Thoughts on the Republican position on health care

4 Dec

Thoughts on the Republican position on health care

The focus right now is on the Administration’s obviously flawed effort to implement the ACA and the problems with the ACA itself.    An equally important topic that will eventually move to the center stage is the Republican alternative for health insurance markets.  Debates often look like the old Miller lite commercial — good tasting versus less filling.  The Republicans can chant flawed law and the Democrats can chant no alternative.  A correct argument by one party does not make the argument advanced by the other party wrong.  The argument that the law is flawed is not mutually exclusive with the argument that Republicans lack a viable alternative.

This morning I was thinking of the Republican position on health care when I ran across an article on Vice President Cheney’s views of the ACA.

The Vice President is a very smart, successful, accomplished man.  A genuine American success story.  Someone, regardless of our political views, is a person who can all look up to.

In this article Vice President Cheney discusses his early health problems.

There was a time in my life when I was about 23, shortly before we got married when I was sick, hospitalized and uninsured,” Cheney said. “I spent our honeymoon money on medical bills. Later on, I learned that I needed health insurance.

Even at 23, the Vice President had resources, a lot of pluck, and great intelligence.  One thing that he lacks is empathy.  A person with fewer resources,  broadly defined to include God-given talents and money might not have recovered from the health and financial problems the Vice President experienced as a young adult.

The Vice President and most Republicans do not share the credo “there but for the grace of God go I”  To them insurance is for the healthy and the affluent.  Many people in circumstances similar to the ones experience by Vice President Cheney have a hard time obtaining and keeping insurance.

The Vice President’s anecdote illustrates the need for Republicans to clarify their views on the appropriate regulation of pre-existing conditions and premiums in the individual market.  The Republican position and pre-ACA rules on pre-existing conditions was to put a small number of people in high-risk pools.  The Republican position and pre-ACA rules on premium regulation was to allow total discretion at the state level.  The Republican say they want to move insurance from the group market to the individual market.  However,  the individual market is not viable if insurance companies control both access to and price of insurance.   Prior to the ACA individual insurance plans were a fringe part of the insurance market.

In the group market there was some protection prior to the ACA because federal law requires that insurance polices offer some group coverage to all small firms.  (Premiums are often a problem when some members of the group get sick.)  Without some regulation on insurance premiums and availability no one really has insurance.  No one has insurance if discretion over eligibility to coverage and cost of coverage is ceded to insurance firms.

The case can be made that ACA regulations on allowable premiums are too rigid, especially given the need to persuade young health adults to purchase health plans.  The problem right now is that Republicans have not offered alternative rules.  The Republicans have made it clear that they want to repeal the ACA.  This begs the question “What rules of any would the Republicans implement to govern pre-existing conditions and premiums and premiums in the small-group market?”

Vice President Cheney survived his early health problems and went on to have an illustrious career.  He seems to believe that this outcome was inevitable.  Millions of Americans have learned otherwise.

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Anointing Hillary is a disaster.

2 Dec

Anointing Hillary is a disaster

The Democratic party is waiting for Hillary Clinton to decide whether she is running in 2016.  It is possible that there will be no serious challenge to Hillary Clinton.   This is a potential disaster for the Democrats.

I admire Hillary Clinton.   I voted for her in 2008 and was very sad when she lost.  She has greatly contributed to the nation.   But her resume is  not unique.  There are many qualified people (both male and female) in the Democratic party who could lay claim to this nomination.  The party and the nation deserve a discussion of the issues and the ability to assess alternatives.

There is almost always a vigorous competition for a nomination except when a sitting president is running for reelection.  Think about 1972 when Humphrey, Muskie, McGovern, and Jackson — all people with longer resumes than Clinton — competed for the top job.  Even in 1932, FDR was challenged.  At that time it took 2/3 of the delegates to secure the nomination. It took FDR thee ballots.,_1932

There is a thirst in the Democratic party for a female president and this is long overdue.  But candidates are not or should not be elected because of their gender.  Neither Thatcher not Merkel won because they were female and males did not step aside because it was time for a woman.  Thatcher and Merkel won because they beat their competition on the merits.

In 2008, many people elated in the victory of the first black president.  This was an important moment for America, given our history.  Obama won the campaign and deserved the job because he won.  I don’t believe race either race or gender should be a determinative factor in selecting a President.

Young women are doing well.  In many measures better than young males.  It would be wrong to assume that the need for a woman President will resonate with younger female voters.

