John Shoven: Universal Coverage: How to Pay for It?

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Information about John Shoven: Universal Coverage: How to Pay for It?
Health & Medicine

Published on May 18, 2009

Author: capstoneconference09

Source: slideshare.net

Universal Health Care: How to Pay for It John B. Shoven Charles R. Schwab Professor Director, Stanford Institute for Economic Policy Research Capstone Conference - Fresh Thinking on Health Care Reform May 14, 2009 Talk Based on Joint Work with Victor Fuchs

“ Long-Run Fiscal Policy is a Health Policy Problem” National Health Expenditures are more than 16% of GDP NHE grew 2.79%/year faster than everything else combined from 1975-2005 NHE will reach 30% of GDP by 2035 if trends continue 47 million Americans uninsured

National Health Expenditures are more than 16% of GDP

NHE grew 2.79%/year faster than everything else combined from 1975-2005

NHE will reach 30% of GDP by 2035 if trends continue

47 million Americans uninsured

Two Essential Elements for Universal Coverage Subsidization Compulsion

Subsidization

Compulsion

Who Are the Uninsured? The poor . 25% below poverty, another 28% between 1X and 2X poverty The sick and disabled The difficult to reach (e.g. self employed, unattached to work force) The low users The gamblers The free riders More than half are young (18-34)

The poor . 25% below poverty, another 28% between 1X and 2X poverty

The sick and disabled

The difficult to reach (e.g. self employed, unattached to work force)

The low users

The gamblers

The free riders

More than half are young (18-34)

Myth of “Shared Responsibility” Typical claim by political sponsors of health reform proposals – “Responsibility for the cost of care will be shared by employers, the Federal government, state governments, and individuals.” Fails basic incidence analysis Costs may be shared across groups of individuals, but there is “nobody here but individuals.”

Typical claim by political sponsors of health reform proposals – “Responsibility for the cost of care will be shared by employers, the Federal government, state governments, and individuals.”

Fails basic incidence analysis

Costs may be shared across groups of individuals, but there is “nobody here but individuals.”

Myth of “Government Assistance for the Middle Class” To paraphrase Willie Sutton, the middle class is where the money is. The rich may be asked to subsidize the poor, but there aren’t enough of them to subsidize the middle class.

To paraphrase Willie Sutton, the middle class is where the money is.

The rich may be asked to subsidize the poor, but there aren’t enough of them to subsidize the middle class.

Current Funding of Medicare and Medicaid Medicare Part A – largely funded with 2.9% dedicated payroll tax Medicare Parts B and D – 3/4ths of costs funded by claim on general revenues, 1/4 th by premiums and co-payments Medicaid – federal share funded by claim on general revenues

Medicare Part A – largely funded with 2.9% dedicated payroll tax

Medicare Parts B and D – 3/4ths of costs funded by claim on general revenues, 1/4 th by premiums and co-payments

Medicaid – federal share funded by claim on general revenues

Examples of the Disadvantages of General Revenue Financing Financial problems of entitlement programs often concentrate on Social Security and Medicare Part A (HI). Why? Because of the open-ended claim of the rest of federal health expenditures on general revenues The introduction of Part D. It appeared to be free in that no tax was increased.

Financial problems of entitlement programs often concentrate on Social Security and Medicare Part A (HI). Why? Because of the open-ended claim of the rest of federal health expenditures on general revenues

The introduction of Part D. It appeared to be free in that no tax was increased.

The flipside – the advantages of tax dedication Potential improvements of federal health programs would have a price – higher taxes Debate about whether the improvements are worth higher taxes is the benefit-cost calculation Imposes budget discipline on health spending Replaces the current standard (provide all treatments that might be helpful) with a new standard (provide health system that we are willing and able to pay for )

Potential improvements of federal health programs would have a price – higher taxes

Debate about whether the improvements are worth higher taxes is the benefit-cost calculation

Imposes budget discipline on health spending

Replaces the current standard (provide all treatments that might be helpful) with a new standard (provide health system that we are willing and able to pay for )

Choices for a Dedicated Tax Need for a lot of revenue limits choices to taxes with a broad base Candidates: personal income, consumption, payroll, and corporate income Roundabout taxes: tax expenditures, income related user charges, mandates

Need for a lot of revenue limits choices to taxes with a broad base

Candidates: personal income, consumption, payroll, and corporate income

Roundabout taxes: tax expenditures, income related user charges, mandates

Consumption vs. Income Taxes Consumption taxes cause less distortions, particularly regarding saving Income taxes are the primary source of general revenues…therefore not available as a dedicated tax Three types of consumption tax – sales tax, VAT, direct consumption tax (income less saving)

