Core principles that should guide health reform
#1: Free stuff and fairness = disincentives
• The primary reason that people work is that stuff is not
free
• Free stuff has to be financed. Typically with:
– Taxes, OR
– By excluding people on the basis of employment or income
• E.g., Europeans have dedicated payroll taxes to help
finance “free” healthcare
“Neutral” tax treatment of HI is not neutral
Workers
Nonworkers
HI tax deduction
traditionally
weighs only here
Republican
plans
ACA tossed
have
it weigh
goodies
on
here
too
here
less work
work
== less
AHCA reduces disincentives about 2.5 percentage points.
About 3 points of the ACA’s disincentives still remain.
#2: It’s easy to underestimate the scope of the
market’s reactions to incentives
• E.g., health or cash assistance for people out of work.
• People take longer to get back to work.
• Layoffs/retirements/quits are subsidized. E.g., Mike
Smith
• Cyclical industries grow at the expense of acyclical
industries.
• If you subsidize sick people, you may get more of them.
Index of Aggregate Work Hours per Person
Index,
2007=100
Monthly data available as of Apr
Feb-2016
2017
Begin full tax on
employers
Begin (part of) new
tax on employers
“Stimulus” finally
ends
Source: blogsupplyanddemand.com
Non-ESI firms stay below 50
March 2017 national sample of 745 employers with 2-199 FT employees
ESI firms do not
Non-ESI 50+ firms
“move”
Non-ESI firms stay below 50
ESI firms do not
20
49
Avg. of the 81
12
Num. obs. in green
#3: The harms from taxes extend far beyond the
people who pay them
The Wealth of Nations
by Adam Smith. 1776
If … there was any employment evidently
either more or less advantageous than the
rest,
so many people would crowd into it in the
one case, and so many would desert it in the
other,
that its advantages would soon return to the
level of other employments.
Sources: Public domain photo download from Wikipedia Commons and credited to Etching created by Cadell and Davies (1811), John Horsburgh (1828) or
R.C. Bell (1872).
Real-world employers operate in a marketplace
Evidence from the 745 small-firm sample (FT weighted)
• “For a small company like us [the ACA’s mandate] did not apply
BUT because there are other bigger companies who we have to
compete against for good quality employees, the company is now
offering health benefits to all hires including new hires.”
[underline added; capitalization in the original]