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Belmont Club

The Two Size World

November 24th, 2013 - 1:18 pm

When the Supreme Court examined Obamacare they concluded the “requirement to buy insurance” was actually unconstitutional. Randy Barnett and Josh Blackman of USA Today say that “instead, the court identified the mandate as a tax.” Leo Linbeck pointed out to me in a letter that not only is it a tax. It’s a regressive tax. He described the life of Julie, a hypothetical middle-class Obamacare enrollee:

Consider Julie, a single, 35-year old non-smoking woman working at a fairly steady job that pays $15.00 per hour. Most everyone would say that Julie is middle class; if she works 40 hours a week for 50 weeks, her gross wages are $30,000, which is also 261% of the federal poverty line.

Now let’s say Julie doesn’t get health insurance from her employer, so she goes onto healthcare.gov to find a policy. She is really wants insurance, but has a limited budget so she goes for the Bronze level policy. This policy, according to the Kaiser Family Foundation’s online subsidy calculator, costs $3,098 per year, or roughly $258 per month. But because she qualifies for a $586 subsidy, her cost is only $2,512 or about $209 per month. Although this is a lot of money to Julie, she is pleased with her decision, and glad to have the help with the cost.

But what Julie may not fully appreciate at this point is that she will now be subject to a marginal tax rate of almost 40%. Here’s why:

Julie’s purchase of the policy locks her into a fixed cost – the premium of $258 per month – for the year. But the subsidy is a function by her actual income for the year. So as her income rises, the subsidy falls.

Let’s say that Julie worked from January to Christmas having only taken one week off (unpaid). She was also planning to take off the week between Christmas and New Years as well, which would have given 50 work weeks as she originally planned.

But her boss approaches her to ask her if she’d be willing to stay around during that last week of the year to help with some pressing projects. As a loyal employee, she agrees to do so, putting in another 40 hours and earning another $600, pushing her her gross wages for the year to $30,600.

Of course, she has to pay taxes on that extra $600: 7.65% for Social Security and Medicare, and 15% in income taxes. But that extra income also drops her insurance subsidy to $490, a decrease of $96. This is effectively another 16% tax on her income – money she now will have to pay when she files her taxes in April.

Taken together, these taxes add up to a marginal rate of 38.65%, nearly the same as the top marginal income tax rate!

Leo concludes saying “Finally, it is worth noting that this hidden tax only hits those with lower incomes. High-income workers don’t receive a subsidy, so they get to keep more of their marginal pay.”

The invisible walls of the Obamacare world are marked with subtle limits, not so much to keep interlopers out, but to keep the inmates in. The question is whether that world of hidden handcuffs will be the only universe we can live in.

Freedom means choices and in public policy the choices are surprisingly few. Long before the Obamacare exchanges were formally launched, Leo (as many readers on Belmont will recall) saw the need to do more than just passively say “yes” or “no” to the proposals coming out of Washington. In Breitbart he argues that both parties have too many political problems to actually solve the problem. And yet they are the only choices we are offered.

Democrats are dividing into two camps: those who want to stand by the President’s signature achievement until the bitter end, and those who are running from Obamacare, trying to save their political careers.

At the same time, Republicans are just trying to stay out of the way. Having voted against the bill, regained control of the House in its wake, and attempted to repeal the ACA multiple times, they are enjoying their moment of vindication. They rightfully fear that any attempt to “fix” Obamacare will allow Democrats and the media to portray them as “co-owning” any problems that occur downstream. And there will be more problems. …

So what can be done? Well, it might help to ask, “If you had to come up with the ideal plan going forward, what would it look like?” It might have the following elements:

It would empower state and local governments to address the problems created by Obamacare (something they’re already doing in response to the website problems) while Washington, DC attempted to sort out the mess.

It would not require the repeal and replacement of Obamacare all at once (something that is politically unfeasible) but would allow health care regulations to be gradually adapted and changed on a state-by-state basis to meet the particular conditions in each state.

It would make a serious impact on the long-term federal liabilities of the health care system (liabilities that didn’t go away under ACA).

It would support insurance markets that are overseen by knowledgeable regulators who have decades of experience and are, in many cases, directly accountable to voters.

It would already have received strong support from elected officials of both parties.

