What the Affordable Care Act Gets Wrong

Poor form to be contrarian following a week liberals can’t stop celebrating, but count your blessings I’m done writing about golf. For now at least. I always reserve my right to tap my inner Alan Shipnuck.

Thursday night near the end of another spirited training ride. Soft spinning on North Street, two friends and I head for home. One is a well-to-do 59 year old who just retired. His very nice lake home is paid for and he and his wife just returned from another trip to Europe. Euro vacations aside, as his threadbare cycling gloves illustrate, he’s actually on the frugal side. He says he can afford the vacations because of the gloves. Decades of having made very good money no doubt help too.

“You’ll never guess what medical plan I’ve signed up for,” he says. “No clue,” I replied. “Medicaid!” “Wait, you’re 65?!” “No, I’m 59, that’s Medicare. I was surprised to learn I qualify for Medicaid because I have no income now.”

Quick google search. Medicaid is “a U.S. government program, financed by federal, state, and local funds, of hospitalization and medical insurance for persons of all ages within certain income limits.”

I was stunned. He told me a person can make about $20k/year and still qualify for Medicaid. He hardly has any capital gains because he hasn’t sold any assets for a long time. Apart from his international vacations, I’m guessing his expenses are minimal and he’s living off of savings that he previously set aside. I’m not sure how he’s sheltered his wife’s income.

Then he tells me the adult son of a mutual cycling friend is also getting “free” Medicaid despite the fact that he has a very large trust fund that must consist of tax-free municipal bonds.

Undoubtedly, if my friends are doing this, so are other high wealth/low income people. Especially those whose income stems largely from tax-free municipal bonds. Why isn’t anyone writing about this gigantic loophole and what we should do to close it?

More generally, why does the Affordable Care Act (ACA) use income as it’s sole reference point instead of some combination of income and wealth? The same can be asked about the IRS and college financial aid offices. When it comes to health care premiums, college financial aid, and taxes more generally, it’s far better to be wealthy than to have lots of income. Just ask Mitt Romney. My guess is, and I’d love a more tax savvy reader to enlighten us on this, IRS agents, ACA bureaucrats, and college financial aid officials are unable to determine people’s total wealth with any certainty.

Why not ballpark it though I wonder. If the government knew my friend owned his home outright, would it compromise his Second Amendment rights to privacy? How do we balance well-to-do people’s right to privacy with public policies that, through subsidies, take from those of modest wealth and give to those with considerably more?

Dearest Daughters

Dearest Daughters,

Wondering what all the healthcare hoopla has been about lately? Long story short, Congress just passed a law that will result in significant changes to the ways Americans pay for health insurance, pay for healthcare, and receive healthcare. Many of the changes go into effect in between 2014 and 2018.

Congress has been trying to improve our health care system—which represents one-sixth of our economy—for fifty years. The vast majority of Congressional Democrats voted for the bill and every single Republican voted against it. Democrats are celebrating and Republicans are vowing to repeal the law and win more seats in November’s election and regain majorities in the House and Senate.

Almost every Democrat supported the bill and every Republican did oppose it because they define “fairness” very differently. Their different ways of thinking relates to the “what’s fair” discussion we had a week ago about high school sports. Is it fair for schools to cut kids whose families can’t afford to pay for their children to play club volleyball, soccer, or baseball year-round? Similarly is it fair that people who make little money pay between 0-15% of their income in taxes and people who make large bank pay 28-35% or more?

Most Democrats would say no it’s not fair to cut mostly “non-clubbers” and yes it is fair to have a progressive tax system where the more you make the larger the percentage you pay in taxes. Otherwise, the gap between the “haves” and “have nots,” whether high school athletes or ordinary citizens, will widen so much that the American ideal of equal opportunity will be imperiled, and eventually, our quality of life will be compromised.

Most Republicans would contend that the only fair approach is to cut completely independent of “club status” and institute a “flat tax” so that everyone, regardless of their income, pays 18% for instance. More specifically, Republicans would say it’s patently unfair to penalize kids whose parents have worked hard, saved their money, and want to spend it to help their kids excel at sports? And with respect to taxes, it’s unfair to penalize people who have worked hard in school, excelled in the job market, and earn large bank.

In response many Ds would say people who excel in high school or life do so because of subtle and not so subtle advantages that build from birth, through school, and into adulthood. Put differently, privilege reproduces itself. More simply, well-educated, high earning families tend to raise kids who do well in school and are economically successful afterwards.

In response many Rs would argue that inequities are inevitable, equal opportunity is an unrealistic ideal, and the income gap should motivate poorer people to work harder.

Picture a see-saw with the word “EQUITY” painted in big block letters on the left-side and “EXCELLENCE” on the right. People who most value equity believe people who have not been given equal opportunities in life deserve a little extra help to make the high school team, to balance their family budgets, or to pay for health care. People who most value excellence believe “extra help” makes disadvantaged people dependent upon government assistance, fosters laziness, and results in mediocre high school teams and healthcare systems.

Most Ds in Congress sit squarely on the equity side, most Rs squarely on the excellence side. Many citizens would split the difference either sitting towards “equity” or towards “excellence”. Others who value both equally, would sit right in the middle.

Back to the new law. I have to confess, despite my education, I’ve been perplexed by many of the healthcare debate’s details. The media, like cruddy teachers everywhere, wrongly assumed most everyone was “in the know”. Add in Democrats and Republicans shouting past one another for the cameras and I’m sure I wasn’t alone in my confusion.

I’ve been reading about it since its passage and will try to explain why Ds are rejoicing and Rs are threatening to repeal it. Think about America as a pyramid with 5% of very high earners at the top ($200,000-250,000/year+), 70% in the middle, and 25% of poor people at the bottom (families of four earning $33,000 and less/year). In all likelihood, the law will have the least impact on the middle 70%. In the simplest terms possible, the top 5% will pay more in taxes so that the bulk of the bottom 25% can receive insurance often for the first time and thereby have a tad more economic security.

So back to the see-saw. To R’s the bill focuses far too exclusively on equity at the expense of excellence and fairness for the well-to-do. To D’s the bill focuses on equity in the interest of fairness.

What do you think, help the poorest among us by requiring well-to-do people pay more in taxes? What’s fair? What’s in our best interest?

Peace Out,

Dad