I'd like to address several points that came out over the weekend. First, those who say that Gruber should not have disclosed because apparently public funds are somehow different from private funds. If that was the case, then where was their defense when Armstrong Williams and Maggie Gallagher received federal contracts and did not disclose that in any of their writings?
And all the journalists who interviewed Gruber said that he should have disclosed, and they would have represented him differently if they had known. Nearly all of these journalists consider Gruber to be a valid source still, and will continue to use him for future interviews but with the added caveat about his being a consultant for the White House administration. Here are the journalists below:
Ezra Klein:
I wasn't aware of that, and if I had been, I would've made sure it was disclosed when I quoted Gruber. On the other hand, the implication that Gruber is somehow a paid shill for this bill belies a fairly long and consistent record in support of health reform, and in particular, this type of health reform.
Megan McArdle:
"I certainly would not have written about him [Gruber] the same way, even though I am sure that what Gruber is saying comports with what he believes. My guess is that like me, most journalists would have treated him as an employee of the administration, with all the constraints that implies, rather than passing along his pronouncements as the thoughts of an independent academic."
Ron Brownstein:
"Bottom line from my view: readers should have been aware of Mr. Gruber's relationship with the administration so they could make their own judgments on whether that would qualify or color their assessment of his analysis. Personally, I don't see evidence that he functioned as an advocate for the administration, rather than an analyst with his own distinctive views. Still readers should have been aware of the connection so they could have made that judgment for themselves, and I wish I had known about it during my conversations with him."
Kate Pickert:
"Readers should know why journalists trust particular sources or if sources have even the appearance of a conflict of interest. Gruber's contract with the government is something that should have been widely understood."
Jake Tapper:
None of this of course means that Gruber's arguments are wrong. But without question the relationship needed to have been disclosed so that the public could independently make that assessment for itself.
The New York Times:
"On July 12, the Op-Ed page published an article by Jonathan Gruber, a professor of economics at M.I.T., on health insurance and taxation. On Friday, Professor Gruber confirmed reports that he is a paid consultant to the Department of Health and Human Services, and that his contract was in effect when he published his article. The article did not disclose this relationship to readers.
"Like other writers for the Op-Ed page, Professor Gruber signed a contract that obligated him to tell editors of such a relationship. Had editors been aware of Professor Gruber's government ties, the Op-Ed page would have insisted on disclosure or not published his article."
The Washington Post:
"The subject of the op-ed was not related to Gruber's work for the administration, and we accepted the column based on the body of his work and knowledge in this field," Brewington said in an email. "Generally we think more disclosure is better than less. But in this case he was writing about a Senate proposal and an idea that he has been promoting for years, so in the end we might well have decided his work for the administration was not relevant."
The consensus is that more disclosure is better than no disclosure, and Gruber apparently agreed with thatwhen he disclosed in the December article for the NEJM that he works as a consultant to the White House administration. The disclosure form is to prevent any conflict of interest from happening.
That said, more disclosure is always better than no disclosure. And I know this personally from having made a mistake in not providing clear disclosure about my work when I thought I did. Gruber may have made this similar mistake as well, and hopefully, he'll learn that more disclosure is better than no disclosure at all.
Now, for the excise tax.
Deaniac83 has a major point in his diary that I'd like to address: the myth that health care costs are related to wage reductions. Here is deaniac83, below, with his misinterpretation of the KFF chart:
This chart demonstrates what everyone with any sense on any side of the political debate and policy debate knows: the single biggest reason for wage stagnation is the rise in health care premiums. This chart demonstrates without question that if health insurance premiums rise fast, then wages do not rise. Which would make that for wages to rise, health insurance premiums must be held in check. In other words, we cannot allow health insurance costs to rise if wages are to improve. The point is, today, even if your employer wants to give you a raise, they cannot because of rising health insurance costs. If your plan gets less expensive, they may well be able to do so.
Actually, the numerous reasons for wage stagnation have been cited as the outsourcing of jobs to foreign countries thanks to NAFTA, technological improvement, and a shift in the labor market to lower-skilled occupations from than higher-skilled occupations. Fringe benefits such as health benefits are one part of this overall picture on wage stagnation.
