Marxist Provisions in "Medicare for All"

This post refers to four bills entitled “Medicare for All”: two introduced in the previous Congress (S.1804, H.R.676) and two bills recently introduced in the current Congress (S.1129, H.R.1384).  Although few people have actual read them, they are popular and enjoy enthusiastic support.  The bills’ titles give the impression that they are merely opening up the U.S. Medicare program to all ages.

The titles belie the actual text.  Closely following Marxist principles, the “Medicare for All” bills eliminate profits and private enterprise in health-related industries.  They centralize decisions about capital investment.  They give healthcare away “for free.”  These provisions are rarely undertaken by other countries and are contrary to media claims that actual Federal policy proposals have little to do with socialism or Marxism.

                                              

Prohibition of profits

The net operating surplus of a business is its revenue minus depreciation, labor costs, and materials costs.  The net operating surplus of an economy is the net operating surplus added across all of its businesses.  It can also be called profit, as long as capital or financing expenses are not subtracted.

According to Karl Marx, net operating surplus exists only because of the exploitation of workers by the capitalist class.[1]  Time preference and other “reasons” for a positive net return on capital are merely bourgeois justifications (i.e., flimsy excuses disseminated by capitalist-financed commentators) for labor exploitation.[2]

Zero net operating surplus is therefore necessary to eliminate exploitation by Marx’s definition.  The two House “Medicare for All” bills (hereafter, M4A) would prohibit health providers from earning profits.  As the new House bill puts it:

“There is a moral imperative to correct the massive deficiencies in our current health system and to eliminate profit from the provision of health care.”[3]

In contrast, neither profits nor net operating surplus are prohibited in the current Medicare system.

Government ownership of an entire industry’s businesses

Government ownership of the (nonlabor) means of production is one socialist proposal for eliminating profits.[4]  That is, the government would effectively (if not legally) own all businesses in the industry: it would make all business decisions and prohibit private control of any competing enterprises.

All three Medicare for All bills take the “single payer” principle literally and have the government taking over the health insurance industry.  The Federal government would monopolize the industry; private health insurance would be prohibited (it would be legal to sell insurance for “cosmetic surgery or other services and items that are not medically necessary” -- is that health insurance?).  Under the new House bill, the same applies to the medical-advertising industry.  This is contrary to the current Medicare system, which has thousands of private providers, more than one thousand private insurers, and permits advertising.

If consumers were better served by an industry with zero net operating surplus, the prohibition of private enterprises might seem redundant because they would be outcompeted by a nonexploitive (and unsubsidized) government business.  A second justification is therefore added: that health insurance – if not health care in general – has virtually unlimited economies of scale.  A government monopoly of health insurance would purportedly “be more productive by avoiding 'waste' on administrative costs, advertising costs, and profits and would use its bargaining power to obtain better deals from healthcare providers.”[5]

The new house bill also has the Federal government monopolize the dissemination of information to patients and health providers about health goods and services.  Specifically, providers are prohibited from advertising/marketing/promoting their health goods and services and, based on the costs of dissemination, we presume that the Federal government would be the only institution doing it.[6]  Under current Federal policy, providers are permitted to advertise, especially when product promotions involve discounts or the provision of product information.  This activity is especially significant in the pharmaceutical industry, where resources are spent disseminating pharmaceutical information to health professionals.

Central planning: all capital investment is directed and financed by the Federal government

Providers, which would have no profits, are prohibited by the new House bill from using M4A reimbursements to pay for capital investments (Sections 614(b), 614(d) and 611(b)(3)). Capital investments would be approved, prioritized, and financed by the Federal Department of Health and Human Services (HHS).[7]  Charitable contributions cannot be used to supplement the HHS capital budget (Section 614(c)(4)).

In contrast, the current Medicare program allows providers and insurers to make capital investments without HHS approval.

“Free”: Patients receive health goods and services with zero cost sharing

Aside from the normal tax obligations, none of the four M4A bills charge patients for health insurance premiums or at the point of use. 

In contrast, the current Medicare program has premiums and copays to be paid by program participants.

Other countries’ health programs are not so Marxist

Nordic countries are held up as purported proof of concept for Medicare for All, but in fact they do not adopt any of the Marxist provisions above.

