March 28, 2024

Today’s Economist: Casey B. Mulligan: Massachusetts Employees Will Keep Their Health Plans

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Massachusetts and a few neighboring states are likely to experience the Affordable Care Act a lot differently than the rest of America.

Today’s Economist

Perspectives from expert contributors.

Massachusetts is often held up as a window into America’s health insurance future, because it embarked on what came to be called the Romneycare reform six years ago. Like the Affordable Care Act provisions going into effect nationwide next year, Romneycare aimed to increase the fraction of the population with health insurance by imposing mandates on employers and employees and by subsidizing health insurance plans for middle-class families without employer plans.

Because the subsidized plans are available for only low- and middle-income families whose employers do not offer affordable health benefits, some analysts fear employers around the nation will drop their health benefits as the Affordable Care Act goes into full effect, resulting in millions of people losing the opportunity to get health insurance through an employer.

But some people say they believe this fear is likely to be unfounded, because the propensity of Massachusetts employees to receive employer-sponsored health insurance was hardly different after Romneycare went into effect than it was in the years before.

The details and dollar amounts in the Massachusetts health care law differ from the national Affordable Care Act, and for that reason alone I hesitate to infer too much from the Massachusetts experience. Even if the two laws were essentially the same, the effects in Massachusetts could be different than the national effects because Massachusetts has a different population and business environment than the rest of the nation.

Last week I explained how specific types of employers could be expected to drop their health benefits during the next couple of years: those employers that currently offer benefits but nonetheless pay much of their payroll to people living in households below 300 percent of the federal poverty line, who are eligible for the most generous federal subsidies as soon as their employer ceases to offer benefits.

Massachusetts has an extraordinary fraction (almost two-thirds) of its population above 300 percent of the federal poverty line, and as a result practically all Massachusetts employers will prefer to retain their health benefits over the next few years, even though a significant fraction of employers elsewhere will not.

One way to quantify the difference between Massachusetts employers and employers elsewhere is in the percentage of payroll going to employees from families below 300 percent of the poverty line. At a national level, the percentage varies from 4 percent in Internet publishing to about 50 percent in restaurants and private household employers. The national average is 20 percent, compared with 13 percent in Massachusetts.

Employers have a variety of factors to consider in their benefit offering decisions, but I have made some estimates that focus on the payroll-composition statistics noted above. By my estimates, employers with percentages of 26 to 35 percent of employees above 300 percent of the poverty level have a sufficiently high percentage that they are likely to have been offering health insurance benefits before the Affordable Care Act. Yet they have a low enough percentage that their employees gain on average if the employer health benefit is dropped and employees take the subsidies available through the Affordable Care Act’s health insurance exchanges.

About 10 percent of employees with health insurance live in a state and work in an industry with compensation percentages in the range where profits are to be gained by dropping employer health insurance. But none of them live in Massachusetts, and some states that border Massachusetts, including New Hampshire and Connecticut, are in a similar situation.

A number of states and industries – especially the industries I emphasized last week – have more than 35 percent of their payroll paid to people in families under 300 percent of the poverty line and are unlikely to be offering employee health benefits.

But those employers in Massachusetts who have 35 percent of their payroll paid to people in families under 300 percent of the poverty line are more likely to offer some kind of health benefit, in part because of Romneycare’s incentives to create “cafeteria plans” in which employees authorize pretax salary to be withheld from their paychecks for the payment of health insurance premiums.

Under the federal law, the Massachusetts cafeteria plans will lose some of their advantages to employers in terms of avoiding penalties for failure to offer health benefits.

Based on the combination of these two factors — that no Massachusetts industries have 26 percent to 35 percent of their employees under 300 percent of the poverty line, and that Massachusetts employers will lose the advantages of their cafeteria plans — I calculate that employers offering health insurance in Massachusetts are one-third as likely to drop their employee health plans over the next couple of years as are employers in the rest of the nation.

That’s because the percentage of the United States work force at risk of losing its employer insurance (because of the tendencies of their industry and states to have low- and middle income employees) is three times the percentage of the Massachusetts work force in the same situation.

