So last week the GOP gave up on healthcare reform. That isn't very surprising, as the bill they pushed last week had no hope of being signed into law (in it's current form). It's first draft was refused by the Freedom Caucus, the most conservative Republican representatives. Paul Ryan tried revising the bill to make it more conservative, but only ended up losing more moderate Republicans who thought the revised bill too harsh. Even if the bill somehow passed, it would have to go to the Senate where Republicans only have a two-seat majority.
So it's no surprise that Paul Ryan has declared Obamacare "the law of the land," and Trump vowed on Twitter to pick up healthcare again after Obamacare implodes.
But more important than the failure of Trumpcare is what it showed. It means that the next target on the GOP's platform, tax reform, is going to be a lot more difficult than anyone expected.
First, the numbers. The Obamacare repeal was put first not because of some Republican lapse in judgement, but because repealing all of its taxes would have freed up almost $1 trillion dollars. That money would have been used to finance the sweeping tax cuts that Republicans campaigned on.
So the GOP now has far less leeway in tax cuts. The Republican Party has long complained about the government deficit, but it runs up against the simple electoral fact that cutting spending can be just as unpopular as a tax increase.
The U.S. 2016 budget was as follows; mandatory spending, discretionary spending, and interest payments.
Mandatory spending includes programs that are mandated by law to be funded, and any cuts require a special law beyond an annual budget. This includes Social Security, Medicare, and Medicaid, things that no one realistically wants to cut anyway. Mandatory spending makes up nearly two-thirds of the budget, or $2.4 trillion dollars.
Then there is the interest payments. The U.S. government has been taking out loans to pay for its deficit for a long time, and this is the cost. This is another $241 billion that is non-negotiable.
And finally there is non-discretionary spending, which can be further split into "military" and "non-military." They each make about half of non-discretionary spending, about $600 billion each.
So last year the government spent $3.9 trillion in total, and received revenues (mostly taxes) of $3.3 trillion, a deficit of $600 billion.
The GOP wants to do three things; balance the budget, increase military spending, and cut taxes. Oh, and build a giant wall. This is all probably impossible.
The only thing this leaves open to spending cuts is the non-military and non-discretionary spending of $600 billion. If the budget was balanced this year without tax cuts, this entire segment of the budget would have to be eliminated.
And this segment actually matters. It pays for meals-on-wheels, the Department of Education, the Environmental Protection Agency. Any funding from the federal government that goes to transportation, education, veteran's benefits, and housing assistance is made here.
Trump released a budget draft last week that shows exactly what this means.
Source: http://theweek.com/articles/686331/moral-bankruptcy-president-trumps-budget
It eliminates the below programs;
- The U.S. Interagency Council on Homelessness, which coordinates the federal government's efforts to fight homelessness
- The Community Development Block Grant (which does financial counseling for low-income families, local business development, home repairs for the poor, and foreclosure prevention)
- The Appalachian Regional Commission, which funds job creation in 420 counties
- The Corporation for Public Broadcasting
- The Energy Department's weatherization program that has helped seven million households insulate their homes
- Fifty EPA programs that assist with everything from environmental restoration to industrial waste cleanup
- The Chemical Safety Board
- The National Endowments for the Arts and the Humanities
- The Institute of Museum and Library Services (libraries and museums)
- The Neighborhood Reinvestment Corporation
- The United States Institute of Peace
There's far more programs that receive significant cuts. The budget director Nick Mulvaney said their guiding logic was, "Can we really continue to ask a coal miner in West Virginia or a single mom in Detroit to pay for these programs?" I wonder whether Mr. Mulvaney understands that many of these programs directly aide many of these same people, those with low-incomes.
Now this budget is too extreme to pass Congress. But this exemplifies the problem that the GOP has, because even these spending cuts will fall short of the goal of offsetting the military spending and tax cuts.
So Trump's team has another idea, an import tax. And this is one that the Freedom Caucus will likely try to stamp out, as they recognize an import tax just means Americans paying higher prices on imported goods. Essentially a sales tax on anything foreign.
Tax Reform will run into the same problems Trumpcare did, with moderate Republicans in stark disagreement with the Freedom Caucus. But if this fails, there's a far greater backlash looming.
Part of the reason the stock market has been so bullish in recent months is because the investor class is expecting a big tax cut from this tax reform. They'll probably get one, but if it isn't as substantial as people expect, or tax reform is derailed somehow, this good run the stock market has had might finally end.
I'd like to end this with some optimism, but there is very little to look forward to whatever happens in the coming tax negotiations.
Monday, March 27, 2017
Saturday, March 11, 2017
Let's Talk Healthcare
A couple of weeks ago Donald Trump said, "Nobody knew healthcare was so complicated."
