If you get a big tax refund, you’re doing it wrong — April 15, 2014

If you get a big tax refund, you’re doing it wrong

This probably gets said to everyone every year, but I feel I need to repeat it: if you get back a big tax refund, it’s not like you’ve outsmarted The Man, or like you’ve gotten a big windfall; it’s just that you paid the government more throughout the year than you needed to, and they’re giving you back what you overpaid.

I really think many people don’t understand what they’re doing when they file their taxes. They’re computing on the one hand how much they should have paid during the previous year, and on the other hand how much they actually *did* pay. Subtract what you did pay from what you were supposed to pay. If the result is a number greater than zero, then you underpaid during the year, and you need to pay to make up the difference; if it’s less than zero, you overpaid, and the IRS owes you back some of your own money.

When you underpay throughout the year, you can take the extra money from every paycheck and put it in a bank account and earn interest, or you can invest it and (if you’re lucky) earn a positive return. Whereas if you overpay, the government doesn’t pay you interest at the end of the year. So by overpaying throughout the year and receiving a refund at the end of the year, you’ve given the Federal government an interest-free loan throughout the year.

The optimal strategy, then, is to do two things:

1. Estimate, early in the year, roughly how much you’re going to owe in taxes.
2. Underpay throughout the year by just enough that the IRS never gets mad.

Actually, 2. isn’t quite right. It’s okay to get them mad, because when they get mad they just charge you money. If you know your tax situation well enough, you can have them charge you just enough money that you still end up ahead. Suppose they charge you $1.05 for every dollar you underpaid. Well, if you can get a 6% return on your money by investing it rather than paying it to the IRS, you should just invest that money, earn 6%, then pay the 5% penalty. You’ll still end up ahead.

But presumably they don’t just charge you some fixed low rate of interest for every dollar by which you underpaid throughout the year. I don’t know, but I would imagine you pass some threshold where your underpayment makes them *really* unhappy (we might say that their response is “nonlinear”). So the optimal strategy would be to underpay such that the marginal dollar of underpayment is just offset by a marginal dollar of fines from the IRS.

I realize this takes all the fun out of why people like tax refunds. They like seeing a nice big check. And I think a lot of people don’t believe they have the self-control to set aside a few dollars with every paycheck; they believe they could handle a windfall better. If that’s how you feel, then go you. Empirically, I wonder if it’s true that people can handle a windfall in their taxes any better than they can handle a small regular payment.

Generally speaking, I don’t understand why people find taxes so vexing. For most of us, it’s simple:

1. Add up all the money you made during the year.
2. Subtract exemptions for yourself and your dependents.
3. Subtract deductions for your house and charitable contributions.
4. Use the tax tables to figure out what you owe.

Some people do have it hard. Small-business owners, I would wager, will find this particularly tricky. If you have lots of complicated financial assets, it’s probably annoying. I’d like to look it up empirically, but here’s a quick observation: most people don’t itemize their deductions. If you take that as a measure of how complicated most people’s returns are, you have your answer: most people’s returns aren’t complicated.

And if the pain of filing your taxes is that you’re sending money to the IRS, you can eliminate this pain by just setting up your withholdings properly throughout the year. Set it up so that you owe nothing, and are owed nothing, at the end of the year. If you’re like 2/3 of Americans, this isn’t hard: you’re not even going to be itemizing the deduction for the home you own.

Indeed, most Americans would be just fine letting the IRS handle their taxes for them, if we had such a thing; we’d be more likely to have such a thing if tax preparers weren’t lobbying against it. Your employer would submit your salary to the IRS; your bank would submit your interest income; your mortgage company would submit any interest payments you made; the IRS would tell you what you owe, and you’d be done with it.

For most people, though, I just don’t see what the big deal is.

Why doesn’t Blue Cross fly me to Nebraska? — April 9, 2014

Why doesn’t Blue Cross fly me to Nebraska?

This paragraph in a Vox post about Vermont’s single-payer plan pokes at a question I’ve had for a long time:

> American doctors spend lots of money dealing with insurers because there are thousands of them, each negotiating their own rate with every hospital and doctor. An appendectomy, for example, can cost anywhere from $1,529 to $186,955, depending on how good of a deal an insurer can get from a hospital.

