Adapting to Means Testing | Hacker News Reader

Adapting to Means Testing

jefftk.com

36 pointsluu52 comments

You don’t need to change or limit Medicaid payments to make this work. Just give it to everyone. Yes, the wealthy will have a benefit that they “don’t need” but that’s not actually a problem. A simpler program is more efficient and easier to administer. And if the wealthy have even a small stake in how the program is run they may hesitate to make cuts to it.

It is entirely possible to pay for health care for everyone with modest tax increases - taxes that will be instead of insurance premiums for most people.

And if the wealthy have a benefit they don't need, we take it back with taxes. Maybe it really is that simple.

For me, cheaper premiums are not even the selling points of universal healthcare. It's selfish hedonism:

It's emergencies - No tax will exceed 100% of my annual salary, so why should a surprise medical bill I couldn't possibly avoid (T-boned when I had the right-of-way and thought I looked for cross traffic?) bankrupt me?

It's uncertainty - Sure I'm middle-class now, but what if software really is in a bubble, and I'm broke in 15 years? Voting for my own interests has to include voting for things that _could_ plausibly happen in my future, not just what's happening to me this week.

And it's the social graph of private charity. If my friend is a little worse-off than me, should I be guilted into donating money to their medical costs? I'm nowhere near the philanthropist class. Why should it fall on me? Not having a safety net punishes middle-class people who care about their not-middle-class friends and family.

Paying with taxes is much fairer - No surprises, no desperate clinging to my job, and no guilt.

> No tax will exceed 100% of my annual salary, so why should a surprise medical bill I couldn't possibly avoid (T-boned when I had the right-of-way and thought I looked for cross traffic?) bankrupt me?

It's amusing/pathetic that medical insurance was supposed to mitigate this risk, but we've gotten to the point where things are so fucked up that even "good" insurers try really hard to deny claims, especially the outrageously expensive ones that are likely to bankrupt people.

> we've gotten to the point where things are so fucked up that even "good" insurers try really hard to deny claims, especially the outrageously expensive ones that are likely to bankrupt people

What I find interesting is good, well meaning people defend the insurance companies’ tactics as it prevents premiums from skyrocketing but then they hear about “death panels” and immediately denounce single payer.

I had insurance from the marketplace a few years back and I distinctly remember the call center representative laughing when I asked why my premium was up year over year when clearly the only thing I had used the year before was a flu shot. She apologized for laughing when she realized my puzzlement was genuine and explained that it wasn’t about what I used but what the group used. Just sounds like a tax with extra steps, I thought.

In the discussion on another article also on the front page, people are wondering if we are ever capable of meaningfully doing an about face on issues (interestingly also about medicine: placebo surgeries).

Another way of looking at it is, because the average person cannot afford both (1) catastrophes like being hit in a car and becoming disabled, (2) accidentally disabling someone with their car, the underlying problem is still income inequality.

That problem in particular is completely solvable by insurance.

Lemme put it another way for you. Because the average parent isn't rich enough to give their kids 13 years of school, but also the average parent isn't rich enough such that school doesn't matter, the underlying problem is income inequality.

No, it isn't. Insurance companies have lawyers and will fight for every nickle in court.

They can't hire a lawyer for a nickel, so your claim is clearly false because that wouldn't be cost effective.

They contest large claims that aren't covered by your policy because that's what everybody does. You don't think Medicare refuses to cover certain things? They have to, because you can't spend a trillion dollars to save one life.

And for that single payer is even worse, because whenever they refuse to cover something, the provider goes out of business because the refusal applies to 100% of their customer base. Then what happens when something isn't covered isn't that you get a bill for $50,000 and file bankruptcy, it's that the provider who could have saved your life is out of business and you die.

Having been on multiple juries involving suits between insurance companies and the people they were supposed to be covering, I know for a fact that you have no idea what you're talking about.

You shouldn't have been on multiple juries where the insurance company didn't have at least a colorable claim, or the judge should have disposed of the case before it ever went before a jury. And if that's what happened your complaint is with the court system.

This may come as a shock to you, but insurance companies have a lot more money than most individuals who are harmed on the job and will spend some of it if it will ultimately save them money. Employers are in on the act because they don't want increased premiums.

