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Posts Tagged ‘Third party payer’

What’s the worst loophole (properly defined) in the cluttered internal revenue code?

I think the deduction for state and local taxes is very bad policy since it enables higher tax burdens in states such as California, New Jersey, and Illinois. The exemption for municipal bond interest is another misguided provision since it makes it easier for states to finance spending with debt.

Special favors in the tax code for ethanol also deserve scorn and disdain, and I’m also not a fan of the charitable deduction or the ways in which housing gets preferential treatment.

But if I had to pick just one tax preference to repeal, it would be the so-called healthcare exclusion. This is the policy that enables employers to deduct the cost of health insurance policies they buy for their employees.

You may think that deduction is reasonable. After all, employers also can deduct the wages and salaries they pay their employees. But here’s the catch. Employees pay tax on their wages and salaries, but they don’t have to pay tax on the value of their health insurance, even though such policies obviously are a form of compensation.

Moreover, since this type of compensation is shielded from both income taxes and payroll taxes, the playing field is therefore very tilted, which generates some very perverse results.

First, some background. As part of a broader analysis of the non-taxation of fringe benefits, Scott Greenberg of the Tax Foundation explains how government has created a big incentive to take income in the form of fringe benefits rather than wages and salaries.

…eighty years ago, it was relatively uncommon to offer workers compensation other than their regular wages and salaries. In 1929, only 1.9 percent of employee pay took the form of fringe benefits. By 2014, fringe benefits had risen to 19.2 percent of worker compensation.

Here’s a chart looking at the historical data.

Greenberg says this distortion in the tax code is unfair.

…the growing trend of unreported fringe benefits is “inequitable and inefficient.” This claim is spot on. For an illustration, imagine two employees, one of whom makes a salary of $100,000, and one of whom makes a salary of $80,000 and benefits worth $20,000, which largely go unreported. Although both workers receive the same overall compensation, the first employee is subject to a significantly higher tax burden than the second, which seems plainly unfair.

Moreover, the distortion lures people into making economically foolish choices.

Furthermore, this arrangement incentivizes companies to shift more compensation towards benefits, to help employees avoid taxes. This leads to an inefficient allocation of resources, towards services that employers might not have been willing to pay for in the absence of tax incentives.

He’s correct

Writing for the Weekly Standards, Ike Brannon looks specifically at the biggest tax-free fringe benefit.

…allowing employers to provide health insurance tax-free to their workers is terrible policy, a truism that any honest economist—whether liberal, conservative, or otherwise—would agree with. …First, workers end up with more health insurance than they would ever purchase on their own (since tax-free health insurance is worth more than income that’s taxed at 30%-50%), which gives people less take-home pay to spend as they see fit. Second, more generous health insurance entails lower co-pays as well as other provisions that insulate the worker from the actual cost of their health care. As a result, people become less sensitive to prices when seeking health care, and they consume more of it—most of which does nothing to improve health outcomes, numerous studies have shown.

For further details on this unfortunate tax preference, A. Barton Hinkle looks at the evolution of the health exclusion in a column for Reason.

…the original sin of the American health-care marketplace…was committed back in World War 2, when inflation led workers to demand higher wages – which many employers could not afford to pay because of price controls. …With wages frozen, employers needed another way to compete for labor made scarce by the draft. So some began offering health coverage. The practice took root, spread, and outlasted the war. In 1949 the National Labor Relations Board ruled that health benefits counted as wages for the purpose of union negotiations. Five years later, the IRS ruled that health coverage was not taxable income. The result was a double incentive for employers to offer fatter health benefits in lieu of fatter paychecks. …The result: a skyrocketing, ultimately unsustainable increase in national outlays for health care. …In short, for decades the federal government has encouraged employers to provide gold-plated health-care plans.

Joe Antos of the American Enterprise Institute explains how the “healthcare exclusion” is bad fiscal policy, bad health policy, and bad economic policy.

If we hope to move to an efficient healthcare system that is fair to everyone, Congress will have to take on the largest subsidy in the tax code. …Premiums paid for employment-based health insurance are excluded from federal income and payroll taxes.

When describing provisions that allow people to keep more of their own money, I would prefer to say largest distortion rather than largest subsidy, but I realize I’m being pedantic. Regardless of word choice, the net effect of this preference is negative.