Mishel et al released their report which stated:
It is easy to understand that health care cost trends have not been a significant driver of wage trends when one examines the scale of employer expenditures on health care. Health care costs were just 7.6% of total compensation and 9.4% of total wages (all wages paid, including premium pay, paid leave, and so on) in 2007.4 The share of health care in total
wages (in nominal, non-inflation adjusted terms) grew from 7.2% in 1989 to the 9.4% in 2007, suggesting that the expanded role of health costs could have reduced wage growth by 2.2% over this entire 18-year period, or 0.12% each year.
This assumes a complete tradeoff between health costs and wages (if every dollar of higher health costs reduced wages correspondingly). Consequently, employer health costs can hardly be considered a major determinant of wage growth. Further, overall benefits’ (health care plus all other fringe benefits) share of total compensation has actually been stable for the last 20 years or so—as health costs expanded, pension and payroll tax shares diminished. Hence, the story of stagnant wages in the U.S. economy is not one of growing non-wage compensation.5
Wage growth was far faster from 1995 to 2000 than in the 1989-95 period at every wage level. However, the acceleration of wage growth was far greater for low- and middle-wage workers, the groups with the least coverage by employer-provided health care plans: only 27% and 64%, respectively, of workers in the bottom and middle fifths of the wage distribution received employer-sponsored health insurance in 2000 (see coverage by wage fifth in Mishel et al. (2009), Table 3.12).
This further reinforces how health care cost containment of the late 1990s was not the major, or even an important, determinant of wage trends. Note that the acceleration of wages for the two highest-paid groups—at the 90th and 95th percentiles—was half that of what the lowest-paid workers enjoyed even though 80% of the highest fifth of earners received employer-sponsored health coverage. This runs directly counter to the notion that health care costs are driving wage trends. Note also that wage growth was substantially diminished in the 2000s, even though productivity growth continued at the same fast pace. In the recovery period from 2002 to 2007 there was hardly any wage growth at all (see Mishel et al. (2009), Table 3.1). The worst wage growth in the 2000s was for low- and middle-wage workers, the groups with the least health care coverage. So, it does not seem likely that faster health care premium growth in the 2000s can explain the disappointing wage growth.
...
This is especially the case for the wage trends of low- and middle-wage workers: their wages accelerated the most in the late 1990s and grew the least in the 2000s. The fact that these groups have the least participation in employer-provided health plans confirms that health care is not the major factor that the advocates of this new health care theory of wage determination would have us believe. There undoubtedly is a tradeoff between health care costs and wage growth, but this dynamic does not play a leading role in the drama of the stagnant wages facing workers for several decades and the inability of working families to benefit from rising productivity growth.
Mishel et al don't deny that there's a trade-off between health care costs and wage growth, but assert that it's not the prominent factor as many would have it to be. There are other causes for wage stagnation that must be taken into account as well. It's why progressives have been pushing for fair redistribution of income taxes, a change in industrial policy, stronger negotiation policies for unions via the EFCA bill, and federal investments in specific job categories here in America to address the overall problem of wage stagnation. Without addressing these factors, it is highly likely that overall wage stagnation would still continue.
Mishel and Bernstein also have a prior paper on this issue from 2007, which I'll also cite as well.
Analysts often cite the rising cost of fringe benefits, particularly health care, as another explanation for the weak wage results in the 2000s. The intuition here is that employers will substitute benefit payments for wages, and when this occurs, looking exclusively at wages tells only part of the story.
It is true that there is some tradeoff between wages and benefits, but evidence suggests that benefits do not account for recent wage stagnation. First, only about half the workforce is offered and participates in health or retirement plans through their employer.5 Other work, such as Mishel et al. (2006), shows a fairly steep gradient to benefit receipt as you move up the wage scale: higher-wage workers are more likely to receive benefits than lower-wage workers, so we're less likely to see wage/benefit trade-offs among those in the bottom half of the wage scale. Yet, as shown in Figure B, their wages grew the least, the opposite of what the benefit trade-off explanation would predict.