It would accommodate a wide variety of health care policy solutions, from single-payer to health savings accounts to accountable care organizations, and would provide the funding to support any of them.

It would be something that can be put in place quickly to help mitigate the damage currently being done by Obamacare.

Believe it or not, such an ideal plan already exists, and its legislation has already passed in 11 state legislatures and been signed into law in eight of those states. It’s called the Health Care Compact.

The Healthcare Compact was an attempt to reintroduce more choice into the mix by moving the action to local levels.

Leo highlights a generic structural problem inherent in the choice of public policy. As the scope of regulation increases at the Federal level, ordinary lives must increasingly fit themselves into two sizes: either R or D. It would be as if you went into a department store only to find two sizes of everything. Two sizes of shoes, two of shirts, two of underwear. That is the public policy world. Yes or No to Obamacare. Yes or No to the administration’s nominees in the Senate. Yes or No to the debt limit.

For Obama or against him.

The singular characteristic of the Health Care Compact that Leo proposes is that it is none of the above. That makes it in the conventional wisdom of Washington an exercise in insanity. But it is the binary partisan world created that is insane. It’s sanity is defined by convention. Binary Washington is reasonable because they say so.

One of the themes that runs through Linbeck’s writing is the notion that the public policy details are less significant than the question of “who decides”. The debate is a priori restricted to an extremely small menu of choices put forward by the gatekeepers. And the point is not to choose between the gatekeeper’s offerings but to gain the right to pick the best thing out there.

The challenges facing the Health Care Compact initiative are less ones of merit than of process. They are problems of standing in the public policy arena. In this respect the obstacles facing the Health Care Compact are identical to any idea not invented by the apparatchiks of either party. For the country as a whole, and not just Chicago, the starting point of any proposal is “who sent you?”

And so things are ordered. The truthfulness and merits of a proposal are now less important than who proposes it. It’s a two size fits all world and no wonder that the hypothetical “Julie” is squeezed in the middle. After all, nobody sent her.

One of the central puzzles of the early 21st century is why, as connectivity proliferates and social media explodes, we have fewer rather than more choices.


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Top Rated Comments   
"The company covers the rest."

That's simply compensation under a different guise. You pay, no matter who actually writes the check. If you are in the USA, and have the misfortune of a forced job change/job gap, you will learn how much you actually pay for your insurance.

There is no fairy Godmother, no rich uncle; you pay, you always have, and always will. In a more perfect world, you'd be able to write off your insurance costs dollar for dollar, much as your employer does, and have access to your own group policy, which you could buy and keep for life. If you purchased it, for example, at age 25, perhaps reinforced with an MSA which you could continue to accrue over your lifetime, you'd have a low cost policy for years, just like flat term life insurance. Not only that, but you'd have multiple company's competing for your business, willing to give you better insurance for less, JUST AS IN THE CASE WITH LIFE INSURANCE.

With either 3rd party payer or single payer, your freedom is limiited, as is competition. MOST of the people in hardship insurance situations are only that way because they are either self-employed or had a forced job change along with a severe illness. The Federal government tax system keeps Americans tied to their employers, due to employer controlled and paid medical insurance.
42 weeks ago
42 weeks ago Link To Comment
Why is there an inverse relation between connectivity = degrees of freedom and liberty or true freedom = available choices?

As the amount of information to be processed increases the signal to noise ratio increases. More time and intellectual capacity is consumed processing and screening out repetition or garbage than in identifying and learning from valuable new information. Eventually the more you are exposed the less real knowledge you can receive and use. The junk functions like a poison blocking the receptors.

A hundred and fifty years ago almost every literate English speaker read the KJV Bible and the Book of Common Prayer and Shakespeare, and little else. They had time to think. Outside of the major cities people were isolated. They learned of events from their business associates friends and families, usually by correspondence. If they needed to communicate with others they had to and did write.

They were competent and self reliant. In essence everyone was a sailor solving problems with their own resources and while busy having the time to study and reflect on a few great texts. Compare them to modern middle class urban dwellers, whose children can tweet but who cannot think. They can sometimes learn to manipulate a program but lack the skills to fix anything.