My mental model of this part of health care is that there are four players: the patient, the insurer, the employer, and the provider. The insurer negotiates a price with the provider for a given procedure. The employer picks an insurer, based on price and various other things. (I’m ignoring the VA Medical System, which is like the UK’s National Health System; I’m ignoring Medicare, which is like Canadian single-payer; I’m ignoring the individual market; etc.) I … well, I just work where I work, and in practice I’m not going to pick my employer based on how cheap a deal they get on appendectomies.

Now then. Who has the incentive to keep things cheap? Well, I do, I guess, inasmuch as I have some “skin in the game”, which is why the terrible state of the art in health insurance is that I pay more and more and have a very large deductible. (Hey, at least I won’t go bankrupt! I mean that half-seriously.) My employer does, to some extent. For one thing, they pay the majority of my health-insurance premium; they’d like to pay less of that. For another, every dollar they pay toward health insurance is a dollar they can’t pay toward salaries, and every dollar they take away from salaries decreases their odds of getting good candidates.

Where the rubber really hits the road on prices is the insurer. The less the insurer can pay for appendectomies, the more profit they make. To the extent that the insurer can just pass costs along to the patient, the insurer doesn’t really care what it’s paying for appendectomies. The more urgent the care, the more the insurer can pass it along to the customer, maybe. (I’ll gladly bankrupt myself to pay for an emergency appendectomy.)

Let’s assume that the insurer can’t just pass costs directly along to the patient. And let’s assume that neither the insurer nor the provider has unlimited bargaining power: the insurer can’t pay $0.01 for an appendectomy, and the provider can’t charge $1 million for it.

If the insurer negotiates a rate of $100,000 with one provider for a given procedure, and negotiates a rate of $1500 with another … why not pay me to fly to the cheap hospital? Suppose it’s in North Dakota while I’m in Boston. Why not pay for the plane ticket, pay for the airfare, and — hell — compensate my employer for the value they lost while I was gone. If I estimated that all of that together, plus the cost of the procedure at the cheap hospital, would cost the insurer $10,000, I think I’d be radically overestimating it. But that’s $90,000 less than they were going to have to pay. So: good for them!

Maybe emergency procedures are a bad example: if you need them now, you need them *now*. Even there, though, I wonder whether it would be medically justified to stick me in a chartered flight to North Dakota. Maybe there’d be a whole fleet of medical airplanes run by the insurance companies. Just spitballing here!

Two other notes:

1. All of the above, I think, shows that “consumer-directed health care” is nonsense. The insurer is still going to be the locus of the cost savings, under any system (and whether that insurer is the U.S. government or a private company). There’s just no reason to expect that the consumer can do anything here. Maybe consumer-directed health care means that I’ll go to my podiatrist a little less often. If I need that appendectomy, though, I need that appendectomy.

2. Somehow that Vox piece goes through 3,000-plus words, by my count, without once explaining what *has to* be the most interesting question about single payer in Vermont: how did they bring the insurers and the hospitals on board? How did they get around the hospitals? There are vague nods in the direction of Vermont being liberal, and the movement being grassroots. And they mention that the hospitals aren’t happy with this. (*Really?*) But how did they neuter the hospitals here? How did they neuter the private insurers? Or did they? I’m worried that skipping this part of the story is an occupational hazard at Vox. They’re trying very hard to explain “just the facts”, and there are only so many words they can pack in. If we get to the level of What Is The World Wide Web? it’s going to take us a while to get up to “how did Vermont and Canada claim victory over the pre-existing health-industry power structure?” I’ll wait patiently, but that kind of depth seems a ways off.

