Insurance Mandate is Massachusetts Tested and Approved

Why We Need the Individual Mandate

Without a Mandate, Health Reform Would Cover Fewer with Higher Premiums

SOURCE: AP/Seth Wenig

A sign questioning patients about their medical insurance is posted in the emergency room of Jamaica Hospital in New York.

By Jonathan Gruber | April 8, 2010

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TEXT

Conservatives began discussing repealing controversial elements of the Patient Protection and Affordable Care Act, or PPACA, within moments of President Barack Obama signing the historic health care reform bill. One of those elements is the individual mandate. The new reform imposes a penalty on individuals who remain uninsured even though they can afford health insurance—if coverage costs less than 8 percent of their income. The penalty is a fixed dollar amount (rising from $95 to $695 from 2014 to 2016) or a percentage of income (rising from 1 percent of income to 2.5 percent of income from 2014 to 2016), whichever is larger.

This new requirement to purchase insurance is clearly a major innovation in U.S. public policy. But it is also a central pillar of health reform. Without the individual mandate, the entire structure of reform would fail. Removing the mandate would:

• Reduce the legislation’s insurance coverage gains by more than two-thirds, so that reform would cover fewer than one-fifth of the uninsured
• Cause the reduction in employer-sponsored insurance to quadruple
• Raise individual premiums in the exchange by 40 percent

Why is the mandate so important?

Uninsured individuals impose major costs on the rest of society. These individuals do use medical care, and the latest estimates put the costs of uncompensated care at over $50 billion a year in unpaid medical bills. These costs get passed on, raising private insurance premiums for those who are insured.

In addition, when those with better health opt out of risk pools, prices rise for those in poorer health, which leads to an “adverse selection” spiral that raises insurance prices for all. This is particularly important since one of the primary goals of health reform is to fix the enormous problems that arise in our insurance markets because of price discrimination based on health. Shared risk can lead to higher prices for healthy individuals who purchase insurance, and without a mandate those individuals might choose not to participate. This results in even higher prices for the ill, undercutting the very goal of reform.

This is not an idle conjecture. Five states have tried undertaking nongroup insurance market reforms such as those contemplated in the PPACA without an individual mandate. Those five states are now among the most expensive states in which to buy nongroup insurance.

Can the mandate work?

A common criticism of the mandate is that it is either administratively infeasible or will lead to public revolt. Fortunately, we can draw on Massachusetts’ experience to address this concern. Massachusetts introduced an individual mandate in 2007, requiring all residents to purchase insurance so long as insurance was deemed “affordable.” Individuals for whom insurance is too expensive relative to income are exempt from the mandate, much like the federal legislation, which does not require individuals to spend more than 8 percent of their income on health insurance. The penalty for not complying in 2007 was very low ($219 per person), and in 2008 it rose to $912 per person.

Massachusetts’ mandate has been a success by any metric:

• Ninety-eight percent of tax filers complied with the mandate in its first year by either attaching proof of insurance, claiming an affordability exemption, or paying the penalty.
The uninsurance rate in the state fell by two-thirds within a year of the mandate.
• The average cost of a nongroup insurance policy, which nationally rose by 14 percent from 2006 to 2009, fell by 40 percent in Massachusetts over that same time period.
• The program remains highly popular, with public support at about 70 percent in recent polls.

Massachusetts’ experience shows that a mandate can indeed work to serve the goals of fundamental reform.

What would happen if we repealed the mandate?

Some critics have suggested repealing the mandate embedded in the PPACA, while retaining most of its more “popular” provisions. But such a policy would be disastrous for both the cost of insurance and the number of people covered.

I have developed the Gruber microsimulation model to estimate how health reforms would affect insurance markets; this is a very similar model to the one the Congressional Budget Office used to score the PPACA, and my model derives very similar to CBO. I can use this model to consider what would happen if Congress removed the mandate while keeping all other aspects of the law intact. I find that:

• Total insurance coverage would rise by fewer than 10 million persons rather than the 32 million persons estimated by CBO. The number of uninsured would be reduced by less than 20 percent rather than by about two-thirds.
• Employer-sponsored insurance, which is projected to erode by about 5 million persons under reform, would instead erode by over 20 million persons.
• The fully implemented cost of the legislation in 2019 would fall by only about 20 percent—we would spend 80 percent as much to cover fewer than one-third as many people.
• Those who do not obtain coverage would be the healthiest individuals, causing enormous adverse selection in insurance markets. The average individual premium in the exchange would rise by about 40 percent without the mandate.

