Campaign Issues 2016 3.

Hind-sight is 20/20; foresight is not.  The basis of the Affordable Care Act (ACA) lay in a plan to require many younger, healthier, and lower income people to pay premiums that would subsidize the health-care costs of older, sicker, and wealthier people.[1]  Even so, support for the ACA has grown with the passage of time.  In 2013, less than a third (32 percent) approved of the ACA, while 61 percent disapproved.    By July 2015, 47 percent approved, 44 percent disapproved, and only 9 percent “didn’t know.”  Opponents of the ACA have been the big losers here, bleeding away almost a third of their numbers to either supporters or to “don’t know.”[2]

Before the Affordable Care Act (ACA) went into effect, 17.1 percent of Americans had no health insurance.  By 2013, the share without health insurance had fallen to 13.3 percent; in 2014, 10.4 percent of Americans had no health insurance.[3]  By Spring 2015, that number had fallen to 11.9 percent, a reduction of 5.2 percent.[4]  (This seems like a lot of hassle just to reduce the number of uninsured by one-third. )  In March 2015, the Congressional Budget Office (CBO) predicted that 21 million people would have signed up for coverage by state exchanges under the ACA by late 2015. This would be a pretty extraordinary jump: only 9 million people were registered in late 2014.  By late October 2015, only an additional million people had enrolled.

The great thing about a market economy is that it forces sellers of any good to find a price that is high enough for them to make a profit and low enough to attract customers.  The first years of the ACA have seen insurers searching for that sweet spot.[5]  One big problem is that many people remain outside the insurance market, regardless of the individual mandate.  The newly-insured have turned out to be sick people, rather than a broad range of the population.  Costs for insurance companies have gone up more than have income from premiums.  As a result, health insurance premiums rose by 5 percent for 2016.  Now, major insurance companies are seeking an average 10 percent increase in premiums for 2017.[6]  (The desired rates for Washington, DC and New York City are 16 percent.)  At some point, the insurance companies will find the right price.  Where is that price?  Will premiums continue to rise after 2017?  It’s difficult to say.  Why do uninsured people not enroll?  Young, healthy, and less-well-off people seem to be staging a libertarian revolt against the mandate that everyone have health insurance.

The ACA is a substantial extension of the entitlements safety-net for the benefit of poor people at the expense of not-so-poor people.  The federal government subsidizes to varying degrees many of the insurance premiums.  This means that higher premiums will increase federal spending on health care.  At some point, even in America, taxes are going to have to go up to pay for spending or spending is going to have to come down to what the country is willing to pay.[7]  However, people with higher incomes who buy insurance on the market-place lose the subsidies, so they are going to feel the sticker shock.  If it comes to higher taxes, Democrats are going to favor preserving the entitlement by taxing the one-percent, while Republicans are going to favor sending the ACA in front of a “death-panel.”

[1] This sounds like a Republican plot, but Republicans had no voice in the ACA.  This is all Democrats.

[2] “Poll Watch,” The Week, 10 July 2015, p. 17.

[3] “Noted,” The Week, misplaced the exact reference.  Sorry.

[4] “Noted,” The Week, 24 April, 2015, p. 16.

[5] Reed Abelson and Margot Sanger-Katz, “Obamacare Premiums Are Rising, Not a Little,” NYT, 16 June 2016.

[6] These sorts of developments have been predicted by Republican critics from the beginning.  Some of them have predicted that it will end in a “death spiral” as rising premiums force people out of the market.   Democrats derided this as partisan fear-mongering.

[7] I realize that this is a disturbing new way of looking at things.

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Campaign Issues 2016 1.

Currently, Social Security faces two fundamental problems.[1]  One fundamental problem is that Social Security is based on a “pay-as-you-go” model: withholding taxes from people who are working pay for the retirement of people who are no longer working.  Fine.  If there are a lot of people working and a smaller number not working, then the system functions smoothly.  What if the number of people working declines relative to the number of those who are not working?  That’s more of a problem.  Taxes on those still working will have to rise to pay for those no longer working.  That is the situation in which Americans find themselves as the “Baby Boom” generation passes out of the work force and into the work-for-me force.

This problem has been around for a long time and people in authority have been trying to devise a solution for a long time.   In 1983 a bi-partisan commission investigated solutions.  Congress followed the commission’s recommendations by raising taxes and extending the age of full eligibility. That fixed the problem for a while, but—of course–“I’m back!”  In a report of 2015, the trustees reported that the Social Security trust fund will go broke in 2034, with the Social Security Administration able to pay less than 79 cents on the dollar of benefits.  In 2011-2012, President Barack Obama sketched a budget compromise agreement in which Social Security would be continually eroded by inflation.  The Republicans weren’t buying this idea.  Another solution, which could be combined with de-coupling Social Security benefits from the inflation index, would be to raise the cap on with-holding taxes.  Currently, only income below about $134,000 a year is subject to with-holding.  Raising that ceiling would generate a lot of revenue.  Taken together, these proposals probably offer a manageable means to solve the Social Security problem for the immediate future.

A second fundamental problem is that Social Security was never designed to be a full retirement pension.  It was meant to provide a basic income for retirees, who were expected to save from current income to pay for the bulk of their future retirement needs.  However, many members of the “Baby Boom” did not do any significant saving for their retirement.

Now, under the influence of the Bernie Sanders campaign, the Democrats have come out for expanding Social Security to make its benefits more generous.  Hillary Clinton has pledged to increase benefits for widows and for those who stop working to be care providers for children or sick family members; to resist reduction of cost-of-living increases; and to resist increasing the age for full eligibility.  She would pay for these increased benefits through higher taxes on the wealthy.  Still, even these proposals don’t go as far as the left wing of the party wants.  President Obama has remarked that “a lot of Americans don’t have retirement savings [and] fewer people have pensions they can really count on.”  How to make up for this lifetime lack of thrift?

Current proposals include increasing the benefits for all recipients while providing additional benefits for the uncertain number of the “most vulnerable”; and/or increasing cost-of-living adjustments to include medical costs.

Several questions arise out of these problems.  First, which “Baby Boomers” did not save and why did they not save?  Moral recriminations are going to be a part of this debate.  Second, what are these proposals likely to cost?  Third, how large a share of the well-off will have to be taxed more heavily?  Just the “1 percent” or the “5 percent” or anyone who did manage to save?  Fourth, do Americans want to transition Social Security from the current partial pension system to a full-blown national retirement system?   What would a long-term system require?

[1] Robert Pear, “Driven by Campaign Populism, Democrats Unite on Social Security Plan,” NYT, 19 June 2016.