased spending on the poor), I would choose against it.

There are also some labor effects. If we began means testing Social Security, the rich will alter their work decisions. Some may choose to work more to make up for the lost benefits, others less since they will collect more in benefits as their income drops. It’s unclear which of those effects dominates, but I’m not particularly concerned that it will cause a sharp drop in labor force participation.

Politics

Of course, means testing wouldn’t happen in my theoretical policy world. It would happen in the real world where politics play a big role. Jesse Myerson put the liberal fear succinctly on Twitter: “Means-testing programs make them politically vulnerable, thereby *weakening* them.” I generally agree with that statement. Paul Ryan’s Hammock Theory of Poverty would have much less support if we had a universal basic income. But my inclination is that this political fear does not exist with Social Security for a couple of reasons.

First, I don’t really buy the Matt Yglesias theory that elites hate Social Security because they want everyone working. It’s impossible to prove this one way or another—if elites do hold that belief, they aren’t going to come out and say it. But I believe the right to a comfortable, non-impoverished retirement is almost universally held in America. Even elites have grandparents and even they see that, at some point, their grandparents deserve to retire.

Secondly, seniors are a hugely important voting block for Republicans. The GOP won’t even propose using chained-CPI to change the inflation adjustment for Social Security benefits. Not that I support doing so, but the Republican refusal to do so shows their hesitance to support cuts to Social Security of any kind. Even Rubio doesn’t propose full means testing, just a change to the growth formula. In order for Republicans to apply the same “moochers vs. makers” framework to Social Security benefits, they would have to openly argue that they want seniors working more. It’s hard to imagine any situation where that’s a smart political position.

Thirdly, while Social Security’s funding problem is based an arbitrary accounting distinction, it’s a real political problem. Policymakers are going to try to find a way to close that funding gap and the larger that gap is, the more likely benefit cuts will be on the table (such as through chained-CPI). The longer that the Social Security trust fund stays solvent, the lower the chance that policymakers settle on some type of benefit cuts that also hurt low-income seniors. In that sense, means testing does strengthen the program by increasing the time until the trust fund runs out of money.

Finally, if we did means test Social Security, Republicans would have to give their assurances that they have no intent to cut the benefits for poor Americans. They will have to promise to continue treating Social Security as an entitlement program, and not as welfare. That may be a false promise, but that will also be a tough political position for Republicans to take.

For all those reasons, I have trouble seeing how means testing Social Security actually makes it politically vulnerable. Now, I wouldn’t just propose it either. It’s something Republicans want and can be used as a bargaining chip. But it’s also a smart policy idea. If Democrats could trade it for an increase in the EITC or using CPI-E to adjust Social Security benefits (once the BLS perfects it), that would be a win-win.

Obama Isn’t Sorry Your Plan Was Cancelled

Danny Vinik 6 Comments

Yesterday evening, President Obama sat down with NBC’s Chuck Todd to talk about a couple of topics, most importantly the Affordable Care Act. The president offered a semi-apology to the American people for lying to them that if they liked their health care plan, they could keep it. With millions of people receiving cancellation notices, that line has been proven false. Obama finally confronted this in the interview:

You know– I regret very much that– what we intended to do, which is to make sure that everybody is moving into better plans because they want ’em, as opposed to because they’re forced into it. That, you know, we weren’t as clear as we needed to be– in terms of the changes that were taking place. And I want to do everything we can to make sure that people are finding themselves in a good position– a better position than they were before this law happened.

…

But it– even though it’s a small percentage of folks who may be disadvantaged, you know, it means a lot to them. And it’s scary to them. And I am sorry that they– you know, are finding themselves in this situation, based on assurances they got from me. We’ve got to work hard to make sure that– they know– we hear ’em and that we’re going to do everything we can– to deal with folks who find themselves– in a tough position as a consequence of this.

If you read this carefully, you’ll realized that Obama isn’t apologizing for his lie. He’s apologizing that people are receiving cancellation notices. But even this isn’t sincere, because Obama isn’t actually sorry about that. The only thing he is sorry about is that people are upset. In fact, he’s glad that people are receiving cancellation notices. This is a fundamental part of health reform.

There was no way that everyone was going to be allowed to keep their health plans under Obamacare. This is a feature, not a bug. Millions of Americans had health plans that did not adequately protect them in case of a medical catastrophe. Their plans were bare bone and risked leaving them with huge financial obligations if they became seriously ill. In addition, insurers were allowed to charge different prices to women and men. They could refuse to offer coverage to individuals with pre-existing conditions and could charge older people huge amounts more than sick people.

Obamacare changes all that. It requires insurers to cover everyone with pre-existing conditions, prevents them from discriminating between men and women and limits the amounts insurers can charge old adults to three times the amount they charge young ones. The law also requires insurers to cover 10 essential health benefits and eliminates lifetime caps on coverage. All of these regulations were meant to make the insurance market more fair. However, forcing insurers to cover more sick people and offer more comprehensive coverage drives up premiums, so Obamacare also includes huge amounts of subsides to offset this increase. Not everyone will be better off under the new system, but many will be.