Article source: http://economix.blogs.nytimes.com/2013/05/22/massachusetts-employees-will-keep-their-health-plans/?partner=rss&emc=rss

News Analysis: Middle Class Malaise Complicates Democrats’ Fiscal Stance

Many Democrats have derided the expiring tax cuts as irresponsible since President George W. Bush signed them a decade ago. Yet the party is united in pushing to make the vast majority of them permanent, even though President Obama could ensure their expiration at year’s end with a simple veto.

That decision reflects concern over the wage and income trends of the last decade, when pay stagnated for middle-class families, net worth declined and economic mobility eroded. Democrats who generally would prefer more tax revenue to help pay the growing cost of Medicare and other programs are instead negotiating with Republicans to find a combination of spending cuts and targeted tax increases for higher incomes.

If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011.

The income and wealth trends of the last decade also create a longer-term dilemma for the party. By advocating the continuation of most of the Bush-era tax cuts, Democrats might find themselves confronting deeper-than-comfortable cuts to spending programs that aid the poor and middle class down the road.

“The goal is not just to make the tax code more progressive, but also to obtain adequate revenue to finance progressive spending programs,” said Peter Orszag, a vice chairman at Citigroup and a former White House budget director. “Making the tax code more progressive but locking into a vastly inadequate revenue base is not doing the notion of progressivity overall any favors.”

According to calculations by the independent Tax Policy Center, if Congress did nothing and all tax increases took effect at the end of the year, the hit would be broad but the brunt of it would fall on high-income households. Taxpayers in the bottom quintile of the income distribution would see a $412 bigger tax bill. For the top 0.1 percent, the average increase would be $633,946.

Only a small handful of policy voices on the left are making the case for the tax cuts to fully expire. In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it. But it is also partly because of structural changes in the economy.

“This is about math and values,” Senator Max Baucus, a Montana Democrat and the chairman of the Finance Committee, said in an e-mail. “Our first priority needs to be extending tax cuts for the middle class. At a time when we need to cut our debt and are asking everyone to chip in, we simply can’t afford to continue extending all of the tax cuts for the wealthiest Americans.”

The Congressional Budget Office has found that between 1979 and 2007, the top 1 percent of households saw their inflation-adjusted income grow 275 percent. For the bottom 20 percent, it grew just 18 percent, and federal tax and transfer programs also did less and less to reduce income inequality over that period.

The mounting concentration of wealth is even more dramatic. A recent Economic Policy Institute study found that between 1983 and 2010 about three-quarters of all new wealth accrued to the wealthiest 5 percent of households. Over the same period, the bottom 60 percent actually became poorer.

Such figures are why some Democrats argue that even if the economy were to return to Clinton-era growth rates, its poor and middle class could not stomach a return to Clinton-era tax rates, at least not yet. Moreover, it has led Democrats to expand the “middle class” to encompass the vast majority of taxpayers, with families earning as much as $300,000 a year unlikely to see their taxes go up.

“The causes of the massive rise in inequality that we’ve seen that have caused stagnation for the middle class — stagnation at best — for the past 20 or 30 years are not likely to abate,” said Alan B. Krueger, the chairman of the White House’s Council of Economic Advisers. “If they’re caused by globalization and skill-biased technological change, they’re likely to continue or accelerate.”

Last week, President Obama visited the Virginia home of Tiffany and Richard Santana, a high school teacher and an employee at a car dealership, to make the case. “They’re keeping it together, they’re working hard, they’re meeting their responsibilities,” Mr. Obama said of the Santanas. “For them to be burdened unnecessarily because Democrats and Republicans aren’t coming together to solve those problems gives you a sense of the costs on personal terms.”

Mr. Obama’s argument for raising revenue from high-income households and keeping taxes low on middle-income households long predates the recession or his time in the White House. Aides say the position stems in part from his belief that long-term economic changes have rewarded the rich and punished many others.

But limiting tax increases to just a small fraction of households might mean raising too little revenue over the long term to finance the programs that Democrats also fiercely want to preserve — Social Security, Medicaid and Medicare, education, supports for lower-income working families and infrastructure, among others, some policy experts on the left say.