Campaigns improve candidate performance.  Both Clinton and Obama improved in 2008.  If no one challenges Hillary she will be out of shape in the general election.

Campaigns are important because they let voters know where candidates stand on the issues.  Where does Mrs. Clinton stand on cap and trade versus a carbon tax?  How does Mrs. Clinton plan to fix the problems with the ACA?  How would Mrs. Clinton improve our education system?  The Republicans will be discussing their choices from Iowa to their convention.   The Democrats have an obligation to put forward their ideas.

Let’s face it, Mrs. Clinton is old.  Ronald Reagan was also old while President and his age may have affected his performance in the second term.  She deserves consideration  because of her considerable experience but her age is a factor.  Also, her health may be an issue as demonstrated by an event at the end of her tenure as Secretary of State.  I would be more convinced that she was up to the job if she survived a vigorous fight for the nomination.  (Reagan survived a vigorous nomination battle in 1980).

The Clintons have dominated the Democratic party for a long time. There are a lot of really smart people in the nation and in the Democratic party.  In my view, Obama over relied on the Clinton rolodex when choosing his team.  I want to see new blood in government.  This would be facilitated by a nomination battle, even if Hillary ends up as the eventual winner.

This is not a left versus right issue, nor is it about Elizabeth Warren.  There are a lot of smart people out there with diverse views.  Hillary does deserve consideration but she should not be anointed.  She needs to beat the competition, just as FDR, Reagan, Thatcher and Merkel did.



Reprint of seven ways to provide student loan debt relief

27 Nov

The National Association of Student Financial Aid Administrators originally published this article.   I am grateful to them for allowing me to reprint it here.

The original link for the article is here.



Seven Ways to Provide Student Loan Debt Relief

The current generation of students is leaving school with more debt than any previous generation. While postsecondary education remains a good investment for the average student loan borrower, some borrowers will never be able to repay their student loans in full. Moreover, current bankruptcy law and procedures make it very difficult for borrowers with student debt to ever obtain a fresh financial start.

At the federal level, there is some interest in policies that might alleviate student loan debt burdens. The desire to provide student debt relief to borrowers is tempered by concern about the cost to taxpayers when this government guaranteed debt isn’t fully repaid. In my view, it is possible to provide a modest level of student debt relief to borrowers without imposing substantial costs on taxpayers. This could be accomplished by modifying the Income Based Replacement (IBR) Loan Program and through changes to the bankruptcy code.

The IBR program, enacted in 2009, provides four benefits to student loan borrowers.

1.     Reduction in student loan payments when household income is low in relation to qualified student debt,

2.     Reduction in interest payments when IBR payments do not cover interest due,

3.     Limits on the capitalization of interest for loans in deferment or forbearance, and

4.     Forgiveness of a remaining loan balance 25 years after the student loan enters repayment.

In addition, some student loan borrowers who maintain payments through the IBR program will be able to utilize public loan forgiveness programs

The primary purpose of the IBR program is to prevent borrowers from defaulting on their student loan when their household income is low compared to qualified student loan debt. Only student loan borrowers with chronically low levels of household income can receive some debt forgiveness. Borrowers who receive lower payments through the IBR program will often pay more on their loan than if they remain in the standard 10-year payment plan.

The IBR program is complex and does not offer assistance to many overextended student loan borrowers. First, the IBR program does not cover PLUS loans made to parents, private loans, or consolidated loans that include a parent PLUS loan or a private student loan. The decision to consolidate 10-year loans into a 20-year loan could also make borrowers ineligible for the IBR program. To fully benefit from the IBR program, borrowers need to be aware of IBR rules long before they are aware that they will need IBR, when they are borrowing or consolidating federal student loans.

Second, the IBR program often provides little or no relief to a household that has high levels of both consumer debt and student loans. The IBR program is especially complex for married households.  A single person who qualifies for the reduced IBR loan payment could lose this benefit if he or she marries someone with high levels of consumer debt, even if household debt-to-income ratios increased after marriage. Married individuals could choose to file separate tax returns to take advantage of the IBR program, but that decision usually results in a larger tax obligation.

It is impossible to modify the IBR program to account for consumer debt without creating an incentive for additional borrowing.  Borrowers with high levels of student debt and consumer loans might seek relief in bankruptcy courts.  However, current bankruptcy laws and procedures offer little relief for borrowers with student loan debt.