Looking forward to the uselessness of the 2016 election — March 29, 2014

Looking forward to the uselessness of the 2016 election

Some facts about the 2016 election:

* Probably most everyone you know has already figured out which party he or she will vote for.
* The actual person with the “(D)” or the “(R)” after his or her name doesn’t much matter. What matters is the party. Your candidate, when he or she is in office, will have to do what his or her party wants. Moreover, your candidate will probably *want* to do what his or her party wants, and it’s good that this is the case: if you vote for a Democrat, you know generally that this person will be in favor of expanding the welfare state — or will at least support welfare-state expansion more than will the candidate with the “(R)” after his or her name. The Republican candidate will praise the virtues of small businessmen, will demand that Obamacare be overturned, and will promise to cut your taxes.
* If you live in California or Massachusetts and you vote for a Republican, or if you live in Texas or Mississippi and you vote for a Democrat, your vote doesn’t matter. You may as well not vote in the general election. Your vote in the primary, though, does matter.
* The press coverage will be filled every day with lots of irrelevant personal details. If you thought the coverage of the Malaysian Airlines flight was absurd, you get to look forward to two years of nonsense, starting in earnest once the midterm elections are over in November. The twenty-four-hour news cycle isn’t going to fill itself.
* If the economy is doing well in the year before the election, you should expect that the Democrats will do well; if it’s not, you should expect Republicans to do well. This isn’t deterministic, of course, but it’s a strong relationship.
* Whatever party you’re part of will be right and good and logical and rational; whatever the party on the other side is will be wrong and evil and illogical and irrational. I say this for all values of “you” including “me”. I wish this weren’t so, but it is.
* Your party might well put forward a candidate who excites you into believing that This Time Is Different — that you’ll get the liberal or conservative stalwart you’ve always wanted, that the welfare state will expand to protect everyone or will be gutted and freedom returned to the people. In reality the government you’ll get is the government you had. There are many veto points in American government. And as our society gains institutions like a system of political parties or a military-industrial complex or a private health-insurance industry, those institutions make it harder and harder to change anything fundamentally (go read Skowronek on this point).

Consider all of these just rules of thumb, not truths handed down on tablets. But I think they’re all safe bets. I’m particularly sad about the tribalist aspects: despite my best efforts, we’ll probably end up thinking that the guy who disagrees with us about the Affordable Care Act is not only a bad candidate whom we can’t support, but is in fact the Antichrist, whose one and only hope in life is to take women into back alleys and perform coathanger abortions on them. Because that’s what They all want, right? To take away women’s hard-won freedoms. That is, when They’re not also trying to return black people to the back of the bus and keep poor people down.

Maybe few of us think this explicitly (though I’ve met a fair number of my fellow liberals who do); most of us do implicitly. How many of us believed that a Romney administration would be not only a bad one, but would in fact be a nightmare from which the country would never wake? If we didn’t explicitly believe this, then why did the election seem so fraught?

So maybe that’s another bullet point to add to my 2016 predictions:

* This election will be Very Important Indeed; maybe The Most Important Ever. This election will be a watershed: on the one side, a bright future for America; on the other, bleakness and a return to the dark ages.

I don’t entirely mean to make light of it. Elections matter. The re-election of Barack Obama in 2012 meant that the Affordable Care Act came into being; had Romney been elected, there’s a chance that it would have been overturned. If nothing else, President Romney would likely have done all he could to slow its implementation. Speaking only for myself, the Affordable Care Act alone justified re-electing President Obama. And inasmuch as I could only trust a Democrat to implement the ACA, I would have voted for anyone with a “(D)” after his name. And inasmuch as I live in Massachusetts, it doesn’t matter whom I voted for in the general. And to the extent that economic fundamentals determine who wins, my vote matters even less. Elections matter, but it’s good to have some perspective on where your vote fits in the grand scheme of things.

I’m just not at all looking forward to the entirely predictable course of the next 2.5 years. The last time around, I swore that I wouldn’t read the news in the year leading up to the election. Maybe I’ll be able to keep to that promise this time, and double down on reading books about things that matter.

Oh, whom am I kidding? I’ll do the same stupid things this time around that I always do.

Doctors are part of the capitalist economy as well — February 19, 2014

Doctors are part of the capitalist economy as well

That would be my takeaway from any number of Atul Gawande’s works, maybe taking canonical form in [book: The Checklist Manifesto]. If you’re looking for a short intro to the idea, how about Gawande’s piece on the Apgar score? According to Gawande, there’s a more or less straight line between the Apgar score and the rise of C-sections. C-sections may be industrial and clinical, but they seem to lead to higher Apgar scores. You optimize for what you can measure.

