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Health Care
About Those Social Security ‘Promises’
In the Republican debate last night, former Gov. Mike Huckabee of Arkansas criticized calls for Social Security reform, saying “people paid their money. They expect to have it,” and that the country needs to honor its promises to seniors. There are problems with this line of argument: the Social Security payroll taxes a person pays are not tied to the benefits they receive in a legal sense, and the ‘promises’ made by Social Security are, and always have been, subject to change.
Congress has had the authority to alter Social Security since its inception. Section 1104 of The Social Security Act of 1935 explicitly says: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.”
Not only does Congress have the right to make changes, it has done so multiple times in the past. Sometimes these changes are smaller things, like a technical correction to the indexation formula, but there were also larger reforms that were part of attempts to address the programs solvency issues.
The Supreme Court revisited the issue of Social Security’s promises in Flemming v. Nestor, in which Nestor, who had paid into Social Security for 19 years and begun to receive benefits, was then deported for previous ties to the Communist Party. Nestor tried to appeal the termination of his benefits, citing his previous contributions, but the Supreme Court upheld it, saying:
To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands… It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.
The other aspect Huckabee touches on is the link between the taxes paid in and the benefits a person ultimately receives, implying that a worker’s contributions are kept in some kind of silo to be paid out to them at a later date. As another Supreme Court case found, this is not true.
In Helvering v. Davis (1937)the Court held that Social Security was not a contributory insurance program in the sense that “[t]he proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.” Despite how Huckabee and his fellow defenders of the status quo describe the program, the payroll tax payments a person pays into Social Security have no direct link to the benefits that they receive in a legal sense: they are subject to future changes made by Congress and dependent on the program having sufficient revenue.
Huckabee doesn’t need to familiarize himself with these decades-old Supreme Court cases or the Social Security Act to be able to understand the problems with his invocation of the program’s ‘promises’. Anyone, including Huckabee, can see this for themselves in the Social Security Statement that the Social Security Administration periodically sends to workers:
Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.
The ‘promises’ with Social Security always came with an asterisk, and beneficiaries are not entitled to a certain amount because they have contributed payroll taxes. In the past the law has been altered to change the deal facing beneficiaries, and there will undoubtedly have to be more changes in the future if Social Security is to remain viable. If we maintain the status quo and do nothing, benefits will have to cut by 23 percent across the board when the combined trust fund is exhausted in 2034. There can be disagreements about the best way to reform Social Security, but when it is facing trillions in unfunded obligations and the certainty of drastic cuts in the future absent reform, doing nothing is not a feasible option.
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Wave of Health Insurance CO-OPs to Shut Down in Latest ACA Failure
Hundreds of thousands people will lose their insurance plans as a raft of health insurance cooperatives (CO-OPs) created by the Affordable Care Act will cease operations. Just last week, CO-OPs in Oregon, Colorado, Tennessee and Kentucky announced that they would be winding down operations due to lower than expected enrollment and solvency concerns (although the one in Colorado is suing the state over the shutdown order). They join four other CO-OPs that have announced that they would be closing their doors. In total, only 15 out of the 23 CO-OPs created by the law remain. These closures reveal how ill-advised this aspect of the ACA was both in terms of lost money and the turmoil for the people who enrolled in them. The eight that have failed have received almost $1 billion in loans, and overall CO-OPs received loans totaling $2.4 billion that might never get paid back. In addition, roughly 400,000 people will lose their plans.
![Media Name: coop_map.png](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/coop_map.png?itok=CLQqE-5L)
Sources: Sabrina Corlette et al. “The Affordable Care Act CO-OP Program: Facing Both Barriers and Opportunities for More Competitive Health Insurance Markets,” The Commonwealth Fund, March 12, 2015; Erin Marshal, “8 Things to Know About Insurance CO-OP Closures,” Becker’s Hospital Review, October 20, 2015. Created using Tableau.
Notes: Hawaii and Alaska not shown. Neither state had a CO-OP. CoOportunity Health served both Iowa and Nebraska.
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ACA’s Looming IPAB Test
Yesterday, in a move being described as “a major shift,” the American Cancer Society changed its guidelines on when and how often women should undergo professional physical exams and mammograms for breast cancer.
Under previous guidelines that the organization had trumpeted for years, women “of average risk” were to begin both at age 40 and repeat them every year. Now the ACS is recommending annual mammography start at age 45, cutting back to once every two years at age 55, and eliminating the screen altogether when a woman’s future life expectancy falls inside of 10 years. As for the physical exam, the ACS no longer recommends it at all.
The reason for the change is that both screens provide so many stressful false positives that the ACS doesn’t believe regular testing passes a cost-benefit test unless the woman is of “higher than average risk.”
The shift should be welcome news for women. Mammograms and doctor breast exams are charitably described as “uncomfortable,” and probably more accurately described as “painful and embarrassing.” But the ACS change could become painful and embarrassing for the architects of the 2010 Patient Protection and Affordable Care Act (ACA).
