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The Real Reason the U.S. Has Employer-Sponsored Health Insurance

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The following originally appeared on The Upshot (copyright 2017, The New York Times Company).

The basic structure of the American health care system, in which most people have private insurance through their jobs, might seem historically inevitable, consistent with the capitalistic, individualist ethos of the nation.

In truth, it was hardly preordained. In fact, the system is largely a result of one event, World War II, and the wage freezes and tax policy that emerged because of it. Unfortunately, what made sense then may not make as much right now.

Well into the 20th century, there just wasn’t much need for health insurance. There wasn’t much health care to buy. But as doctors and hospitals learned how to do more, there was real money to be made. In 1929, a bunch of hospitals in Texas joined up and formed an insurance plan called Blue Cross to help people buy their services. Doctors didn’t like the idea of hospitals being in charge, so some in California created their own plan in 1939, which they called Blue Shield. As the plans spread, many would purchase Blue Cross for hospital services, and Blue Shield for physician services, until they merged to form Blue Cross and Blue Shield in 1982.

Most insurance in the first half of the 20th century was bought privately, but few people wanted it. Things changed during World War II.

In 1942, with so many eligible workers diverted to military service, the nation was facing a severe labor shortage. Economists feared that businesses would keep raising salaries to compete for workers, and that inflation would spiral out of control as the country came out of the Depression. To prevent this, President Roosevelt signed Executive Order 9250, establishing the Office of Economic Stabilization.

This froze wages. Businesses were not allowed to raise pay to attract workers.

Businesses were smart, though, and instead they began to use benefits to compete. Specifically, to offer more, and more generous, health care insurance.

Then, in 1943, the Internal Revenue Service decided that employer-based health insurance should be exempt from taxation. This made it cheaper to get health insurance through a job than by other means.

After World War II, Europe was devastated. As countries began to regroup and decide how they might provide health care to their citizens, often government was the only entity capable of doing so, with businesses and economies in ruin. The United States was in a completely different situation. Its economy was booming, and industry was more than happy to provide health care.

This didn’t stop President Truman from considering and promoting a national health care system in 1945. This idea had a fair amount of public support, but business, in the form of the Chamber of Commerce, opposed it. So did the American Hospital Association and American Medical Association. Even many unions did, having spent so much political capital fighting for insurance benefits for their members. Confronted by such opposition from all sides, national health insurance failed — for not the first or last time.

In 1940, about 9 percent of Americans had some form of health insurance. By 1950, more than 50 percent did. By 1960, more than two-thirds did.

One effect of this system is job lock. People become dependent on their employment for their health insurance, and they are loath to leave their jobs, even when doing so might make their lives better. They are afraid that market exchange coverage might not be as good as what they have (and they’re most likely right). They’re afraid if they retire, Medicare won’t be as good (they’re right, too). They’re afraid that if the Affordable Care Act is repealed, they might not be able to find affordable insurance at all.

This system is expensive. The single largest tax expenditure in the United States is for employer-based health insurance. It’s even more than the mortgage interest deduction. In 2017, this exclusion cost the federal government about $260 billion in lost income and payroll taxes. This is significantly more than the cost of the Affordable Care Act each year.

This system is regressive. The tax break for employer-sponsored health insurance is worth more to people making a lot of money than people making little. Let’s take a hypothetical married pediatrician with a couple of children living in Indiana who makes $125,000 (which is below average). Let’s also assume his family insurance plan costs $15,000 (which is below average as well).

The tax break the family would get for insurance is worth over $6,200. That’s far more than a similar-earning family would get in terms of a subsidy on the exchanges. The tax break alone could fund about two people on Medicaid. Moreover, the more one makes, the more one saves at the expense of more spending by the government. The less one makes, the less of a benefit one receives.

The system also induces people to spend more money on health insurance than other things, most likely increasing overall health care spending. This includes less employer spending on wages, and as health insurance premiums have increased sharply in the last 15 years or so, wages have been rather flat. Many economists believe that employer-sponsored health insurance is hurting Americans’ paychecks.

There are other countries with private insurance systems, but none that rely so heavily on employer-sponsored insurance. There are almost no economists I can think of who wouldn’t favor decoupling insurance from employment. There are any number of ways to do so. One, beloved by wonks, was a bipartisan plan proposed by Senators Ron Wyden, a Democrat, and Robert Bennett, a Republican, in 2007. Known as the Healthy Americans Act, it would have transitioned everyone from employer-sponsored health insurance to insurance exchanges modeled on the Federal Employees Health Benefits Program.