“It’s perfectly reasonable for the White House to begin collecting more revenue from folks who have done by far the best in pretax terms,” said Jared Bernstein of the Center on Budget and Policy Priorities, a former economist for Vice President Joseph R. Biden Jr. “But ultimately we can’t raise the revenue we need only on the top 2 percent.”

Article source: http://www.nytimes.com/2012/12/13/us/politics/middle-class-malaise-complicates-democrats-fiscal-stance.html?partner=rss&emc=rss

Former Ohio Attorney General Picked to Lead Consumer Agency

Mr. Cordray came to national attention for his aggressive investigations of mortgage foreclosure practices while he was attorney general. He had already joined the watchdog agency, which starts formal operations on Thursday, as the leader of its enforcement division.

“Richard Cordray has spent his career advocating for middle-class families, from his tenure as Ohio’s attorney general to his most recent role as heading up the enforcement division at the C.F.P.B. and looking out for ordinary people in our financial system,” Mr. Obama said in a written statement. He will formally announce the nomination on Monday.

The decision to pass over Ms. Warren — who conceived the bureau, championed its creation and orchestrated its establishment for the last year as a White House adviser — reflects political realities.

Her candidacy was passionately supported by liberal members of Congress and consumer advocacy groups. But she never won the full support of the president or his senior advisers, particularly the Treasury Secretary, Timothy F. Geithner, in part because of her independence and outspokenness, which at times put her at odds with the administration.

Also, since last year Mr. Obama has been trying to rebuild relations with the business community after the fights early in his term over health care and financial regulations. And Republicans have vowed to block her nomination because they say that her criticisms of the banking industry showed a lack of fairness.

Putting a director in place is critical because the agency will not gain the full measure of its powers until the Senate confirms a nominee. The agency will be able to supervise the compliance of banks with existing laws, but the Dodd-Frank financial legislation that created the agency dictates that it cannot write new rules or supervise other financial companies without a director.

Republicans made clear on Sunday that they were no more likely to confirm Mr. Cordray than Ms. Warren. Forty-four Republican senators have signed a letter saying they would refuse to vote on any nominee to lead the bureau, demanding instead that Democrats agree to overhaul the agency’s management structure to replace a single leader with a board of directors.

“Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it,” Senator Richard Shelby, the Alabama Republican who is the ranking member on the Banking Committee, said Sunday in a written statement. “No accountability, no confirmation.”

That position was reiterated Sunday by a spokesman for the Senate minority leader, Mitch McConnell of Kentucky, who sent reporters a copy of the letter written by Senate Republicans. “The White House has not yet addressed the need to bring accountability and transparency to the bureau,” the spokesman, Don Stewart, said.

The administration has had little success in persuading the Senate to confirm nominees for a number of other financial regulatory posts, although several recent appointments are pending. Mr. Cordray joins a queue that includes the proposed leaders for two banking regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, and two board members for the Securities and Exchange Commission. About a dozen positions remain vacant.

Mr. Cordray did, however, receive a quick endorsement from Ms. Warren.

“Rich has always had my strong support because he is tough and he is smart — and that’s exactly the combination this new agency needs,” she said in a statement on Sunday. “His work and commitment have made it clear that he will make a stellar director.”

Some of Ms. Warren’s supporters also gave him a reluctant thumbs-up.

“Elizabeth Warren was the best qualified to lead this bureau that she conceived — and we imagine Richard Cordray would agree,” said Stephanie Taylor, a consumer advocate who led an online campaign that collected 350,000 signatures on a petition calling for the president to nominate Ms. Warren. “That said, Rich Cordray has been a strong ally of Elizabeth Warren’s, and we hope he will continue her legacy of holding Wall Street accountable.”

Mr. Obama devoted many more words in his written statement to Ms. Warren than to Mr. Cordray, thanking her “not only for her extraordinary work standing up the new agency over the past year, but also for her many years of impassioned leadership, and her fierce defense of a simple idea: Ordinary people deserve to be treated fairly and honestly in their financial dealings.”

Article source: http://feeds.nytimes.com/click.phdo?i=ff7b1fed84c4b1befdb7bc64c826eb36