Buy American, Hire American

President Trump continues to repeat his populist slogan “Buy American, hire American,” reflecting the way he and Steve Bannon appear to understand what is needed to make America Great Again. Thus, with apologies, I endeavor again to explain why this catchphrase is fundamentally wrong and would actually make America weak. “Trade and Globalization” “Save trade”

If buying an American made product or service (100% American, 90%, 51%?) or hiring an American worker is my best option, I would not need to be compelled to do so by the government. If it is not my best option, being compelled to do so forces me to accept an inferior option. It would make me worse off. The Trump family understands this as their hotels import and purchase foreign made products (from China, Philippines and India, to name a few) and Ivanka sells clothing made in China.

It is obvious that being forced to buy and hire American would make many of us worse off (not to mention diminish our freedom of choice), but are there compensating benefits or gains for others in the American economy that would justify making us worse off? “Teeing up Trump tariffs”

Buy American

If I must buy an American made Corvette rather than a German Porsche, does the American economy benefit? To simplify, leave aside the fact that a substantial part of the components making up a Corvette are imported from various countries. The fact that I had to be forced to buy the American car rather than the German one, i.e. that it was an inferior deal, means that the American workers who make it were reallocated from the production of export products at which the United States had a comparative advantage. Trading less as a result of buying American mean allocating American workers to producing things (Corvette) that they are not as productive at making. They would be moved from producing Boeing aircraft to sell to Germany (to pay for our imports of Porsches) to producing Corvettes. So in addition to my being made worse off as a result of having to buy American, the American economy as a whole would be worse off as a result of a less productive work force and thus lower overall income (lower GDP). This is Econ 101.

In addition, as noted by the Financial Times, “Attempts to restrict procurement to domestic companies tend to backfire. They induce retaliation from trading partners, harming US businesses trying to sell abroad. They raise input costs, ensuring less infrastructure is built and fewer construction workers are hired for each dollar of public spending.” “The Pitfalls of having to buy and hire American”

Hire American

The meaning and impact of a requirement to hire Americans is a bit more complex. If the terms to American companies of employing the workers needed, whether they are citizens, permanent residents, or temporary or permanent immigrants from abroad, are not competitive with importing the product or service, American companies will in effect hire foreigners abroad (i.e. they will import the goods and services produced abroad). Thus it is a bit unclear what “hire American” means. “The long, rough ride ahead for ‘Made in America'”

Presumably, “hire American” refers to our immigration policies. Indeed our immigration laws need fixing. This includes providing a solution to the status of the 10 or 11 million people living here illegally, and adjusting immigration quotas to better match the needs of American firms for workers without undercutting the status of existing American workers. “Illegal-aliens”

The decline in American manufacturing jobs is largely the result of automation, not foreign trade. Manufacturing employment has fallen almost everywhere in the world as manufacturing output has increased. Automation enables the work force to produce more and thus enjoy a higher living standard. It need not cause unemployment.

The wonderful film “Hidden Figures” tells the true story of the large number of human “computers” employed by NASA (the National Air and Space Administration) who cranked out the numbers needed to put Americans in space and bring them home again. The stars of the film are three black women whose mathematical skills were indispensible to NASA. At the end of the day and in time for the first American to orbit the earth in 1961, new IBM’s mainframe computers proved essential to crunch the critical data fast enough. Overnight the human computers were no longer needed. But rather than becoming unemployed, most of them retrained to program and run the IBM computers with an unbelievable boost in productivity. While other things also affected NASA’s workload, the employment data are interesting. In 1960 NASA had 13,500 in house employees, which increased to 41,100 by 1965 and gradually drifted down to 18,618 in 2010. The numbers for contract workers on the same dates were 33,200 in 1960, 369,900 in 1965 and zero in 2010.

The President’s appeal to Buy American and Hire American, in addition to restricting our freedom of choice, flies in the face of what made America Great in the first place. As proclaimed by the Financial Times: “The principle should remain to keep the US economy as open as possible to the inflow of good products and good workers from abroad. Slamming down the drawbridge is only likely to impoverish the residents of the citadel.”

 

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Health Care: Plan B

“Our goal is to give every American access to quality, affordable health care,” Paul Ryan “Health care Obamacare replacement-Paul Ryan”

The above statement by Paul Ryan is the goal of both Republicans and Democrats, so surely there is enough common ground that with a few compromises on each side congress can adopt reforms with broad support. Such fundamental, broad based legislation should always have broad bipartisan support. Failure to fulfill that requirement was one of Obamacare’s flaws.

America’s universal health care costs twice as much as does health care in Europe. Healthcare costs per capital in the United State in 2014 where $9,024, while in Canada they were $4,506 and in Italy $3,207. Our system provides universal care through company group insurance plans, individual insurance plans, government plans (Veterans Administration, Medicaid or Medicare), out of pocket payments for the uninsured who can afford it or charitable clinics and services, or free emergency room medical treatment for those who can’t afford it. “Health-care expenditures rose as a percentage of GDP from 5 percent in 1960 to 17.8 percent in 2015.” “A radical idea for health care reform-listen to the doctors.” While Canadians, Italians and others from around the world who can afford it come to the U.S. for top of the line care, the average result in terms of general health under America’s system is worse than in Europe. Clearly the American system is seriously flawed.

