Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Archive for January 2009

Do I want a fiscally responsible President?

with one comment

I think so.  But this article gives me pause.  It quotes Obama:

“Social Security, we can solve,” he said, waving his left hand. “The big problem is Medicare, which is unsustainable. . . . We can’t solve Medicare in isolation from the broader problems of the health-care system.”

I suspect this quote reveals that he and I view these programs from fundamentally opposite perspectives.  I see Medicare causing broader problems in the healthcare system and rarely suffering from them.  The fundamental Social Security problem is how to maintain the program’s popularity with ever-declining benefit-to-contribution ratios.  Both contibute to the overarching problem of how to manage the overall impact of these programs on the general finances of the US government.

I am not particularly concerned, per se, about the long-term projected deficit in Medicare, and am only moderately more concerned about Social Security’s actuarial deficit.  I fear “solutions” to these problems that emphasize policy options that exploit weaknesses in the assumptions and calculations rather than focusing on the fundamental issues.  Saying we can “solve” Social Security suggests to me a very narrow version of what that “problem” really is.  Saying that we must reform the private healthcare market to reform Medicare is tantamount to avoiding the tough healthcare financing issues facing that program.

I’m not unhappy yet.  He vagueness leaves much to the imagination.  But I am becoming concerned.  Tyler Cowen is much happier.

Written by Victor

January 16, 2009 at 6:09 pm

Obama Administration Considering COBRA Reforms

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The Obama administration is considering some COBRA reforms designed to mitigate high COBRA premiums.

…the government would pay between 50% and 60% of the premium, while the length of the subsidy would be 18 months, the maximum period of time employees can obtain COBRA coverage from their former employers. In other situations, such as divorce, death and marital separation, beneficiaries are eligible for up to 36 months of COBRA. A federal COBRA subsidy “has been pretty much agreed to,” said Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee.

President-elect Barack Obama also appears to back the idea.

I’m opposed to this approach.  I prefer the solutions I offered last month (see the second and third points, specifically).  My solutions address not only the funding issue, but also the ease with which a person can transfer to and from the non-group insurance market.  The Obama reform program is less ambitious but presents several unnecesary complications:

* The subsidy may exceed the subsidy currently offered by the employer, meaning that losing your job may reduce your out-of-pocket premium payments.

* This reform proposal reinforces the role of COBRA in facilitating post-work insurance; I prefer to work towards making COBRA obsolete. 

* This reform proposal adds to an employer’s healthcare costs via increased anti-selection.  I prefer to have that cost absorbed more broadly through the unemployment insurance system, in the non-group market, or as a general charge applied to all group premiums.

* This reform proposal will encourage additional means-testing and extra layers of administrative overhead.  This burden will be heavier on small employers (as will the impact of anti-selection).

If something looks too politically convenient, it probably is.  I’m not confident that our policy makers have a strong grasp of the insurance market or how their proposals will interface with it.  I’m also not confident that taking a 20 year old idea (COBRA) and then throwing money at it is an efficient method of improving our healthcare financing system.

Written by Victor

January 12, 2009 at 3:50 pm