by Tom aka Rusty

The Doomsday Scenario


So why are conservatives so excited about health care reform?

Many see the progressive left pushing a gradual move to the Doomsday Scenario, something like this:

1) private health insurance is hyper-regulated, underwriting standards are eliminated, and premium costs rise astronomically

2) employers, especially smaller employers, drop coverage and push employees to the “public plan”

3) the resulting dislocation of coverage and expansion of the public plan becomes a rationale for single payer – “see, we told you so” by the left

Having read thousands of pages of reform material over the past 18 months, and having studied the various reform movements since the early 90s, I think the Doomsday Scenario is quite feasible, and certainly I wouldn’t put it past the progressive left.

In public President Obama emphatically denies any such scenario. However, if the Scenario were to evolve, would he revert to his earlier ideas on single payer?

My request is for an honest debate. If Obama really wants to move to single payer, he should say so, and let the real debate begin.

For now, expect fireworks (not excusing rude behavior by the way).
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by Tom aka Rusty

by Tom Bozzo

A few weeks ago, reader Pete emailed a link to Real Clear Politics, where Tom Bevan cited an analysis by Robert Book of the Heritage Foundation that purports to show that Medicare administrative costs, widely claimed (e.g.) to be far lower than comparable private sector costs when expressed as a fraction of expenditures, actually are higher when expressed on a per-beneficiary basis. This got its share of big-league attention at the time, with Greg Mankiw linking, Andrew Gelman reporting the result with some skepticism, and Paul Krugman offering the always worthwhile advice never to trust Heritage Foundation analysis. More recently, Gelman posted to the effect that Heritage is shopping Book's administrative cost claim (among others) as part of a broadside against government-run health care.

What seems to have gotten less attention is that even using Book's preferred comparison (i.e. administrative expense per beneficiary instead of administrative expense as a fraction of outlays), the claim is bunk. This is because Book, referencing an analysis by Benjamin Zycher of the (also right-wing) Manhattan Institute, takes a reasonable proposition — that the federal government incurs some Medicare-related costs not explicitly included in the Medicare budget — and proceeds to allocates billions of dollars with little or no causal nexus to the Medicare program as Medicare administration costs. Book and Zycher call the resulting total of the budgeted and allocated costs the Medicare administrative costs and get the result that Medicare administration costs more than private-sector insurance per beneficiary. Unfortunately for them, the result does not withstand a sane allocation of the federal expenditures they consider.

Details and a couple of ironies below the fold.

Directly measured Medicare administrative costs are 38 percent lower than private sector costs on the per-beneficiary measure Book prefers. Thus one must find a lot of unmeasured Medicare cost to make Medicare look relatively costly in administration. Indeed, Zycher and Book manage to come up with an allocation of indirect costs amounting to roughly 80 percent of the directly reported Medicare administration expenses.

The sign that something is seriously amiss is the large assignment of costs from the "administration of justice" function. For Fiscal 2005, Zycher locates $42.1 billion in such costs in the federal budget and assigns $7.2 billion of that to Medicare, representing 75 percent of the indirect cost assignment. That's the share of Medicare costs in nondefense discretionary spending, an allocation method (which happens to assign a quite high share of costs to Medicare) that Zycher defends on the grounds that military justice is administered via the defense budget.

Neither Zycher nor Book seem to have given much consideration to what the "administration of justice" money is actually spent on, and particularly that much if not most of it might be spent administering justice (at least notionally) on behalf of society as a whole and not just other federal programs. But there is such a thing as the Expenditure and Employment Statistics from the U.S. DOJ's Bureau of Justice Statistics. For FY2005, DOJ statistics indicate that $40 billion was spent in three main categories as follows: "police protection" ($22.5 billion), "judicial and legal" ($10.9 billion), and "corrections" ($6.6 billion). Those figures include both spending on federal government programs and transfers to state and local government.