Employers would not have provided insurance. They would have collected taxes from employees and passed these onto the government to pay for plans. Everyone, regardless of employment, would have qualified for standard deductions to help pay for insurance. Employers would have been required to increases wages over two years equal to what had been shunted into insurance. Those at the low end of the socio-economic spectrum would have qualified for further premium help.

This isn’t too different from the insurance exchanges we see now, writ large, for everyone. One can imagine that such a program could have also eventually replaced Medicaid and Medicare.

There was a time when such a plan, being universal, would have pleased progressives. Because it could potentially phase out government programs like Medicaid and Medicare, it would have pleased conservatives. When first introduced in 2007, it had the sponsorship of nine Republican senators, seven Democrats and one independent. Such bipartisan efforts seem a thing of the past.

We could also shift away from an employer-sponsored system by allowing people to buy into our single-payer system, Medicare. That comes with its own problems, as The Upshot’s Margot Sanger-Katz has written. She also has covered the issues of shifting to a single-payer system more quickly.

It’s important to point out that neither of these options has anything even close to bipartisan support.

Without much pressure for change, it’s likely the American employer-based system is here to stay. Even the Affordable Care Act did its best not to disrupt that market. While the system is far from ideal, Americans seem to prefer the devil they know to pretty much anything else.

@aaronecarroll

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ahofer
6 days ago
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Imagine, it all started with price/wage controls
Princeton, NJ or NYC
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cmlburnett
12 days ago
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A succinct explanation of how we got to where we are.

Using tax data to measure long-term trends in U.S. income inequality

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That topic has been knocking around for some time, with varying opinions.  I’ve now seen the clearest and most thorough treatment to date, namely from Gerald Auten and David Splinter.  It hasn’t received that much attention, perhaps because the results don’t have such a strong built-in constituency, but here goes:

Previous studies using U.S. tax return data conclude that the top one percent income share increased substantially since 1960. This study re-estimates the long-term trend in inequality after accounting for changes in the tax base, income sources missing from individual tax returns and changes in marriage rates. This more consistent estimate suggests that top one percent income shares increased by only about a quarter as much as unadjusted shares. Further, accounting for government transfers suggests that top one percent shares increased a tenth as much. These results show that unadjusted tax return based measures present a distorted view of inequality trends, as incomes reported on tax returns are sensitive to changes in tax laws and ignore income sources outside the individual tax system.

You’ll find the paper at the first link here.

The post Using tax data to measure long-term trends in U.S. income inequality appeared first on Marginal REVOLUTION.

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ahofer
6 days ago
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important.
Princeton, NJ or NYC
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Tuesday assorted links

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1. Robert H. Bates, The Development Dilemma: Security, Prosperity, & a Return to History, provides an interesting look at Kenya vs. Zambia with regard to state capacity, and drawing some parallels to earlier England vs. France.

2. Stephen Williamson on the Phillips Curve.

3. Catching up on the Chinese economy.

4. The science of producing new colors.

5. Do groups lie more than do individuals?

The post Tuesday assorted links appeared first on Marginal REVOLUTION.

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ahofer
7 days ago
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"Group members come up with and exchange more arguments for being dishonest than for complying with the norm of honesty. Thereby, group membership shifts the perception of the validity of the honesty norm and of its distribution in the population. "
Princeton, NJ or NYC
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The Gender Gap in STEM is NOT What You Think

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In a new NBER working paper David Card and Abigail Payne have a stunning new explanation of the gender gap in STEM at universities. The conventional wisdom is that the gender gap is about women and the forces–discrimination, sexism, parenting, aptitudes, choices; take your pick–that make women less likely to study in STEM fields. Card and Payne are saying that the great bulk of the gap is actually about men and their problems. At least that is my interpretation of their results, the author’s, to my mind, don’t clearly state just how much their results run against the conventional wisdom. (Have I misunderstood their paper? We shall see.)

The authors are using a large data set on Canadian high school students that includes data on grade 12 (level 4) high school classes and grades and initial university program. Using this data, the author’s find that females are STEM ready:

…At the end of high school, females have nearly the same overall rate of STEM readiness as males, and
slightly higher average grades in the prerequisite math and science courses.  The mix of STEM related courses taken by men and women is different, however, with a higher concentration of women in biology and chemistry and a lower concentration in physics and calculus.

Since females are STEM-ready when leaving high school you are probably thinking that the gender gap must be a result either of different entry choices conditional on STEM-readiness or different attrition rates. No. Card and Payne say that entry rates and attrition rates are similar for males and females. So what explains why males are more likely to take a STEM degree than females?