There are two ways debtors can seek student loan debt relief in bankruptcy. First, the debtor could petition the court for a complete or partial discharge of student debt. Second, in a Chapter 13 bankruptcy the debtor could petition the court for a payment plan that favors the repayment of student loans over the repayment of other unsecured loans. Neither remedy is easily obtained.

To discharge student debt in bankruptcy, the borrower must prove that he or she has an “undue hardship.” Most courts require that the borrower show a “certainty of hopelessness” for his or her financial situation over the repayment term of the loan. A certainty for hopelessness is extremely difficult to demonstrate because there is some probability circumstances will improve, even for individuals in extremely dire circumstances. An August 31, 2012, New York Times article describing the petition of a legally blind, unemployed man illustrated the hurdles a student loan borrower must clear in order to have student debt discharged in bankruptcy.

Any proposal that makes it easy to discharge government guaranteed student loans in bankruptcy entails some additional cost to the taxpayer. However, it is easy to envision a less stringent student loan discharge rule that does not significantly increase taxpayer costs. Such a rule would rely on objective criteria rather than the subjective “undue hardship” concept. For example, student loan discharge could be limited to individuals with incomes near poverty level, contingent on participation in the IBR program, favor individuals with medical problems, and allow for partial, rather than full, loan cancellation.

Two other aspects of the bankruptcy code have a substantial impact on financial outcomes for student loan borrowers in bankruptcy and for the government agencies that hold or guarantee student debt.  First, financial outcomes are affected by the rules governing whether a debtor can obtain a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.  Second, financial outcomes are affected by the rules governing repayment of student debt and other unsecured consumer loans under a Chapter 13 repayment plan.

Under a Chapter 7 bankruptcy, the bankruptcy court will immediately discharge most unsecured consumer loans. In a Chapter 13 bankruptcy plan, debtors must file repayment plans with the bankruptcy court. The repayment plan determines how much debtors can repay creditors and the amount received by each creditor. Prior to the 2005 bankruptcy law, debtors could choose to either file under Chapter 7 or Chapter 13. The 2005 bankruptcy law created a means test that required many individuals with incomes over the household median to file Chapter 13 rather than Chapter 7.

When student loans are dismissed under Chapter 7 bankruptcy, the borrower gets an immediate fresh start and can use all the newly available funds for the repayment of student debt. A borrower who obtained a deferment prior to bankruptcy can immediately renew payments on his or her student loan. By contrast, when borrowers are placed into a Chapter 13 repayment plan, the amount allocated to the payment of student loans might not even cover interest and, in many circumstances, the debtor will leave bankruptcy with a substantial student debt intact.

Student loan borrowers in Chapter 13 can petition the bankruptcy court to allocate a greater amount of their payment plan to the repayment of student loans and a lower amount to the repayment of other unsecured credit card debt. However, most courts tend to favor a payment plan that does not discriminate against any class of unsecured creditors. As a result, many student loan debtors emerge from the bankruptcy process five years older with a substantial amount of unpaid student loans. Many individuals experience decreases in income and have fewer job prospects after age 50. A delay in repayment of student loans caused by a forced entry into a Chapter 7 bankruptcy plan will increase financial exposure to taxpayers, increase student loan default rates, and decrease collection rates.

A revision of Chapter 13 bankruptcy rules that gives priority to student debt payments over other unsecured debt payments in bankruptcy would provide student loan debtors with a fresh financial start and would ultimately reduce taxpayer losses. Unsecured creditors would still enjoy greater collection rights than existed prior to the 2005 bankruptcy law.

Under current law, very little debt relief is offered to overextended student loan borrowers experiencing substantial economic hardship. Several policy changes might provide modest debt relief to these borrowers, maintain strong incentives against default, and protect taxpayer interests.  These policies include:

·      Allowing married couples to obtain IBR debt reduction without having to actually file separate tax returns,

·      Making PLUS loans to parents and consolidated student loans with a PLUS loan eligible for the IBR loan program,

·      Allowing private student loans to be discharged in bankruptcy,

·      Basing the decision to discharge student loans in bankruptcy on objective criteria pertaining to the economic status of the bankruptcy applicant rather than the subjective “undue hardship”  concept,

·      Allowing for quicker loan forgiveness under the IBR program for individuals in dire economic circumstances,

·      Repealing or modify the Chapter 13 means test, 

·      Providing priority to student debt over other unsecured loans in Chapter 13.

