What, actually, is a “fair tax”?

Not the Pritzker proposal for an Illinois tax hike, despite his and his supporters’ claims, actually.

After all, we intuitively know what’s fair and what’s not.  Rules which, in theory and in practice, treat everyone evenhandedly are fair.  Rules which are arbitrary, or penalize or advantage some people or groups over others, other than for appropriate reasons, are unfair, and all the more so when they are set by a minority without a democratic process (or subverting/manipulating a nominally-democratic process).

The pop tax?  Intuitively, it was clear that it was unfair.  One group of people (pop-drinkers) was asked to pay a disproportionate share of the county’s taxes, and within that group, some were burdened more than others — those without cars, without storage space, too far towards the center of the county, or otherwise less able to drive elsewhere to get their pop.  (Yes, at the time my husband worked in Lake County and until the tax was rescinded he bought the Family Pop Supply on his way home from work.  And, yes, if the tax was applied nationwide this specific complaint would be mitigated, but not that of the unfair targeting of pop-drinkers.)

Or consider the gas tax:  people are reasonably OK with it if it actually funds road repair.  But tell them that the gas tax is being used for entirely unrelated purposes that are nominally transportation-related (Cato reports that Kansas, Maryland, New Jersey, Minnesota, Connecticut, Texas, and Rhode Island each divert over 50% of these taxes in some fashion or another) and taxpayers are less happy.

So what of the Pritzker tax proposal?  (For a refresher on the particulars, see my prior article; the latest update on its status comes from today’s Tribune, which reports that the State Senate’s Executive Committee voted along party-lines to approve placing the tax-enabling amendment on the 2020 ballot.)  This proposal is being marketed as a “fair tax” to such a degree that the original language of the proposed amendment even used this phrasing.  It was cringeworthy:

There may be one tax on the income of individuals and corporations. This may be a fair tax where lower rates apply to lower income levels and higher rates apply to higher income levels.

(Thankfully, the proposal was amended to remove both the current constitution’s restriction on graduated income taxes and this new language about a “fair tax.”)

To begin with, there is nothing intrinsically fairer about a graduated income tax than a flat tax.

What’s more, specific elements in the tax as proposed tend to move it to the “unfair” category.  The lack of separate brackets for singles vs. married couples mean that a married couple at a certain income level will end up paying more in taxes than if they had not married.  The “millionaire’s tax” that applies for one’s entire income rather than at the margin means that anyone earning $1,000,001 will pay a patently unfair penalty for that last dollar in income.  (Comically, the original childish language about the “fair tax” would have prohibited this anyway.)  The very fact that the brackets are structured with a dramatic jump in rates, and with a nominal tax cut for moderate earners means that it is being promoted to voters not as the most appropriate way to solve Illinois’ perpetual finance woes, all things considered, but as a way to get something for nothing:  “you get all the state spending you want while we ensure that only a tiny minority of people will have to pay.”

I should add that I am increasingly having misgivings about the labelling of this sort of tax as “progressive” and the inevitable pairing with other types of taxes for which lower-income folk pay relatively more, as a share of their income, as “regressive,” because it is becoming clear that these are not descriptive, but are their own forms of value judgements.  And, while it might, generally speaking, for taxes to fall disproportionately on those who can better afford to bear their burden, tax terminology should be descriptive, not loaded.

On the other hand, strictly speaking, it might not even be accurate to call the Pritzker proposal a “graduated” tax at all.  There are functionally only two brackets, “somewhat less than 5%” and “somewhat less than 8%”, so that there isn’t anything gradual about it.  But, yes, that’s a nit-pick.

And practically speaking, I don’t know where the proposal is headed.  Certainly it’s not being rubber-stamped, or if it is headed toward such, the process is, at any rate, taking longer than for, say, the minimum wage hike, though it may be that this is just a matter of the lack of urgency (regardless of how quickly or slowly the bill passes, the election at which the amendment would be voted on would take place in 2020) rather than lack of votes.  Strategically, on the one hand, it seems a mistake to have a specific proposal rather than saying, “the Illinois constitution wrongly handicaps the state in making its determination of the best type of taxation at any given point in time.”  Yet the fact that our state government is so perpetually untrustworthy meant that, practically speaking, no voter in their right minds would accept a plea of “trust me.”

What’s the alternative?  Obviously, I’m in favor of a pension-related amendment, and pairing the two would have better enabled politicians to make the claim that these amendments are about long-term good governance rather than short-term coffer-filling.  The Tribune went a step further in an editorial today:

Today, a new world: Pritzker would “Let the people vote.”

So how about a package deal, Governor, of amendments or statutory changes: Let the people vote not just on taking more billions of dollars a year from wallets — an amount sure to grow and grow as tax rates rise and rise. Let the people also vote on rewriting the rigid pension clause of the constitution. Let the people vote on term limits. Let the people vote on creating a fair remap scheme.

The pension clause, manipulated by lawmakers eager to reward their cronies in public employee unions, has created much of the financial misery that confronts Pritzker. Lack of term limits has entrenched many of these same lawmakers. And the current remap scheme assures their re-election in perpetuity.

So we’re all agreed, Governor? Taxes, pension reform, term limits, a fair remap scheme. “Let the people vote.”

Sounds good to me!