What was clear from the beginning was that disrupting the market in this way would force most insurers in the individual market to cancel their plans. President Obama admits that he knew there would be disruptions in the interview:

I think we, in good faith, have been trying to take on a health care system that has been broken for a very long time. And what we’ve been trying to do is to change it in the least disruptive way possible.

The problem is, Obama didn’t promise to change the system “in the least disruptive way possible.” He promised to improve it with no disruption whatsoever. That was never a possibility, despite his repeated claims. The law technically grandfathers in all plans offered before 2010, but insurers cannot offer those on the exchanges if they do not fulfill all of the new coverage requirements. Of course, this effectively ensured that insurers would cancel most of those plans. The administration knew this from the beginning, but they also knew that health reform had little chance of passing if they told Americans that millions of them would lose their beloved plans, even if they said they would receive a better one with reduced premiums. Americans are scared of change, particularly in the health care market.

So, the administration lied. They knew eventually they would have to confront this falsehood, but that would be long in the future. The exchanges would be functioning and Americans would understand that the law ensured that most of them would receive better, cheaper coverage.

Unfortunately for the administration, the second part of that plan isn’t happening. The catastrophic start of HealthCare.gov has prevented Americans from seeing all of their new options. That has left millions of Americans with cancellation notices and no way to look up new plans. This is what Obama really regrets. People were never supposed to receive cancellation notices and then be unable to search for a new plan. Obama admitted this in the interview as well:

Keep in mind that most of the folks who are going to– who got these c– cancellation letters, they’ll be able to get better care at the same cost or cheaper in these new marketplaces. Because they’ll have more choice. They’ll have more competition. They’re part of a bigger pool. Insurance companies are going to be hungry for their business.

So– the majority of folks will end up being better off, of course, because the website’s not working right. They don’t necessarily know it right [now]

The reason Obama’s apology feels so fake is because he really isn’t sorry for people losing their plans or calling him on his lie. He’s sorry that they haven’t had the chance to shop on the exchanges, discover their new options and realize they are better off. Obama gambled that when people finally realized that he was lying, they would have already fallen in love with their new options. This bet was made long ago and so far, it’s been a huge bust.

Republicans Can’t Stop Obamacare Anymore

Danny Vinik 4 Comments

There is this weird meme going around conservatives that they can pressure vulnerable Senate Democrats into supporting bills that severely hamper Obamacare. I have no idea why they think this possibly has a chance of happening.

In a piece at the Washington Post yesterday, Ed Rogers pontificated about a House bill that would allow all health insurers to continue selling any plan that they offered in 2013 on the exchange in 2014, no matter if those plans lived up to the new requirements imposed in Obamacare. The law would undermine the entire health care law, yet Rogers thinks it has a legitimate chance of passing the Senate:

If the bill passes the House, it will be interesting to see if the Senate can avoid a vote. We can assume that all 45 Republicans senators will vote for the bill; add in the 14 Democratic senators who are up for re-election in 2014 and the number of Democratic senators who can’t stomach the lies, and you might get to 60 votes.

Rogers is entirely misreading the Senate here. First of all, many of those 14 Democratic senators are not vulnerable and will stick by the law, but even the ones that are vulnerable are not going to run away from it at this point. Their comments right now are entirely about messaging. They are already tied to Obamacare, whether they like it or not. However, their calls for grandfathering in more plans are in response to Obama’s lie. They know that it doesn’t have a chance of passing. They are scoring political points by voicing those opinions without any risk to the actual law. It’s a win-win. Under no circumstance would Harry Reid bring up such a bill for a vote. Republicans can rightly earn their own political points by pointing the spotlight at Obama’s lie and milking it for all it’s worth. But don’t confuse these political moves for ones that have an actual chance of becoming law.

Another conservative, Mickey Kaus, suggested on Twitter that Senate Democrats could panic and pass an individual mandate delay. Once again, this is working under the same misguided belief that Democrats are willing to undermine the law. They aren’t. Unless there are major issues with HealthCare.gov a month from now, the individual mandate will not be delayed. That decision has nothing to do with Senate Democrats or House Republicans. The White House will decide based on the functionality of the site.

No matter how many times I and others repeat it, many conservatives seem unable to understand the fact that Democrats are sticking by the law. The politics of it don’t matter anymore. Period. Right now, the greatest threat to Obamacare is HealthCare.gov. If the website doesn’t work, the law is in trouble. If the White House fixes it, then the success or failure of Obamacare depends on the policy outcomes of it. Is insurance cheaper? Do Americans like their new plans? Is consumer choice limited? All of these policy questions and more will be answered in the upcoming months (assuming HealthCare.gov works).

At this point, Republicans can do nothing to stop it. That ship has sailed. Obamacare isn’t going anywhere, no matter what cleverly titled bills House Republicans propose. Conservatives would do well to learn that before they embark on another foolish conquest like the government shutdown that has no chance of success.