All of the Nordic countries’ health systems have user fees or out-of-pocket payments, whose share of overall health spending is similar to what it is currently the case in the United States—although Denmark is the Nordic outlier, in that its patient cost sharing is essentially limited to prescription drugs.[8]

Private and for-profit health providers and health insurers exist in these countries and are accounting for a growing share of the market.

Private health insurance is important in a number of other universal-coverage countries, such as Switzerland, where all residents are required to purchase health insurance.[9]

Even single-payer countries allow providers to promote their products to health professionals.[10]

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[1] Marx 1867 refers to net operating surplus as “surplus value.”

[2] Time preference is the term familiar from modern economics; Marx (1867, Chapter 24) called it “abstinence.” (Later Böhm-Bawerk 1890 distinguished the abstinence theory from the modern idea of time preference, but the distinction is unrelated to Marx's discussion of abstinence).

[3] H.R. 1384 Section 614(a), emphasis added.  See also Section 103 of H.R. 676 that requires all health providers to surrender their for-profit status.  For an alternative view, see McCloskey (2016, esp. Chapter 59 and 61).

[4] Marx (1867) focuses more on the existence and magnitude of surplus value rather than the ownership relations that allow it to exist.  See also Roemer (1982).

[5] Quoted from CEA (2019, p. 420).  For evidence of the modern currency of these views, see Kliff (2014), Kliff (2018), Frank (2017), Konrad (2017), and Weisbart (2012).  CEA (2019) notes that historical nationalizations were justified on similar grounds.

[6] H.R. 1384 Section 614(b)(1).

[7] Section 614(c).  Capital investments are defined to be "the construction or renovation of health care facilities, excluding congregate or segregated facilities for individuals with disabilities who receive long term care services and support; and major equipment purchases." (Section 601(a)(6)) and later as "expenses for the purchase, lease, construction, or renovation of capital facilities and for major equipment."

[8] Universal coverage systems are common internationally, but they are different from free health care and from single-payer systems.  Regarding cost sharing, see Rice et al. (2018); Globerman (2016); Anell, Glenngård, and Merkur (2012); Olejaz et al. (2012); Ringard et al. (2013); Sigurgeirsdóttir, Waagfjörð, and Maresso (2014); and Vuorenkoski, Mladovsky, and Mossialos (2008).

[9] See Sturny (2017). The Netherlands achieves universal coverage by mandating the purchase of health insurance from private insurers (Wammes et al. 2017). Private health insurance is also required in Japan (Matsuda 2017).

[10] https://united-kingdom.taylorwessing.com/synapse/medicine_regulation.html

Marxist Perspectives on White House Staff Turnover

The labor theory of value (a.k.a., law of value) is an aspect of Marxist theory that still thrives in the marketplace of ideas.  It values anything and everything according to how much labor went into it.

Therefore, for example, Ben Rhodes contributed at least thrice more to the Federal government than, say, Brian Blase because Rhodes served 96 months in the Obama White House (as Deputy National Security Advisor) while Blase served only 29 (as Special Assistant to President Trump for Healthcare Policy).

But let's look at why Rhodes' tenure was 96 months whereas Blase's was 29.  Chapter 23 of Rhodes' memoirs explains that as of 2014 (roughly 70 months in), he expected that his policy accomplishments were still unfinished.

• Normalizing relations with Cuba (to my personal benefit) did not begin until the 71st month; the President's trip to Cuba was in the 86th month.
• The Iran deal was not reached until the 78th month.
• Intervention in Libya (26th month) may have felt like a policy success at the time (Chapter 18 quotes President Obama as saying "In Libya, everything went right--we saved thousands of lives, we didn't have a single casualty...").

Brian Blase's important policy accomplishments came sooner.  He led three (sic) Federal agencies to coauthor three transformative Federal deregulatory actions that were celebrated in the White House Rose Garden in Blase's 29th month.

• Allowing more small businesses to form Association Health Plans (17th month; creating an annual net benefit of $13 billion for some of the reasons discussed earlier).
• Expanding Short-Term Limited Duration health Insurance plans (19th month; creating an annual net benefit of $12 billion for some of the reasons discussed earlier).
• Creating individual-coverage Health Reimbursement Accounts (29th month; CEA has not yet quantified a net benefit).
• Contributing to the Administration's effort to set the Affordable Care Act's individual mandate penalty to zero (11th month; creating an annual net benefit of $20 billion as discussed earlier).
• Other not yet quantified policy achievements such as fixing the Affordable Care Act's formula for the Premium Adjustment Percentage.

