California’s Surprisingly Cheap Single Payer Plan

There is coverage today of a new report from the California Senate Appropriations committee estimating the budgetary implications of a proposed single payer health plan for the state (Sacramento Bee, LA Times, Vox). I’ve not yet been able to access the report directly, but the coverage of it is pretty encouraging.

After the implementation of single payer, the report says, health expenditures in the state of California would total $400 billion per year, or 15 percent of the state’s GDP. This is 3 percentage points lower than the share of GDP the US overall spends on health care.

The reports indicate that, currently, government spending on health care in California is around $200 billion and employer spending on health care is between $100 billion and $150 billion. There is no indication of how much individuals currently spend on top of employers and governments on individual premiums and out-of-pocket expenses. Nonetheless, net of current government spending ($200 billion) and employer spending ($100-$150 billion), the single-payer plan requires an additional $50 to $100 billion of spending, or 1.9% to 3.8% of CA GDP.

For that extra 1.9% to 3.8% of GDP:

The state would pay for almost all of its residents’ medical expenses — inpatient, outpatient, emergency services, dental, vision, mental health, and nursing home care — under the plan, and Californians would not have any premiums, copays, or deductibles.

That’s an incredible deal for just 15% of GDP, which again is lower than the US as a whole already spends on health care.

Of course, there are challenges to implementing single payer on the state level. States have to deal with all sorts of federal laws like ERISA that could disrupt their plans. States have to hope the federal government will chip in the share they currently contribute to the state’s health care sector. States have to worry about rich people leaving to avoid tax to some degree. And states have to worry about what will happen during a recession when the state’s budget contracts in ways the federal government’s budget does not.

But if the plan would work like this report says it does and at the cost this report says it does, it is a no-brainer.

More Job Guarantee Muddle

The Center for American Progress wrote a post today advocating for a job guarantee. As with similar posts written by others sympathetic to the idea, the CAP proposal was muddled and failed to offer any plausible jobs that could actually be offered in a JG program.

When you clear out the bloat, the proposal is as follows:

  1. There will be a “permanent program of public employment and infrastructure investment.”
  2. There will also be publicly-funded training to help people get private sector jobs.
  3. The program would target a certain employment rate, meaning that it would hire until the employment rate is hit.
  4. It “would not compete with existing private-sector employment.”

To better understand how this sort of JG program should work in practice, consider the following graph:

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In the graph, blue represents permanent public sector jobs. This refers to things like teachers, health inspectors, police, and other similar jobs. The defining feature of these jobs is that they are permanent, meaning that they will always be filled by someone. These jobs will not come and go based on the condition of the private sector. They will always exist and always crowd out the private sector.

The red represents the private sector. As you can see, when the red starts to shrink, the orange expands. That represents the job guarantee filling the gaps left by the flagging private sector and keeping the employment rate steady at 80 percent.

The key to the JG is finding jobs that are nice to have, but are not strictly necessary. You need jobs that can go unfilled when the private sector picks up.

Yet, here are all the jobs mentioned by CAP in its JG section: 1) home care workers for elderly people, 2) home care workers for disabled people, 3) child care workers, 4) teachers’ aides, 5) emergency medical technicians.

Do these seem like jobs that can go unfilled when the private sector picks up? Should child care and assistance for the disabled disappear when the economy is booming? No. These are blue jobs not orange jobs. They should exist on a permanent basis, not as a temporary home for dislocated workers.

This might seem like a nitpick, but it is not. Time and time again, popular advocates of the JG (not referring to the actual academics behind it) make this exact same mistake. They talk about how the JG would be a great way to wipe out unemployment and then they turn around and advocate for jobs that are not appropriate for a job guarantee program. CAP is right that we desperately need more public care workers, but that is precisely why those jobs would not work for a JG program.

Conceptually, the entire discussion around job guarantee would become so much clearer if people were made to distinguish between 1) ideas they have for permanently expanding the size of the public sector workforce, and 2) ideas they have for flexibly absorbing workers when the private sector workforce contracts. Right now, (1) and (2) are crammed together, creating a muddled debate that is mostly incoherent.

Would Ending the Mortgage Interest Deduction Reduce the Racial Wealth Gap?

Matthew Desmond has a piece at the New York Times about homeownership and inequality. In it, he rightfully takes on the Mortgage Interest Deduction, a tax expenditure that unfairly benefits those who own homes and the rich especially.

Desmond ties the Mortgage Interest Deduction, and homeownership policy more generally, into the racial wealth gap. This naturally raises the question: would ending the mortgage interest deduction actually reduce the racial wealth gap?

In his piece, Desmond endorses the plausible theory that the value of the Mortgage Interest Deduction gets capitalized into home values. This means that home values are higher than they would otherwise be, which drives up the wealth of those who own homes.

It’s impossible to say how much, but a widely cited 1996 study estimated that eliminating the MID and property-tax deductions would result in a 13 to 17 percent reduction in housing prices nationwide, though that estimate varies widely by region and more recent analyses have found smaller effects. The MID allows home buyers to collect more after-tax savings if they take on more mortgage debt, which incentivizes them to pay more for properties than they could have otherwise. By inflating home values, the MID benefits Americans who already own homes — and makes joining their ranks harder.

On first glance, it is easy to see why someone would think that trimming home values by as much as 17 percent would reduce the racial wealth gap. In the 2013 Survey of Consumer Finances, the mean primary residence asset value for whites was more than three times the mean primary residence asset value for blacks.

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This means that trimming home values by, say, 10 percent would reduce mean white wealth by just over $20,000 while only reducing mean black wealth by a little over $6,500. So, in absolute dollar terms, the racial wealth gap would definitely shrink.

But the racial wealth gap is not usually represented as the dollar difference between white and black wealth. Rather, it is represented as the ratio of black wealth to white wealth. And for that racial wealth gap, it is the following graph that actually tells us whether trimming home asset values by eliminating the Mortgage Interest Deduction would help.

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The value of primary residences makes up 69 percent of black wealth but only 30 percent of white wealth. This means that trimming all home values by, say, 10 percent would erase 6.9 percent of black wealth but only 3 percent of white wealth. The result of this would be a decrease in the ratio of black wealth to white wealth. That is, the result would be a larger racial wealth gap, so defined.

None of this is to say that we should think twice about eliminating the Mortgage Interest Deduction. We shouldn’t. It is just that its effect on the racial wealth gap is more muddled than often suggested. Tweaks like that are not likely to deliver the kind of racial equality we seek. For that, we will ultimately need an intentional agenda of leveling out the wealth distribution in society.