Plaintiff: "any plain reading of the agreement stipulates that I am to be compensated X if I am injured on the job in a manner that results in me being unable to continue my job"

Insurance company: "Clearly this video of this man washing his car over a 4 hour period, cleverly edited to pretend that he is taking just 15 minutes to wash the entire thing, is indication that he is capable of climbing a 100 foot ladder while hauling 60 pounds of equipment, even though he has four fractured vertebrae, had a surgically reattached lower extremity, doesn't have the core muscle strength to balance on a ladder, and can't lift 15 pounds without extreme pain"

You're just beclowning yourself at this point. This is an every day occurrence in court systems around the country, but do continue to tell me how I don't know what I'm talking about because the system is virtuous.

That's an interesting way to look at it. Yes it adds a 1% inefficiency because it pays out to wealthy people (that's what "the 1%" means, right?) that don't need it, but I can easily imagine that simpler rules would yield back 5-10% just due to reduced administrative overhead, let alone the cost of everyones lives debating this stupid topic endlessly and the economic opportunity cost with everyone spending their time trying to game the unnecessarily complex rules.

I can't agree with the "they may hesitate" claim enough. We already see it in practice. Welfare and Medicaid are a political football, but Social Security and Medicare are untouchable because you risk angering the ENTIRE over-65 demographic, regardless of state, income level, or political affiliation.

We seem to throw out all our carefully honed consumer math understanding when the word "tax" appears. The same people that can intuitively understand that $1.49 Miracle Whip is cheaper than $2.99 mayo seem incapable of grasping that paying $1,500 in taxes to bankroll a NHS is cheaper than sending Blue Cross $3,000 per year.

What is the moral basis for any process of means testing to include one’s blood relatives? There surely cannot be one.

Like so many policy decisions, it is simply another way for those in power to shirk the responsibility of actually collecting enough taxes to pay for the things we need. To do so would mean increasing income tax, a concept completely anathema to electioneering.

For University in particular — a part of one’s life that should involve physical and emotional separation from the nest — it is infantilizing and disingenuous to treat undergraduates as legal adults on the one hand, and daddy’s-girls (with access to daddy’s wallet) on the other.

This is how it felt, for me.

Wealthy people are either going to pay for their services directly, or pay through their taxes. On the other hand trying to tax money out of poor people is rather pointless, strategically speaking. Or desperate. People with no money can't effectively support a modern industrial state - we need industrialists, high-paid labour and craftspeople.

So from that perspective it isn't at all clear to me why the government needs to treat some citizens differently than others. The approach advocated in this article makes sense. As long as everyone gets an opportunity, the situation is fair.

There is a dangerous consequence from charging lower marginal rates to people with less money -- it creates a perverse incentive for Congress. Because it means that if they cause a rich person (paying 30%) to make a dollar, Congress gets $.30. But if they cause a poor person (paying 10%) to make a dollar, Congress gets $.10. Worse, if they adopt any policy that would transfer a dollar from a rich person to a poor person (e.g. promoting small businesses that would compete with larger ones), they would lose $.20. And Congress wants to have more money to spend, so this perversely impacts their policies.

What you want is for lower income people to be paying lower effective rates but not lower marginal rates. Which you can achieve by giving everyone a large fixed credit to start with and then using a uniform marginal rate for everyone.

Doesn’t this work out roughly the same? Say your credit covers the first $100,000 of income. Congress still has an incentive to shift money away from people making less from that amount, since it won’t add tax revenue unless it pushes them over the threshold.

Suppose everybody gets a $12,000 credit (i.e. a UBI) and then everybody pays a universal 30% marginal rate.

If you make $20,000, your effective tax rate is -30% -- it's negative, you got more than you paid. If you make $60,000, your effective tax rate is 10%. If you make a million dollars, your effective tax rate is 28.8%. This is what you want, progressive effective rates.

But anybody who makes a dollar, the government gets 30%. If growth of small businesses transfers a trillion dollars from billionaires to the working class, there is no reduction in government revenue. If growth of small businesses adds a trillion dollars of new value the economy, Congress "profits" just as much as adding a trillion dollars solely to Microsoft, so they wouldn't have the incentive to prefer the latter.

Worth pointing out that we don't actually have low marginal rates on the poor as a result of benefits phase outs -- the lowest marginal rates in practice are paid by the middle class. And then we unsurprisingly get federal policies that destroy the middle class to the benefit of billionaires and international corporations.

Your argument that income is diverted to the rich to increase tax revenues doesn’t work if you think income is transferred to international corporations and billionaires as these groups tend to not pay much tax. I guess you could make some argument about income tax paid by the employees of those international corporations but many large companies don’t have particularly well-paid staff.

I think you’re conflating two different issues

The argument is against having higher marginal rates on billionaires than we do on anyone else. Whether we do or not currently doesn't affect the equation when you're talking about changing the existing policy to something else.