Simple binary choices, one of which is clearly false, is part of the slick city salesman's stock method. Low information consumers, who think that they are sophisticated, are easy customers.
42 weeks ago
42 weeks ago Link To Comment
Per RWE3, it's about being drawn inside the beltway. There will fewer choices, because that's the way they want it. Binary all the way down. Because when the State decides it is no longer about freedom, choice, right or wrong, but is about the Will of the Tyrant to rule, then all the old rules of the Republic no longer apply.

We can use the old forms and call it the Federal Government, the Constitution, the Supreme Court, the Congress, the Presidency, etc., but it is Tyranny, and nothing else but.
42 weeks ago
42 weeks ago Link To Comment
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All Comments   (48)
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Although I think highly of Leo and others here. This _Act_ is lawless, it cannot legally be a tax as it would be a direct tax and DC does have direct taxation on individuals. After the 16th, which was the formalization of the Corporate Excise Tax of 1909?, DC could directly tax corporations. Then WWII, wherein, DC enacted a Constitutional 2 year war witholding tax upon individuals, which was not extended and therefore ended after the 2 years of lawful existence. Since nearly everyone with a head knows this _Act_ couldn't be a mandatory insurance and it can't lawfully be a tax, it is lawlessness. A people that have allowed this building pile are 99% of USAians.
40 weeks ago
40 weeks ago Link To Comment
http://youtu.be/sX_GrSEaPt0

--considering the topic concerns a core attribute of high-function in applied political theory (whew!), i expected L3's production here to be a slog well-done; the slog part a topic-forced necessity. I was not expecting it to even attempt to entertain. I was wrong --L3 found what is probably the only possible way to sidestep the trap --now he just needs some eyeballs and distribution. Some serious, come-back-to-it-again-whenever-you-encounter-someone-who-needs-it eyeballs and distribution. Bonus --this can educate even the rabid close-minded progressive, because nowhere in it is any hint of rubbing anyone's nose in anything.

So, 'disarming' is the word --and not via fluff and euphemism, either. Through pragmatism --that emphasis on what is shared by both camps. Well, excluding the Communists, who follow Lenin's "worse is better".

Whatever it is about cartoons and comic books that render the form so able to address the largest themes, i do not know --compression, movement, symbols sharply ideogrammed --all that. The effect is an engaged witness.

Well, so much for my Mangled McLuhan Moment!

:-/
(show less)
41 weeks ago
41 weeks ago Link To Comment
Thanks for the forecasting. The job of the Clinton or Warren administration will be to correct the regressive nature of the tax with more subsidies, because "it’s so unfair!"
41 weeks ago
41 weeks ago Link To Comment
--not long ago, these pages regularly featured well-considered cheers for the two-party system, as the all-time best development of the politics how-to.

The power shift is as if a Lake Tahoe boat race; we're going flat-out towards the finish line, then something goes wrong and all boats flip airborne end-over-end and come down full speed racing back to the start line.

The combo of abruptness and conviction is as remarkable as the uncanny 50-50 that every political question breaks every election into.

JR Nyquist thinks he has found an explanation in the work of C.K. Jung.

http://www.financialsense.com/contributors/jr-nyquist/economic-science-underworld
.
42 weeks ago
42 weeks ago Link To Comment
fta: Jung warned that a human being who engages in psychological projection can become “possessed” by his shadow. Jung wrote: “A man who is possessed by his shadow is always standing in his own light and falling into his own traps….” Throughout the early twentieth century Jung feared that shadow possession was on the rise. With the advent of totalitarianism and the decline of laissez-faire, Jung noted that religion was being replaced by political ideology to such an extent that increasingly large numbers of people were subject to shadow possession. Worse still, Jung said that a person may be possessed by the opposite sex side of their own personality; for each man has a small part of women within, and each woman has a small part of man. If a man becomes possessed by his female side it is called anima possession. If a woman becomes possessed by her masculine side it is animus possession.

Yes, well, um, y'know, ... the Marxists go on about the "false consciousness". I might prefer some other descriptions that probably cross much of the same topics.