The tax exclusion…fuels the rapid growth of health spending, contributes to stagnating wage growth, and disadvantages low-wage workers. Because there is no limit on how much can be excluded from taxes, workers are encouraged to buy more expensive coverage than they would otherwise…makes consumers less sensitive to prices and promotes the use of medical services, including services that may not provide much value to the patient.

Let’s take a closer look at some of the problems associated with the exclusion.

The exclusion has caused a shift in compensation from taxable cash wages to greater health benefits which are not taxed. Between 1999 and 2015, the average employer contribution for family coverage nearly tripled while wage rates increased by only about half.

By the way, our leftists friends should oppose the exclusion for class-warfare reasons.

…workers in higher tax brackets benefit the most from the exclusion. The Joint Committee on Taxation found that the average savings for tax filers with incomes less than $30,000 was about $1,650 compared to about $4,580 for those with incomes over $200,000.

To deal with these negative effects, Antos proposes a modified version of the “Cadillac tax” from Obamacare combined with tax credits for consumers who purchase their own health insurance.

That’s better than the status quo, but the ideal solution is a flat tax, which would eliminate the deduction provided to employers for compensation in the form of fringe benefits.

In their book on tax reform, Professors Hall and Rabushka explain the obvious beneficial consequence of a level playing field for all forms of compensation.

The flat tax eliminates the distortion toward fringe benefits created by the fact that employers can deduct them, thereby receiving a subsidy that can be passed on to their employees. The best alternative, and one we expect your employer to select, is to offer you higher pay in exchange for lower fringes. You can then use the extra cash to buy whatever combination of benefits you desire.

This will make the healthcare marketplace much more efficient.

Here’s what I wrote about the healthcare exclusion way back in 2009, as part of a column on government-created inefficiency in the health sector.

…social engineering in the tax code created this mess. Specifically, most of us get some of our compensation in the form of health insurance policies from our employers. And because that type of income is exempt from taxation, this encourages so-called Cadillac health plans.  …our gold-plated health plans now mean we use insurance for routine medical costs. This means, of course, we have the paperwork issues discussed above, but that’s just a small part of the problem. Even more problematic, our pre-paid health care system is somewhat akin to going to an all-you-can-eat restaurant. We have an incentive to over-consume since we’ve already paid. Except this analogy is insufficient. When we go to all-you-can-eat restaurants, at least we know we’re paying a certain amount of money for an unlimited amount of food. Many Americans, by contrast, have no idea how much of their compensation is being diverted to purchase health plans. …this messed-up approach causes inefficiency and higher costs. We consumers don’t feel any need to be careful shoppers since we perceive that our health care is being paid by someone else. Should we be surprised, then, that normal market forces don’t seem to be working? (though it is worth noting that costs keep falling and quality keeps rising in the few areas – such as laser-eye surgery and cosmetic surgery – that are not covered by insurance) Imagine if auto insurance worked this way? Or homeowner’s insurance? Would it make sense to file insurance forms to get an oil change? Or to buy a new couch? That sounds crazy. The system would be needlessly bureaucratic, and costs would rise because we would act like we were spending other people’s money.  But that’s what would probably happen if government intervened in the same way it does in the health-care sector.

By the way, to make sure politicians don’t get a windfall of new revenue, the healthcare exclusion should only be repealed as part of a reform that also lowers tax rates.

Here’s a video from the Center for Freedom and Prosperity that highlights how the healthcare exclusion is a major cause of the third-party payer problem.

And if you like videos, I strongly recommend this Reason TV explanation of how simple and affordable healthcare can be in the absence of government-created third-party payer.

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The ongoing cluster-you-know-what of Obamacare is a source of unhappy satisfaction.

Part of me is glad the law is such a failure, but it’s tragic that millions of people are suffering adverse consequences. These are folks who did nothing wrong, but now are paying more, losing employment, suffering income losses, and/or being forced to find new plans and new doctors.

And it seems we get more bad news every day, as noted in a new editorial from Investor’s Business Daily.

ObamaCare rates will skyrocket next year, according to its former chief. Enrollment is tumbling this year. And a big insurer is quitting most exchanges. That’s what we learned in just the past few days.

