Is Obamacare Workable?

by Reihan Salam

I wrote my latest column on how wishful thinking is shaping the health reform debate, which I compare to the wishful thinking of pro-war conservatives like myself who backed the invasion of Iraq without giving due consideration to the challenges involved in stabilizing a fractious, war-ravaged, multi-ethnic society. The comparison is counter-intuitive, but I think it’s pretty apt. For example, many liberal hawks who turned against the war insisted that while the idea of invading Iraq was sound, the implementation was a disaster. Many on the anti-war left note that these problems of implementation were predictable long before the invasion actually took place. It turns out that there are some implementation landmines in the health reform proposals as well.   

For example, can the federal government actually implement the sliding-scale subsidies that are at the heart of both the House health bill and the Senate bill currently under consideration? Eugene Steuerle, a centrist based at the non-partisan Urban Institute, is far from an anti-government zealot. Yet he raises a number of difficult questions in his latest column.

Under Congress’s current plan, families and households would receive subsidies pegged to their income, marital status, number of children, and cost of insurance. To determine your subsidy in 2016 on the basis of your 2016 income, however, is pretty hard since you haven’t yet earned it. The idea is to rely on your tax returns—not some onerous welfare-type application. But your 2015 returns often aren’t filed until April 2016. So Congress has decided that your 2014 income tax return is the go-to source for info on your income- and family-status eligibility in 2016.

Furthermore, Steuerle goes on to explain, roughly one-third of workers experience some kind of employment disruption, whether it’s the loss of a job or a decision to take paternity leave, etc. The legislative proposals envision an appeals process designed to adjust subsidies in response to these income shocks. But of course this will require elaborate and expensive measures to minimize fraud and abuse. Steuerle cites the EITC as a cautionary example.

In the tax system, the earned income tax credit is usually paid out after the end of the year based on last year’s income. Attempts to pay it during the year have floundered largely because few know before December 31 what their total annual income will be. Yet, significant errors creep in, despite an elaborate system of reporting wages on W-2 forms and interest and dividends on 1099 forms. For instance, the net income of many self-employed—consider household workers paid in cash—is underreported by 30 percent or more.

To minimize these distorting effects, Steuerle calls for a flatter monthly credit that can be taxed away for richer recipients and supplemented by safety net programs like Medicaid for poorer recipients.

I also highly recommend an earlier Steuerle column on the unequal treatment of small vs. large employers and families in the insurance exchange vs. those receiving coverage from their employers. I should add that none of Steuerle’s columns make the case against moving towards universal health coverage. My sense is that he’d favor more expensive measures that are fully-funded and transparent. He objects not to the goals of the Democratic reform proposals so much as the disregard for thorny questions of equity and implementation.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.