Indeed, these health insurance deregulations accomplished in 29 months have, as a share of national income, net benefits that are more than half of the legendary deregulation of airlines that began during the Carter Administration, which took more than twice the time that health insurance deregulation did.

Another example is Andrew Bremberg, who served 24 months as President Trump's Director of the Domestic Policy Council.  He had many accomplishments during that time, the most legendary being his leadership of the Administration and the 115th Congress to deregulate by way of the Congressional Review Act.

• Measured in terms of economic impact, this work was prolific.
• 16 separate pieces of legislation deregulated education, mining, retirement accounts, and more.  They are expected to increase annual real incomes by more than $40 billion.
• All of this was achieved in only 15 months.

COS General Kelly (17 months) is another example.  He came early in the Administration when more efficient operating procedures were needed and, as in earlier Administrations (this one had its first-year middle-east policy dictated by leaks), leaks needed to be reduced.  Like Doug Collins did for the Jordan-era Chicago Bulls, General Kelly improved the organization.  With Kelly's accomplishments in place, it was time for a different set of talents.  Mulvaney is the White House's Phil Jackson with both political successes (i.e., winning elections himself) and an impressive analytical mind.

Undoubtedly there are Trump Administration officials with both short tenures and short accomplishments.  But the above is enough to show how misleading are the turnover statistics.

You might assert that Blase and Bremberg had easier jobs than Rhodes did because the former were "merely" undoing actions of a previous Administration.  That assertion certifies mastery of the labor theory of value.

[The labor theory of value has endured since Marx.  Other important parts of Marxist theory did not, but made a comeback recently.  I will write about those next.]

Who recognizes economic history first: politicians or economists?

Figure 1 is the familiar chart showing the “Laffer curve” relationship between a tax rate and the net revenue from the tax.  A small tax on, say, wireless internet service is expected to provide more revenue (point B) than would be obtained without any tax on wireless internet service (point A).  It is conceivable that the wireless internet tax rate could get so high that further increases in the rate actually reduce revenue (point C) as consumers take steps to evade taxation altogether.  At point C, economics gets really interesting because many of the difficult public policy marginal tradeoffs disappear.

When it comes to various taxes in the United States, at least, we economists typically expect that the operative point is B.  E.g., the Federal payroll tax is probably at a point where further increases in the rate would raise at least some revenue, albeit less than static scores that make little distinction between points A and B.

The statutory Federal corporate rate is an interesting case, especially three years ago when it was well above rates elsewhere in the world.  Arguably cutting that rate increased Federal revenue as at point C (combined revenues from payroll, personal income, and corporate income).  But other reasonable experts could opine that point B was and is the operative point for the corporate tax rate.  And even these opposing experts would likely agree that the operative point (B or C) is above point A where the tax is abolished.

My only point here is that we would be at a unique chapter in economic history if a tax were obviously at point C or beyond.  So turn now to Figure 2, especially its point D where the government receives more revenue by abolishing the tax.  This was the case with the Affordable Care Act’s tax on uninsurance (a.k.a., individual mandate tax).

(I cannot say for sure how the path evolves between points A and D, e.g., perhaps the path never crosses above the horizontal axis, but that issue is not important for what follows.)

The first chapter of my ACA book explained what was happening, using the story of Pastor Ben Winslett who described how the ACA “has placed an enormous financial burden on normal, everyday people quite literally forcing us onto government assistance we didn’t need before.”  In other words, the individual mandate penalized people for turning down government assistance!  Mick Mulvaney explains here.

The government saves money by reducing the punishment it imposes on people who turn down subsidies because more people turn down the subsidies.

You don’t have to believe me.  Look at Jonathan Gruber’s 2010 analysis of repealing the individual mandate, where he projected (p. 4) that repealing it would reduce Federal spending by about $46 billion per year, while sacrificing much less than that in terms of mandate collections.  Or the Congressional Budget Office projection that repealing the mandate would reduce Federal spending by about $34 billion per year, while sacrificing much less than that in terms of mandate collections.  I (and the current CEA) think that those two estimates are exaggerated, but if Gruber and CBO stand by their qualitative analysis then all four of us must agree that point D is the operative point.