So if you were to think that even two or three billion dollars a year was being spent policing the Medicare program and locking up Medicare fraud perpetrators, then it would have to be that the federal courts are jammed with Medicare cases and not, say, civil litigation, drug prosecutions, etc. There is, though, evidence of the actual scale of Medicare fraud prevention expenses. The FY2010 budget includes $311 million for Medicare "program integrity" activities, which is a 50 percent increase over FY09. The interagency Medicare Fraud Strike Force program filed 125 criminal cases [PDF] from March '07 to July '09, leading to prison sentences for 122 people averaging 49 months. DOJ's share of the increase is $19 million for FY2010, according to the CMS budget justification [PDF]. So we're looking at on the order of tens of millions of dollars in expenditures for other agencies policing the program, not billions.

So almost all of the $7.2 billion should be taken away from the allocated indirect Medicare expenses. Being generous to Book and Zycher and taking away only $6 billion reduces the per-beneficiary expense for FY 2005 from Book's $509 to $356. That compares to $453 for private sector insurance. So without addressing any of the other questionable expense allocations, Medicare administrative expense per beneficiary is at least 21 percent lower than that of private insurance.

Zycher also allocates an array of "general government" expenses in proportion to Medicare's share of total federal expenditures. Among the main contributors here is the cost of running the legislative branch and administering the tax system. From an economist's (versus an accountant's) perspective, it is questionable whether much of these properly represent marginal or incremental costs of Medicare (something which Book, a PhD alum of the Chicago economics program, could be expected to consider in a perfect world). For that matter, a program such as Medicare may well require less than it's expense share of certain expenses as it's funded largely through a simpler-to-administer tax and may not require the amount of legislative attention as much smaller discretionary programs.

But that doesn't really matter, since the general government costs a la Zycher are not enough in themselves to make Medicare administration more costly per beneficiary than private insurance.

As for the ironies, here are a couple. First, the "direct" Medicare administrative expenditures include a portion of the subsidies provided to private insurers under the Medicare Advantage program — a bit of Bush-era corporate welfare that subsidizes the private sector so that it can compete with traditional Medicare. Second, much of Medicare administration, for instance claims processing, is contracted out. So much of the comparison is of private sector entities operating under different incentive systems.

Finally, Zycher argues that even the inclusion of indirect costs understates the true cost of Medicare as it does not factor in the the economic burden of funding Medicare through distortionary taxes. There's less to this than meets the eye, regardless of how distortionary you think a payroll tax of a few percent might be. The problem is that such Medicare tax distortion as there may be is not incurred against an alternative world of complete markets and perfect competition. Real insurers charge at least average incremental costs (and thus exert some market power in the sense of being able to charge prices above marginal cost), and in the current private system many losses are uninsured or uninsurable. Insofar as universal public health care provision can (or would) address a number of the private sector market imperfections, it's at least a matter for careful analysis which system has the bigger economic losses.

Robert Waldmann

Steve Benen made a graph out of a table from a column by Bruce Bartlett. Bruce Bartlett is an interesting figure -- a heterodox conservative who praises Reagan and criticizes Bush Jr. The figure sure fits Bartlett's line. It shows the effective tax rate on families with median income. Sad to say, Steve Benen's web page is a *.mht ??? and I don't know how to steal the figure [see UPDATE below] so just click.

Bartlett identified the "effective federal income tax rate -- taxes paid as a share of income -- for a family with the median income. The median is the exact middle of the income distribution -- half of families are above and half are below. It's as close as we can get, statistically, to the typical American family."

[UPDATE: I do know how to steal graphics, but you should read the Benen piece as well. Graphic above by Steve Benen, from data presented by Bruce Bartlett. -klh]

It shows an increase up until the election of saint Ronnie, then a decrease, a sharp decrease in 1986, more decline when the GOP took control of Congress, a down tick when Bush was elected and Bartlett still supported him, then a gradual increase as Bartlett became a critic.

Oh how convenient. I describe how he is cheating after the jump.



As anyone who has ever filled out a 1040EZ must know, this is nonsense. Effective tax rates do not depend only on income. The table would be meaningful if Bartlett had calculated the average effective tax rate of families with the median income, but that's not what he said. I suspect that he used a "tax family" with median income and characteristics such that the graph looked the way he wanted.

Of course, Bartlett is talking about the income tax only. The increase in FICA under Reagan doesn't appear. That is par for the course for a Republican.

Less importantly for the median family, he doesn't consider the capital gains tax. However, the average family with median income pays positive capital gains tax (the average of a non negative variable must be positive).

