"Measuring the Impact of Health Insurance on Levels and Trends in Inequality" 

NBER Working Paper No. w15811

RICHARD V. BURKHAUSER, Cornell University - Department of Policy Analysis & Management (PAM), Syracuse University - Center for Policy Research
Email: rvb1@cornell.edu
KOSALI ILAYPERUMA SIMON, Cornell University - Department of Policy Analysis & Management (PAM), National Bureau of Economic Research (NBER)
Email: kis6@cornell.edu

A substantial part of the inequality literature in the United States has focused on yearly levels and trends in income and its distribution over time. Recent findings in that literature show that median income appears to be stagnating with income growth primarily coming at higher income levels. But the value of health insurance is an important and growing source of economic well being for American households that is missed by focusing solely on income. In this paper we take estimates of the value of different types of health insurance received by households and add them to usual pre tax post transfer measures of income from the Current Population Survey's March Annual Demographic Supplement for income years 1995-2008 to investigate their impact on levels and trends in measured inequality. We show that ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend. As an application of our fuller measure of income, we consider how two provisions of current health reform proposals to expand health insurance affect the level and distribution of economic well being.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

"Tracking Health Insurance Coverage by Month: Trends in Employment-Based Coverage Among Workers, and Access to Coverage Among Uninsured Workers" 

EBRI Notes, Vol. 31, No. 3, March 2010

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper examines employment-based health benefit coverage rates on a monthly basis from December 1995 to March 2009, to allow for more accurate identification of changes in trends, and to more clearly show the effects of recessions and unemployment on changes in coverage. Between December 2007-May 2008, the percentage of workers with coverage in their own name fell from 60.4 percent to 56.8 percent. The recession officially started in December 2007. The period between May 2008-March 2009 shows a continuing decline in the percentage of workers with employment-based coverage in their own name, falling to 55.7 percent by March 2009. Unlike the December 2007-December 2009 period, which saw a drop in employment-based coverage, the recession of 2001 produced very little change in coverage. The likelihood of a worker being uninsured is tied to the strength of the economy and the unemployment rate, but uninsured workers reported multiple reasons for not having coverage. Most workers reported that they did not have coverage because of cost, and those doing so ranged from 70 percent to 90 percent over the December 1995-March 2009 period. The percentage of uninsured workers reporting that they were not offered employment-based health benefits was roughly 40 percent through 2003, and has been falling since then, reaching 24 percent in early 2009. Although the link between health insurance coverage and employment has long been known, these data underscore the degree to which employment (or, more significantly, unemployment) rates directly affect the levels of the uninsured in the United States.

The PDF for the above title, published in the March 2010 issue of EBRI Notes, also contains the fulltext of another March 2010 EBRI Notes article abstracted on SSRN: “Employment Status of Workers Ages 55 or Older, 1987-2008.”

"Conditional Taxation and the Constitutionality of Health Care Reform" 

Yale Law Journal Online, Forthcoming
FSU College of Law, Public Law Research Paper
GWU Law School Public Law Research Paper

BRIAN D. GALLE, Florida State University College of Law, GWU Law School
Email: bgalle@law.fsu.edu

This brief essay argues that the recently-enacted tax on individuals who fail to purchase health insurance is constitutional. Contrary to the claims of more than a dozen state Attorneys General, this "individual responsibility" requirement is well within Congress' taxing power under Article I, section 8. That the tax has a regulatory purpose is irrelevant, a point that has been settled law since at least 1953. Moreover, the tax is not subject to the constitutional requirement that "direct" taxes be apportioned, because (1) it is an income tax, and thus exempted from apportionment by the 16th Amendment; (2) even if not an income tax, it is nonetheless an indirect tax, since it is a tax on a particular use of property or government services; and (3) it is an indirect tax because it is not reasonably capable of apportionment.

I also defend these doctrinal conclusions against possible normative critiques. Critics claim that such a broad taxing power could not be consistent with a constitutional text that grants only limited powers to Congress. But the taxing power in fact is limited; however, its limits are practical, political, and interpretative, rather than (as with the Commerce power) limits on scope. Nor would a broad reading of the power to tax "for the general welfare" render the text separately enumerating the powers of taxing for defense and to pay the nation's debts superfluous. Separately stating those powers served a political purpose in emphasizing the new nation's capacity to its foes and creditors, and guaranteed a minimum level of content for the otherwise sweeping term "welfare."

"ERISA & Uncertainty" 

Washington University Law Review, Forthcoming

BRENDAN S. MAHER, Oklahoma City University School of Law
Email: bmaher@okcu.edu
PETER K. STRIS, Whittier Law School, Stris & Maher LLP
Email: pstris@law.whittier.edu

In the United States, retirement income and health insurance are largely provided through private promises made incident to employment. These “benefit promises” are governed by a statute called ERISA, which many healthcare and pension scholars argue is the cause of fundamental problems with our nation’s health and retirement policy. Inevitably, however, they advance narrowly tailored proposals to amend the statute. This occurs because of the widely-held view that reform should leave undisturbed the underlying core of the statute. This Article develops a theory of ERISA designed to illustrate the unavoidable need for structural reform.