Why do we know these three bad things are happening? Because that’s what we’re being told by Mary Tavenner, the former head of the Center for Medicare and Medicaid Services for the Obama Administration who has now cashed out and is pimping for the health insurance companies that got in bed with the White House to foist Obamacare on the American people.

IBD gives us the sordid details.

Why will 2017 rates spike even higher? In addition to the cost of complying with ObamaCare’s insurance regulations and mandates, there’s the fact that the ObamaCare exchanges have failed to attract enough young and healthy people needed to keep premiums down. Plus, two industry bailout programs expire this year, Tavenner notes. Oh, and she admits that people are gaming ObamaCare just like critics said they would: buying coverage after they get sick — since insurance companies can no longer turn them down or charge them more — then dropping it when they’re done with treatments. “That churn increases premiums. So you have to kind of price over that.”

And that’s just one slice of bad news.

Here’s more.

ObamaCare enrollment has already dropped an average of more than 14% in five states since February — a faster rate of decline than last year — as people get kicked off for not paying premiums. Finally, we learned on Tuesday that UnitedHealth Group (UNH) is planning to drop out of almost every ObamaCare market it currently serves after losing $1 billion on those policies. …Skyrocketing premiums, fewer choices in the marketplace, and people fleeing ObamaCare in droves after signing up. This isn’t exactly what Obama promised when he signed ObamaCare into law.

For those who were paying attention, none of this is a surprise. It was always a fantasy to think that more government intervention was going to improve a healthcare system that already was cumbersome and expensive because of previous government interventions.

By the way, IBD isn’t the only outlet to notice the ongoing disaster of Obamacare.

Let’s look at some other recent revelations.

Chris Jacobs writes that “For millions of Americans, the Left’s insurance utopia has rapidly deteriorated into a bleak dystopia” and that “the ‘cheaper prices’ that the president promised evaporated as quickly as the morning dew.”

John Graham explains that “CBO estimates Obamacare will leave 27 million uninsured through 2019 – an increase of almost one quarter” and that “CBO estimates 68 million will be dependent on the program this year through 2019 – an increase of almost one third in the welfare caseload.”

Betsy McCaughey opines that, “Obamacare is already hugely in the red. …over the next ten years Obamacare will add $1.4 trillion to the nation’s debt” and that “Insurers struggling with Obamacare are already drastically reducing your choice of doctors and hospitals to cut costs.”

Devon Herrick reveals that “Obamacare has caused more people to reach for their wallets after a medical encounter — not less” and that “all but the most heavily subsidized Obamacare enrollees would be better off financially if they skipped coverage and pay for their own medical care out of pocket.”

Jeffrey Anderson observes that “it seems possible that Obamacare has actually reduced the number of people with private health insurance” and that “Obamacare is basically an expensive Medicaid expansion coupled with 2,400 pages of liberty-sapping mandates.”

John Goodman notes that “Prior to Obamacare, many employers of low-wage workers offered their employees a “mini med” plan, covering, say, the first $25,000 of expenses” and that “Those plans are now gone… employees…are…completely uninsured”

The CEO of CKE Restaurants warns that “fewer people buying insurance through the exchanges, the economics aren’t holding up” and that “Ten of the 23 innovative health-insurance plans known as co-ops—established with $2.4 billion in ObamaCare loans—will be out of business by the end of 2015 because of weak balance sheets.”

Critics of Obamacare now get to say “we told you so.”

As the Washington Examiner opines:

…conservatives screamed a simple fact from the rooftops: Obamacare will not work. No one wanted to listen then, but their warnings are now coming into fruition. Obamacare, as constructed, attempted to fix a dysfunctional health care payment system by creating an even more complicated system on top of it, filled with subsidies, coverage mandates, and other artificial government incentives. But its result has been a system that plucked Americans out of coverage they like and forced them to pay more for less. …Taxpayers and insurance customers alike should demand replacing Obamacare with a system that reduces costs and improves quality by injecting actual choice and competition into the insurance market.

I especially like the last part of the excerpt. Which is why we need to go well beyond simply repealing Obamacare if we want to restore market forces to the healthcare sector.

P.S. I wrote about that it’s tragic that so many people are suffering because of Obamacare. I should add that there are some victims who actually are getting what they deserve.