 

Image: https://media.defense.gov/2019/Feb/12/2002088973/-1/-1/0/181206-A-UM169-0001.JPG; https://www.dover.af.mil/News/Article/1755127/what-you-should-know-about-filing-2018-taxes/ (public domain/US gov)

Not every disparity is discrimination, car insurance edition

Here’s a Pew report from back in February that I recently came across:  “What? Women Pay More Than Men for Auto Insurance? (Yup.)”  Here are some of the key bits:

It’s a widespread belief that men pay more for automobile insurance than women. But that’s only true for young adults.

Several studies in 2018 and 2017 revealed that women over 25, particularly those between 40 and 60, often pay more than men — not less — for auto insurance, all other rating criteria being equal. . . .

In an interview, [former California Insurance Commissioner Dave] Jones said it’s fair for insurance companies to set premiums based on a driver’s accident history, number of speeding tickets and other factors that are under the driver’s control. But using gender is unfair because a person has no control over that, he said.

What’s going on?  The report indicates that there was no seeming consistency across insurers.  It cites a 2017 Consumer Federation of America study, in which, among 60 year olds, differentials ranged from a premiums 4% higher for men at Liberty Mutual to a 12% higher for women at Geico.  For 40 year olds, the differences among 6 insurers studied were -1%, 0%, 5%, 8% and 16% higher premiums for women.  And, oddly, for 20 year olds, premiums were higher for men, ranging from a 5% to a 16% difference, except at Geico, again, where women had 6% higher premiums.

Is this discrimination?  Are women being charged more than men, for no particular reason except that rate-setters want to give advantages to men because of the patriarchy?  The Pew article suggests, in the midst of a broader discussion around rate-setting processes, that there’s something nefarious going on:

But a professor at University of Minnesota Law School, Daniel Schwarcz, said if companies are not allowed to use “outdated stereotypes based on generalities” about men and women, the insurers will have to consider “more directly” such measures as the actual number of miles driven, the number of years customers have been driving and where they live.

Really?  A lawyer is asserting that actuaries develop rate models which add in some sort of factor based on the “women are bad drivers” stereotype their fathers or grandfathers might have believed, and that’s worth referencing in an article put forth by an organization as respected as Pew?

It should go without saying that actuaries price insurance premiums based on the totality of the data available to them.  Price a rate too high for a given rate class (age, sex, residence, driving history, etc.) and you lose a sale.  Price a rate too low and you lose money on that sale.  Especially now when customers are able to comparison-shop far more easily, insurance companies’ actuarial departments want to get this right.  At the same time, I suppose, if a company has identified a demographic which it believes to be particularly susceptible to marketing and less likely to comparison-shop, they might focus more on marketing to that group and worry less about the competitiveness of their prices.  (Heck, are women less likely to comparison-shop insurance and more likely to choose a brand that gives them warm fuzzies?)  And all of the above is true even with the disparities in pricing among various insurers, simply because each of them will have different pricing models, and will have different claims experience even for the same demographic group (and an objectively similar demographic group could differ if different insurance companies attract different types of customers) — complexities of business operations which these companies are under no obligation to disclose to the general public any more than KFC must provide its secret recipe.

But the 2017 Consumer Federation of America study the Pew study references takes its claims even further, writing

The inconsistent pricing decisions of these insurance companies illustrates CFA’s concern that tying auto insurance rates to factors that a customer cannot control and have nothing to do with their driving safety record – such as one’s biological sex – leads to unfair discrimination and indefensible claims of actuarial soundness. . . .

“Every state but New Hampshire requires drivers, regardless of their sex, to buy auto insurance, so regulators and lawmakers have a special obligation to make sure coverage is priced fairly,” said CFA insurance consultant Douglas Heller, who conducted the study . . . . “What we have found is that insurance companies punish female drivers with perfect records more often than men, and far more often than we expected. We also found that the insurance companies’ use of sex as a rating factor does not seem to reveal much in the way of a consistent risk assessment, and regulators should reconsider allowing companies to continue using it at all.”

But let’s back up:  should insurance rates be only about those characteristics which customers can “control” — in this case, driving history and maybe residence?  Based on this rationale, there shouldn’t be any differentiation by age, either, but no one suggests that 16 year olds and 36 year olds should have the same rates, because it is generally acknowledged that teens, as new drivers, are less skilled, even though these are both items that cannot be “controlled.”  (And, quite honestly, I find it believable that men, once they outgrow their impulsive years, might be more likely to be better drivers; in terms of external factors, women might be more likely to be distracted by kids they’re transporting somewhere, and, besides, it is not out of the question that men could have a better awareness of their environment, spatial awareness, following distance, reaction time, whatever, in the way that there are simply differences between men and women.)

What if a state mandated that, since it’s unfair to charge young adults more for insurance when they can’t “help it” that they’re inexperienced drivers, insurers couldn’t differentiate but had to wait until a driver got into an accident or got a ticket?  (Yes, I know, exactly the demographic with the most political power would be disadvantaging itself, so it’s purely hypothetical.)  Would it be fair to say that any subsidies young people receive would be evened out by paying relatively more than otherwise when they get older?  After all, they’ll earn more then, too, on average.

But intuitively we know this is not actually fair. It is true that all drivers are required to have basic levels of insurance, but there is discretion in terms of the deductible amount and whether, in addition to state minimums, one elects collision/comprehensive insurance.  Plus, of course, drivers purchase the cars they do in part knowing that insurance premiums vary among cars (due to the age and cost of the car plus relative repair expenses and risks of theft).  What happens if these optional coverages become subsidized for some groups?

Now, that being said, it would genuinely be interesting to see what’s driving the rate disparities (no pun intended).  But suggesting directly or indirectly that insurance companies are anti-woman isn’t helpful.