The main driver of the gender gap is the fact that many more females (44%) than males (32%) enter university.  Simply assuming that non‐STEM ready females had the same university entry rate as non‐STEM ready males would
narrow the gender gap in the fraction of university entrants who are STEM ready from 14
percentage points to less than 2 percentage points.

Moreover:

On average, females have about the same average grades in UP (“University Preparation”, AT) math and sciences courses as males, but higher grades in English/French and other qualifying courses that count toward the top 6 scores that determine their university rankings. This comparative advantage explains a substantial share of the gender difference in the probability of pursing a STEM major, conditional on being STEM ready at the end of high school.

Put (too) simply the only men who are good enough to get into university are men who are good at STEM. Women are good enough to get into non-STEM and STEM fields. Thus, among university students, women dominate in the non-STEM fields and men survive in the STEM fields. (The former is mathematically certain while the latter is true only given current absolute numbers of male students. If fewer men went to college, women would dominate both fields). I don’t know whether this story will hold up but one attractive feature, as a theory, is that it is consistent with the worrying exit from the labor market of men at the bottom.

If we accept these results, the gender gap industry is focused on the wrong thing. The real gender gap is that men are having trouble competing everywhere except in STEM.

Hat tip: Scott Cunningham.

The post The Gender Gap in STEM is NOT What You Think appeared first on Marginal REVOLUTION.

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ahofer
7 days ago
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"The real gender gap is that men are having trouble competing everywhere except in STEM."
Princeton, NJ or NYC
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freeAgent
7 days ago
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Interesting and surprising...
Los Angeles, CA

Best of the Web, August 22, 2017

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Science
The Australian Scientists Cracking the Genetic Code of Clinical Depression Sarah Wiedersehn, The Sydney Morning Herald

Aeon Tries to Revive Lamarck, Calling for a “Paradigm Shift” in Evolution Jerry Coyne, Why Evolution is True

The Nuclear Option Michael Shellenberger, Foreign Affairs

Culture / Education
The Unfortunate Fallout of Campus Postmodernism Michael Shermer, Scientific American

Trump Breaks a Taboo–and Pays the Price Jonathan Haidt, The Atlantic

Politics / Foreign Policy
Charlottesville: Race and Terror VICE News, VICE News Tonight

I Voted for Trump. And I Sorely Regret It Julius Krein, New York Times

Spain’s Jihadis are Awakened Tom Wilson, Commentary

 Mark Lilla vs Identity Politics Rod Dreher, American Conservative

 Step Back: Lessons for U.S. Foreign Policy from the Failed War on Terror A. Trevor Thrall & Erik Goepner, Cato Institute

The post Best of the Web, August 22, 2017 appeared first on Quillette.

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ahofer
8 days ago
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from Lilla: "This is a country, a republic, not a campsite or a parking lot where we each stay in our assigned spots and share no common life or purpose." seems like people in a campsite share a lot of immediate concerns.
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The new partisanship

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Janet Hook reports in the WSJ,

People who identify with either party increasingly disagree not just on policy; they inhabit separate worlds of differing social and cultural values and even see their economic outlook through a partisan lens.

The wide gulf is visible in an array of issues and attitudes: Democrats are twice as likely to say they never go to church as are Republicans, and they are eight times as likely to favor action on climate change. One-third of Republicans say they support the National Rifle Association, while just 4% of Democrats do. More than three-quarters of Democrats, but less than one-third of Republicans, said they felt comfortable with societal changes that have made the U.S. more diverse.

And these are much larger than the gaps that existed years ago.

Alan Abramowitz and Steven Webster use the term “negative partisanship.”

American politics has become like a bitter sports rivalry, in which the parties hang together mainly out of sheer hatred of the other team, rather than a shared sense of purpose. Republicans might not love the president, but they absolutely loathe his Democratic adversaries. And it’s also true of Democrats, who might be consumed by their internal feuds over foreign policy and the proper role of government were it not for Trump.

What people have come to seek in political news and commentary is anger validation. That is, they want the news to be presented in such a way that it confirms and justifies their anger at political opponents. To say that the market is catering to this desire is an understatement.

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ahofer
8 days ago
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"What people have come to seek in political news and commentary is anger validation. That is, they want the news to be presented in such a way that it confirms and justifies their anger at political opponents. To say that the market is catering to this desire is an understatement."
Princeton, NJ or NYC
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