P.P.S. In the long run, I fear taxpayers will be the biggest (and most undeserving) victims.

P.P.P.S.Though, in fairness, the law does have at least one redeeming feature.

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My colleague Michael Cannon has been a tireless advocated for market-based health reform. His research has helped pave the way for good Medicare and Medicaid reform proposals on Capitol Hill and he is justifiably famous for his dogged opposition to Obamacare.

With that glowing introduction, you may be surprised to learn that Michael has stirred up a hornet’s nest among conservatives by asserting that Marco Rubio’s healthcare reform legislation contains an Obama-like mandate.

…where is conservative outrage over Marco Rubio’s health plan, which actually contains an individual mandate? …The centerpiece of Rubio’s proposal… If you purchase a government-approved health plan, you could save, for example, $2,000 on your taxes. If you don’t, you pay that $2,000 to the government. That is exactly how Obamacare’s individual mandate works.

As you might expect, this rubs a lot of people the wrong way.

Writing for Forbes, Ryan Ellis argues that tax preferences aren’t mandates.

By this twisted, Orwellian logic, there is a government mandate to have kids (child tax credit), buy a house (mortgage interest deduction) and save for retirement (401(k) plans).

James Capretta is similarly critical in his column for National Review.

Cannon’s logic is absurd. Senator Rubio…wants to make sure that all Americans get a comparable tax break for health insurance, regardless of whether or not they get their insurance through their place of work. …No one would be required to do anything.

Grace-Marie Turner, in her column for Forbes, echoes those statements.

The Rubio plan does not and would not involve a mandate, and there are no enforcement penalties for not taking the credit. …Claiming that the Rubio plan is at least as bad as Obamacare is an irresponsible position.

Wow, Michael is apparently twisted, absurd and irresponsible. And these are statements from his friends and allies! When I get slammed, by contrast, it’s by leftists.

So what gives? At the risk of sounding like a mealy-mouthed politician, I’m going to argue that both Michael and his critics are right and that this fight is not really about a “mandate” but instead is a battle over whether (and how) government should use fiscal policy to induce certain healthcare decisions.

First, let me explain why Michael is right. His core argument, as captured by this excerpt from his article, is very straightforward.

Rubio’s tax credit would…give the federal government as much power to force you to purchase unwanted coverage as Obamacare does.

And he’s basically right. Under Obamacare, you can choose to buy a health insurance policy in order to pay less to the IRS. Under Rubio’s plan, you can choose to buy a health insurance policy in order to pay less to the IRS.

To be sure, the mechanisms are different. Under Obamacare, you pay less to the IRS because you’re not being fined. Under Rubio’s plan, you pay less to the IRS because you’re taking advantage of a tax credit. But the net result is still somewhat similar, at least from an economic perspective.

Now here’s why Michael’s critics are right. Notwithstanding a degree of economic equivalence, most people do not think a penalty and a bribe are the same.

The average person probably won’t get offended if you tell them they can have $1,000 if they touch a hot stove. They may say yes or they may say no, and they may think you’re weird for making the offer, but there presumably won’t be hard feelings.

On the other hand, if you tell the average person that you will coercively deprive them of $1,000 if they don’t touch a hot stove, they will probably be upset that you’re putting them in an unpleasant position. And regardless of what they choose, they’ll resent you.

This helps to explain why many people don’t like Obamacare. It forces them to choose between two things they may not want.

But in Rubio’s plan, the choice is whether you should choose something in order to get something. That’s a more pleasing scenario.

Now let’s shift to the real issue, which is the degree to which fiscal policy should be used to encourage health insurance.

Michael is an advocate of large health savings accounts and most everyone else prefers tax credits (and they prefer refundable credits, akin to the EITC, which means Uncle Sam would give money to people who don’t earn enough to pay tax).

Digging into that issue is not the goal of today’s column. Suffice to say that if your long-run goal is to get government out of the health sector, you’ll probably be more sympathetic to Michael’s view. If you think getting government out of the health sector is a pipe dream, you’ll probably be more sympathetic to tax credits.

The bottom line is that this isn’t a fight between good guys and bad guys. It’s a tactical disagreement among people who realize that government intervention has screwed up our healthcare system and don’t fully agree on how to get the toothpaste back in the tube.