 

Image: https://pixabay.com/photos/traffic-highway-car-driving-road-966701/

Pritzker’s tax plan: now we know

So, readers, I had every intention of keeping this space nonpartisan, so I’m going to say this in the most nonpartisanly-way possible:  the just-released Pritzker tax plan (as linked to at CapitolFax.com) is terrible.

I should preface this by saying that I have no objection to graduated income taxes in principle.  They give due recognition to the principle that everyone should pay into the system to at least some degree, but that it’s appropriate for those who can pay more without being deeply burdened, to do so.  But at the same time, a graduated income tax should not be so imbalanced as to create a situation of excessive dependence on the wealthy for tax revenue, a dependence that puts the state at risk of substantial revenue volatility (as, for example, California experiences with half of its income tax revenue coming from people earning $500,000 or more, or 1% of its population), and simply creates a tendency to see government spending as “free money” rather than funded by taxing and spending decisions made in the best interests of state residents.

With respect to Illinois in particular, I have been distrustful of claims that our state will solve its financial woes with a graduated income tax because of the promises being made by Gov. Pritzker that only “people like me” (that is, the insanely wealthy) will be affected, and therefore no particular sacrifice is required on the part of any real people — and that’s on top of a generalized distrust of our elected officials.  And no where in any of the discussion is there any statement made that there will be any efforts made to ensure that our tax money is spent wisely and as effectively as possible.

That being said, let’s look at the proposal, bearing in mind that the current Illinois personal income tax rate is 4.95% for all income above a personal exemption of $2,000.

Income up to $10,000 (27.2% of taxpayers) – 4.75%

Marginal rate up to $100,000 (58.9% of taxpayers) – 4.90%

Marginal rate up to $250,000 (11.1%) – 4.95%

Marginal rate up to $500,000 (1.9%) – 7.75%

Marginal rate up to $1,000,000 (0.6%) – 7.85%

Total rate for taxpayers with income above $1,000,000 – 7.95%.

So what do you notice?

In the first place, the incessant promises of “tax cuts for the middle class” may be literally true insofar as 4.90% is 0.05 percentage-points less than 4.95%.  But these trivially-reduced rates demonstrate more than anything else the foolishness of having promised a “middle class tax cut” in the first place.  It would have been far better for Pritzker to have acknowledged this (and better still not to have promised it); to hold to his campaign promise in this manner treats Illinoisians as fools, really.  It also feels a bit like the game of pricing ending in .99, what with these brackets that are basically 5% and 8% but rely on residents thinking of 4.95% and 7.95% as meaningfully less than that, and having the multiple brackets with nearly identical tax rates makes no sense either.

In the second place, the proposal makes no differentiation between single and married taxpayers, imposing a substantial marriage penalty on upper middle-class earners.

And in the third place, the “millionaires’ tax” is astonishing.  Here’s the math:  a household with $1,000,000 in earnings would pay $70,935 in Illinois taxes.  A household with $1,000,001 in earnings would pay $79,500, or $8,565 more for a single dollar more in income.  Yes, I know, world’s tiniest violin, etc., but it makes no sense.  It seems to be a matter of proving that you’re serious about sticking it to the wealthy, perhaps with some notion that there is no such thing as being “just a little bit rich.”  But as an actuary, it makes me question whether these people can do math, and it also reeks of hubris, that is, a conviction that Chicago(land) is so indispensable, its economy so strong, its quality of life and cultural institutions so irreplaceable, that its denizens cannot possible leave for greener pastures.

Or has Pritzker intentionally omitted single/married brackets and intentionally added the all-income tier so as to subsequently eliminate these to proclaim that he’s compromising?

Again, I’m not going to burst into a rage or start using ALL CAPS but here we are.  Democrats hold not just a majority but a supermajority in the General Assembly so they can afford to lose the votes of a few of their members in swing districts worried about re-election, and there’s no reason not to think they’ll steamroll this through just as quickly as the minimum wage hike, then present voters with the amendment as practically a done-deal.

 

Image: https://media.defense.gov/2019/Feb/12/2002088973/-1/-1/0/181206-A-UM169-0001.JPG; https://www.dover.af.mil/News/Article/1755127/what-you-should-know-about-filing-2018-taxes/ (public domain/US gov)

Chicago’s Mayoral Election – A Call For Ranked-Choice Voting

https://commons.wikimedia.org/wiki/File:University_at_Buffalo_voting_booth.jpg; public domain

The election in Chicago, dear readers, is half-over and headed to a run-off in April.

The results, per Chicago Tribune reporting:

Self-declared reformist progressive Lori Lightfoot, 17.5%.

Union and machine-backed, machine-disowning self-declared progressive Toni Preckwinkle, 16%.

Tribune-endorsed and business-backed Bill Daley, 14.7%.

Self-made millionaire businessman Willie Wilson, 10%.

Followed by assorted technocrats, community activists, anti-machine/anti-corruption activists, law-and-order candidates, and the like with lower vote totals.

Now, I am not a Chicagoan, but the well-being of the city affects the rest of us, too, not least because of the inevitable squabbles between city and state about money.  And the race has been discouraging for multiple reasons, among them the fact that the sheer number of candidates involves an awful lot of the game of supporting multiple candidates from a constituency not your own, to dilute their vote.