President Trump has promised that everyone would have health insurance and pay less for it. On January 15 he said: ““We’re going to have insurance for everybody. There was a philosophy in some circles that if you can’t pay for it, you don’t get it. That’s not going to happen with us.” “Trump-vows-insurance-for-everybody-in-obamacare-replacement-plan”. It is possible to achieve this ambitious promise.

This note reviews the options for reducing the cost of health care and insuring that everyone gets the care they need whether they can afford it or not.

Costs can be reduced by better aligning incentives of providers and patients for choosing the most cost effective care, by removing government and professional (i.e. union) restrictions on how care is delivered, by increasing competition to reduce the huge price range for the same service in the same market (e.g., stronger incentives for customers to seek out the best deal and the price/quality information needed for them to do so), and by Tort reform that reduces doctor’s risks of being sued that has resulted in wasteful, defensive prescriptions of unnecessary lab tests, etc.

Two broad measures supported by Republicans to reduce the cost of medical services are to free up the regulatory restrictions on how medical service are delivered (computerized diagnoses, telephone consultations, greater use of nurse practitioners, etc.) and stronger incentives for patients to shop for lower prices for the same service. Modern technology is on the threshold of dramatically improving the quality of health services while lowering its cost, if given the chance. Many Democrats would accept these reforms as well in exchange for better protection of the poor.

Health care services are paid for by various mixes of out of pocket payments, insurance, and government assistance. The design of this mix influences the incentives of service providers and patients to make better choices, and the fairness and efficiency of service financing.

Insurance by its nature is a plan for sharing health care costs so that those who are unlucky and have large health costs are helped by those who are lucky and don’t. The cost of insurance is lowest when the insurance pool is largest, mixing the healthy with the sick. Prior to the Affordable Care Act of 2010 (Obamacare), the private medical insurance market suffered from two serious problems. Most people acquire health insurance through their employer. Employers, especially companies with many employees, can negotiate better terms with insurance companies because insurers can be confident that the insured pool of workers has a normal mix of healthy and sick people over which to average the cost of insurance claims. However, they have another, unfair advantage over individually purchased insurance because that part of insurance premiums paid by employers (usually half) are not taxed as they would have been if paid out directly as wages then spent by the employee on health insurance. Furthermore, when an employee leaves the company for whatever reason, she losses the company provided policy and must pay the higher unsubsidized cost of insurance in the private market, plus a still higher premium if she has an existing medical condition and risks being uninsurable all together.

Republicans and Democrats both agree that people should be able to keep their insurance policy if they change employers, retire, or become unemployed and that the private and the company markets should enjoy the same tax treatment (both should have the same tax exemption or both should have no tax exemption for insurance premiums). Both also endorse some form or other of supporting the cost to insurance companies of patients with chronic or catastrophic medical costs. Different states have adopted and are experimenting with different approaches to financing such costs and should be encouraged to continue doing so by converting Federal financial assistance into block grants to the states. Agreement in both parties on the approach to these situations should not be that difficult to reach if the effort is made.

For given health service costs, the lowest possible insurance premiums for insurance policies that cover them would be achieved when everyone is required to pay them. Thus everyone should be required to have health insurance. Many issues arise about the coverage of such insurance (any uncovered health care services would have to be paid for out of the patient’s pocket, by charities, or by tax payers). One issue is whether there should be one insurance pool sharing the costs (healthier young paying for the sicker elderly, men paying for women’s child birth and women paying for uniquely male afflictions, etc.) or several. For example, should premiums reflect age differences as they do now (the more costly elderly pay higher premiums than the less costly young but not enough higher to cover their higher costs)? If insurance pools should be segregated by age, should the segregation be total (no health care financing transferred on average from young to old) or should the higher health costs of the elderly be financed to some extent by the young, and if so to what extent? Keep in mind that the very purpose of insurance is to share costs. As anyone could opt out of the insurance mandate under Obamacare with only a modest penalty, fewer younger people acquired insurance than was expected, leaving an older, sicker, and thus more costly pool to share the costs. This has been one of the factors increasing insurance premiums under Obamacare.

If the government makes purchasing health insurance mandatory, as it should, it will have to set the minimum standards of coverage required to satisfy that mandate. It is really contrary to the whole purpose and philosophy of insurance that each person would choose to insure only those health needs they think they might need (car accident, heart attack, diabetes, broken arm, etc). However, the coverage of all such possibilities can come with a higher or lower deductible and copay or a wider or narrower network of participating medical practitioners etc. Republicans and Democrats can surely come to an agreement over these minimum features. The required features should be carefully designed to maximize the incentives for providers and recipients to make efficient choices. Anyone wishing to and willing to pay for broader services (a doctor outside the network, recovery in the Swiss Alps, etc.) would be, as always, free to do so. The United States already has a government run insurance policy for the elderly called Medicare. Medicare can be purchased in addition to other health insurance policies or in place of them and thus is not a so-called “single payer” system.