Consumption taxes cause less distortions, particularly regarding saving

Income taxes are the primary source of general revenues…therefore not available as a dedicated tax

Three types of consumption tax – sales tax, VAT, direct consumption tax (income less saving)

VAT vs. Sales Tax Close relatives. VAT is a particular manner of collecting a sales tax More than 40 states have sales taxes VAT is the one unused broad based tax available to the federal government VAT financed universal health vouchers would be very progressive

Close relatives. VAT is a particular manner of collecting a sales tax

More than 40 states have sales taxes

VAT is the one unused broad based tax available to the federal government

VAT financed universal health vouchers would be very progressive

Other alternatives Payroll tax: Already taken by Social Security Corporate tax: terrible idea. Inefficient, unknown incidence, hidden Tax expenditures: Lack of salience a drawback Income based user charges: amount to taxes. Poor already face high marginal tax rates

Payroll tax: Already taken by Social Security

Corporate tax: terrible idea. Inefficient, unknown incidence, hidden

Tax expenditures: Lack of salience a drawback

Income based user charges: amount to taxes. Poor already face high marginal tax rates

Mandates Individual mandates, employer mandates, insurance mandates Incidence analysis makes employer mandates similar to individual mandates Insurance mandates: companies can leave business entirely Mandates provide compulsion , but fail subsidization . If you subsidize the poor, then you need taxes again.

Individual mandates, employer mandates, insurance mandates

Incidence analysis makes employer mandates similar to individual mandates

Insurance mandates: companies can leave business entirely

Mandates provide compulsion , but fail subsidization . If you subsidize the poor, then you need taxes again.

VAT financed Vouchers – less distortionary than the status quo Employment based insurance with large tax subsidy is very distortionary The bundled product – job and insurance – is unnatural. Distorts job choice, job mobility, choice between part-time and full-time, and introduces new risks (lose your job, lose your insurance). It is a historical accident of WWII.

Employment based insurance with large tax subsidy is very distortionary

The bundled product – job and insurance – is unnatural. Distorts job choice, job mobility, choice between part-time and full-time, and introduces new risks (lose your job, lose your insurance).

It is a historical accident of WWII.

Incidence of “Employer Provided” Insurance Workers collectively bear the burden of employer provided insurance through reductions in other forms of compensation Incidence is not widely understood Precise individual incidence – between singles and marrieds, between those who work 30 hours per week and 50 hours per week, etc. is unknown

Workers collectively bear the burden of employer provided insurance through reductions in other forms of compensation

Incidence is not widely understood

Precise individual incidence – between singles and marrieds, between those who work 30 hours per week and 50 hours per week, etc. is unknown

VAT also introduces distortions Work-leisure. Real wage would be lower because prices would be higher Actual VAT would not cover all consumption, introducing distortions between covered and uncovered items

Work-leisure. Real wage would be lower because prices would be higher

Actual VAT would not cover all consumption, introducing distortions between covered and uncovered items

Consider Those Who Currently Have Work Related Insurance Their take home pay would go up if their employer can drop health insurance They would face a new VAT For average person, it is close to a wash The security of their health insurance is enhanced leading to increase in welfare The incentive to work or work more is reduced leading to loss in welfare

Their take home pay would go up if their employer can drop health insurance

They would face a new VAT

For average person, it is close to a wash

The security of their health insurance is enhanced leading to increase in welfare

The incentive to work or work more is reduced leading to loss in welfare

Winners from VAT financed Universal Vouchers The poor. Value of insurance would exceed extra taxes The difficult to reach (including those victims of adverse selection) The sick (those with pre-existing conditions who can’t afford coverage today) Similar groups to today’s uninsured

The poor. Value of insurance would exceed extra taxes

The difficult to reach (including those victims of adverse selection)

The sick (those with pre-existing conditions who can’t afford coverage today)

Similar groups to today’s uninsured

The Big Advantage of Financing Health Insurance with Dedicated Taxes Matching the benefits of program improvements with their cost Establishing a budget constraint for health spending Putting health spending on a diet

Matching the benefits of program improvements with their cost

Establishing a budget constraint for health spending

Putting health spending on a diet

Final Thoughts Need for budget discipline Myth of shared responsibility Myth of assisting the middle class Advantages of tax dedication Distortions of employment-based health insurance with tax subsidization The currently insured trading one distorted situation for another… their welfare change may be small. The uninsured, the poor and the sickly stand to gain considerably from tax financed universal vouchers

Need for budget discipline

Myth of shared responsibility

Myth of assisting the middle class

Advantages of tax dedication

Distortions of employment-based health insurance with tax subsidization

The currently insured trading one distorted situation for another… their welfare change may be small. The uninsured, the poor and the sickly stand to gain considerably from tax financed universal vouchers

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