And the end result: the top two vote-getters are, in many ways, clones of each other.  Oh, I don’t mean the fact that they’re both black women.  That doesn’t particularly interest me.  But the very headline on today’s Tribune article speaks for itself:  “Hours after historic election, Lori Lightfoot and Toni Preckwinkle each argue they’re more progressive than the other.”  Perhaps readers who are wiser than I will have a better sense of how they fit into the overall political landscape, and maybe it is indeed the case that Chicago voters are indeed so ready for a progressive that they are largely happy at the choice between machine progressive and non-machine progressive.  As far as I could tell, the only difference between the two on their websites was the exact year by which they intend to convert the city into all-electric buses, and whether they promise all-renewable or merely all-clean electricity for the city.   Perhaps, again, Chicagoans can identify nuances important to them that I don’t see.

Here’s another Tribune article, by columnist Dahleen Glanton, “Two black women will face off in Chicago’s mayoral runoff, but mostly white voters put them there.”  What’s she mean by that?  She writes:

What makes this mayoral race so unique is that neither of the black women heading to the runoff was the first choice of voters in wards where the majority of the city’s African-Americans live.

Preckwinkle won only four of the city’s predominantly black wards, according to unofficial results. Though she emerged as the front-runner, Lightfoot didn’t win any.

Voters on the South and West sides overwhelmingly supported Willie Wilson, a black self-made millionaire who never had a real chance of winning citywide support. But Wilson won 14 predominantly African-American wards.

Instead, Preckwinkle’s base was Hyde Park and the neighborhoods surrounding it, and Lightfoot “won with the help of affluent white voters on Chicago’s North Side lakefront.”  Now, Glanton continues by lamenting (if I follow her correctly) that there was not a single candidate supported by a unified black community, but what I’m taking from her column is that neither of these finalist-candidates had strong support among the black community, despite their race/ethnicity.

And here’s a fourth article, “A broken alliance: Did Jerry Joyce spoil Bill Daley’s mayoral bid?”  Billy Daley had 7,000 fewer votes than Preckwinkle; cop and firefighter-heavy wards from which Daley had hoped for support instead swung to Jerry Joyce, who picked up 7% of the vote in total.  The article doesn’t definitively deem Joyce a spoiler, and quotes a supporter who rejected that claim.  But the math checks out:  if Joyce supporters would uniformly, or even partially supported Daley, he would have been in the run-off rather than Preckwinkle.

Which brings me to ranked-choice voting, or preferential voting.

Here’s the description of this voting method at Fairvote.org:

With ranked choice voting, voters can rank as many candidates as they want in order of choice. Candidates do best when they attract a strong core of first-choice support while also reaching out for second and even third choices. When used as an “instant runoff” to elect a single candidate like a mayor or a governor, RCV helps elect a candidate that better reflects the support of a majority of voters.

The system is used in a growing number of municipal elections (as listed by Fair Vote), and was also used in Maine for their 2018 congressional elections.  But it’s not an experimental system — ranked-choice voting has been in place in Australia for over 100 years.

And, courtesy the website ChickenNation.com and author Patrick Alexander (and explicitly made available for sharing when not for commercial use), here is an explanation of that system:

http://www.chickennation.com/voting/?fbclid=IwAR2vl7IM9kJqUy-0_K6rJjrODDUx9RdaHDa-SGONeFVuG_RZ97NdgxdH5mY
http://www.chickennation.com/voting/?fbclid=IwAR2vl7IM9kJqUy-0_K6rJjrODDUx9RdaHDa-SGONeFVuG_RZ97NdgxdH5mY
http://www.chickennation.com/voting/?fbclid=IwAR2vl7IM9kJqUy-0_K6rJjrODDUx9RdaHDa-SGONeFVuG_RZ97NdgxdH5mY
http://www.chickennation.com/voting/?fbclid=IwAR2vl7IM9kJqUy-0_K6rJjrODDUx9RdaHDa-SGONeFVuG_RZ97NdgxdH5mY

So I find myself thinking of all the ways in which this system (however much it might take some getting used to) would have led to a different dynamic in the Chicago election.  Yes, there are risks that voters would find the system too confusing (but they’d surely get used to it) and, yes, voting itself would take longer, but it might well have led to a very different outcome, and in any event would have meant that Chicago’s voters could have had a much more meaningful say in their next mayor.

 

Minimum wage, median wage: some data and thoughts

So, readers, I would love to pound out an article about Illinois’ recent minimum wage hike and its future effect on the state economy.  For reference, here’s the Chicago Tribune’s summary:

Under the law, on Jan. 1 the statewide minimum wage increases from $8.25 to $9.25 per hour. The minimum wage again will increase to $10 per hour on July 1, 2020, and will then go up $1 per hour each year on Jan. 1 until hitting $15 per hour in 2025.

That’s a big jump.

Minimum wage supporters cite all manner of beneficial effects — a New York Times article floating around twitter today claimed that

A $15 minimum wage is an antidepressant. It is a sleep aid. A diet. A stress reliever. It is a contraceptive, preventing teenage pregnancy. It prevents premature death. It shields children from neglect. But why? Poverty can be unrelenting, shame-inducing and exhausting.

Its supporters also marshall studies to claim that it will have only beneficial effects on the economy — but skeptics point to the fact that studies finding this are unsatisfactory for a variety of reasons, for instance, a boost in the minimum wage in one locality in a region where wider economic effects might be offset by lower minimum wages in surrounding areas.  And I’m not going to try to produce an analysis of the literature, nor to make any particular claims of expertise as an (armchair) economist.

But I do want to use my platform, however small it is, to point to the magnitude of the increase.  To be sure, in the event that there is significant inflation, some of that increase will be moderated, but at today’s low inflation rates, $15 per hour in 2025 dollars won’t be that much different than $15 per hour in 2019 dollars.