With such a minimum coverage policy established by the government, each of us would be free to sign up for an employer offered policy of our choice or buy one from the private market with no difference in price with the policy offered by the employer (incorporating the above recommended elimination of tax discrimination between company and private market policies and allowing policy portability). The bigger challenge is how to cover the cost of insurance for those who cannot afford it. Democrats generally prefer to achieve universal insurance coverage via the government as the single payer and health service provider (our VA system or the British public health service) leaving the better off free to pay more for services outside that system if they wish to. Republicans generally prefer to maximize the choices of the public and to encourage competition among insurance providers.

Health insurance for the poor must be paid for by the government one way or another. Our existing system—Medicaid—is administered by states, which determine eligibility, but is financially supported by the Federal Government if its considerable regulations are adopted by the state. Only American citizens and legal permanent residents are eligible for Medicaid. Obamacare subsidizes up to 90% of state costs for Medicaid. One criticism of Medicaid financing is that when its recipients start working they can loose coverage. This is the so-called financial cliff and can be a deterrent to accepting a job or increasing the number of hours worked. Obamacare has addressed this problem by phasing out the withdrawal of Medicaid financing, ending it at incomes well above the poverty line

Republicans have proposed a refundable tax credit, in effect a guaranteed minimum income, for the poor that must be applied to the purchase of health insurance. This opens the door to competition among multiple insurance providers and would make it easier for low-income families to purchase more expensive policies, if they wanted to, by adding a small amount of their own money to the government’s tax credit. This is close to the minimum guaranteed income proposals I support. “US federal tax policy”. A gradual phasing out of the tax credit as one’s income increased above the poverty level would also reduce the work disincentive of the financial cliff.

The state run insurance exchanges are a useful aid to those looking for an insurance policy and should be retained. Either the Republican tax credit or the Democrat direct subsidy would be applied via the exchanges.

There are many important details to sort out that I have only hinted at. But as Republicans and Democrats both want the more efficient delivery of health care, which would reduce its costs, and humane and effective provision of the financing of such services to everyone, including the poor, it should be possible with only modest give and take to agree on a package that would enjoy broad bipartisan support.

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Next up: Tax Reform

Hopefully the tax reform law to be adopted by Congress in the coming months will closely resemble The Better Way Tax proposed outline by Congressmen Paul Ryan and Kevin Brady on June 24, 2016. Their plan would be revenue neutral (i.e., would raise the same revenue as existing income tax laws by a combination of a broadened tax base and lower marginal tax rates), and would dramatically simplify returns for both individuals and companies. It would remove many distortions in investment and resource allocation decisions and thus promote growth and fairness. It would include an incentive to repatriate the U.S. corporate profits held abroad, estimated in 2015 to be $2.6 trillion, and by basing taxes on income earned in the U.S., it would eliminate the tax minimization strategy of shifting production abroad.

Unlike tax systems in most other countries, both U.S. individual and corporate income taxes are currently source based, meaning broadly speaking that an American’s income is taxed on his or her income wherever it is earned. Even Americans living and earning income abroad pay U.S. income taxes on it. Similarly companies operating in the U.S. pay U.S. taxes on their income no matter where it is earned. However, it is not taxed until they bring it home. This unusual approach to taxation for companies operating globally has given rise to all kinds of strategies for reducing U.S. taxes by earning income in (or attributing it to) low tax jurisdictions.

Under the Better Way proposals business income will be taxed on a territorial or destination rather than source bases. In addition to removing a tax bias for debt financing (by eliminating the deduction of interest costs) and expensing capital investments rather than amortizing them over their estimated life, businesses will be taxed on the basis of their income from domestic sales only. Their so-called Destination Based Cash Flow Tax comes close to being a consumption tax (the gold standard tax bases among economists). “The Principles of Tax Reform” Cayman Financial Review, July 2013. A key feature of their proposal is that the tax would be levied on business revenue from domestic sales of goods and services and not on goods and services sold abroad. For domestic sales the tax would be the same whether they are inputs or were produced domestically.

This would remove the existing tax subsidy for imports. As congressman Brady put it in a June 24, 2016 WSJ article: “And because ’Made in America’ products and services currently face a price disadvantage both at home and abroad, American exports will no longer be taxed, and imports will not be subsidized. Competition will occur on price, quality and service—rather than tax regimes.” “The GOP plan for tax sanity.” It would also remove the existing double taxation of exports, the income from which is now taxable as part of American business income and is taxed again at whatever rates apply in the country receiving them.