"How Much is Enough? The Distribution of Lifetime Health Care Costs" 

ANTHONY WEBB, Boston College - Center for Retirement Research
Email: webbaa@bc.edu
NATALIA ZHIVAN, Center for Retirement Research at Boston College
Email: natalia.jivan.1@bc.edu

Estimates of the expected present value of lifetime out-of-pocket medical costs from age 65 onward are of limited value to households managing wealth decumulation in retirement. Their risk characteristics may differ from the average. They will also care about the whole probability distribution of health cost outcomes, and will want to update that probability distribution during the course of retirement. Using Health and Retirement Study data, we simulate health, mortality, and health cost histories of retired households. We show that the life expectancy and average health costs of our simulated households closely match published life tables and the findings of previous research. Using our simulated data, assuming a 3-percent real interest rate and including Medicare and private insurance premiums, we estimate that a typical household age 65 has a 5-percent risk of the present value of its lifetime health care costs exceeding $311,000, or $570,000 including the cost of long-term care. We find that relatively little resolution of uncertainty occurs with age, even for those who remain free of chronic disease.

"The Use of Health Savings Accounts for Health Care in Retirement" 

EBRI Notes, Vol. 31, No. 4, April 2010

PAUL FRONSTIN, Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG

This paper examines the savings needed to cover health insurance premiums and out-of-pocket expenses for health care services in retirement and evaluates the use of health savings accounts (HSAs) to save for those expenses. Proponents of HSAs often tout them as a vehicle for funding future retiree health care costs. However, statutory contribution limits mean that they are unlikely to play more than a minor part in savings for health care costs in retirement. If an individual age 55 in 2009 were to contribute $3,000 to his or her HSA and also contribute the $1,000 catch-up contribution each year for 10 years, $48,300 would be in the account after 10 years at a 2 percent interest rate. And if the interest rate was 5 percent, $55,100 would be accumulated at the end of 10 years. Such savings levels by themselves are inadequate to cover health costs in retirement. A man age 55 in 2009 would need between $144,000-$290,000 by the time he reached age 65 in 2019 (depending upon his use of prescription drugs in retirement) to have a 50 percent chance of being able to cover premiums and out-of-pocket expenses for Medigap and Medicare Part D. Thus, a 55-year-old man would be able to use an HSA to accumulate between 16-32 percent of needed savings for insurance premiums and out-of-pocket expenses in retirement for a 50-50 chance of having enough savings. For a 90 percent chance, the maximum HSA savings would cover between 7-16 percent of the necessary savings amount. Women, who live longer than men on average, will need more.

The PDF for the above title, published in the April 2010 issue of EBRI Notes, also contains the fulltext of another April 2010 EBRI Notes article abstracted on SSRN: “Tax Expenditures and Employee Benefits: Estimates from the FY 2011 Budget.”

"Tax Expenditures and Employee Benefits: Estimates from the FY 2011 Budget" 

EBRI Notes, Vol. 31, No. 4, April 2010

KENNETH J. MCDONNELL, Employee Benefit Research Institute (EBRI)
Email: MCDONNELL@EBRI.ORG

The federal government supports the provision of employee benefits through preferential tax treatment in the Internal Revenue Code. The Congressional Budget Act of 1974 (P.L. 93-344) requires that a list of “tax expenditures” (federal tax revenue forgone due to preferential provisions) be included in the budget. The concept of “tax expenditures” has always been controversial, particularly as it relates to programs that are “tax deferred” (such as retirement plans, under which tax revenue ultimately will be collected) rather than “tax exempt” (meaning programs in which no revenue will ever be collected). For the next fiscal year (2011), all employee benefits-related tax expenditures ($380.83 billion) will account for 36.0 percent of the $1.06 trillion tax expenditures in the budget. Tax-favored employment-based health insurance benefits will account for the largest tax expenditure presented in the budget ($176.96 billion, or 16.7 percent of the total amount and 46.5 percent of all employee benefits-related tax expenditures), followed by employment-based retirement plans ($111.69 billion, or 10.6 percent of the total amount and 29.3 percent of all employee benefit related tax expenditures). This paper includes a listing of the employee benefit tax expenditures, as published in President Obama’s Fiscal Year 2011 budget, prepared by the White House Office of Management and Budget, using a methodology that is flawed but mandated by Congress.

The PDF for the above title, published in the April 2010 issue of EBRI Notes, also contains the fulltext of another April 2010 EBRI Notes article abstracted on SSRN: “The Use of Health Savings Accounts for Health Care in Retirement.”

"The Effect of Health Insurance on Health Care Utilization: Evidence from The Medical Expenditure Panel Survey 2000-2005" 

DIETHER W. BEUERMANN, University of Maryland - College Park, Durham University - Business School, Inter-American Development Bank (IADB), Universidad de Lima - Facultad de Economia
Email: beuermann@econ.umd.edu

This paper exploits the fact that insurance eligibility in the United States changes abruptly at age 65 due to universal coverage provided by Medicare. In that way, we adopt a regression discontinuity design to analyze the effect of health insurance coverage on health care access and utilization. The main findings suggest that groups with lower pre-65 coverage gain higher increases in the probability of being insured at 65. For instance, less educated persons (less likely to have pre-65 health insurance) appear to increase their likelihood of being insured at age 65 by more than their more highly educated counterparts. Furthermore, this increased insurance coverage appears to be associated with reductions in intergroup disparities in health care access. Therefore, the findings suggest that insurance matters in order to access health care services in a way that could potentially reduce inequalities between different ethnic groups.