Rather than go on about how the shadows are after me, I'd say that the prevailing narrative is being changed, has already been changed, and if that narrative is not entirely new, that's no surprise, the shadow is always out there, even Sauron is only an emissary, Communists know about it, Rousseau cast it, That Hideous Strength holds this entire world in its grip, etc.
42 weeks ago
42 weeks ago Link To Comment
yup --there's another term, i guess from Freudianism, the ''Thanatos Complex''. Most of the piece is asking if the near-miraculous delivery of good things by the free market isn't obvious to the point that the anti-market mentality isn't a form of psychological sickness. And then, where is this sickness coming from?
41 weeks ago
41 weeks ago Link To Comment
L3 - kudos for your work on the Health Care Compact. (and I'm also warming to your way of thinking on "Primary Accountability")

Would love to see the nuclear option turned against the Statists so that 51 GOP senators and 218 Congressmen could ignore the filibuster rule (and Obama in the White House) and approve the Health Care Compact.

42 weeks ago
42 weeks ago Link To Comment
--add to those L3 laurels, hauling from the civic past the hoary concept of subsidiarity, reminding that that nameless-and-so-hardly-explored intuitive wisdom has always had a name, and so can be made to come back out into the open.
42 weeks ago
42 weeks ago Link To Comment
buddy,

Here's what I have to say on that subject:

http://youtu.be/sX_GrSEaPt0

Cheers,
L3
42 weeks ago
42 weeks ago Link To Comment
Thanks, L3 --got it saved, will read and say back.
41 weeks ago
41 weeks ago Link To Comment
I've often read of Americans complaining about the price of gasoline to which Europeans would complain that their prices were so much higher. While European gas prices were higher, the European gasoline taxes were much more so, but neither the Americans or the Europeans separate the taxes from the product pricing.

We seem to do that here with ACA pricing which is much more confused. There are at least four sources of funding for ACA policies: state Medicaid, federal subsidies, policy holder insurance rates and policy holder tax rates.

As a middle-class taxpayer, you will pay for Medicaid, you will pay for federal tax subsidies, you will pay actual insurance rates and you will pay subsidies for low-income insured.

So an ACA policy's actual insurance rate is unknown and probably unknowable. In fact, most folks won't know what most people are paying and so most folks won't know if they are paying too much.

Notice that even on this blog with its well-read readers, folks speak of their 'insurance rates' rather than of their taxes.
42 weeks ago
42 weeks ago Link To Comment
BFTP is right. Connectivity to what? I think the Statist model that modern governments use to take away freedoms and legal rights; to regulate, control, bully and keep watch on their citizens, is enabled by all those people who are firmly connected to nothingness.

See all the "hand-gazers" with a "device" in their palm. They gaze at their hand wherein their whole vapid twitterface universe exists. Living in a bubble, they are completely unaware of the world outside it. Inside their bubble they are easy prey for manipulators so they "follow" but never lead. They "like" but never have a thought or opinion of which they can claim personal ownership.

What to make of the decorative, hand-gazing Eloi of the 21st century? Will they be eaten by Morlocks?

42 weeks ago
42 weeks ago Link To Comment
--the nibbling Morlocs have already proceeded --i'd say up to the knees or so --accounting for that uneasy feeling of getting shorter and shorter in a world that the device in hand is shrinking smaller and smaller. We should be getting taller and taller as we shrink the world, what gives? Oh, forgot to look down --it's the damn Morlocs getting taller and taller!
42 weeks ago
42 weeks ago Link To Comment
The people being negatively impacted are earners but relatively modest ones, and especially those married and married without children.

Anyone making over 60K per year is paying full cost, whether it's $60,100 or $610,000 per year. When this was a private market, such costs made sense. But now that they are, in reality, a tax, creating a $60,000 cut-off in subsidies simply weighs on the working and middle-class households the most.

A married, self-insured couple earning $30,000 each are in the eye of the storm.

But it gets worse. Above $105,000 in annual income, you don't pay social security taxes anymore, and for the self-employed, who pay all their social security, that 12.9% is huge.

So unless there's something I really don't understand, people earning between $60K and $105K who are self-insured are bearing the brunt of other people's healthcare costs to a degree not imposed on anyone else in the economy, and for married people, it's even worse.
42 weeks ago
42 weeks ago Link To Comment
42 weeks ago
42 weeks ago Link To Comment
One of the drivers behind the reform movement was the idea that one illness could bankrupt you. A large part of that problem is the pricing structure. If you have seen a priced hospital bill, you have seen $12 aspirins. Insurance companies (and Medicare) negotiate much lower prices. Creating a much better price to cost model would help a great deal.