A post-reform world without a mandate would result in only a small minority of the uninsured gaining coverage, costs in the new exchanges that are 40 percent higher, and government spending that is only about 20 percent lower. This is a terrible tradeoff that illustrates the enormous value of the mandate as a pillar of reform.

HCR backed by precedent

Nor is this fear just idle conjecture. Seven states enacted a pre-existing-conditions law without also passing an insurance coverage requirement, and all seven states saw their health insurance premiums spiral out of control. In some of these states, the individual insurance market collapsed, leaving many people without any insurance options whatsoever.
Indeed, Judge Hudson's decision striking down just one small part of the Affordable Care Act -- the requirement that nearly all Americans either carry insurance or pay slightly more income taxes -- places him on a collision course with the views of one of the Supreme Court's most conservative members: Justice Antonin Scalia.

Opinion: Health Care Ruling -- Good News for Reform Backers

Ian MillhiserContributor, AOL News

TEXT

(Dec. 13) -- Supporters of the Affordable Care Act should take a great deal of comfort from Judge Henry Hudson's decision today.

Yes, Judge Hudson did strike down one provision of the landmark health care law, but his opinion is so poorly reasoned, so bereft of legal analysis and so inconsistent with precedent that it has no chance of convincing the Supreme Court to strike down this law. If this is the best that opponents of health reform have to offer, than the act's supporters have nothing to fear.

The Constitution doesn't just give Congress sweeping authority to regulate the national economy, it also empowers Congress to "make all laws which shall be necessary and proper for carrying into execution" its authority to enact economic regulation. As Justice Scalia explains, this means that "where Congress has the authority to enact a regulation of interstate commerce, it possesses every power needed to make that regulation effective."

The act eliminates one of the insurance industry's most abhorrent practices -- denying coverage to patients with pre-existing conditions -- but this ban cannot function if patients are free to enter and exit the insurance market at will. If patients can wait until they get sick to buy insurance, they will drain all the money out of an insurance plan that they have not previously paid into, leaving nothing left for the rest of the plan's consumers.
There is a way out of this trap, however. Massachusetts enacted a minimum coverage provision in 2006 to go along with its pre-existing-conditions provision, and the results were both striking and immediate. Massachusetts' premiums rapidly dropped by 40 percent.

In other words, because the only way to make the pre-existing-conditions law effective is to also require participation in the insurance market, that requirement easily passes Scalia's test.

Yet, somewhat astoundingly, Judge Hudson did not once reference Scalia's clear rule. Nor did he even mention one of many other Supreme Court cases establishing that Congress "possesses every power needed" to make its laws effective. Instead, Hudson simply waves this rule away with a single cryptic statement that the Affordable Care Act doesn't fit within "the letter and spirit of the Constitution."

Maybe Hudson missed the day in law school when every lawyer is taught that a lower-court judge cannot ignore the Supreme Court's command. At the very least, a judge has a duty to actually explain his legal reasoning and to cite cases supporting his decision. Judge Hudson, however, provides no explanation for why he's apparently not bound by precedent governing a key constitutional provision.

In the end, there is a simple explanation for why he couldn't provide such an explanation: The law clearly does not support his position. Fifteen judges have now heard cases challenging the Affordable Care Act, and 14 of those cases have been dismissed -- many of them on the grounds that a federal court shouldn't even be hearing these challenges in the first place. Judge Hudson is an extreme outlier, and his disregard for precedent is unlikely to win too many supporters on higher courts.

One thing, however, is very clear from his opinion. Opponents of health reform have finally shown their cards -- and revealed themselves to have an exceptionally weak hand. If Henry Hudson's folly represents the best case against health reform, then the Affordable Care Act will be just fine

Making $ off TARP

Gov't: Taxpayers Make $12B on Citigroup Bailout

Government unwinds its stake in Citigroup posting a $12 billion profit on $45 billion bailout

By MARTIN CRUTSINGER AP Economics Writer

WASHINGTON December 7, 2010 (AP)

LINK

After all is said and done, taxpayers will make a $12 billion profit on the government's $45 billion bailout of Citigroup.