I'm guessing that Bartlett's "median family" has 2 earners and 2 children. I see a big drop when the marriage penalty was reduced.

The average family with median income has less than 2 earners and less than 2 children. The family which pays the median effective tax rate ... I have no idea.

I will now check my guess (starting 5:59 EDT) by clicking a link.

6:00 AM EDT. Yep he lied. The table which appears when I click his link is Entitled "Average and Marginal Income Tax Rates for Four Person Families ..."

That is not "as close as we can get statistically to the typical family."
The Bureau of the Census projected in 1996 that that in 2005 the average number of persons per family would be 3.09 which is rather less than 4.

It does seem that I was wrong about the number of earners. They assume one earner not two. Median income is for four person families.


Now part of what is going on here is that the "Tax Policy Center" is trying to make Reagan look good. However, that isn't all that's going on. They care about what they consider to be normal families. Single adults without children and single mothers with children don't count. Women are assumed to be housewives. The only people that matter are those in families which consist of one working dad, mom and two children. For families with median income single mothers with three children slip into the sampel (lucky duckies). For half median income they don't as it is assumed that there are 2 children in the family for the purposes of the EITC.

I think their prejudices about what is normal is even stronger than their Hackitude as Bush Jr would look better if one considered the marriage penalty.

Ken Houghton

Christopher Buckley leads the Republican Party to water, and speculates on watching them sink:

...GOP pin-up girl Sarah Palin.

I’ll stipulate that that’s condescending, if my former confreres on the Right will stipulate that had Gov. Palin’s first name been “Bob” or “Chuck,” her surname would still be unrecognizable to 90 percent of the American electorate.

The other pull quote was pulling and sits in the center of the article. While I encourage you to Read the Whole Thing, it really is too delicious not to requote as well. Rendered by Buckley as a parenthetic:

Nexis and Google have so far failed to unearth evidence of any previous candidate for the U.S. vice presidency being called—by their own campaign, no less—a “whack job.”*

Read the Whole Thing, including some of the comments.

*One guesses that memories of Admiral Stockdale, besides whose accomplishments John McCain looks like the inept cadet he was, have escaped Google and Nexus, since he was surely called the equivalent or worse.

Ken Houghton

Christopher Buckley leads the Republican Party to water, and speculates on watching them sink:

...GOP pin-up girl Sarah Palin.

I’ll stipulate that that’s condescending, if my former confreres on the Right will stipulate that had Gov. Palin’s first name been “Bob” or “Chuck,” her surname would still be unrecognizable to 90 percent of the American electorate.

The other pull quote was pulling and sits in the center of the article. While I encourage you to Read the Whole Thing, it really is too delicious not to requote as well. Rendered by Buckley as a parenthetic:

Nexis and Google have so far failed to unearth evidence of any previous candidate for the U.S. vice presidency being called—by their own campaign, no less—a “whack job.”*

Read the Whole Thing, including some of the comments.

*One guesses that memories of Admiral Stockdale, besides whose accomplishments John McCain looks like the inept cadet he was, have escaped Google and Nexus, since he was surely called the equivalent or worse.

Wick Allison, editor-in-chief of D Magazine and who succeeded William Rusher as the publisher of the National Review says what I've been saying for months about Barack Obama.

But those don’t matter as much as what Obama offers, which is a deeply conservative view of the world.

He continues:

Nobody can read Obama’s books (which, it is worth noting, he wrote himself) or listen to him speak without realizing that this is a thoughtful, pragmatic, and prudent man. It gives me comfort just to think that after eight years of George W. Bush we will have a president who has actually read the Federalist Papers.

Read the whole thing. Somehow, I doubt it will be mirrored at the magazine's current site.

Wick Allison, editor-in-chief of D Magazine and who succeeded William Rusher as the publisher of the National Review says what I've been saying for months about Barack Obama.

But those don’t matter as much as what Obama offers, which is a deeply conservative view of the world.

He continues:

Nobody can read Obama’s books (which, it is worth noting, he wrote himself) or listen to him speak without realizing that this is a thoughtful, pragmatic, and prudent man. It gives me comfort just to think that after eight years of George W. Bush we will have a president who has actually read the Federalist Papers.

Read the whole thing. Somehow, I doubt it will be mirrored at the magazine's current site.