This is all very sensible and in fact the practice of most other countries that rely heavily on VATs (Value Added Taxes). Regrettably for public understanding, this proposed treatment has been dubbed a “Border Adjustment Tax” by which imports are taxed and exports are exempted from U.S. taxation. This sounds rather different, but it isn’t. It suggests punitive (protectionist) treatment of imports when in fact, as explained above, it gives imports the same tax treatment as received by domestically produced goods.

Some have argued that by removing the import subsidy (i.e. by taxing them at the same rate as domestically produced goods), American consumers of “cheap” imports will have to pay more. It is certainly true that subsidies encourage consumption in excess of a competitive market rate just as subsidizing debt (by deducting interest costs from taxable income) encourages excessive borrowing. So if people import less because they must pay more for such imports without their subsidy, resource allocation and economic efficiency will be improved. However, the reduced demand for foreign currency needed to pay for imports and the increased supply of those currencies to buy larger amounts of American exports are expected to appreciate the exchange rate of the dollar for these currencies. An appreciated exchange value of the dollar will reduce the cost of imports and increase the cost to foreigners of American exports. The impact on import and export prices of the “Border Adjustment Tax” and the resulting exchange rate adjustment are expected to approximately off set each other.

It is tempting for each affected group to evaluate the fairness of proposed tax reforms on the basis of whether it increases their taxes or lowers them (and thus increases someone else’s taxes). On that basis any tax change will always have proponents and opponents. The proper basis for judging a reform’s fairness is in relation to a broadly agreed concept of fairness. This calls for a John Rawlsian veil of ignorance, i.e., judging the fairness of a tax system without knowing in whose shoes you will stand.

There is much more to the prospective tax reform proposals, including unfortunately changes that might be made to buy off special interests affected one way or another, and it promises to be an interesting debate. I hope that it is more open and considered by all (Republicans and Democrats) than was the case for the now (temporarily) abandoned effort to reform Obamacare. And in the end I hope that something very close to the Better Way proposals of last year is adopted. The reality of a bipartisan approach to Tax reform is unfortunately unlikely under the current climate, but we can always hope and dream.

 

 

 

 

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Protection from terrorists

My heart goes out to those in London who died at the hands of the British born citizen, Adrian Russell Elms, now going by the name of Khalid Masood. May Keith Palmer, Leslie Rhodes, Kurt Cochran, and Aysha Frade rest in peace. Whether he was a terrorist or a mentally disturbed citizen, he inflicted terror. How should we react?

Like health care reform, some topics never seem to go away. Indeed, striking the right balance between freedom and security is and should be under constant review. However, some approaches should be rejected out of hand. Trump’s travel ban would not have helped (hopefully it will never be implemented). In fact, his disgraceful gesture is a political stunt that does harm if anything at all. His rumored ban on carrying laptops and tablets in the cabins of flights from ten Middle Eastern and North African (predominantly Muslim) cities, while the same items may be checked and thus carried in the hull of the same plane is incomprehensible (other than as a protectionist measure, as only non American carriers fly from these cities). Beyond jeopardizing the cooperation we need from these countries to more effectively combat terrorism, these two measures are hurting our tourism and “jobs in America.”

Reasonable measures should be taken to detect and deter organized terrorist undertakings, without undermining our privacy and freedom of movement. But most attacks since 9/11 have been by lone wolves who didn’t have any actual contact with terrorist organizations. Anyone can decide to drive their car or truck into a crowd as was done in France, Germany and now England. No one in their right mind would suggest extending a travel ban to all road travel in the U.S. as a way of keeping us safe. U.S. traffic deaths have fallen significantly from 54,589 in 1972 to 35,092 in 2015 but dramatically exceed any from terrorists. With the advent and wide spread use of driverless cars such deaths will plummet dramatically in the future. But we accept that risk and drive anyway. No sane person would propose keeping every one home as a safety measure. In any event over 25,000 people die from accidents in their home in the U.S. every year. “Our risks from terrorists”

A full, rich life entails taking calculated risks. It is prudent to limit risks were the cost of doing so is not excessive in terms of our freedom of movement and quality of life. We need to keep this in mind when considering the measures we want our government to take to reduce the risk of terrorist attacks.

A related but different issue is how best to defeat ISIS, al-Qaida and the like. During his presidential campaign Trump stated that: “The other thing with the terrorists is you have to take out their families, when you get these terrorists, you have to take out their families.” “Trump on terrorists families.” Such an approach does not accord with the lessons of experience (aside from being repulsive and violating international law). Combating terrorist groups requires cooperation from the countries in which they operate and from the people in whose neighborhoods they live, etc. The International Crisis Group has distilled these lessons in the following report. From its executive summary they state that Trump’s “administration… should be careful when fighting jihadists not to play into their hands. The risks include angering local populations whose support is critical, picking untimely or counter-productive fights and neglecting the vital role diplomacy and foreign aid must play in national security policy. Most importantly, aggressive counter-terrorism operations should not inadvertently fuel other conflicts and deepen the disorder that both ISIS and al-Qaeda exploit.” “Counter-terrorism pitfalls-what US fight against ISIS and al-Qaeda should avoid”

 

 

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Health Care in America

It is hard to get our arms around the issues raised by health care in America. Indeed, President Trump was telling the truth (for a change) when he said that health care “is so complicated.” There are a lot of trees in that forest, and each one matters, but it is helpful to see the forest first, which is my modest objective for this note.