P.S. Shifting to a different topic, it’s time to savor a rare victory. Regular readers may recall the postscript in a column last year about the IRS stealing the bank account of a guy who runs a convenience store in North Carolina. That was horrible and disgusting (and there are many other examples of similar misbehavior by the feds). But the good news is that the bureaucrats have been forced to return the money.

But remember that this is just a victory in one battle. We won’t win the war until the disgusting practice of civil asset forfeiture is abolished.

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Even before it was enacted, it was obvious that Obamacare was going to have a negative economic impact.

From a fiscal policy perspective, the law was bad news because all the new spending and higher taxes increased the fiscal burden of government.

From a regulatory intervention perspective, the law was bad news because it exacerbated the third-party payer problem.

Form a jobs perspective, the law was bad news because it increased the attractiveness of government dependency compared to employment.

But those were just the slap-you-in-the-face impossible-to-overlook problems.

As Nancy Pelosi infamously noted, the law needed to pass so we could know what was in it.

And the more we learn about the contents, the more evidence we find that (as shown in this poster) that more government is never the answer.

A new empirical study by scholars at Harvard and Stanford finds that “free” goodies from the government actually have a hefty price tag.

The dependent care mandate…one of the most popular provisions of the 2010 Affordable Care Act…requires that employer-based insurance plans cover health care expenditures for workers with children 26 years old or younger. …there has been little scholarly work measuring the costs and incidence of this mandate and who pays the costs of it. In our empirical work, ….we find that workers at firms with employer-based coverage – whether or not they have dependent children – experience an annual reduction in wages of approximately $1,200. Our results imply that the marginal costs of mandated employer-based coverage expansions are not entirely borne only by the people whose coverage is expanded by the mandate.

Wow, this is worse than I thought. I assumed the pejoratively nicknamed “slacker mandate” wasn’t a big issue because the types of kids getting coverage (ages 19-26) presumably had very low health expenses.

But if average wages at affected firms are $1200 lower than they otherwise would be, that’s a big hit. Maybe Pajama Boys have physical health problems in addition to their mental health problems.

Now let’s look at another higher-than-expected cost, except this time the victims are taxpayers and other health care consumers rather than workers.

Politico has a depressing story of how people have figured out how to game the system

Obamacare customers are gaming the system, buying coverage only after they find out they’re ill and need expensive care… No one knows precisely how many might be manipulating the system, but the plans say they run up much higher medical bills and then jump ship, contributing to double-digit rate increases and financial losses. Health plans also complain some customers are exploiting a three-month “grace period” — when they can keep getting subsidized coverage even if they’ve stopped paying their share of premiums.

In other words, Obamacare is so poorly designed – thanks to subsidies, mandates, and other forms of intervention – that many people can basically wait until they’re sick before signing up.

Then they incur expenses that are covered by taxpayers and/or passed on to other healthcare consumers.

There’s also another group of victims, though I confess that part of me thinks that the insurance companies deserve to suffer since they (like Big Pharma) endorsed Obamacare.

…those trends make the risk pools skew toward sicker, costlier customers — and under Obamacare, plans can no longer deny coverage to those with expensive medical conditions. That problem has been exacerbated by the large numbers of healthier people who are choosing to stay uninsured rather than shell out money for coverage.

Yup, I experience a warm glow of schadenfreude after reading that passage. But I also know that it won’t be good for the American economy and the American people if the market for private health insurance entered an Obamacare-driven death spiral.

That being said, I also don’t want them to get any bailout cash.

In any event, if the health insurance companies have a meltdown, you could bet your last dollar that the crowd in Washington somehow will blame capitalism and say that the solution is single-payer health care (even though that system is so dysfunctional it was repealed by Bernie Sanders’ Vermont and even though that system leads to endless horrors in the United Kingdom).

P.S. In the interest of fairness, I will admit that there is a group that has benefited from Obamacare.

P.P.S. Actually, there’s another group, so we can say there are two winners from government-run healthcare.

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I’ve put together a collection of political cartoons that show government as a bloated, clumsy, and sometimes malicious person.

This isn’t because of any special animus, but rather because the unintended consequences of government intervention are almost always harmful.

Consider the issue of higher education. Politicians start with the warm and fuzzy notion that it would be good to help more people go to college. So they create loans and grants to help them pay for tuition.