Finally, according to ECI data, fringe benefits in general and health care in particular grew considerably less quickly as the 2000s progressed.6 Figure E shows that while employers' health costs, for example, were growing in the early 2000s, their rate of growth decelerated considerably, from over 10% per year in the early part of the decade to less than 5% most recently. Yet, real wage trends show the opposite pattern, rising more quickly from 2000 to 2002 than thereafter. Clearly, such a trend argues against a benefit explanation of poor wage growth: while real wages were flattening or falling in the post-2003 period, benefit costs were not accelerating, they were slowing.
Also, there are studies such as the ones by Kaiser, Mercer and Towers-Watson that show that employers, when faced with higher health care costs, do not intend to pass on savings to their workers when they shift to a higher deductible plan with higher cost-sharing. Here are the summary of findings from the Towers-Watson study (which used to be called Towers-Perrin).
1. 30% in the Towers-Perrin survey said if health reform increases employer costs, they would reduce employment
2. 86% in the Towers-Perrin survey said if health reform increases employee costs for health care, they would pass those costs on to employees
3. 9% in the Towers-Perrin survey and 16% in the Mercer survey say they would pass on any savings to employees in the form of wage increases
Here are the findings from Mercer on this issue as well:
Nearly two-thirds (63 percent) of employers in a recent survey by Mercer say they would cut health benefits to avoid paying an excise tax included in the Senate’s Patient Protection and Affordable Care Act, unveiled November 18. Mercer estimates that one in five employers offer health coverage that would be deemed "too generous" and thus be subject to the Act’s 40 percent non-deductible tax on the excess value.
In early November, Mercer surveyed 465 employer health plan sponsors to find out how they might respond to such a tax on their health plans. Respondents included roughly equal numbers of small employers (fewer than 500 employees), mid-sized employers (500-4,999 employees)and large employers (5,000 or more employees).
In general, excess annual costs under the legislation are those above $8,500 for employee-only coverage or $23,000 for family coverage, starting in 2013. Higher annual cost thresholds –$9,850 and $26,000 – would apply to retiree plans, coverage for certain workers in high-risk jobs and coverage in certain high-cost states.
In all cases, annual costs include employer-paid, employee-paid, pre-tax and after-tax premium or premium-equivalent amounts for the health, dental and vision coverage. Annual expenses also include pre-tax (not after-tax) contributions to flexible health spending, and employer
contributions to health reimbursement and health savings accounts.
Also, in response to the economic downturn and higher health costs, employers are more likely to shift to a cheaper plan with higher deductibles, co-pays, and increased cost-sharing as KFF found in their report on this issue.
We also asked employers whether they have reduced their benefits or increased cost sharing due to the economic downturn.
Twenty-one percent of employers offering health benefits report that, in response to the economic downturn, they reduced the scope of health benefits or increased cost sharing, and 15% report they increased the employee share of the premium. More large firms (200 or more workers) than small firms (3–199 workers) report increasing the share of the premium that the employee pays (22% vs. 15%).
And in their outlook for the future on employers and availability of health benefits:
Among those that offer benefits, large percentages of firms report that in
the next year they are very or somewhat likely to increase the amount workers contribute to premiums (42%), increase deductible amounts (36%), increase office visit cost sharing (39%), or increase the amount that employees have to pay for prescription drugs (37%).
Although firms report planning to increase the amount employees have to pay when they have insurance, relatively few firms report they are very likely (2%) or somewhat likely (6%) to drop coverage. Four percent of firms offering coverage say that they are very likely to restrict eligibility for coverage next year, and an additional 5% say that they are somewhat likely to do so.
Among firms offering health benefits but not offering an HSA-qualified HDHP, 6% say that they are very likely and 16% say they are somewhat likely to offer an HSA-qualified HDHP in the next year. A similar share of offering firms not currently offering an HDHP/HRA report that they are very likely (5%) or somewhat likely (15%) to offer that plan type next year.