Cost

Americans spend twice as much on average for healthcare as do Europeans and with poorer results. To take one example, the U.S. has an infant mortality rate of 5.8 deaths per 1,000 births while in South Korea it is 3.0. How the delivery of medical services is paid for is a critically important part of why healthcare is so expensive in the U.S., but it is not the only factor. Most health services in the U.S. are provided by the private sector. Government and professional regulations and restriction on how these services may be delivered play a very important role in their cost.

These regulations govern the extent to which technology and medical experts with less training than MDs (e.g. nurse practitioners) may be used to provide routine medical advice. The use of computer diagnostics, either to assist MDs or directly accessed via the Internet by patients; phone consultations, assisted by Internet delivered medical metrics; and nurses for routine medical treatment, will significantly reduce costs while improving the average quality of service. Some of this is already happening, but the American Medical Association, the union for doctors, like most unions, has historically “protected” the incomes of doctors by restricting completion in providing their services. In this instance, I believe that technology, when allowed will make a major contribution.

Improved transparency with regard to the cost of alternative treatments would help reduce the shocking disparity between the costs of the same treatment from different providers. How medical services are financed (the subject of the next section) profoundly influences whether patients care about and monitor costs and what doctors provide and charge for.

Financing

The provision of health care services in the U.S. can be divided into five categories – five separate systems. Data reported here is for 2014 as reported by the U.S. Census Bureau. https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-253.pdf

U.S. military veterans receive care through the Veteran’s Administration. The VA program covers 14.1 million people or 4.5 percent of the population. The VA health service is a single payer (government), government run program, which is regularly condemned for its poor service and corruption.

Medicaid and Medicare are single payer (government) programs for the poor (Medicaid) and the elderly (Medicare) that finance privately provided medical services. The single payer, the government, sets the service standards and their costs for the health services financed by these programs, but they are delivered by the private sector, though the government determines which doctors may participate and thus must be used by the program’s beneficiaries.

In 2014 Medicaid covered 62 million people or 19.5% of the population and currently covers 68 million. Quoting from government websites: “Medicaid is an assistance program” (i.e. not insurance). “It serves low-income people of every age. Patients usually pay no part of costs for covered medical expenses. A small co-payment is sometimes required. Medicaid is a federal-state program. It varies from state to state. It is run by state and local governments within federal guidelines…. In all states, Medicaid provides health coverage for some low-income people, families and children, pregnant women, the elderly, and people with disabilities. In some states the program covers all low-income adults below a certain income level.”

In 2014 Medicare covered 50.5 million people or 16% of the population, a number that is growing rapidly as the U.S. population ages. “Medicare is an insurance program. Medical bills are paid from trust funds that those covered have paid into. It serves people over 65 primarily, whatever their income; and serves younger disabled people and dialysis patients. Patients pay part of costs through deductibles for hospital and other costs. Small monthly premiums are required for non-hospital coverage. Medicare is a federal program. It is basically the same everywhere in the United States and is run by the Centers for Medicare & Medicaid Services, an agency of the federal government.” This program seems broadly to have been operating satisfactorily. Hence the often-heard demands from older Republicans of “don’t touch my Medicare.”

In addition, 208.6 million people or 66% of the population had private health insurance plans in 2014. Of these, most (175 million or 55%) had insurance plans offered by their employers. The rest (47 million) bought their health insurance directly. Employer provided plans are subsidized because their premium payments are not taxed as part of an employee’s remuneration while the income from which people buying their own policies pay their premiums is taxed (including the amount they spend on insurance). This has created several serious problems.

Employee provided insurance policies are not portable, i.e. when a worker leaves that employer (fired, resigned, or retired) she cannot take the policy with her. This creates the preexisting condition problem. But first a time out for a quick look at the nature of insurance.

Insurance is a mechanism by which a group of people (the insurance pool) shares the costs of expenses (heart operation, car repair from an accident, home repair from a fire, etc.) that are expected to fall only on a few of them. Those who are lucky enough not to incur such costs help pay for those not so lucky. The group as a whole pays the entire cost of what ever was insured, but the lucky help out the unlucky. This means that the over all aggregate cost, and thus each person’s share of it, depends on who is in the insurance pool. If the pool is the entire population of a country, city, or company, then (if we are discussing health insurance) there will be more healthy people than unhealthy and the average insurance cost per person will be lower than if only unhealthy people are in the pool. Any one who knows that he will not get sick or have an accident (and who doesn’t care about sharing the cost of the less fortunate) would have no reason to join the pool and buy insurance. But of course no one can know that for sure.