The goal of debt forgiveness policies inside and outside of bankruptcy is to balance two competing objectives: providing overextended borrowers a fresh start, and fair treatment towards creditors. The pendulum may have swung too close to the creditor, especially with regard to the treatment of student debt.

The author is a retired economist who worked in the Office of Economic Policy of the U.S. Treasury from 1988 to 2012. He publishes a blog

Insuring against negative equity

22 Nov


There is something a bit off about an insurance product that insures homeowners from being underwater on their mortgage.  Wouldn’t homeowner be better off by increasing their monthly payment?

How convenient that this product is available now and not in 2005.

The lack of homes for sale due to a large number of underwater mortgages is because banks are not doing enough to cram down mortgages.

Bankruptcy judges can force the reduction of an underwater commercial mortgage but not a residential one.

I found this interesting.  Hope it is of some use to you.



Some thoughts on the ACA and 2014.

19 Nov

Several Issues:

Analogy to failure of the Medicare Catastrophic Insurance Law:  An  11-18-2013 New York Times article compares the ACA problems to a Medicare catastrophic insurance law from 1988 and 1989 that was enacted and repealed.  There are more differences than similarities. 

The Medicare law had bipartisan support.   When things went south Dan Rostenkowski took a bigger hit than George Bush or Ronald Reagan.  There is no Republican support for the ACA despite the fact the bill advances ideas that Republicans have advocated for decades.  The article seems to suggest that repeal of the ACA is possible.  In my view, this could only occur over a veto by President Obama.  This is the final hand for health care reform.   Both the Republicans and the Democrats are all in.  If the ACA fails health care reform designed to help the uninsured is dead probably for decades.

The tax credit problem:  A CNN article  discusses Jessica Sanford a person who signed up for a health plan at $169 a month only to find out that the tax credit calculation was $390 a month.

I have written about the tax credit problem both as a blogger and as a Treasury economist prior to leaving government in July of 2012.

I am very sad that this problem was not addressed.  The response that I received on my work on this topic simplified my decision to take early retirement.

Many households are clueless about their end of year income.  (These include households with multiple jobs, households where a member becomes unemployed for part of the year, households with variable hours determined by the employer, households where a worker gets an end-of-year bonus, households where a spouse leaves the workforce.)

Signing up for health care is hard.  Figuring out your future income and tax obligation is hard.  Having to do both at the same time  VERY HARD!!!!

Selling stuff on the web is challenging.  Making your customers reveal their personal financial information prior to shopping makes the process difficult.

Other countries with similar tax credit — the UK and Australia — did not insist on verification of income at the time of signup.

The Administration worsened this problem by agreeing to Susan Collin’s tightening of the income verification requirement to end the debt crisis.

The Administration increased the stakes on the creation of successful exchanges by getting rid of the employer mandate.

In my view, the Administration needs to let people sigh up and deal with the tax issues on April 15.  The IRS solution is of course collections.  The  Administration has to stop allowing the IRS to dictate health care policy and needs to consider alternative approaches.  For example the Administration can move people who over claim the ACA tax credit into a less generous plan temporarily.  Also, the Administration can interpret the law to allow households who file separate returns to claim the credit.

Unfortunately, the Administration constantly makes decisions that are likely to weaken support for the ACA and could make the law fail.  For example, 60% of Americans support the employer mandate and oppose the individual mandate.   The Administration looks at these numbers delays the employer mandate and adopts income verification requirements that are an impediment to enrolling in plans that would satisfy the individual mandate.

The 2014 election:  2014, the rebound year to 2008, was always going to be a challenge for the Democrats.   The Republicans could run the table  — in  West Virginia, South Dakota, Arkansas, North Carolina, Louisiana, Minnesota, Arkansas, and Oregon.  THIS IS NOT INEVITABLE !!!!!  Georgia and Kentucky can be put in play because the Democrats have strong candidates.  A major factor, yet to be determined, is the strength of Republican nominees and their views on really controversial topics like rape.

Also, the ACA appears to be working in Kentucky. In my view, Senator McConnell is vulnerable if the Democrat runs ads pointing out that the election of Republicans leading to the repeal of the ACA leads many Kentuckians to lose insurance.

The Democrats cannot abandon the ACA but they can advance fixes like modification to the tax credit and allowing more flexible use of Medicare money.

Also, things may improve.  One of the reasons why the Administration of George W. Bush was so successful is that he always was usually able to get over the bar that was set for him.  The bar is well position for the current Administration.