Sounds nice and noble, right? And just think of the votes that can be harvested from grateful parents!

So is this a win-win situation for both politicians and students? Well, let’s look at the real-world results.

As explained in this video, there’s a lot of evidence that these loans and grants are the reason that higher education is now far more expensive (just as there is powerful data showing that subsidies lead to higher costs in other areas as well).

And additional research is confirming this concern. A new study by Professor Grey Gordon of Indiana University and Professor Aaron Hedlund of the University of Missouri finds that government subsidies for higher education wind up benefiting colleges and universities and hurting students.

Here are the key findings.

We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. …We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a 106% rise in net tuition between 1987 and 2010, which more than accounts for the 78% increase seen in the data. Changes in the FSLP alone generate a 102% tuition increase.

Robby Soave of Reason reports on the new research.

…skyrocketing college tuition costs are the result of all-too-generous student loan policies. The study, authored by Grey Gordon and Aaron Hedlund, used a computer model to measure the effects of various economic forces on college costs. According to the model, no factor had more to do with rising tuition prices than loan subsidies. “Looking at individual factors, we find that expansions in borrowing limits drive 40% of the tuition jump and represent the single most important factor,” wrote the study’s authors. In fact, the “Bennett hypothesis”—the idea, first proposed by President Ronald Reagan’s Education Secretary William Bennett, that increasing student aid encourages colleges to jack up prices—fully explains all the tuition increases between 1987 and 2010, according to the study. …A recent study by the New York Federal Reserve reached a similar, albeit less dramatic, conclusion regarding the link between loans and tuition.

Regarding the study from the N.Y. Fed, here’s Robby’s report on that research.

The bottom line is that politicians want us to believe that subsidies are needed because college is getting more expensive. But what’s really happening is that college is getting more costly because of the subsidies!

Now let’s move to a separate question. We know that colleges and universities are getting a big windfall as a result of students loans and other subsidies. So how are they spending the money?

Not very well, according to researchers.

And that’s probably because much of this money is mostly being wasted on more bureaucracy. Here’s a chart showing trends in recent years.

Even more depressing, the research also shows that all this spending doesn’t improve human capital, so there’s a negative impact on overall economic performance.

P.S. Politicians who complain about “cuts” in spending for higher education are either dishonest or ignorant.

P.P.S. Speaking of which, Hillary Clinton’s plan for higher education is a recipe to enable even higher costs for colleges and universities.

P.P.P.S. Some folks hope that there’s a soon-to-pop bubble in higher education, which means that tuition will soon become more affordable. But I’m worried that higher education is more like health care rather than housing, which means that prices will climb even higher over time.

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Like many Americans, I’m suffering from Obamacare fatigue.

Health Freedom Meter before ObamacareBefore the law was implemented, I repeatedly explained that more spending and more intervention  in the health sector would worsen a system that already was suffering from too much government.

And since the law went into effect, I’ve pointed out – over and over again – the predictably negative effects of Health Freedom Meter after Obamacaregiving the government even more control.

So I’m tempted to wash my hands of the issue.

But that would be wrong, particularly since advocates of statism disingenuously might claim that silence somehow means acceptance or approval.

Moreover, we need to continuously remind ourselves that big government doesn’t work just in case there’s a chance to enact good reforms after Obama leaves office.

With that in mind, let’s look at recent developments that underscore the case against government-run healthcare.

How about the fact that Obamacare is extremely vulnerable to fraud?

…the GAO report showed that federal auditors 11 out of 12 times were able to gain subsidized coverage with fictitious applications, three of the successful applications never provided citizenship or immigration documentation. The investigators in each case were able to obtain $2,500 or around $30,000 annually in advance premium tax credits.

And what about the fact that the Obamacare co-ops have been a big flop?

Nonprofit co-ops, the health care law’s public-spirited alternative to mega-insurers, are awash in red ink and many have fallen short of sign-up goals, a government audit has found. Under President Barack Obama’s overhaul, taxpayers provided $2.4 billion in loans to get the co-ops going, but only one out of 23 — the one in Maine — made money last year, said the report out Thursday. Another one…was shut down by regulators over financial concerns. The audit by the Health and Human Services inspector general’s office also found that 13 of the 23 lagged far behind their 2014 enrollment projections.