So consider this:

The median wage in the Chicago metro area is $19.67.

In Springfield, Illinois:  $18.35.

In Peoria:  $18.14.

Decatur:  $16.80

Rockford:  $16.55

Carbondale:  $15.77

West Central Illinois nonmetropolitan area:  $15.41

(You can use the main BLS link to view all all metro area median wage data.)

In other words, once you leave metro Chicago and the midsized cities of Illinois, median wages drop to very nearly the level of the future minimum wage.

The BLS link also provides median wages for particular occupations — and the occupations with median wages below the new minimum extend far beyond fast food and retail workers.

In the West Central Illinois nonmetropolitan area:

Ushers, Lobby Attendants, and Ticket Takers earn a median wage of $9.10.

Childcare workers, $9.38.

Hairdressers, hairstylists, and cosmetologists:  $9.74.

Court, Municipal, and License Clerks:  $10.43.

Tax preparers:  $11.12

Nursing assistants:  $11.54.

Pharmacy aides:  $11.77.

Tellers:  $12.72.

Butchers and Meat Cutters:  $13.50.

Emergency Medical Technicians and Paramedics, $14.30.

Phlebotomists, $14.91.

and so forth.

What happens when the state mandates a minimum wage in excess of the wages that each of these occupations, at median, actually pay in this part of the state?  I simply lack the imagination to forsee the impact, but it’s surely not as simple as each of these occupations in fact paying $15.00.   These are in many cases jobs requiring specialized training; I find it difficult to imagine that EMTs would accept a wage that’s equal to what a McDonald’s worker gets the first day on the job, without specialized training.  And I likewise can’t fathom a situation in which every wage-earner’s wages are simply boosted by $6.75, across the board, and prices similarly simply reset at the level necessary for businesses to cover their costs.

Now, looking at this list of occupations, I seem to have selected service occupations which are connected up with the local economy, rather than the sorts of jobs associated with manufacturing or other industries which stretch beyond the local area.  And I am limited in my understanding of the nature of the economy in these sorts of small towns and rural areas, but — well, to the extent that it depends on the sorts of small manufacturing facilities scattered throughout middle America, those manufacturers will have to cope with a changed dynamic that could well lead to them leaving or automating, and to the extent that they provide a support structure that ultimately works its way down to the family farm, well, farmers are self-employed, aren’t they?  And their earnings won’t increase as a result of a minimum wage law, only their costs.

And, yes, I have selected the lowest-wage region from which to list by-occupation median wages.  Of course those numbers are higher in Springfield and Peoria, for example.   Childcare workers in Springfield, for example, earn $10.75 at median, pharmacy technicians, $13.77, and phlebotomists, $16.66.

So I don’t have an answer.  I’m not going to and I’m not able to build out a model of precisely which bad things will happen.  But I do think that looking at these sorts of BLS listings is a useful way of, even as a non-expert, getting a sense of the magnitude of the increase, and the potential for far-reaching unintended effects.

 

Image:  Marseilles, Illinois, population 5,094.  https://commons.wikimedia.org/wiki/File:Marseilles_IL_downtown1.jpg; IvoShandor [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)].

What Medicare for All actually looks like

Yeah, I know, I’m being excessively clever, like the time in my multi-employer pension plan rabbit hole series (to be revisited soon!) that I proclaimed Central States to be fully-funded, because, in addition to the troubled, nearly-insolvent plan by that name, another plan with the same exists, is 108% funded, and offers some instructive comparisons.

And with respect to healthcare, too:  every Democratic presidential candidate and all manner of interest groups have proposals for “Medicare for All,” though, by and large, they don’t actually intend to simply provide the same benefit provisions as Medicare includes (Part A deductibles, Part B coinsurance, Part C Medicare Advantage, Part D drugs) to the under-65 American population, but have concluded that it’s a way of speaking about a public healthcare system/single-payer system that generates more positive polling than the words “public healthcare system” or “single-payer system.”

A recent article that came across my twitter feed purports to be “The Only Guide to ‘Medicare for All’ That You Will Ever Need” and differentiates between what it deems to be the “bad” M4A bills, which allow some sort of buy-in to Medicare or Medicaid or another “public option,” and the “good” M4A bills.  To meet author Timothy Faust’s requirements, such a program must compel all residents to participate, ban any sort of private health insurance, and cover every form of health/medical care, including “medical, dental, mental, vision, reproductive, long-term, and more,” and Faust notes that “long-term” encompasses all forms of elder care, including in-home services; the system’s expenses would be managed by “negotiation” (which the article itself makes pretty clear means dictating prices to providers).

And Faust acknowledges that this exceeds the norm in the rest of the world, but makes the expansive claim that “we are capable of, and should, provide a higher standard of care than any currently-existing single-payer program on the globe.”

But it does matter what happens elsewhere.  It is important to understand what “universal healthcare systems” actually look like in the rest of the world.  In a prior article I shared an OCED chart on health care expenditures in developed countries, split by payor, and made some general comments on a number of countries.

So — getting back to my title — there is a real “Medicare for All” system in the world today, because “Medicare” is the name Australia gives its public healthcare system.

And according to that chart, Medicare covers 67% of healthcare costs.  Who pays the rest?

20% comes from out-of-pocket charges.  10% comes from private health insurance, which nearly half (46%) of Australians elect.  And 2% comes from “other” sources.