Having a tax at point D easily makes the highlights of economic history. Neither my book (which focused on the subsidies and the employer mandate), Gruber’s report, nor the CBO’s report put their findings on the individual mandate in the context of a Laffer curve let alone follow up with an estimate of the massive economic damage that comes with pushing a tax down to point D.  It should be no surprise that, in doing the necessary work, the current CEA found massive net benefits of moving from point D to point A even after considering the various benefits of expanding health insurance coverage.

President Trump and Congressional Republicans recognized the historical damage done by the individual mandate well before economists did, even while it is economists who specialize in such matters.  President Trump reached the (important and correct) conclusion sooner because he reasons differently on issues like this.  Simulated annealing is a close analogy that I’ll write about later.  He did not get ahead of us by “playing 3 dimensional chess” or drawing Figure 2: that would be the kind of deductive reasoning that is prevalent in economics and proved slower at reaching the answer.  Many critiques of the President assume that deduction is the only method and thereby entirely miss the point of simulated annealing, which is that he would try both criticizing the mandate and (albeit briefly) praising it and then closely monitor the feedback.  I suspect that members of Congress did something similar (President Obama also recognized -- just privately until he left office -- that there was more to the individual mandate than the technocrats were telling him).

Health regulation is just one area of Federal policy where some of the most interesting economic history is happening now….

Critiques of Single-payer: Why Did They Take So Long to be Discovered?

It is now routine for Democrats to be asked in town halls, debates, etc. "Who here would abolish their private health insurance in favor of a government-run plan?"  But why did it take so long to pose this question to advocates of "single-payer" health systems?

As a matter of economics, it should be obvious that the health insurance market would not be served by a single seller unless there were tremendous barriers to entry.  E.g., criminalizing any private enterprise that attempts to sell or otherwise provide health insurance.  Without stark penalties, regardless of the details of government plans, there would be gains from trade between private insurers and at least a small segment of consumers if not more.  With private insurers, the market is no longer "single payer" (as long as "single" refers to "one"). 

For this reason, bills in Congress proposing to transform the U.S. market into single payer outlaw private health insurance.  Take Senator Bernie Sanders 2013 (sic) American Health Security Act's "enactment of a Medicare-for-All Single Payer Health Care System" by "Requir[ing] each state health security program to prohibit the sale of health insurance in that state...."

Why didn't Mrs. Clinton ever raise this point when Senator Sanders was campaigning against her for the 2016 Democratic nomination?

Why didn't Joe Crowley raise this point when campaigning against AOC in 2018?

One possible answer is overconfidence in victory.  But overconfidence did not stop Clinton supporters from calling Sanders a socialist during the 2016 primary, or Clinton positioning herself as a defender of capitalism.  Why not make it more concrete to regular people and alert the 180 million consumers of private health insurance that their product would become illegal?

I think part of the answer is that few people actually read the single-payer bills in Congress (I observed the same with the "stimulus" law and with the ACA) or think through the economics of how single payer can operate even in principle.

From the first day I arrived at White House CEA, I told anyone who would listen: "Medicare for All bills in Congress will outlaw the sale of private health insurance and outlaw the provision of health insurance as part of employment."  They thought I was kidding.  Because capable politicians do not give such gifts to their opponents, what I said could not be true.  I began carrying the relevant bill sections in my jacket pocket for the benefit of the doubting Thomases; only after that did the President's speeches (which are preread by EOP staff) begin to include the disturbing and incredible truths about "Medicare for All" (an earlier alarm bell was here).

It turns out that I have a talent for finding rock-solid facts that journalists would vigorously deny (see Jim Acosta here, noting that the President wrote about "the Democrat proposal 'Medicare for All'", which USA today shortened to "Democrats" in its byline).  A few months later, journalists finally stopped denying the plain text of the Medicare for All bill and began querying Democrats as to whether they support the abolition of private health insurance.

(Medicare for All bills also adhere remarkably closely to Marxist theory, but that is primarily of academic interest so I will post on it later.)