Or what about the fact that deductibles have increased under Obamacare?

A survey released earlier this week by the Kaiser Family Foundation found that..deductibles have risen almost three times as fast since 2010 for employer-sponsored plans.

And should we care that Obamacare has meant rising health care costs?

…the actuaries estimated that health spending that year jumped by 5.5 percent, a bigger rise than the country had experienced in five years. …The actuaries cited three main reasons they think health spending is set to tick up. One is the aging of the population… Another is the improving economy… But the third, and a big one, was Obamacare’s coverage expansion.

All of the aforementioned things are contrary to what Obamacare supporters promised.

Though since I focus on policy rather than politics, I’ll take this opportunity to point out that higher deductibles in some ways are a good thing. Which is why I’ve defended Obamacare’s Cadillac tax.

But now let’s look at two additional Obamacare developments. And both represent very bad news.

First, new scholarly research shows that Obamacare will be bad news for all income levels, and even will be of questionable value to those getting big subsidies (h/t: Marginal Revolution).

…the average financial burden will increase for all income levels once insured. Subsidy-eligible persons with incomes below 250 percent of the poverty threshold likely experience welfare improvements that offset the higher financial burden, depending on assumptions about risk aversion and the value of additional consumption of medical care. However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare.

In other words, people generally were making sensible choices when they had some degree of freedom.

But now that they’re being coerced into Obamacare, many of them are worse off. Even in many cases if they’re the ones getting subsidized!

Second, we now know that President Obama’s promise to lower health insurance premiums by $2,500 was laughably misleading.

But it’s not simply that the President exaggerated. As Investor’s Business Daily explains, the numbers actually have gone in the other direction

Since 2008, average family premiums have climbed a total of $4,865. The White House cheered the news, saying it was a sign of continued slow growth in premium costs. …Slightly less higher premiums aren’t what President Obama promised Americans when he ran for office touting his medical overhaul. He specifically said his plan would cut premiums. “We will start,” Obama said back in 2008, “by reducing premiums by as much as $2,500 per family.”

And keep in mind that Obama’s claim of big savings was not a one-time, off-the-cuff comment.

As you can see in this video, it was a pervasive part of his campaign for further government control of the health care system.

But the real story isn’t prevarication by a politician. That comes with the territory.

The real issue is that our healthcare system is more screwed up because government now is playing a bigger role.

And keep in mind that fixing the problem means a lot more than simply repealing Obamacare. We also need to deal with spending programs such as Medicare and Medicaid and address tax preferences and regulations that encourage over-insurance.

After all, never forget that our real healthcare crisis is a giant government-caused third-party payer problem.

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Over the past few years, Hillary Clinton has taken advantage of several opportunities to demonstrate that she doesn’t understand economics.

Though that’s not a problem. I have friends who routinely demonstrate their economic ignorance by saying things that don’t make sense.

The problem is that Hillary may actually wind up in a position of power. So there’s a danger that the entire nation could be victimized because of her disregard of the laws of supply and demand.

Let’s look at a fresh example. The New York Times has a story about Ms. Clinton’s latest effort to bribe people with their own money.

Hillary Rodham Clinton on Monday will propose major new spending by the federal government that would help undergraduates pay tuition at public colleges without needing loans. …her proposals…would cost $350 billion over 10 years…about $175 billion in grants would go to states that guarantee that students would not have to take out loans to cover tuition at four-year public colleges and universities.

To make matters worse, some of this money would be used to bribe states into additional spending (sort of the higher-education version of Obamacare’s Medicaid scam).

In return for the money, states would have to end budget cuts to increase spending over time on higher education, while also working to slow the growth of tuition, though the plan does not require states to cap it.

And to make matters even worsier (yes, that’s a made-up word, but it seems appropriate), there’s a big tax increase to finance Ms. Clinton’s new scheme.

Mrs. Clinton would pay for the plan by capping the value of itemized deductions that wealthy families can take on their tax returns.

I don’t like distortionary tax preferences, but loopholes should be eliminated as part of a shift to a low-rate flat tax, not to finance the vote-buying schemes of the crowd in Washington.

But let’s set aside the concerns about fiscal policy and focus on what Clinton’s plan would mean for higher education.