Here’s the scoop:

Australian Medicare covers public hospitals and doctor’s visits, as well as x-rays and other diagnostic tests, surgery, eye exams, some dental surgery, at a rate of 100% of the scheduled fee, for general practitioners and 85% of the scheduled fee for specialists.  Doctors may choose to accept these rates as payment in full and bill Medicare directly, or if they charge in excess of these rates, bill patients directly, who then seek reimbursement from Medicare (for instance, through a mobile app) for the covered amounts, and pay the excess themselves.  Medicare does not cover ambulance services, most dental care, most therapy services, glasses, hearing aids, or home nursing.  Drugs are also only covered with a patient cost-share.

Private health insurance is a very popular option to cover these additional charges.  In addition, Medicare-only patients cannot choose their own doctors, but private health insurance provides this option.  Private health insurance also affords patients the ability to have a private room rather than a multi-bed room (shared with as many as five others), and to receive treatment, in general, at a private hospital, with charges equivalent to what public hospitals would cost, covered by Medicare, and the rest paid by the insurance/out of pocket.  Finally, private health insurance allows patients to skip waiting lists.  For example, public patients waiting for knee replacements waited for 203 days on average, but everyone else had a wait of 67 days.  An Australian I know shared his personal experience when I said I was drafting an article:

The private insurance is essentially to get you to the front of the queue for elective or non essential surgery, or to get you a private room in a private or public hospital. It also helps a lot with the stuff that isn’t covered by Medicare.

As an example our son was 18 months old and barely saying a word. We applied through the public system for speech therapy but it was a 3 to 6 month waiting list. So we went to a private speech therapist and got seen within a week. The private health insurance covers part of the cost of speech therapy. In the end he was seeing both speech therapists because one was free on the public system and the other we weren’t out of pocket all that much for.

But as much as private insurance systems are reviled by single-payer promoters in the U.S., in Australia, the government encourages its citizens to purchase private health insurance, through the Medicare Levy Surcharge, an extra tax of 1% of income or more for anyone with over AUD 90,000 (about USD 64,000) in income without a private insurance policy, and through the Private Health Insurance Rebate, a means-tested government subsidy of 26% of the premium, for those with less than AUD 90,000 and younger than age 65, increasing to 36% for the older 70s, and phasing out to 0% at AUD 140,000.

One other noteworthy element of the Medicare system is that the government wholly circumvented any constitutional battles similar to what we’ve faced, by actually amending their constitution in1946, to give their federal government the power to provide hospital and medical services.

(Information on the system can be found at the following links:  PrivateHealth.gov.au, the Australian Government Department of Human Services Medicare website, and Wikipedia. I also referenced two links provided by my Australian friend, “Benefits of Private Health Insurance,” and “Do you really need private health insurance? Here’s what you need to know before deciding,” which spell out some of the practicalities from an Australian perspective.)

This is the primary point I want to drive home:  the dream of having the government pay for all healthcare consumed by its residents simply doesn’t exist.  Markets for private-sector health insurance continue to exist even in “universal health care” countries, for multiple reasons.  To refer back to the OECD chart, even among the most generous countries, government spending seems to top out at 85%, almost as if there’s some sort of economic law that means it’s simply not possible to exceed this.  (And there is likewise not a communist utopia to point to, either, though that’s a subject for another time.)

“Medicare for All” advocates think this is a bad thing. In fact, it’s not.

Now, for the time being, I’m going to sidestep the question of whether any form of “Medicare for All” or “enhanced Obamacare” or whatever you’d like to call it, is a good idea in general.

However, if we take a shift to a more state-paid system as a given, a hybrid system solves many problems with respect to wait lists, rationing, etc., while still providing a base level of care to all.

Yet, at the same time, the demon of path dependency may well prevent it — not only in terms of the existing healthcare infrastructure (e.g., the new hospitals with all-private rooms, and semi-private the norm everywhere) and the untold number of employees who would not stand, politically, for losing their jobs or having their salaries halved, but also because of the expectation we have that, whatever might ail our system, wait lists or determinations that a procedure is not cost-effective are too high a price to pay.

Image: http://www.dodlive.mil/2017/10/03/usns-comfort-how-the-hospital-ship-helps-during-disasters/(U.S. Air Force photo by Staff Sgt. Courtney Richardson).  public domain.

Is “reformist Chicago mayor” an oxymoron? A conversation with Paul Vallas.

Yes, readers, I know:  I might be overly fond of rhetorical questions in headlines.  But Betteridge’s Law of Headlines says

Any headline that ends in a question mark can be answered by the word no.

so maybe I’m actually signaling some optimism here.

Here’s the scoop:

I’ve written on my Forbes platform about Chicago’s pension funding woes (with links in a single Jane the Actuary post), and in particular on the prospects of any of the mayoral candidates having a solution to the problem.  Separately, I wrote an article at this site observing that, had Paul Vallas won the 2002 primary instead of Blago, Illinois might have had a very different history indeed – one fewer governor in prison, in any case.

So I wanted to share with you some of the things I learned from a conversation I had with Paul Vallas, on such topics as ethics, government reform, and the election itself.  I will caveat this by saying that I am not an expert in Chicago politics, but I will remind readers that I grew up in the Detroit area in the era of Coleman Young and Robocop.  I understand that cities can be deeply troubled.  But — well, here’s an experiment to try:  go to your favorite search engine and type in Chicago machine, then Detroit machine.  The latter brings up machine tool companies; the former, links about machine politics (as well as links to Chicago Machine, an ultimate Frisbee club).  Google “pay to play” and attach Detroit or Chicago to the search terms; for the former, you’ll get articles about ex-mayor Kwame Kilpatrick’s conviction in 2012; for the latter, you’ll get hits pointing to far more instances of pay to play accusations or convictions, up to the present day.  Perhaps Chicagoans can be Chicago-y about it and say, “woo-hoo, our corruption is so much more organized than elsewhere!”

