Tag Archives: Political Calculations

More Unpleasant Obamacare Arithmetic

15 Monday Jun 2015

Posted by in Obamacare, Uncategorized

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How-the-ACA-Works

States with expanded Medicaid eligibility may be more vulnerable to adverse selection, hastening the death spiral of their Obamacare insurance exchanges relative to states without expanded Medicaid. This is because 1) the expanded, eligible Medicaid population is young, and 2) pricing (net of subsidies) and benefits on the exchanges encourage sicker individuals to purchase plans with richer benefits. The Political Calculations blog presents this case in “How Medicaid’s Expansion Tips the Scales Against Obamacare“:

“… we observe that the states that did not expand their Medicaid programs have a much larger share of their ACA-enrollment occurring in the lower-tier metal plans that would tend to be favored by healthier individuals. Meanwhile, in the states that expanded the enrollment of their Medicaid programs under the law, we find that a significantly larger portion of their ACA enrollments were in the plans that would be favored by less healthy individuals.

In fact, we see that in Medicaid expansion states, 13.2% of their ACA enrollment occurred in the highest-tier Gold and Platinum level plans, while non-Medicaid expansion states saw 7.7% of their enrollment for these highest tiers of health insurance coverage.

The seemingly small 5.5% difference between these two figures becomes exceptionally significant when you consider how extremely concentrated health care expenditures are in the United States, where just 5% of U.S. patients are responsible for generating 50% of all health care spending in the nation.“

It will be difficult to confirm this hypothesis using data on premium increases, or actual exchange failure, until the temporary risk corridors and transitional reinsurance program expire. However, this year, several of the states in which proposed premium increases are the largest have expanded Medicaid eligibility. Robert Laszewski has a good discussion about some the reasons for the large premium increases in Forbes. It’s early and there are signs that it will get worse.

As noted last week on this blog, Medicaid itself does not stack up well in terms of how highly it is valued by recipients and the moral hazard inherent in the program. Here we see an additional bug: expanded Medicaid appears to siphoning away younger potential enrollees from the exchanges in those states, worsening the problem of adverse selection, which will negatively affect their claims experience.

Counter-Cyclical Disability Debauchery

29 Friday May 2015

Posted by in Government, Macroeconomics

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Disability

Should economic growth drive changes in the Social Security disability insurance rolls? It appears to have done just that over the past ten years, suggesting that the program embodies a degree of sham. The Political Calculations blog has some fascinating charts and discussion of this phenomenon entitled “The Disability Dumping Ground“. It shows that the number of workers receiving disability benefits rose across many age cohorts, and especially more “mature” cohorts, as the economy entered the Great Recession. Successful claims continued to rise throughout the weak economic recovery, but the increases began to taper as economic activity finally neared and exceeded pre-recession levels. However, the post notes that:

“the vast majority of those who were added to Social Security’s disability rolls during the period from 2008 through 2013 are still on them.“

One must question whether the Obama Administration had a motive to encourage more latitude in the approval of disability claims during this period:

“And because being classified as disabled would remove such individuals from being counted as both unemployed and part of the U.S. civilian labor force, the Obama administration had a strong incentive to get the program’s administrators to look the other way at the disability insurance applications for benefits that were being made as jobless benefits were expiring, as the resulting math would considerably reduce the official unemployment rates reported by the U.S. Bureau of Labor Statistics.“

Of course, an intentional effort to bring more of the long-term unemployed onto the disability rolls might be defended as counter-cyclical fiscal policy and on immediate humanitarian grounds. However, the accelerated depletion of the Disability Insurance Trust Fund implies “that the payments to individuals receiving … benefits will be reduced by nearly one-fifth.” Such cuts would be extremely unjust to those suffering from more legitimate disabilities. In any case, this makes the pretext under which payroll taxes are collected highly suspect.

It would be interesting to know whether changes in the disability rolls or benefit payments bore a correlation to economic growth over a longer history. The social gains from pooling risks at this level are easily frittered by mismanagement and fraudulent activity, faults to which government activity is particularly prone.

Fractured Households, Echoes of War, and Inequality

03 Friday Oct 2014

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goose dinner

A friend sent me this interesting link to the “Political Calculations” blog in response to my recent post on distorted metrics of changing income inequality. The PC link is from about 10 months ago, but it is very timely nevertheless. It compares trends in three versions of the “gini coefficient” for the U.S., a common measure of inequality. A gini of zero indicates absolute equality of income across quantiles. A gini of one indicates that all income flows exclusively to the top quantile. The most interesting feature of this comparison is that the gini calculated for individual income earners has shown no trend up or down since about 1960, while the gini for households has trended upward since about 1970. This difference implies that the much-bemoaned increase in inequality is actually the result of changes in household structure, as opposed to earnings increasingly skewed toward elite individual earners.

In two follow-up posts (“The Widow’s Peak” and “The Men Who Weren’t There“), the author(s) identifies some demographic factors that were important in creating the upward trend in the household gini. Single-person households grew dramatically throughout this period, as did the number of seniors (aged 65+) living alone. The number of senior, female single-person households grew even more dramatically. Many of these women were either widows or never had good opportunities to marry because so many males in their age cohort were killed in World War II. Unfortunately, they constituted a group of very low-income households. There were other reasons for growth in the number of low-income, single-person households, such as increases in the divorce rate and perverse welfare-state incentives. The following lament by the author(s) in the last follow-up post is noteworthy:

“To us, it’s more remarkable that so many economists and politicians insist on focusing on the opposite end of the income spectrum in attempting to blame the highest income-earning Americans for that increase.”

Of course, the trends in ginis shown at the links above are subject to the same criticism made by the sabermatrician discussed in my earlier post: the comparisons over time implicitly assume that the quantiles used in the calculations are static, composed of the same sets of households or individuals, but they are not. Therefore, they tend to overstate trends toward greater inequality.

The fact that household structure has so much to do with trends measured by standard household gini coefficients, that the gini for individual earners has no trend, and that in any case, fixed quantile comparisons overstate trends in inequality, all suggest that redistributionist policies are misguided and unnecessary. And those kinds of policies tend to undermine the growth of the economy. Only policies designed to boost economic growth can help households across the income distribution to prosper. Moreover, unraveling the negative incentives built into current social programs would help to stabilize household and family structure.