[For those interested in the technicalities, Medicare for All outlaws any private insurance (individual or employer) that covers any normal medical service.  Specifically (from page 421 the 2019 Economic Report of the President, referring to the 2017 bills): “medically necessary or appropriate”

• hospital services,

• ambulatory patient services,

• primary and preventive services,

• prescription drugs,

• medical devices,

• biological products,

• mental health services,

• substance abuse treatment,

• laboratory/diagnostic services,

• reproductive care,

• maternity care,

• newborn care,

• pediatrics,

• oral health services,

• audiology services,

• vision services, or short-term rehabilitative and habilitative services and devices (sections 107 and 201 of the “Medicare for All” Act of 2017 and section 104 of the House bill).

The House bill (section 102) goes further with

• dietary and nutritional therapies,

• long-term care,

• palliative care,

• chiropractic services,

• and podiatric care.

The 2019 bills further add to this list. 

]

A Brief Summary of Activities in President Trump's Council of Economic Advisers

From July 2018 to June 2019, I served as Chief Economist of the Council of Economic Advisers (CEA). My primary responsibilities were preparing public reports, supervising senior economists and interacting with various groups in the White House and in the relevant agencies on a wide range of topics.  As CEA engaged in topics, they were picked up by Kevin Hassett (especially tax and trade), Tom Philipson (esp. health, infrastructure, student loans), Rich Burkhauser (esp. labor, immigration, and social programs), or me (Affordable Care Act, socialism, regulation, wage growth, macro aspects of trade).  On some of the topics I worked serially or in tandem with Tom (health insurance regulation, Medicare Part D, the Rx CPI, opioid prices) and in tandem with Rich (TROIKA).

The large majority of my time was in various stages of preparing Administration reports for the public, most of which were CEA products although OMB publishes the TROIKA results and the agencies publish rulemaking documents (which CEA sometimes edits).

Typical activities: Supply and Demand

The pace and daily execution of my work closely resembled academic research and economics consulting in litigation matters.  This is probably unusual in the history of the CEA, but was the result of three practices:

• anticipating the needs of POTUS and EOP economic principals,[1]
• fitting questions into the catalog of economic theory so that established methods and literatures could be used to quickly obtain reliable answers,[2] and
• using already-published CEA reports to facilitate accurate and consistent execution of new tasks.

Much public policy discussion is devoid of economics and thereby obscures evaluation of current Federal policies.  Invariably these were policy areas where EOP principals most valued CEA’s work.  Socialism and Medicare for All (see also their updates in the in 2019 Economic Report of the President) are good examples where CEA was able to initiate or at least bend the conversation by assembling results from economic research.

Probably the best tool is the empirical counterpart of the supply and demand picture.  That is, measuring both price and quantity using the best methods available in the academic literature.  CEA is desperately needed to perform this function.  The current CEA already has 11 instances of those pictures in its Economic Reports of the President, as compared to only 8 for all of the combined other Presidential Administrations in U.S. history.[3]  This may seem to be a trivial enterprise, but the “best” in our profession fail at it regularly (see below and here and here).

With the labor market, for example, the public policy community is familiar with methods for measuring quantities (employment, hours, unemployment etc.) but unfamiliar with measuring prices (i.e., wages).  CEA measured wages with attention to composition issues, human capital, taxes, etc., and thereby helped change the factually incorrect narrative that real wages were “stagnating.”

Prescription drugs are another important example.  The typical narrative (including at HHS, which sees itself as the drug-price regulator) was that prescription drug prices were increasing faster than general inflation, as they had for decades. But, with attention to the institutional details of the supply chain, CEA found that the best measures showed an increase in quantities of prescriptions at the same time that prices have been falling over the past two years or so.

With the decades-long opioid epidemic, public policy discussions still ignore prices altogether: another opportunity where CEA made a valuable contribution by following standard economic practice.  (More on this tragic and ongoing story in later posts).

CEA’s trade team executed these methods repeatedly as various tariff rates were changed.

CEA took a similar approach to the Affordable Care Act, where we found that Trump Administration reforms were significantly reducing health insurance prices measured according to a cost of living index.  CEA’s public report on this issue presented the dual of the cost-of-living index, namely cost-benefit analysis.  This spawned many other regulatory impact analyses by CEA that laid the foundation for its report on the economic effects of the Trump Administration’s deregulation portfolio.  I worked closely with Don Kenkel (now the CEA Chief Economist) on these issues throughout the year.