But also, billionaires and international corporations do pay marginal rates higher than the middle class. Their effective rates are lower because they shield most of their income, but what they have is still above the threshold for paying the higher marginal rates.

So, for example, a US billionaire makes $5B/year, only $1B of which is reported as taxable income in the US, cutting their effective rate by a factor of five. But nearly the whole billion dollars is at the high marginal rate. A piece of legislation that would cause their domestic business dealings to gain a hundred million dollars, so that they would make $5.1B/year and $1.1B in the US, would yield the US treasury more than the same total gain going to the middle class, because their marginal rate is higher even if their effective rate is lower. (And this is actually how it works because the shielded income is characteristically from foreign business dealings whereas domestic policy affects domestic business dealings.)

> Say your credit covers the first $100,000 of income. Congress still has an incentive to shift money away from people making less from that amount, since it won’t add tax revenue unless it pushes them over the threshold.

The proposal is for a fully refundable tax credit. If you make a sufficiently small amount of money the government pays you.

Anyone interested in Means Testing and the impact on policy needs to read up about Australia.

Start with this article :

https://www.businessinsider.com.au/why-having-the-best-socia...

From the article:

"Figures published by the advanced-country OECD put us second-lowest of 29 countries, with only Switzerland spending less. Government in the US makes up 38% of the economy. In most developed countries, government is over 40% of the economy. In eight advanced nations, government is over 50% of the economy. A targeted welfare system means Australians pay a lot less tax than citizens in most rich nations."

Australia has universal health care. Australia has a pretty good education system and fairly low taxes.

Australia's system is far from perfect. But it is pretty good and it uses means testing and targeting of welfare extensively.

Australia's welfare system isn't "pretty good". It's terrible.

Targeting simply means more stigma towards poor folks, and narrower political support. Less targeting is actually better if you want more redistribution, more equality, broader political support, and less stigma. Welfare shouldn't be simply a last-resort safety net for the most unfortunate, it should help everybody live a smoother, easier life.

The means-tested pension is particularly bad - all it does is result in people restructuring their finances to hack the means-testing measure, and make average people obsessed with "super" (privatized retirement accounts) instead.

Key thing to remember is that welfare "spending" isn't "spending" or "costs" in the sense that eg buying a fighter jet is. It's just redistribution - so tax "churn" or low "targeting" doesn't really matter.

The affordable housing one is fun. The sole time I applied for an affordable apartment in Cambridge, MA; my application was rejected because I didn’t make enough money. This is despite the apartment costing a couple hundred less than what I was paying in market rent. I likely would still not have won the lottery for the apartment, but it showed the system really was not designed well for many of us scrounging out a living as the city was moving towards a $100k cap on income for affordable units

Means testing provides so many of the wrong incentives, and in terms of privacy it is quite intrusive. A big reason that a flat basic income can do social safety net better.

One doesn’t necessarily lead to the other. You can easily run universal social programs that don’t have means testing. You don’t need to replace them with UBI.

You could, but why would you? All those programs do is create economic distortions and inefficiency. If you give people housing vouchers, it inflates housing costs and prevents people who need things other than housing more than they need housing from getting what they need. If you give people money and they need housing, they buy housing; if they need something else, they buy something else.

Right. Money is political power, and it's as fungible as power can be. UBI / NIT is saying, "Let's give power directly to poor people."

Means testing should be simple. The IRS knows your income and number of dependents. Doesn't need to be any more intrusive than that.

Giving everyone $X is simply going to increase demand for rent and consumables until we're back where we started. It will be wealth transfer to landlords and retailers via the poor.

A means tested phase out of a cash benefit is indistinguishable from a tax.

If you had a $12,000 UBI with a 30% phase out up to $40,000 in income, that's the same thing as putting a 30% marginal tax rate on people making less than $40,000. On top of whatever other taxes they're paying. Which is probably not what you wanted if you have a 22% marginal tax rate on people making $50,000, right?

What you really want is to forget about the phase out and just combine the UBI with a flat tax, so that the people making less money are paying the same marginal rate instead of a higher one than people who make more money.

Flat taxes are incredibly regressive.

Flat taxes are regressive on their own. Combine them with a large fixed credit (i.e. UBI) and you can make them as progressive as you want, by increasing the size of the credit, despite having a uniform marginal rate.

Also realize that the status quo, counting benefits phase outs as marginal taxes (which they are), is more regressive than a flat tax, because lower income people pay higher marginal rates.

Then, explain why UBI won't cause inflation.

