Category Archives: Economics

Affordable Care Act Debunked

There has been much hype, debate, and confusion over the Affordable Care Act lately.  Let’s try a different approach: let’s look at the facts and see on whom costs or benefits are imposed as a consequence of the upholding of this legislation.  A key list of the provisions in the Act can be found at  It possesses a series of provisions to take effect beginning in 2010 and extending to 2015.

2010 (consumer protections):  It sets up a website where consumers can view various insurance programs and weigh options.  This will no doubt increase competition in the insurance market.  It will also impose restrictions on how health insurance companies charge:  children under 19 cannot be denied coverage because of a pre-existing condition, those who acquire insurance cannot be dropped later due to a clerical error on a customer’s application (this tended to be a strategy used by some insurance companies to drop coverage for customers who acquired a sickness over the course of their coverage), it sets up an external review process that enables consumers to appeal decisions made by their healthcare providers regarding the determination of their pricing, small businesses are eligible for tax credits to help pay for their employees’ coverage, new plans must include preventive care like mammograms and colonoscopies, young adults without a plan (or offered plan) may stay on parents’ plan until they turn 26, and many other features in 2010.

2011-12:  Incentives for improving the quality and lowering the cost of medical care, special features for seniors.  For insurance companies who sell to large employers, at least 85% of their revenue from sold policies must go directly to healthcare providing.  And for insurance companies who sell to small businesses and individuals, at least 80% of their revenue from policies must go directly to healthcare.  This provision is aimed at reducing the consolidation of profits into the form of administrative costs and executive bonuses.

2013 (Medicaid improvements):  bundling costs, subsidizing state Medicaid while sustaining pay for primary care physicians.

2014:  insurance companies with individual and small group programs are no longer allowed to charge different rates based on gender or health, small businesses and those not covered by an employer will be able to buy insurance in an Exchange program (a competitive market for individual and small groups) (members of Congress will purchase it from here as well), more tax credits to small businesses to help cover employees, those at or below 133% of the poverty line will be eligible for Medicaid, most Americans who can afford healthcare will be required to purchase a plan or pay a fee to help cover costs of others, if healthcare is not available to a person then they will be eligible to apply for an exemption, workers who can’t afford their employer’s program will be able to keep their insurance funds that would have otherwise been taken out of their paycheck.

It’s clear that this Act has the intention to benefit anyone who has or wants health insurance (which is essentially everyone).  Who could possibly hurt from this policy?  Well, obviously the insurance companies themselves might hurt–as they have less freedom to charge what they want (although at the same time, the individual mandate provision that requires those who can afford it to buy a health insurance policy for his/herself most certainly will increase demand for insurance companies).  And businesses that have to cover their employees now face a little more regulation.  This is essentially from where the criticism on the right comes.  But let’s be honest, large employers and insurance companies who sell to them are likely to not be dinged by these policies.  Their profits are sufficient.  Small businesses and small insurance providers would be the only ones facing tough changes.  And that’s precisely the purpose of things like the tax credits, Exchange program, and the extra 5% of kept revenue (I’m not sure how beneficial the extra 5% would be).

So still, with all of this, how could there still be such opposition to the Affordable Care Act?  Since the Citizens United ruling, it’s obvious that big companies have more influence in political elections now relative to, say, everyone else.  And where have big companies decided to utilize their “free speech”?  They sent money to super PACs of course.  And is there anything noteworthy about the choice of super PACs to which they donated?  Well consider the 2011 findings by the nonpartisan Center for Responsive Politics [2]:

The centerpiece of how a business becomes very successful (i.e. profitable) is based on the fact that they care very much about profits.  It may therefore be no surprise why a party that receives far more funding from big businesses (including insurance companies) and wealthy individuals than another party tends to advocate policies that benefit those contributors.  The same can be said of liberals and unions (although one key distinction to be made is that unions contribute far less to liberal candidates than businesses do to conservative ones) [3].  And if big businesses now have to purchase policies from insurance companies that have been slightly constrained by new legislation, it’s no wonder why they would oppose the legislation as it could lead to higher policy prices.

An alternative to the Affordable Care Act (which Obama originally advocated), was a single-payer plan (aka universal healthcare), in which each person paid a tax to cover insurance for everyone–provided by the government.  No doubt this would put the health insurance industry out of business.  Correspondingly, it’s also no surprise why a party whose campaign was heavily supported by insurance companies also advocated against a potential government competitor:

Top (Insurance) Contributors, 2011-2012

Contributor Amount
New York Life Insurance $1,648,546
Blue Cross/Blue Shield $1,372,945
AFLAC Inc $1,112,295
Indep Insurance Agents & Brokers/America $877,250
USAA $841,958
Massachusetts Mutual Life Insurance $757,178
Natl Assn/Insurance & Financial Advisors $727,000
Northwestern Mutual $698,564
Metlife Inc $600,109
American Financial Group $563,950
Liberty Mutual $555,605
Assn for Advanced Life Underwriting $548,500
National Assn of Health Underwriters $492,850
Property Casualty Insurers Assn/America $488,500
Genworth Financial $488,351
Council of Insurance Agents & Brokers $480,899
Travelers Companies $437,630
Prudential Financial $374,895
Zurich Financial Services $374,815
State Farm Insurance $333,835

As the Center for Responsive Politics articulately explained:

Insurance companies staunchly oppose the idea of a government-provided health insurance option, which President Barack Obama and most congressional Democrats support. These businesses fear that implementing a “public option” will eventually lead to “single-payer” health care, which they say would mean the collapse of their industry. Insurers believe that even if they survive the presence of a government competitor in the market, their profits will decline sharply, as the federal government will be able to negotiate for lower premiums and drug costs. [4]





We Are All Socialist

In Marxist theory (from where the terms socialism and communism definitively originate), we essentially have the following idea and sets of definitions.  A society consists of people, and people consist of things called property (with the second consist in the sense of ownership).  Communism refers to a society in which society itself owns all of the property;  that is, in a communist society, each individual owns all of the property.  Note that this is equivalent to definition 2a in [1] for if there is no private property, then for every property, there is no person who does not own it (otherwise it would have been private).  And conversely, if everyone owns everything, then there is no property such that some person doesn’t own it (i.e. there is no private property).