One Economics

I looked carefully and critically at the headline calculations of all CEA reports released during the year (beyond the 12 reports or ERP sections that I edited), as well as the corporate tax reports released at the end of 2017.  The essential methods and sources for these calculations proved to be consistent across reports including, but not limited to, tax, immigration, health, socialism, and regulation.

A three-good version of the neoclassical growth model with taxes was another workhorse that links industry-specific analysis with macroeconomic analysis.  The three goods are leisure and two consumption goods (but see below).  CEA used that to look at Medicare for All (health consumption vs other consumption), tariffs (tariffed goods vs other goods), and dozens of regulations (regulated good vs other consumption goods). We also used it to look at business tax reform and investment regulation, where there is just one consumption good but two capital goods (corporate vs noncorporate).  We typically focused on the steady state and took a broad view of “taxation” that encompasses other market distortions.  We derived quantitative rules of thumb (such as the well-known marginal excess burden of taxation) for the effects of a single sector’s distortion on the aggregate supplies of labor and capital.

I frequently used automated economic reasoning (run with Mathematica with an add-on from the web) to confirm, refine, and extend our reasoning about the three-good model and other applications of logic and economic theory that went beyond the simplest supply-and-demand framework.  I will be adding these examples (which embed hundreds of automatically assembled and decided Tarski formulas) to the library of SAT/quantifier-elimination applications that I maintain with computer scientists.

Working in a Large Organization

The Executive Office of the President (EOP, of which CEA is one of several components), not to mention the entire Federal government, is a large organization with components far more inter-reliant than the components of a university. Professors joining CEA need to be aware that staff meetings are critical for keeping information flowing to the parts of the EOP that need it.  As you attend EOP meetings in your subject area, be prepared to share headlines with the rest of the CEA staff at the staff meetings and listen to others to assess who in CEA or outside CEA might be of help for the next task that arrives.

The EOP has a staff hierarchy for the same reasons, although many employees adhere to it so rigidly that there is a role for organizational entrepreneurs who cross some of those boundaries, which is a role I took on in much of my work.  Otherwise meetings of principals (a.k.a., cabinet-level positions) and deputies (report directly to principals) may not have anyone present who knows first hand the details of the meetings’ subject.  I presume that this is also a problem in large private organizations, but more acute in government where leaks are more of a constraint on determining who is invited to meetings (see, e.g., this memoir’s discussion of leaks in the Obama White House).

CEA Chairman Hassett and COS DJ Nordquist assembled an amazing team of economists.  I also worked closely with six other components of the Federal government: the Office of Management and Budget (OMB), the National Economic Council (NEC), the Office of Information and Regulatory Affairs (OIRA, technically part of OMB), the Domestic Policy Council (DPC), the Department of Labor (DOL), and the Department of Health and Human Services (HHS).

Every day working in the EOP was a pleasure (Mick Mulvaney = Phil Jackson; the Kelly-Collins analogy is imperfect). It is difficult saying goodbye to so many excellent EOP colleagues but by design CEA has high turnover so that others outside can come in with fresh ideas and energy.

[In returning to the University of Chicago, I return to publishing under my own name and take sole responsibility for the analysis and conclusions.  As such, the Federal government is not consulted on my writings.]

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[1] E.g., measuring wage growth properly, exposing misconceptions about single-payer systems, highlighting the consequences of deregulation from autos to prescription drugs.

[2] A forthcoming blog post will list more than 50 results from Chicago Price Theory (forthcoming, Princeton University Press) that appear in public CEA reports.

[3] CEA, which is tasked with preparing the Economic Report of the President, dates back “only” to 1946.

Lou Dobbs knew what we were doing

Remembering Alan Krueger

Sadly Princeton Professor and former CEA chair Alan Krueger passed away this weekend.  Many younger economists were inspired by his insistence that economics is an empirical subject: no matter how good a theory sounds, it is not valuable unless it is confirmed with data.  He was 100% correct about that.

Another of his many contributions was his editorship of Journal of Economic Perspectives which, unlike most academic journals, publishes accessible economic analyses of important topics, including our shared interest in intergenerational mobility (he proved to be an excellent editor on this piece).

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