One of the most scrutinized provisions of the ACA is the creation of the Independent Payment Advisory Board (IPAB), whose ostensible job is to recommend cost-containment measures if Medicare expenditure projections begin to outpace a previously determined growth rate. In reality, IPAB is to monitor the cost and effectiveness of various types of care to determine which will be covered by Medicare, with the expectation that those decisions will serve as a template for private health insurers and other third-party payers. The hope is that IPAB’s decisions will eliminate coverage of procedures that don’t measure up, thereby “bending the cost curve”—that is, reducing the nation’s overall spending on health care.
IPAB has been derided by critics as a “death panel” that could eliminate crucial care, and criticized by more thoughtful scholars as an unaccountable rationing board that will inject itself in decisions that ought to be private. In contrast, I’ve argued that IPAB is more likely to be a paper tiger that may occasionally block some treatment or another, but will usually cave to political pressure and approve popularly appealing procedures and treatments that pass no reasonable cost-benefit test. Those decisions will then pressure third party payers to also cover the care. That way, IPAB will bend the cost curve—just in the opposite direction from what the ACA writers intended.
So think of the ACS shift as a looming test of IPAB, as not-recommended breast cancer screenings are exactly the sort of Medicare expenditure the board should identify for elimination. So far, the “projected expenditures” provision for the board (or the secretary of health and human services, acting in IPAB’s stead) has not been triggered, so no cost-containment recommendations are currently forthcoming. Thus give IPAB an “incomplete” on this test for now—but don’t expect a good grade later.
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On Soda Taxes and Purported Health Benefits
This week, the New York Times editorial board wrote in support of greater taxes on sweetened drinks, citing new research from a team Mexican and American researchers. They praise the novel design of the tax, which is levied on drink distributors rather than consumers. This caused the tax to be included in shelf prices, making the increase in total cost clear to consumers. The research found that soda consumption fell 12 percent in a year, and 17 percent among the poorest Mexicans.
The Times admits that we do not know whether any health benefits will actually result from soda taxes. In this article in Regulation, the University of Pennsylvania’s Jonathan Klick and Claremont McKenna’s Eric Helland examined the effects of soda taxes. They conclude that a one percent increase in soda taxes led to a five percent reduction in soda consumption among young people. But consumers substituted to other beverages. A 6‑calorie reduction in soda consumption was accompanied by an 8‑calorie increase in milk consumption and a 2‑calorie increase in juice consumption. Thus, the tax on soda led to an increase in overall calorie consumption, which offset the benefits of falling soda consumption. Moreover, there was “no statistically significant effect of soda taxes on body weight or the likelihood of being obese or overweight”.
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King v. Burwell Helps Repeal Obamacare
It’s baaaaaack.
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In today’s issue of The Hill, the Heritage Foundation’s “dangerous” director of economic policy Paul Winfree and I explain that King v. Burwell makes repealing ObamaCare about nine Senate votes easier:
As early as this week, the House could consider a reconciliation bill that repeals only parts of ObamaCare, leaving many of its taxes in place. Not only do more Americans oppose that approach than oppose ObamaCare itself, but the Supreme Court’s recent King v. Burwell ruling shows why a full-repeal bill is more likely to reach the president’s desk. Indeed, unlike partial repeal, Senate leaders can all but guarantee that full repeal can pass the Senate with just 51 votes…
A full-repeal bill, by contrast, would recognize that ObamaCare creates a single, integrated program of taxes and subsidies that work in concert to expand coverage, and would eliminate that entire program as a whole. Its primary effect would be budgetary. According to the Congressional Budget Office (CBO), full repeal would eliminate $1.7 trillion of spending and “would reduce deficits during the first half of the decade.” Retaining ObamaCare’s spending cuts would ensure that repeal reduces deficits in perpetuity…
The Senate Budget Committee can further clarify that these provisions create one integrated program. First, it can ask CBO to score ObamaCare as it scored President Clinton’s essentially identical proposal in 1994, with “all payments related to health insurance policies…recorded as cash flows in the federal budget.” Second, it can adopt that score as the baseline against which the Senate considers reconciliation. Using that baseline would show ObamaCare’s regulations are merely components of a larger program, that all financial effects of repeal would be budgetary, and that Congress may repeal those regulations via reconciliation just as it can repeal rules regulating any other government spending Congress zeroes-out through that process.
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HHS Expects ACA Exchange Enrollment to Stagnate in 2016
For the second year in a row, the Department of Health and Human Services (HHS) estimates that enrollment in the health insurance exchanges will come in far below earlier projections from the Congressional Budget Office (CBO).
According to the research brief released yesterday, HHS estimates that effectuated enrollment, or enrolled and paying premiums, will be in the range of 9.4 to 11.4 million at the end of 2016. In a conference call with reporters HHS Secretary Burwell said she believes “10 million is a strong and realistic goal… our target assumes something that is probably pretty challenging, which is that more than one out of every four of the eligible uninsured will select plans.” Effectuated enrollment of 10 million for 2016 would be an increase of only 900,000 over the department’s estimate for this year. The department now projects exchange enrollment to stagnate in the same year CBO estimated that average effectuated enrollment would almost double to 21 million. Part of this is due to a slower than expected shift from employer-sponsored insurance, but also due to difficulties in reaching some segments of the uninsured population.