It follows that we define a representative government to be communist if and only if it is a government of a communist society.  This way if we think of the government as a subset of society, then if members of the government own all of the property (i.e. communist government) and the government is a representative government, then all of the members own all of the property via the representation.  And conversely (and trivially) if the society is communist, then all members, and hence also those in the government, own all of the property.

In reality, no society or government is truly communist;  one can always find something not owned by all members of the government or society.  For example, one could argue that any individual A owns their thoughts, and no other individual B\neq A owns the thoughts of A.  So this would be one trivial counter example.  A capital society is defined as a society that is not a communist society.  That is, in a capital society, it is not the case that every member owns all property.  Ownership in a society may certainly change over time.  If it is heading in the direction of communism, we say the society is socialist.  If it is heading away from communism, then we say the society is capitalist.  If it is neither heading toward or away from communism, then we will call it static.

The claim that we are all socialist boils down to the fact that there is much consensus on the desire of public services including police, fire, medical, and education.  We pay taxes for these entities that serve us as needed.  In this sense, we all own them.  And we always want to see them improved.  For these things to exist, we need a government to oversee them.  Continually wanting to see them improved translates to us wanting a say in how governmental money is distributed to them.  Since this money comes from other members of society (as taxation for example), this amounts to us wanting more ownership over what was formerly some other person’s property.  It is this sense in which we are all socialist.

Just take a look at the chart previously posted.  It shows that relative to where we are now (the actual distribution of wealth), we want the wealth to be different (what we would like it to be).  We want more ownership over how resources are distributed in society.

Also consider provisions in the Affordable Care Act once stripped from its colloquial term “Obamacare”, which has lately had much negative connotation.  These polls suggest that most Americans support having more control/ownership of insurance companies in the sense of declaring how they can and cannot operate [2], [3].




Where’s the Money?

The actual paper can be found here.

The Lorenz Curve

Suppose we want to measure the wealth gap of a nation.  The Gini coefficient does this by measuring how far away we are from perfect equality.  Consider the following graph.

The x-axis represents shares of income.  So .5 on the x-axis represents half of those who have an income (50\% of income earners are on either side), and everyone is included since unemployed are considered to have 0 income.  The y-axis represents the sum of all incomes up to income x.  Hence on this particular depiction of the Lorenz curve, which represents this for a made-up nation, it appears the bottom 50\% of income adds up to about .2 (or 20\%) of the total income.  The perfect equality line has a slope of 1 since if everyone has the same income, then each step forward on the x-axis (where steps are evenly distributed because of equal income) adds the same amount to the cumulative income.  Measuring the deviation (Gini coefficient) from perfect equality thus amounts to computing the pink area as a ratio to perfect equality.  That is, if G represents the Gini coefficient, A is the pink area, and B is the grey area, then

\displaystyle G=\frac{A}{A+B}=\frac{A}{1/2}=2A=2\left(\frac{1}{2}-B\right)=1-2\int_0^1 L(x)\,dx

where L(x) is the Lorenz curve.  It thus takes a value between 0 and 1 where 0 is perfect equality (everyone has same income), and 1 is perfect inequality (one person has all of the income).  We can see a variation of Gini coefficients by nation:

There is also the trend since WWII:

Image by Wikipedia User Cflm001

The US Gini coefficient has moved up from .408 in 1997 to .45 in 2007 and ranks 39 out of 136 nations for highest Gini coefficient [1][2].



Political Policy and the Wealth Gap

Consider the US income distribution in 2005.

Image by Catherine Mullbrandon (1)

It demonstrates that a clear majority of the population earns an income at the relatively low end of possible incomes in our economy.  This sort of curve isn’t too surprising since those who acquire relatively more resources initially can in turn acquire additional resources easily since they can afford costly investments with large payoff.

This presents a problem of endgame capitalism.  The idea is that if a system has a finite amount of resources and a finite number of people attempting to acquire as many resources as they can such that none have 0 resources, then the instability of socialism (where everyone has the same amount of resources) will force some to have more, and in turn make it easier for them to get more by contracting others (i.e. forming a corporation).  Slowly those with less lose more and more over time until several “corporations” remain.  Then the process repeats, and eventually we are left with a single owner, or at least one person getting arbitrarily close to possessing all of the resources.  To combat this endgame, we are left with political policy.

The highest tax bracket in the US is 35% and applies to households making over $373,000 [2].  That is less than 2% of the population.  There will come a point in our future where we will have to decide between “fairness” and efficiency.  It would be far more efficient for very low incomes to have 0% (or at least very low) tax rates and for the upper echelons pay bigger percentages.  They could still rank far above the rest after taxes.  During previous time periods taxes were raised to combat the costs of the federal government (in particular WWII in 1945).

Image by Greg Hollingsworth (3)

Also of interest (as Greg points out) is the correlation between the decrease in the top tax rate and increase in the national debt.