The excise tax would hit about 19% of employer-provided insurance, thus affecting about 30 million Americans, due to its not being properly indexed by 2016:
Specifically, an estimated 19 percent of workers with employment-based coverage would be affected by the excise tax in that year. Those individuals who kept their high-premium policies would pay a higher premium than under current law, with the difference in premiums roughly equal to the amount of the tax. However, CBO and JCT estimate that most people would avoid the cost of the excise tax by enrolling in plans that had lower premiums; those reductions would result from choosing plans that either pay a smaller share of covered health care costs (which would reduce premiums directly as well as indirectly by leading to less use of covered medical services), manage benefits more tightly, or cover fewer services.
And by 2019, it'd affect about 58 million Americans' employer-provided insurance, if not properly indexed, according to the Citizens For Tax Justice based on their calculations.
The caps above which the proposed health insurance excise tax will apply are set at $23,000 for family plans and $8,500 for individual plans, starting in 2013. These might seem like very high amounts, but they will dwindle rapidly in real terms over time.
That’s because the caps will be indexed only for general inflation plus one percent, rather than for the much higher rate of expected health care inflation. As a result, according to the Joint Committee on Taxation, the number of families and individuals who will be affected by the new tax will grow rapidly. from 9.1 million couples, single parents and singles without children in 2013 to 24.6 million "tax units" by 2019, with continued rapid growth thereafter. According to our estimate, those 24.6 million tax units hit by the excise tax in 2019 will include about 58 million men, women and children.
And this excise tax is projected to reduce national health expenditures by 0.3%.
The tax would be 40 pecent of the excess benefit value above these thresholds. We estimate that, in aggregate, affected employers would reduce their benefit packages in such a way as to eliminate about three-quarters of the current excess benefit value. The resulting higher cost-sharing requirements for employees would have an initial, significant impact on the overall level of health expenditures. Moreover, because health care costs would generally increase faster than the CPI plus 1 percent, we anticipate additional, incremental benefit coverage reductions in future years to prevent an increase in the share of employer coverage subject to the excise tax. These further adjustments would contribute to a small reduction in the growth in health care expenditures for affected employees through at least 2019.16 In 2019, these impacts would reduce total NHE by an estimated 0.3 percent.
There was a proposal that would've had the benefit of helping reduce Americans' out-of-pocket spending on health care, and would've provided a further reduction in national health expenditures by 0.4%----the Dorgan prescription amendment.
Timothy Jost also addresses the confusion between 'Cadillac' plans and 'Ambulance' plans in his post on HealthAffairs. He also attacks the arguments used by those that people, when faced with increased cost-sharing, will not face worse health outcomes according to the 1970 RAND study:
Forgone care did have worse results for low-income enrollees. Moreover, the rate of attrition during the study from the cost-sharing arm was 16 times greater than that of the free-care arm, suggesting that some who needed care may have reverted to their pre-experiment coverage to avoid paying the cost sharing. The study authors argued that the demographic characteristics of the people who dropped out were similar to those of the people who stayed in the study; but the evidence about risk adjustment establishes that demographic variables are not a sufficient control. So even the conclusion that higher cost sharing was not related to worse outcomes for the non-poor could be in error.
....
Moreover, as RAND researchers summarized in a 2006 overview, the health insurance system has changed significantly in the thirty years since the HIE began, so it is impossible to know whether a similar experiment would have the same results today. A series of studies have identified situations in which lesser cost sharing improved health or even saved money, compared to greater cost sharing. One suggested that the chronically ill, especially, should have lower cost sharing for some services. But that implies that any penalty for "excessive" costs should depend on the health status of the group covered – and the Senate proposal includes nothing of the sort.
....
The argument for savings from the excise tax reduces to two propositions. One says that higher cost sharing will provide "harmless" cost control. This requires dubious extrapolations from the HIE. The other is that because of the current tax break for insurance, employers and employees have not cared enough about controlling costs and if they were forced to care more they would be more successful. This is a remarkable leap of faith about power relations in medical care markets and their consequences.