If in the course of your employment you acquire or learn that you have a liver disease, the costs of your treatment will be covered by your company insurance plan. But if you change jobs and must take out a new insurance policy with your new employer (or as self employed) your condition will be known in advance and no insurance company would want to insure you at their normal group rates knowing that they would lose money by adding you. This is the origin of the pre existing condition problem. Anyone who acquires an insurance policy in his or her youth and is able to keep it continuously will not face a preexisting condition problem.

At the end of 2014, 33 million people (10.4 percent of the population) were uninsured. This dropped to 27 million people at the end of 2017. The Congressional Budget Office expects that number to rise modestly under Obamacare to 28 million by 2026. This group on average receives less medical care and relies more on emergency room services.

Two major objectives of Obamacare were: a) to forbid insurance companies from denying policies to people with preexisting medical conditions or to charge them more for coverage, and b) to reduce the number of uninsured in part to increase the size of the insurance pool with more healthy members to help cover the costs of the unhealthy. It also expanded eligibility to Medicaid to all able-bodied adults below 138 percent of the federal poverty level and initially covers 95% of the cost to each state for its expansion of enrollees.

To encourage the uninsured (those not eligible for Medicaid choosing not to have insurance) to join the insurance pool, thus helping to pay for the sick, Obamacare subsidizes the premiums of policies purchased on health insurance exchanges established under Obamacare in most states for anyone whose income is less than 400% of the federal poverty level. However, the number those uninsured that have acquired health insurance under Obamacare has fallen short of expectations. Those who have signed up have often had preexisting medical problems. As a result the cost of insurance acquired on these exchanges has risen more than expected. The rising cost of insurance is discouraging more people from acquiring it, a phenomenon referred to as a “death spiral.”

American Health Care Act

The House GOP’s American Health Care Act (AHCA) proposal to “replace” the Affordable Care Act (Obamacare) tweaks many of the costs and subsidies in Obamacare in an effort to improve the structure of incentives for cost effective care but this would take us from the forest to some of its individual trees.

The GOP proposal would eliminate Obamacare’s penalty for those choosing not to insure and allow people to keep their policies (portability) when they change jobs or become unemployed. If there is a gap in coverage, a person would have to pay a one time penalty over standard insurance rates of 30%. Republican leadership argues that these incentives are sufficient to encourage more people to get and retain health insurance thus solving the prior condition problem and provide for a large enough pool of insured to keep premiums down.

The assessment of the Congressional Budget Office, on the other hand is “that 24 million fewer people would have coverage a decade from now than if the Affordable Care Act remains intact.” Obamacare-revision-would-reduce-insured-numbers-by-24-million/2017/03/13/. The Washington Post titled their report on the CBO’s findings “Affordable Care Act revision would reduce insured numbers by 24 million, CBO projects”. Readers would be forgiven for thinking that the GOP proposal would take away or eliminate coverage by that amount, when in fact the CBO estimate reflects their expectation of the number of people who would choose not to insure given the terms proposed by the Republicans. The Wall Street Journal gave a more balanced headline to its report on the CBO assessment: “CBO Sees 24 Million More Uninsured, $337 Billion Deficit Cut With GOP Plan”

Whenever costly services are provided free of charge, they are not allocated and rationed by price. In place of market price allocation, the mechanism by which almost everything else in a free market is allocated, services provided “free” must be allocated and rationed by regulations. Whoever pays for the medical care received determines the care options chosen and thus has a major impact on its cost. Currently for most people (other than the poor and elderly who qualify for Medicaid and Medicare) the payer is the insurance policy they chose plus the copay that it requires. For a single payer insurance program such as Medicaid and Medicare, the payer is largely the government, which determines by regulation the quality, choice and cost of service. Democrats generally favor a single payer approach and the government regulation of the health service industry that that would require, while Republicans generally favor government financing only for the poor and disabled (safety net) and reliance on greater individual choice in a more competitive market for both insurance and medical care. This reflects the more general preference by Democrats for government regulation of products, services and markets and by Republicans for primary reliance on individual consumer choice.

An alternative Approach

In my opinion, the public policy goal for the provision of health care should be to provide satisfactory care to those who cannot afford it (the poor) in a cost effective manner, to provide everyone else with as much choice as possible and the information that would be helpful in making such choices, and to open medical practice to as much flexibility and competition as possible. The tax proposals I have made earlier would lay the best foundation on which to build such policies: My political platform for the nation-2017.  I would replace all business and personal income taxes and payroll taxes with a flat consumption tax (Value Added Tax—VAT) and introduce a per person minimum guaranteed income (tax credit) that varies with age but not income and is sufficient for a minimum level of healthy existence. US federal tax policy, Cayman Financial Review July 2009 A mandatory health savings account contribution (in place of Medicaid and Medicare and any other insurance subsidies) and a mandatory retirement account contribution (in place of Social Security) would be made from the monthly minimum guaranteed income payments in amounts sufficient for satisfactory health care insurance and retirement. Saving social security. The administrative requirements for such a simple system would be minimal.