The Treasury Department said late Monday that it had struck a deal to sell its remaining holdings in Citigroup common stock, about 2.4 billion shares. With the proceeds of the sale, priced at $4.35 a share, the government will have realized $57 billion on its bailout package for the big bank.

"By selling all the remaining Citigroup shares today, we had an opportunity to lock in substantial profits for the taxpayer and avoid future risk," said Tim Massad, the Treasury official who heads up the bailout program.

Citigroup received $45 billion in taxpayer support late in 2008 in one of the largest bailouts undertaken by the government as it struggled to contain the worst financial crisis to hit the country since the 1930s.

The bailout of Citigroup and other large banks was begun under the Republican administration of George W. Bush but turned into a major political liability for President Barack Obama in last month's congressional elections.

Republicans took control of the House and gained six seats in the Senate by capitalizing on voter anger over the bailouts and soaring federal budget deficits.

The administration has insisted that the bailouts were needed to prevent an even deeper recession. They said the cost of the bailouts has been falling as Citigroup and other rescued institutions pay back their government loans.

The latest estimate from the Congressional Budget Office in late November was that the $700 billion Troubled Asset Relief Program would end up costing the government $25 billion, down from an August CBO estimate of $66 billion.

Of the $45 billion provided to Citigroup, $25 billion was converted to a government ownership stake that the Treasury has been selling off since last spring. The bank repaid the other $20 billion in December 2009.

Treasury said that with the pricing of the last 2.4 billion shares of common stock on Monday, it would receive $31.8 billion from the sale of common stock plus another $2.9 billion in interest and dividends.

The $57 billion total also includes $20 billion from Citigroup's December 2009 repayment of TARP money and another $2.2 billion from the sale of trust preferred securities held by the government.

The actual earnings are expected to climb with the sale of an additional $800 million in trust preferred securities held by the Federal Deposit Insurance Corp. and the sale of warrants Treasury holds. The warrants give the holder the right to buy Citigroup common stock at a specified price.

Treasury had disposed of about 5.3 billion shares at an average price of $4.05 before Monday's pricing of the remaining shares. With the pricing of $4.35 for the shares offered on Monday, Treasury's average price for its entire 7.7 billion shares of common stock will turn out to be $4.14.

Citigroup common stock closed at $4.45 in trading Monday and has ranged from a low of $3.11 to a high of $5.07 over the past 52 weeks.

Monday's deal, for which Morgan Stanley acted as bookrunning manager, is expected to close on Friday, Treasury said. Citigroup is paying the underwriting fees.

"Selling off the remaining stake ensures that taxpayers will book a healthy profit on the Citigroup investment," said Linus Wilson, a professor of finance at the University of Louisiana at Lafayette.

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AP Business Writer Pallavi Gogoi in New York contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Trickle Down Doesn't Work

Will ending Bush tax cuts hurt small business?

By Rhonda Abrams, USA TODAY

12/3/2010

Link

Listen to politicians talk about taxes, and sooner or later, they're going to tell you the real victim or beneficiary is "small business." Never is this more true than in the current debate over the extension of what are commonly-referred to as theBush era tax cuts. Politicians are grandstanding that failure to extend these tax cuts are going to cripple small businesses — lead to an end of all small business hiring — virtually be the end of small companies as we know it.

Before you close your doors in despair, what's actually the truth? How will the proposals to extend or end these tax cuts truly affect your own small business?

First, a bit of background: Under President Bush, temporary tax cuts were enacted in 2001, when — believe it or not — the federal budget had a surplus! As the economy slowed, additional tax cuts were enacted in 2003. These tax cuts had a built-in expiration date: December 31, 2010.

There are two main sets of cuts at the heart of the discussion now:

• "Middle class" tax reductions — applying to all Americans with taxable incomes of $250,000 for couples, or singles with taxable incomes of $200,000, or less.

• Tax cuts applying also to those with taxable incomes of more than $250,000/ $200,000.

The Obama administration has proposed that the middle class tax cuts should be extended. Republicanswant the tax cuts for those in the top brackets also extended. Some Democrats propose a compromise — extending tax cuts only to those making less than a million dollars.