And we’ll start with a thought experiment. Imagine you sold cars and the government decided to give people lots of money to buy your products. In the world of economics, this causes the “demand curve” to shift to the right.

Now answer a simple question: Would car prices under this policy (a) increase, or (b) decrease?

The obvious answer is (a). That’s certainly what has happened in the healthcare sector because of programs such as Medicare and Medicaid. That also happened in housing last decade thanks to bad monetary policy and corrupt Fannie Mae and Freddie Mac subsidies.

Moreover, there’s lots of evidence that the same thing already has happened with higher education. And now there’s new research that reaches the same conclusion.

As pointed out by the Wall Street Journal, recent scholarly data confirms that colleges and universities jack up prices to capture the additional subsidies.

Politicians…their solutions—cheap loans and taxpayer cash—end up increasing the cost of a degree. The latest evidence that schools jack up tuition to absorb federal money comes in a new report from the Federal Reserve Bank of New York. …The Fed researchers looked at how colleges responded when Congress bumped up per pupil aid limits between 2006 and 2008. Sure enough, students took out more loans, but universities gobbled up most of the money. Ohio University economist Richard Vedder connected these dots a decade ago, estimating in 2006 that every dollar of grant aid raised tuition 35 cents. He now looks prescient. The New York Fed study found that for every new dollar a college receives in Direct Subsidized Loans, a school raises its price by 65 cents. For every dollar in Pell Grants, a college raises tuition by 55 cents. This is one reason tuition has outpaced inflation every year for decades, while the average borrower now finishes college owing more than $28,000.

So what’s the bottom line? What will happen if Hillary Clinton expands subsidies to higher education?

Simple, more government subsidies will mean more wasteful inefficiency and higher costs.

Administrative bloat, reduced faculty loads and Shangri La dorms… College will continue to be expensive as long as government aid amounts to a wealth transfer to universities.

In other words, Ms. Clinton’s plan will double down on the policies (described in this video) that already have made college needlessly expensive.

All she’s doing is shifting more of the cost onto the backs of taxpayers.

Fortunately, there is a solution to this mess. Simply get the federal government out of the education business. This would reverse the bad policies that have caused colleges and universities to become more expensive and less efficient.

Sadly, this ideal approach probably won’t be adopted anytime soon.

But that doesn’t mean progress is impossible. Washington may actually move policy a bit in the right direction. And Elizabeth Warren (yes, that Elizabeth Warren) may even play a constructive role.

As reported by the Wonkblog section of the Washington Post, there’s growing interest in a plan to make colleges and universities partly responsible when students default on loans.

A coalition of liberal and conservative lawmakers is promoting a plan on Capitol Hill that would force colleges to pay up when their students default. If schools share the risk of borrowing or have some “skin in the game,” policymakers figure they would work harder to keep costs down….Senate Democrats, led by Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.), introduced legislation in 2013 requiring schools with default rates above 15 percent to reimburse the government 5 percent of the total defaulted debt. The higher the default rate, the higher the penalty. …Congressional Republicans are renewing the call for schools to share the risk of borrowing, as are presidential hopefuls Wisconsin Gov. Scott Walker and Ben Carson. The policy is being considered as a part of the re-authorization of the Higher Education Act.

The story even has some very sensible economic analysis about how third-party payer should be blamed for rising prices.

As it stands, there is little incentive for colleges to keep costs under control. As long as there is a supply of students and federal financial aid, both for-profit and nonprofit schools can charge high prices and encourage people to take out loans to cover the cost. If schools had a financial stake in every student’s ability to repay loans, they might be less inclined to saddle students with debt in the first place—or they might lower costs altogether.

Gee, what a shocking thought. If people have to play with their own money rather than taxpayer money, they suddenly behave more responsibly!

P.S. We should also remember that there is such a thing as too much “investment” in higher education.

P.P.S. Third-party payer in higher education also shows how government money can corrupt private institutions. Though any effort to stamp out such corruption should apply equally to government schools as well.

P.P.P.S. Now for the most important news. The Beltway Bandits are now Eastern National Champions of 55+ AAA softball, winning five straight games in Raleigh, NC, this past weekend.

We’ll play in Las Vegas for a national title in late September.

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