I do not wish to suggest for a second that providing everyone with a satisfactory guaranteed minimum income will deliver the good life to everyone. In fact, most people are not happy—do not feel fulfilled and whole—without a decent job. Most people want to work. The recent spike in suicides and opiate overdose deaths seems related to the idleness of those who have given up looking for work. Nicholas N. Eberstadt points out that:

“According to [Alan Krueger’s] work, nearly half of all prime working-age male labor-force dropouts—an army now totaling roughly 7 million men—currently take pain medication on a daily basis…. But how did so many millions of un-working men, whose incomes are limited, manage en masse to afford a constant supply of pain medication? Oxycontin is not cheap…. One main mechanism today has been the welfare state: more specifically, Medicaid, Uncle Sam’s means-tested health-benefits program.

“By the way: Of the entire un-working prime-age male Anglo population in 2013, nearly three-fifths (57 percent) were reportedly collecting disability benefits from one or more government disability program in 2013. Disability checks and means-tested benefits cannot support a lavish lifestyle. But they can offer a permanent alternative to paid employment, and for growing numbers of American men, they do. The rise of these programs has coincided with the death of work for larger and larger numbers of American men not yet of retirement age. We cannot say that these programs caused the death of work for millions upon millions of younger men: What is incontrovertible, however, is that they have financed it—just as Medicaid inadvertently helped finance America’s immense and increasing appetite for opioids in our new century.” Commentary Magazine, Our miserable 21st century February 15, 2017.

Getting the incentives in government assistance programs right is difficult. But better jobs are needed as well. The government’s stifling regulations of too many aspects of the private economy have reduced investment and growth in productivity (the basis of increases in our standard of living) to a crawl. The medical care industry is only one of many in which a better balance between government and market regulation of economic activity and smarter policies with better structured incentives for those making decisions are badly needed.

Post Script

PS: The Republican leadership has chosen to put forth its American Health Care Act (AHCA) in the form of a budget “reconciliation” bill. This allows its adoption by simple majority rather than the usual 60% majority, but it limits the scope of the act to what might be considered budgetary aspects. This is behind the rush and the limited range of changes that are possible for the AHCA. There are pros and cons to such a process, which was also followed for Obamacare.

The advantages are that the bill can be passed with a lower level of congressional support and that the sectors of the economy adversely effected (a bill that changes anything will necessarily have winners and losers) will have less time to mount a fight to save or promote their special interests. The disadvantages are that the potential to improve the bill by hearing and considering all views will be limited and that the opportunity to build broad support via compromises will be missed. In my opinion such important and fundamental legislation should obtain broad support. The failure to do so was one of the flaws of Obamacare.

PPS. When new rules change the outcomes for some, fairness dictates an as painless as possible transition from the existing rules to the new ones. Some of the debate among House Republicans concerns transition issues, such as from current Federal financing of state expansions of Medicaid coverage to Federal block grants meant to give states more flexibility in how they use these funds.

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How People Become Terrorists

Yesterday I attended a fascinating lecture by Marc Sageman on his latest book: Misunderstanding Terrorism. You can watch it here: How-people-become-terrorists

Though greatly oversimplified, the essence of his findings, which included direct interviews of over 30 captured terrorists, is that members attracted to a close net group with a shared concern and thus shared identity and common cause can for various reasons rise to terrorism when they think their issue is not receiving a fair hearing. He does not consider the ultra conservative interpretation of Islam espoused by ISIS to be a very important factor in attracting its “soldiers.” Perhaps this is why National Security Advisor H. R. McMaster urged Trump not to use the label “radical Islamic terrorism” in his speech to congress saying that it was not helpful. McMaster-trump-terrorism-speech

America’s best defense against ISIS and other terrorist producing groups is to adhere to the values that have made American so respected and admired around the world. These include the evenhanded application of the rule of law.

While listening to Dr. Sageman’s presentation I was reminded of the University of California’s handling of the Free Speech Movement in 1964-5. The FSM was formed in the fall of 1964 after the University banned the traditional sidewalk tables on the edge of the Berkeley campus from which student organizations recruited members and/or passed out their literature. I was a member of the FSM council, as were the presidents of virtually all recognized campus organizations, in my capacity as President of the University Conservatives. The council’s purpose was to get the Berkeley administration to lift its ban and restore free speech on campus (a different time indeed).