It's a weird statement, because most people do know healthcare is complicated, a lot of people have been trying to inform Trump its complicated for the past year, and that Trump is perhaps the last person to finally realize this.
So let's talk about healthcare in the United States. In Western countries its considered one of the worst systems, by liberals and conservatives alike (for different reasons). But I'll try to summarize it.
Note; what I write below isn't exactly what happens, but it's good enough to understand the new GOP healthcare law.
First there is Medicaid. This is healthcare for the poorest Americans, though there isn't a clear line of what defines poor. 70 million Americans, or about 21% of all Americans get insurance through Medicaid. It is funded both through the federal government and through state governments. It's also considered a terrible health insurance plan, with some studies showing uninsured people are healthier than people on Medicaid. I think that it is more correlation rather than causation, as people on Medicaid are obviously the poorest Americans and the least likely to afford healthy lifestyles. This doesn't really dispute that Medicaid is some bad health insurance though. It's still one of the most popular government programs at 66% approval.
Now, Obamacare actually offered to expand Medicaid for more Americans, as long as the state was willing to shoulder 10% of the cost to do so. 31 states agreed to do so, 19 refused. Obviously the 19 that refused are the most conservative areas of the country.
Next is Medicare. This is health insurance for the elderly, specifically 65 and older. Medicare is considered far superior to Medicaid, though is still lackluster to many private plans. This is a big reason why Bernie Sanders was arguing to create "Medicare for all," rather than "Medicaid for all." Medicare has approval of 77%.
Then there is the best off people, those that get insurance through their job. This is often the best deal one can get in the US, with much of the cost on the business and not the individual.
And lastly there is everyone else, which is where it gets really confusing.
You see, healthcare in the US is some of the most expensive in the world. Per capita, Americans spend $9,451 per year on healthcare. Compare that to $5,228 in Sweden, $4,608 in Canada, and $4,003 in the UK. It's difficult to argue that healthcare is twice as good in the US than in these countries.
Health insurance could also be picky with clients. Before Obamacare, companies could refuse service to those with pre-existing conditions. If you were born with an insulin problem for instance, the only way you would get health insurance is if you agreed to extremely expensive plans, and most companies would just refuse to cover you.
Simply put, many Americans find health insurance so expensive they go without it, which is actually costlier to society. Because legally in any emergency situation the hospitals have to fix ER problems and charge you after, people simply add it to their debt that they can never pay.
Obamacare tried to fix this by expanding Medicaid, making denial of healthcare service illegal, and making a new exchange where the government is the middle-man with private insurance. These exchanges are subsidized to lower the normal costs of health insurance. With one key element; if one isn't covered by insurance already, and you don't get any, you pay a fine.
The fine is used to pay for the new subsidies and Medicaid, but is more in place to force healthy people into buying insurance. Because Obamacare essentially allows sick people to get health insurance cheaper than they normally would, but also makes it more expensive for healthy people. In order to health insurance in general to work, healthy people subsidize the sick.
Now the reason people think Obamacare can fail (the "death spiral") is that many people find paying the fine better than getting insurance. This can lead to insurance companies finding the costs of the sick too high and the revenue from the healthy too low to do business profitably.
So... here's what the new GOP plan (Trumpcare) tries to do.
1. Removes the fine
2. Creates new tax credits of $2,000 to $4,000 dependent on age (ends at 60)
3. Creates tax-free savings accounts for health espenditures
4. Phases out Medicaid expansion
5. Allows insurers to charge pre-existing conditions clients 30% more
There's more, but these are they main points. And it's why nobody likes it.
You see, without the fine the "death spiral" actually accelerates because there is no punishment for healthy people to go uninsured. The fine is the least popular part of Obamacare, but necessary to make it all work.
The tax credits and savings accounts are nice, but only for Americans who pay taxes and can afford to save. So not very helpful to poorer people who don't pay taxes and live paycheck to paycheck.
And overall, it's expected to cost more, cover less people, and make health insurance more expensive.
The Democrats don't like it for pretty much all those reasons.
The most conservative Republicans don't like it because they don't really want a replacement at all. They want everything repealed, and then force insurance companies to do direct competition with each other nationwide. And they aren't happy about the added debt.
The most moderate Republicans also don't like it. They tend to come from states that expanded Medicaid whose voters will likely react badly to losing health insurance, or seeing their premiums accelerate in price.
So the Republicans are caught in a Catch 22. If they pass this law, they'll likely drive up turnout of moderates and Democrats against them in 2018. And if they do nothing, Republican voters will stay home in 2018 because they didn't meet their promise.
The Republican leadership is going to try to ram this through, and hope it works out. But whatever happens as a result, the voters are going to know who to blame.