Concluding Thoughts: Ironically, if the economy and the stock market keep on their current trajectory the deficit could fall to around 2% of GDP by November of 2014.  It is entirely possible that President Obama will leave office with the federal budget in surplus.  This won’t matter to the tea party though.  Their agenda was always more motivated by animus towards the President than anything substantive. It is clear to me that many people are actively sabotaging the ACA.  Many of the insurance companies canceling health plans are offering policies on state exchanges.  Why didn’t the ACA cancellation letter include a paragraph encouraging policyholders to sign up for the firm’s new health plan?????

Enough red meat for today!!!!!

State outcomes from 2012 — Implications for 2016

12 Nov


Introduction:   I was very happy with the election results on November 2012 for two reason — I voted for President Obama and I predicted that his victory was going to be comfortable.

Prior to the election there was a lot of talk about a split popular vote and electoral vote outcome with several analysts predicting that Governor Romney would win the popular vote but lose the electoral college.

President Obama won the 2012 election by nearly 5 million votes.  However, over 3 million of the vote differential came from one state California.  President Obama’s victory margin in several states crucial to his election was actually small.

This post examines state outcomes in 2012 and considers the potential for discrepancies between the outcome in the popular vote and the outcome in the electoral college.

Descriptive Statistics:

The outcome of the 2012 election was relatively close in several states that President Obama won.  By contrast, Governor Romney’s state victories tended to be comfortable.

President Obama won three states — Florida, Ohio, and Virginia — by less than 5.0% of the vote.  These three states account for 60 electoral votes.  Governor Romney only took one state — North Carolina — by fewer than 5.0% of the vote.  This state accounted for 15 electoral votes.

The margin of  victory for President Obama was between 5 percentage points and 10 percentage points in In eight states (Pennsylvania, Colorado, New Hampshire, Iowa, Nevada, Wisconsin, Minnesota, and Michigan)  This accounts for 81 electoral votes.  By contrast, only three states that went for Governor Romney (Georgia, Arizona, and Missouri) accounting for 35 electoral votes were decided by between 5 and 10 percentage points.

The margin of victory was  over 10 percentage points in 15 of 27 (including DC) states for President Obama and 20 of 24 states for Governor Romney.

A what if analysis:  What if President Obama had won this election by “only” one million votes.  Would he have still won the election?

You would hope so because one million is a non-trivial  number of people.  However, President Obama’s margin of victory was not very  large in a number of states even though the national vote margin was nearly 5 million.

The answer to the question depends on where the vote totals change.  My analysis of this question assumes the same voters except there is a 3.07 shift from Obama to Romney in every state.  Governor Romney would have won Florida and Ohio but President Obama would still have won the electoral college 285 to 253.

The next state to swing would have been Virginia.  A shift of votes of 3.86% in each state leads to a vote differential of 0 nationally and a tight victory (extremely tight) for President Obama in Virginia.

Going forward it is highly possible that Virginia becomes the new Florida.   Interested readers should look at the Washington Post article on the ongoing tabulations for the state AG race.

Based on an analysis that is restricted to people who actually voted and the assumption that state shifts in votes were identical to a national shift in votes, Governor Romney needed to take the popular vote and then also win Pennsylvania or Colorado to win in 2012.

The split outcome could have occurred if Governor Romney took Florida but failed to take Pennsylvania or Colorado.

Concluding Remarks:   Based on the 2012 results some Democrats believe that the electoral map will provide the Democrats with an advantage in future elections.   I don’t share this belief.  Governor Romney was a weak candidate and Hurricane Sandy helped President Obama in Florida.

2016 is a new year.  Going forward, if the Republicans can nominate a stronger candidate, get some luck, and do some voter suppression in key states they can take the next election.  A split outcome is always possible but, in my view, is most likely if there is extensive voter suppression.

Source of data used in the preparation of this post.

There are many good web sites with election data.  Dave Leip’s Atlas of U.S. Elections was where I got the raw data needed for the analysis presented here.

A contentious basketball coach.

10 Nov


This article explains why I am uncomfortable with basketball.  (My lack of coordination and my tendency to day dream are also factors.)  Basically, I find swimming far less contentious than basketball.

Finance Memos

Discussing Personal Financial Decisions


Questioning Conventional Economic Wisdom


Questioning Conventional Economic Wisdom

Policy Memos

Questioning Conventional Economic Wisdom


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