As the daily meetings of the FSM council droned on, the group began to informally split between those pushing for more and more forceful demonstrations (which led eventually to the student take over and sit in of Sproul Hall, the administration building) and those of us favoring discussions with the Administration. As the FSM council became increasingly more radical, more moderate groups began to drop out and five of us (the Presidents of Young Republics, Young Democrats, University Conservatives, Young Peoples Socialist League, and Democratic Socialists) began meeting separately in the middle of the night to agree on a strategy for approaching the Administration. We met in the office of Professor Seymour Martin Lipset because the YPSL President was his research assistant and had the key. In this we succeeded but not until Bettina Aptheker and the Marxist group led students into Sproul Hall where they “sat in” for the next few days until they were carted off by the police. Sadly, Joan Baez, who had performed on the steps of Sproul Hall (from which Mario Savio and I and others addressed the daily crowds) every Friday, and whose music I love, led the students into the building singing “We shall overcome” (though she stopped outside the door herself). It was an unforgettable experience with protest movements and crowd dynamics.

President Trump has taken the opposite approach to our terrorist threat. Rather than honestly debating whether Muslims or any other identifiable group are unfairly treated in America (of course some are occasionally, but not as the result of an official discriminatory policy), and/or our purpose and conduct in occupying Iraq, Trump has pretended that the threat comes from abroad and has tried to make it even harder for foreigners to visit. In the process he has given an ugly tone to our discussions of real issues and concerns. Trumps-foreign-policy-and-Mexico

Trump’s poorly conceived, poorly drafted, and poorly executed Executive Order temporarily banning entry of people from seven Muslim majority countries fits Dr. Sageman’s description of how to promote terrorism. Tears-and-detention-for-us-visitors-as-trump-travel-ban-hits. In the past few weeks, our charming and welcoming airport immigration officials have detained some unusual travelers.

American born citizen Sidd Bikkannavar, a scientist at the Jet Propulsion Lab with Global Entry, was detained in Houston on his return from Chile and pressured to give over the pin access number to his phone, which had been issued by his employer and contained sensitive material. Indian-origin-nasa-scientist-detained-at-us-border-phone-confiscated

French historian Henry Rousso, a pre-eminent scholar on the Holocaust, was also held at the Houston airport. “When the immigration officer discovered he would be receiving a fee for his keynote address at Texas A&M University, he ordered him to be deported, claiming he should have a working visa rather than a tourist visa.” French-historian-Henry-Rousso-detained 10-hours.

The celebrated Australian children’s writer, Mem Fox, was detained at LAX and wrote that “In that moment I loathed America.” In-that-moment-I-loathed-America-I-loathed-the-entire-country.

The detention for several hours of Mohammad Ali’s son on his way home from a speech in Jamaica because he is a Muslim is one of the more outrageous examples of what is happening. Muhammad-Ali-son-detained-Fort-Lauderdale-airport

These short sighted and ugly measures are not making us safer, quite the opposite:

Former-CIA-chief-says trumps-travel-ban-hurts-American security

In response to stricter requirements for European travel to the U.S., the European Commission is considering whether to suspend visa free travel to Europe for Americans. Did we really think we could do it to them without them wanting to do it to us? Where are the adults?

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Illegal Aliens

The reliable and predictable rule of law is an important part of the foundation of our free and prosperous society. Our immigration laws, which favor extended family members of legal residence, have not met America’s employment needs for decades. As a result, the number of illegal aliens in the U.S. is now estimated to be between 11 – 11.5 million. Most of them entered legally and overstayed their visas. To a large extent, the legal status of most of these illegal immigrants has been ignored, which undermines the rule of law.

A number of efforts to “fix” the immigration laws, in part to provide a pathway to legal status for long time illegal immigrants, have so far failed. For example, the Dream Act (Development, Relief, and Education for Alien Minors Act) was first introduced in 2001 and would have provided conditional legal residency for anyone who had entered the U.S. before the age of 16, lived here for at least five years, graduated from a U.S. high school, and passed criminal background checks. After passing additional conditions they could become legal permanent residents (green card holders). Most recently the Gang of Eight (4 Democrats and 4 Republicans) U.S. Senators agreed on a law passed by the Senate but not the House as the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013, which would, among other things, have provided a pathway to legal status for many “undocumented” residents.

Thus for some time the status of undocumented workers and others has been ignored or only lightly enforced in limited cases. About three quarters of the 11 million illegal immigrants have jobs. These exceed slightly the number of unemployed Americans of 7.6 million, which is considered full employment, who are temporarily between jobs. In short, deporting all illegal workers would seriously cripple the American economy; and thus their status has been routinely ignored. Over recent decades this state of affairs might be characterized as having become the customary law but it clearly violates statutory law. This should not go on without adjusting the law to reflect what society is willing to enforce.

The recent wave of arrests of illegal aliens appears to be a change in this customary law without a change in statutory law. “Fear and panic have gripped America’s immigrant community as reports circulate that federal agents have become newly aggressive under President Trump, who campaigned for office with a vow to create a ‘deportation force.’” “Immigrant-community-on-high-alert-fearing-trumps-deportation-force/2017/02/11/”. This is the wrong way to address the problem. Congress should step up and formally adopt immigration reform that enjoys broad support.

 

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