So what does all this mean for your small business?

First — you personally are almost certainly not going to see a change in your tax rates. Not if you're one of the 98% of all small business owners who have less than $250,000 a year in adjusted gross income — $200,000 if you're single. Most Democrats and Republicans support the extension of these middle class tax cuts. The only way you'll see your taxes go up is if these cuts are held hostage to cuts for wealthier Americans.

Now, if you're one of the 2% of small companies that make more than a quarter of a million dollars after all expenses — first of all, good for you!

But should we increase taxes on those businesses now — in the midst of high unemployment? By increasing their taxes, won't we have a negative impact on hiring?

Nope.

First, you need to know it's likely that most of those "small businesses" reporting high income are neither small nor, possibly, businesses. For government tax purposes, the term "small business" can be misleading. What is included generally are all who report "business income" on a pass-through basis. These can be very wealthy individuals who have set up investments as partnerships or S corporations to reduce their taxes, including many hedge funds.

According to a 2008 study by the Joint Committee on Taxation — a nonprofit arm of Congress — 61% of all net income from partnerships and S corporations are earned by those with gross receipts of more than $10 million, and almost half — 43% — have receipts exceeding $50 million! Hardly small — and often not a business that hires anyone. So a huge bulk of the tax benefits would go to those who have no impact on job creation.

Will a tax cut for the wealthy have a trickle down benefit for small business? Nope.

According to the independent, highly-regarded Congressional Budget Office, the Bush era tax cuts have the lowest stimulative effect of 11 stimulus policies examined. For every $1 in tax cuts, only 10 cents to 40 cents are returned to the economy.

Compare that with something every small business employer can relate to — reducing employer's share of the payroll tax. According to the CBO, that would result in 40 cents to $1.20 back in the economy for every dollar spent. That would reduce the cost of having employees and make it easier to hire. A better, more targeted, small business tax cut.

Let's face it — you know and I know that what helps your small business the most is a healthy economy. We hire because there's demand for our products and services, because consumers and businesses are buying. Let's spend our money on tax cuts that truly help small companies.

Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Her newest book isHire Your First Employee: the entrepreneur's guide to finding, choosing, and leading great people. Register for Rhonda's free business tips at www.PlanningShop.com. For an index of her columns, go tosmallbiz.usatoday.com. Twitter: twitter.com/RhondaAbrams. Copyright Rhonda Abrams 2010.

Beck Spreads More Anti-Islam Lies

Glenn Beck: Ten Percent Of Muslims Are Terrorists (AUDIO)

The Huffington Post

Jack Mirkinson

First Posted: 12- 6-10 03:35 PM

Updated: 12- 6-10 04:56 PM

Glenn Beck said he thinks ten percent of all Muslims are terrorists.

As ThinkProgress pointed out, Beck's estimate would mean that roughly 157 million Muslims in the world are terrorists.

Speaking on his radio show Monday, Beck decried the relative lack of coverage that the news media is giving to the figures he discusses day after day on his radio and television shows.

"We have revolutionaries here in America speaking about an open violent revolution and no one will cover it!" Beck said. "Would they cover it if you had tape of Al Qaeda saying they're going to get out in the streets, they want violence? Of course you would!"

Beck surmised that the media don't think that the threats he describes are sufficient enough to cover seriously. However, he said, they should look at the havoc a relatively small number of "Islamic terrorists" had caused:

"What is the number of Islamic terrorists? 1 percent? I think it's closer to ten percent but the rest of the PC world will tell you, 'oh no, it's miniscule.' Well, OK, let's take you at your one percent. Look at the havoc one percent of Muslims causing in the rest of the world. You don't think one percent, half a percent of people here in the United States of radicals, of people who want to violently overthrow the government of the United States, is a problem?"

UPDATE: As the Huffington Post's Sebastian Howard pointed out on Twitter, Beck's figure of ten percent is hardly new. In fact, Beck used the same statistic in his 2003 book, "The Real America." In it, Beck says that he has concluded, after "reading and prayer," that, while ninety percent of Islam is peaceful, "ten percent wants to see us dead." The remaining ten percent, he writes, is "composed of extreme radicals who have taken Islam through a time tunnel and twisted it into something ugly and barbaric."