Because it doesn't create money. Inflation is the devaluation of currency. A UBI just moves it from one person to another. So one person buys a $60,000 Mercedes instead of a $90,000 Maserati, then three other people buy a $30,000 Model 3 instead of a $20,000 Focus. It's not inflation, you're paying more money in order to get more valuable stuff. You're not bidding on a finite supply of $30,000 cars, if people have more money then they'll just make more of those cars, and more food and restaurants and whatever else people buy.

There are very few things in the world that are genuinely scarce and have completely inelastic supply. And for those things, the price might increase. But that's not inflation, it's just supply and demand. You get the same result if the economy improves and wages rise or the unemployment rate goes down. You get the same result from any reduction in income inequality.

So, the fact that everybody has $X per month extra in my pocket every month, and everybody knows everybody else has $X per month in their pocket isn't going to raise prices? Sorry, but I don't believe it.

> So, the fact that everybody has $X per month extra in my pocket every month, and everybody knows everybody else has $X per month in their pocket isn't going to raise prices?

First, not everybody has $X per month extra -- that exact amount of money comes from somewhere. So someone at the 75th percentile eats in a restaurant six days a week instead of seven and someone at the 25th percentile eats in a restaurant two days a week instead of once, but there is no additional aggregate demand.

But more importantly, how are they going to raise prices in a competitive market? If you're selling generic USB cables in competition with a thousand other sellers, and you raise your prices, your competitors are just going laugh at you as they take all your customers by leaving prices the same. Even if 95% of the sellers tried to raise prices, the customers would just sort by price and buy from the 5% that didn't, so there would be a huge incentive to continue to charge low margins and get all that sales volume.

No, the entire point of UBI is to literally put $X extra into everybody's pocket. What they do with it after that is up to them.

More importantly, half the people receiving the benefit, by definition, will be making the median income or less. Since wealth correlates highly with income, and the phenomenon of marginal propensity to consume means less wealthy people spend more of their income, most of this money is going to be spent. Since inflation is literally caused by too much money chasing too little demand, that solves the whole "competitive market" issue.

Even more importantly, there are many goods with highly inelastic demand. So, no, as another commenter says, prices of USB cords are not likely to increase, but, if you start putting more money in the pockets of average folks, look forward to the prices of housing, education, food, healthcare, etc. all going up even faster than they are now over time.

Its funny how quickly people forget the purpose of competition. You can't arbitrarily raise prices just because you know they have more money, you have to have demand in the face of supply shortages. So housing might increase, but probably not the cost of USB cords.

Yep, and that increased price of housing is, by definition, inflation.

Where can I buy a $30,000 Model 3?

The base model is $32,190. That is close enough to $30,000 that you're being pedantic.

$37,990, “excluding taxes and fees” in the US at least.

> Giving everyone $X is simply going to increase demand for rent and consumables until we're back where we started. It will be wealth transfer to landlords and retailers via the poor.

So if tomorrow a miracle occurred and all the poor people got better jobs that paid $X, that would also be a wealth transfer?

Why is it better to create $X of jobs than to give $X of cash welfare? Or $X of non-cash welfare?

because then the people are generating value in the economy instead of just consuming it; which is objectively better for society. People get paid to do work because it is of value to someone, so the more people who get paid better to do things that other people need done, the better off everyone ends up.

> ...what you end up with is something that looks a lot like the tax code. Which makes me think we should generally just approach this sort of problem with taxes: provide a basic version for free and raise taxes to pay for it.

Banks loan money, paid back with interest.

Governments spend money, paid back with taxes.

Government spending is really just a loan.

With two big advantages:

Governments can operate on longer time scales.

Governments can exclude rent seeking "share holders" from transactions.

Also governments have less of an principal agent problem than other entities.

A typical US corporation would be considered utterly banana republic corrupt if it were a government.

It's hard to see what you're getting at here; the sets of people that pay are not the same.

You're right that it's not always clear how government investment benefits society.

Maybe some day we'll have the technology to keep track of it all. Like ubiquitous micro payments for every form of transaction. The ultimate accounting system.

Or we could all just be satisfied that healthy governmental revenues in the aggregate is good enough. For government work.

> Intentionally destitute grandparents planning to go on Medicaid adopting their college-ready grandchildren.

Wouldn't severing the parental relationship make it harder for parents to pass property to their kids when they die?

Probably not, though I'm not an expert on this. Your will can pass your property to anyone you designate, and even aside from wills you can place assets in trust for beneficiaries like your children.

Why would it? You can legally include any number of family members in a will as heirs, including zero. If you want to specifically exclude individual family members as well, you can do that, too.

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