Here's the Washington Post on this issue as well:
Opponents of the tax say the case for it assumes that the country's high health-care costs are the result of patients' overuse of care. But, they note, the country's usage of medical care is by many measures lower than in other developed countries; it is the price that is so much higher here.
"The biggest problem we have isn't that we're demanding so many services, but it's that the type of services we're providing are so expensive," said Thomas Rice, a UCLA health-care expert.
Some economists also doubt that employers would shift savings from health care into wages, given how slack the labor market is likely to be for the foreseeable future.
There are other alternative methods for funding reform such as those in the House bill with the tax on the wealthy, which would produce over $460 billion in revenue compared with the excise tax's expected revenue of $150 billion. The progressive alternatives to the regressive excise tax are also pointed out by the Communication Workers Association of America.
In a recent interview with the New York Times, Gruber said that "other factors" may have led to wage stagnation other than the costs of health insurance:
Jonathan Gruber, a Massachusetts Institute of Technology economist, predicted the excise tax would raise workers’ wages from 2010 to 2019. "There are many academic studies showing that when health costs rise, wages fall," he said. "In the mid- and late 1990s, when we got health costs under control, wages rose nicely." But he added that other factors could have also lifted wages during that period.
This was the point made by the authors of the EPI study, Mishel and Bernstein. They don't deny that there's a trade-off between health care costs and wage growth, but assert that it's not the prominent factor as many would have it to be. For instance, there's wage stagnation ACROSS all the board, not just in employer-provided insurance, but in other fields as well where the employer does not provide insurance. It's the point that Mishel et al made in their EPI study to show that health benefits are not the main factor of wage stagnation across the board.
This is especially the case for the wage trends of low- and middle-wage workers: their wages accelerated the most in the late 1990s and grew the least in the 2000s. The fact that these groups have the least participation in employer-provided health plans confirms that health care is not the major factor that the advocates of this new health care theory of wage determination would have us believe. There undoubtedly is a tradeoff between health care costs and wage growth, but this dynamic does not play a leading role in the drama of the stagnant wages facing workers for several decades and the inability of working families to benefit from rising productivity growth.
Deaniac83's diary on the recommended list ignores this point, and it's one that he should address.
Right now, the unions are meeting with the White House today according to the New York Times:
On Monday, labor leaders will head to the White House to press Mr. Obama to make changes to a proposed excise tax on high-cost insurance policies because they fear that the tax will hit many generous union-sponsored health plans. The 40 percent excise tax would apply to any cost above $8,500 for individual policies and $23,000 for family plans. Raising those thresholds, as labor leaders want, could cost $50 billion.
On Sunday, on the ABC News program "This Week," Christina D. Romer, the chairwoman of the president’s Council of Economic Advisers, indicated that the administration was willing to negotiate on the tax.
Many House Democrats are opposed to the excise tax, and Ms. Pelosi told her caucus during a conference call on Thursday that "until everything is agreed to, nothing is agreed to."
And here's Trumka's awesome speech from this morning:
The tax on benefits in the Senate bill pits working Americans who need health care for their families against working Americans struggling to keep health care for their families. This is a policy designed to benefit elites—in this case, insurers, hospitals, pharmaceutical companies and irresponsible employers, at the expense of the broader public. It’s the same tragic pattern that got us where we are today, and I can assure you the labor movement is fighting with everything we’ve got to win health care reform that is worthy of the support of working men and women.
[snip]
Let me be even blunter. In 1992, workers voted for Democrats who promised action on jobs, who talked about reining in corporate greed and who promised health care reform. Instead, we got NAFTA, an emboldened Wall Street – and not much more. We swallowed our disappointment and worked to preserve a Democratic majority in 1994 because we knew what the alternative was. But there was no way to persuade enough working Americans to go to the polls when they couldn’t tell the difference between the two parties. Politicians who think that working people have it too good – too much health care, too much Social Security and Medicare, too much power on the job – are inviting a repeat of 1994.
I stand with my union brothers and sisters in this fight against the excise tax!