It's a weird statement, because most people do know healthcare is complicated, a lot of people have been trying to inform Trump its complicated for the past year, and that Trump is perhaps the last person to finally realize this.
So let's talk about healthcare in the United States. In Western countries its considered one of the worst systems, by liberals and conservatives alike (for different reasons). But I'll try to summarize it.
Note; what I write below isn't exactly what happens, but it's good enough to understand the new GOP healthcare law.
First there is Medicaid. This is healthcare for the poorest Americans, though there isn't a clear line of what defines poor. 70 million Americans, or about 21% of all Americans get insurance through Medicaid. It is funded both through the federal government and through state governments. It's also considered a terrible health insurance plan, with some studies showing uninsured people are healthier than people on Medicaid. I think that it is more correlation rather than causation, as people on Medicaid are obviously the poorest Americans and the least likely to afford healthy lifestyles. This doesn't really dispute that Medicaid is some bad health insurance though. It's still one of the most popular government programs at 66% approval.
Now, Obamacare actually offered to expand Medicaid for more Americans, as long as the state was willing to shoulder 10% of the cost to do so. 31 states agreed to do so, 19 refused. Obviously the 19 that refused are the most conservative areas of the country.
Next is Medicare. This is health insurance for the elderly, specifically 65 and older. Medicare is considered far superior to Medicaid, though is still lackluster to many private plans. This is a big reason why Bernie Sanders was arguing to create "Medicare for all," rather than "Medicaid for all." Medicare has approval of 77%.
Then there is the best off people, those that get insurance through their job. This is often the best deal one can get in the US, with much of the cost on the business and not the individual.
And lastly there is everyone else, which is where it gets really confusing.
You see, healthcare in the US is some of the most expensive in the world. Per capita, Americans spend $9,451 per year on healthcare. Compare that to $5,228 in Sweden, $4,608 in Canada, and $4,003 in the UK. It's difficult to argue that healthcare is twice as good in the US than in these countries.
Health insurance could also be picky with clients. Before Obamacare, companies could refuse service to those with pre-existing conditions. If you were born with an insulin problem for instance, the only way you would get health insurance is if you agreed to extremely expensive plans, and most companies would just refuse to cover you.
Simply put, many Americans find health insurance so expensive they go without it, which is actually costlier to society. Because legally in any emergency situation the hospitals have to fix ER problems and charge you after, people simply add it to their debt that they can never pay.
Obamacare tried to fix this by expanding Medicaid, making denial of healthcare service illegal, and making a new exchange where the government is the middle-man with private insurance. These exchanges are subsidized to lower the normal costs of health insurance. With one key element; if one isn't covered by insurance already, and you don't get any, you pay a fine.
The fine is used to pay for the new subsidies and Medicaid, but is more in place to force healthy people into buying insurance. Because Obamacare essentially allows sick people to get health insurance cheaper than they normally would, but also makes it more expensive for healthy people. In order to health insurance in general to work, healthy people subsidize the sick.
Now the reason people think Obamacare can fail (the "death spiral") is that many people find paying the fine better than getting insurance. This can lead to insurance companies finding the costs of the sick too high and the revenue from the healthy too low to do business profitably.
So... here's what the new GOP plan (Trumpcare) tries to do.
1. Removes the fine
2. Creates new tax credits of $2,000 to $4,000 dependent on age (ends at 60)
3. Creates tax-free savings accounts for health espenditures
4. Phases out Medicaid expansion
5. Allows insurers to charge pre-existing conditions clients 30% more
There's more, but these are they main points. And it's why nobody likes it.
You see, without the fine the "death spiral" actually accelerates because there is no punishment for healthy people to go uninsured. The fine is the least popular part of Obamacare, but necessary to make it all work.
The tax credits and savings accounts are nice, but only for Americans who pay taxes and can afford to save. So not very helpful to poorer people who don't pay taxes and live paycheck to paycheck.
And overall, it's expected to cost more, cover less people, and make health insurance more expensive.
The Democrats don't like it for pretty much all those reasons.
The most conservative Republicans don't like it because they don't really want a replacement at all. They want everything repealed, and then force insurance companies to do direct competition with each other nationwide. And they aren't happy about the added debt.
The most moderate Republicans also don't like it. They tend to come from states that expanded Medicaid whose voters will likely react badly to losing health insurance, or seeing their premiums accelerate in price.
So the Republicans are caught in a Catch 22. If they pass this law, they'll likely drive up turnout of moderates and Democrats against them in 2018. And if they do nothing, Republican voters will stay home in 2018 because they didn't meet their promise.
The Republican leadership is going to try to ram this through, and hope it works out. But whatever happens as a result, the voters are going to know who to blame.
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