Oh, and let’s not forget that the University of Illinois at Chicago’s political science department issued a report (Anti-Corruption Report #11 at the link, a download) deeming Chicago the most corrupt city, as measured by judicial districts (in this case Northern Illinois) with the most federal public corruption convictions from 1976 to 2016; on a per-capita basis, Illinois as a state ranks third after Louisiana and the District of Columbia, out of 94 total such districts — and that’s not even including the expected future convictions for Burke and unknown others.  

So, to begin with, I asked Vallas how to make sense of the election with its double-digit number of candidates, 14 in total.  (For the benefit of non-Chicagoans: the election takes place on February 26th, but will almost certainly require a runoff election on April 2nd.)  In his view (and perhaps this is common knowledge among those better-versed in Chicago politics), this is a result, at least in part, of the interplay between machine politics and Mayor Rahm Emanuel’s late decision, on September 4th of last year, not to run for re-election after all.  The first dynamic was that it was a given that Emanuel would not have the support of the black community due to his administration’s handling of the Laquan McDonald shooting, so the multiple black outsider candidates who announced their candidacy before Emanuel’s surprise announcement (I looked it up on wikipedia:  Willie Wilson, Lori Lightfoot, Neal Sales-Griffin, Amara Enyia, as well as later-disqualified Dorothy Brown) were welcomed by the Machine because they’d split the vote, instead of a single consensus candidate emerging and posing a risk to Emanuel.  At the same time, the candidates who are now leading the polls hung back, waiting for “their turn,” but when Emanuel made his announcement, there was no “default” candidate and each of them — Toni Preckwinkle, Susana Mendoza, Bill Daley, Gery Chico — decided that it was indeed their turn.

Then, since he is running as that candidate, above all others, willing to reform city government, I asked him how he would repair Chicago and undo its history of corruption and what he called its “for-profit political system” that drains the city’s finances.  After all, at the candidates’ forums I watched via livestream, candidates generally professed their desire to do away with aldermanic privilege, that is, the ability of the alderman to control what can and can’t be built in his/her ward.  But how much can a mayor, however reformist, persuade aldermen to vote to undo a system which profits them?  

Here was his answer:

First, he was optimistic about the new aldermen coming in, even if simply due to retirements.  The new faces will be a boost for ethics reform.

Second, Ald. Ed Burke will be gone.

Third, aldermanic privilege is not, as I had thought, the result of any city ordinance.  It’s just an established practice that they approve or reject projects in their wards.  A mayor could simply choose to overrule an alderman’s action without needing any sort of enabling legislation and, Vallas said, “banning that will take an important component of pay-to-play out of the equation.”

Fourth, while aldermen’s service as such cannot be restricted by term limits, the duration of their control of committees can be.

Fifth, to prevent conflicts of interest, individuals appointed to the various boards can be prohibited from representing anyone as a client who receives contracts from the city or other agencies.

And finally, there is so much corruption in the system simply because the process to appeal property taxes, zoning, signage, etc., is so onerous that people have to hire a middleman.  If these processes were simplified so that people could do this on their own, it would “take the profit out of it.”

Beyond these issues of corruption, I’ve also heard repeated promises by candidates to return to an elected school board, rather than one in which the mayor appoints members, as has been the case since 1995.  So I asked Vallas what he’d do.  He first provided a few words of context, that in the days of elected school boards, the public schools were in a state of “financial crisis” and “academic failure,” though, at the same time, the mayoral appointed school boards have been a mix of good and bad.  The key, though, is for the mayor to have “skin in the game,” and have some control over the management of the schools in order to be held accountable for their success, rather than being able to duck education issues while using the schools as a source of influence and a means of enriching cronies through contracts. 

At the same time, though, there should be “civilian representation” to ensure transparency and accountability, to avoid a repeat of prior apparent conflicts of interest.  Vallas’s proposal is a hybrid system, in which half the school board would be mayoral appointees and half community elected.  What’s more, the elected members would come from a pool of candidates made up of members of local school councils, and should be selected by those local school councils, so that they have a stake in the system. Likewise, each advisory board, such as the police board or the McCormick Place board, should be a mix of experts and civilians, to maximize both expertise and accountability/transparency. Further, he proposes new boards, such as one for the environment, and one for people with disabilities.

So what’s Vallas’s pitch to voters, when it comes down to it?  It’s three-fold, he told me.

First, he’s got a track record of going into challenging situations and solving problems  — during his tenure at Chicago Public Schools, in Philadelphia, New Orleans, and in Haiti.  There is, he says, “no one better equipped to get a handle on the city’s finances.”  

Second, he says, beyond merely stabilizing the city financially, his “whole approach to government has been to take the resources available and develop long-term plans that are investment vehicles to create conditions for growth and prosperity,” for instance, by being smarter about TIFs and opportunity zones, deploying, for example, the $2.5 billion that was intended as incentives for Amazon to locate in Chicago.

And, third, he says, “no one has demonstrated more independence of the play to play culture than me.”