A second problem is malpractice insurance costs. Think of John Edwards as the poster boy for out of control healthcare costs. I have a friend who retired as a nurse anesthetist, was asked to come back to work part time, and discovered that after paying for her insurance, she would not make any money. So why work and not get paid?

First, let's financially kill all the John Edwards style personal injury lawyers with malpractice caps. No more huge pain and suffering awards.
42 weeks ago
42 weeks ago Link To Comment
I agree with you in spirit, but there's a flip side. My father died at age 71 after a clear mistake in the Operating Room, in California. Due to the mistake, he ended up in intensive care for 5 more weeks before he finally died. The costs exceeded the medical insurance (and "advantage care" type medicare supplement), so the hospital immediately began collection against his estate. In effect, they killed him, and then they billed him for it. The ONLY thing that saved his estate from being taken from his heirs was his living trust.

On a side note, my father was a pharmacist, i.e. a medical professional for his entire life. He was one of the good guys, i.e. the kind of pharmacist who visited his shut-in long time customers after hours, personally bringing them their prescriptions.

My father woke about 4 weeks into the coma, unable to talk or hear, and communicating with him was exceedingly difficult. I was concerned about the terms of a living trust my sister had refused to enforce. I didn't want to lose my Dad, but I was sure as hell not going to let him rot in a hospital bed when he had expressed something else. The last word I was able to understand was "lawyer". My dad wanted us to sue the hospital, for he knew what had happened, understood the error, and understood that he was probably either a dead man or at best, life long invalid.

The fact that he wanted to sue explained to me the gravity of the hospital's incompetence. We had had extensive conversations about hospital malpractice when my wife delivered, and agreed that a law suit would never be appropriate if I had lost my wife and baby due to a "competent error". In other words, if the physician was acting in good faith, not drunk or on drugs, used good medical judgment, but something had gone wrong, we wouldn't try to ruin a good doctor. What happened to my father was absolute negligent medicine, he knew it, and hence the lawsuit. (In fact, as I later learned, my dad was the second case of a patient death in that same Operating Room, with the same staff, of identical causes.)

I had to take charge and immediately begin to liquidate his trust to ensure there was nothing left for the hospital to claim. Then I had to turn to a trusted uncle to find me a good law firm, to which we took the case. The lawyer was a very well known expert in his field. Sadly, he told us, California tort law limited financial compensation in successful malpractice cases to $250,000, and the "first right of collection" was allocated to debtors, which included the insurance company (which paid out claims) and hospitals. There would be nothing available for attorney fees let alone anything for his survivors, plus, at his age, any payout would be diminished by his age and life expectancy. All of which is to say, if you're over age 70, a hospital can do nearly anything but put a gun to your head and pull the trigger, and no malpractice case is winnable. He referred me to another specialty law firm which was known to be especially aggressive even with diminished returns, but after they evaluated the case, they pretty much responded with the same thing. The hospital and physicians insurance companies would simply pay off my dad's medical insurance company and any medical bills first, and we wouldn't even realize a "moral victory" out of the settlement.

So, tort reform is essential, but if the lawyers and corporation lobbies design that tort reform via their corrupt Democrat politicians, as happened in California, legitimate torts against actual damages will be impossible.

There's not a law in the world that can't be corrupted by corrupt politicians.
42 weeks ago
42 weeks ago Link To Comment
OldSalt, thanks for that story. I watched both my parents in the hospital in their last days, and my father's death in particular was brought on by a series of errors by his PCP and the hospital, which I'm certain could have been proven in court. And with your explanation, I now understand why these errors could be made and not really even attempted to cover up. It was just sloppy, cheap medicine, not any specific errors, but the results are clear - it was, in effect, a death panel. And these were supposedly good physicians at a good hospital. Don't even get me started.
42 weeks ago
42 weeks ago Link To Comment
You are looking at the issue of malpractice versus licensing. The good doctors pay for the mistakes of the bad ones. I heard the complaints of a doctor who was number one in his class, has implanted over 5,000 defibrillators and has never been sued, but is paying a fortune for insurance. Where are the state licensing an disciplinary boards?
42 weeks ago
42 weeks ago Link To Comment
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