Longtime readers on my various platforms will not be surprised that I like Vallas’s combination of ethics and policy expertise.  It’s simply not enough, for a city with problems as complex as those of Chicago, to profess you’re the best candidate because you care the most or have the most longstanding ties to the city. 

At the same time, I simply don’t know how to make sense of the dynamics at play with so many candidates statistically tied.  After all, in a more normal race, you’d be asking yourself not just who the best candidate is, but, of those candidates who have a chance of winning, who is the least-bad, even if not your favorite.  Can you do that, in this case?  (Was that, in fact, the Chicago Tribune‘s reason for endorsing Bill Daley?)  I don’t know whether the election outcome will in the end bear any resemblance to the polling results which themselves are so variable.  Will it all come down to turnout and the GOTV efforts of campaigns?  

And, as a final reminder, I am not a Chicagoan and by no means an expert on Chicago politics.  But even though, again, I grew up in the Detroit suburbs and so am accustomed to the idea that a metro area can do well economically even as the city core goes to pot, Chicago’s success or failure still matters, not just to city residents but to Chicagoland and to the state of Illinois.

 

Image:  from the Vallas campaign Instagram account https://www.instagram.com/vallasforallchicago/?hl=en.

Paul Vallas and roads not taken


Paul Vallas is, for readers outside Chicagoland, one of the 14 candidates for mayor in the election that’s coming up in a couple weeks.

I don’t really have much of a sense of the outcome of that election, what with frontrunner Cook County Board president Toni Preckwinkle tainted by connections to Burke, and unwilling to pledge the abolition of aldermanic privilege as the others have, but nonetheless advantaged by name recognition, deep union support and, along with BIll Daley, a substantial pot of money for TV commercials. (See the most recent Chicago Tribune article.) I would like to believe that Chicagoans would be dissuaded by her Machine connections, but I don’t know that it matters enough to enough people, especially when the large number of candidates, and of viable candidates with significant resumes, means that the final results can be a bit unpredictable.

Separately, in my last article at Forbes, I wrote that Paul Vallas was the candidate who appeared to be taking the pension funding crisis most seriously (though, to be sure, I also give Bill Daley a ton of credit for being willing to put pension reform on the table). Do I have a comprehensive understanding of how he compares to the others on other issues important to city residents, such as education, crime/police conduct, economy development in struggling neighborhoods, etc.? No, not really — and in particular I can’t claim to really be able to put myself in the shoes of a Chicagoan.

But if I were a Chicagoan, Vallas would have my vote. Partly that’s a matter of looking at his resume, for example, as detailed at Wikipedia. He was not a traditional politician, climbing the ranks, building clout, doing favors for others and getting favors in return, but instead built a track record as CEO of Chicago Public Schools, then moving on to Philadelphia and the Recovery School District of Louisiana. I don’t know if he would use the phrase, “facts don’t care about your feelings,” but you don’t build that resume without having a solid understanding of, well, facts. Besides which, of course, his website is chock-a-block full of policy proposals that go well beyond a few bullet points and assertions of care and concern and professions of social justice and hometown pride.

But here’s something from — well, long enough ago that it predates not only my blog, but blogging in general. Seems to me that at the time we still had a dial-up internet connection — not that I had much time for the internet, anyway, with a toddler already and a second baby on the way. Yup, I’m talking about the 2002 gubernatorial election, when Paul Vallas fell short by a mere two percentage points in the three-way Democratic primary, which Rod Blagojevich won and where Roland Burris had a strong third-place showing. (Again, see Wikipedia for a recap.)

On the Republican side, Attorney General Jim Ryan swamped his opponents in the primary, but Blago won the general election by 7 percentage points. Did Ryan really stand a chance? Checking Wikipedia again to aid my memory, the bribery indictment occurred after the election, but it seems to me that it was already widely understood that outgoing governor George Ryan was a crook, and let’s face it, it’s a tough sell to ask the people of Illinois to elect a man from the same party, with the same last name, as the outgoing crook-governor. (How many voters thought he was that man? How many intellectually knew otherwise but still couldn’t get past it? Should party leaders have taken Jim Ryan aside and said, “look, man, you either have to change your name or accept that as a stroke of bad luck, you simply can’t run because you won’t make it in the general election?” Maybe it only became more apparent after the primary how crooked George Ryan was.)

So instead Illinois got its next crook-governor.

Why did Democratic voters choose Blago over Vallas? (Remember it was 36.5% vs. 34.5%, not exactly overwhelming margins.) Again, my memory fails me. A Google link tells me that one factor, at least, was that Vallas simply failed to campaign downstate to nearly the same degree as Blago, which makes sense, or at any rate, I can picture Blago excelling at the retail politics aspect of the whole thing.

And, of course, we know what followed. A pension obligation bond. Blago playing Savior of the Elderly by demanding that Chicagoland mass transit give all over-65s not just reduced-priced but free rides as a precondition for a dedicated sales tax. Blago expanding state-paid kids’ health insurance to middle-class families, without regard for the state budget and, in fact, using all manner of gimmicks to nominally balance the budget when in fact he brought the state further into debt without even an excuse of a poor economy. Accusations of pay-to-play that were never quite proven. And then, of course, the “f***ing golden” attempted sale of a Senate seat that made Illinois the laughingstock of the nation.

All of which means that, yes, near as I can tell, Paul Vallas is the best candidate in the election. But here’s where I also admit to some sentimentality: for him to win the election would be some bit of redemption for the path the state took instead in 2002.

Image:
https://commons.wikimedia.org/wiki/File:University_at_Buffalo_voting_booth.jpg; public domain