Boy, did that Apgar-score essay ever irritate an ex-girlfriend of mine, who had had experience with the hospital system and absolutely hated the idea of birth being mechanized, and mothers being routinely subjected to surgery for something that should be natural and beautiful. I’ll even set aside for the moment the whole question of whether the C-section is better for mothers and babies; a lot of people just hate the idea of medical care being turned into this cold, mechanical, capitalist process.

Doctors seemingly hate the idea of being treated as mere cogs in the capitalist machine, churning out the same medical procedure over and over again. They’d probably hate to be penalized for deviations from accepted practice. That would explain the resistance that Gawande encountered among doctors to their merely washing their hands more often. They might like to believe that each patient is a separate entity with his or her own feelings and needs, and that the main thing the doctor brings to the relationship is empathy — deeply personalized empathy.

I want to believe that too. I also want to believe that the data would bear it out: the more empathetic the doctor, the better the care and the better the health outcomes. And maybe that’s true. But it’s just as easy for me to believe that we want to be measuring rates of central-line infection and hand-washing, and that the way to measure these things is to get doctors to spend a lot more time feeding data into the system that confirm they’re running procedures exactly the same way every time. Hospitals become Taylorist factories. Sorry.

That’d be my response to Bill Gardner’s thought-provoking latest piece at The Incidental Economist. Maybe measuring everything is at odds with understanding the patient as a human being. But given that conflict, which do you think will win? Capitalism always wins. The bet isn’t remotely fair.

Sounds like “ObamaCare kills jobs” in the same way that “stopping people from smoking increases health-care costs” — February 4, 2014

Sounds like “ObamaCare kills jobs” in the same way that “stopping people from smoking increases health-care costs”

I.e., this may be another “tyranny of accounting” problem. See Matt Yglesias for an example.

The usual story with how ending smoking could increase health-care costs is that people live longer, so the medical system has to take care of them when they’re older. (Though without looking at the numbers, I don’t know if this is true. It could be that smokers have to go through long, agonizing cancer treatments that end up costing the same.) By this measure, the best thing for the medical system would be if everyone died in infancy.

Likewise, ObamaCare might make it possible for more people to take part-time jobs now that they don’t need a full-time job to secure insurance; and it might allow people to retire earlier without fear of losing their insurance. I rejoiced almost four years ago that this might happen, and now the CBO thinks that it might.

If we think that people dropping out of the workforce because they can is a bad thing, that is equivalent to saying that it’s bad for people to have more choices. Likewise, if we think that it’s bad for people to live longer and cost society more for their health care, I submit that we’re measuring the wrong things.

Telling Massachusetts patients how much their health care will cost — January 23, 2014

Telling Massachusetts patients how much their health care will cost

This is fine, but … isn’t this what insurers are for? If one hospital on one side of Boston charges much less than another hospital on the other side of Boston, then shouldn’t my insurer be willing to pay me to use the cheaper hospital?

Similarly: shouldn’t my insurer be willing to fly me to another state or even another country, if the cost of airfare plus the cost of the foreign medical care is less than the cost of the local medical care? And if I refuse to fly to India for dental surgery, shouldn’t my insurer say to me, “Fine, but you need to pay us a fee for not having taken the cheapest equivalent medical care”?

I’m not saying this is necessarily desirable. But it’s puzzling that the brave new world of medical care involves my sitting on the phone for hours, rather than letting my insurer take care of it. Paging Corey Robin

The war on the bros — January 18, 2014

The war on the bros

What Uwe Reinhardt said. In short: if you think that it’s an outrage that you have to pay more for your health insurance so that everyone can pay the same premium, including women and the elderly and the sick, then you should have been upset at the existing system of employer-based health insurance. Women and the old and the sick *at your company* are also paying the same premium as you, even though they likely go to the doctor more.

Reinhardt doesn’t even touch on the other obvious fact: one of these days you will be sick. One of these days you and your spouse may want to have a child. One of these days you will be old. When that happens, you’ll benefit from the same community rating that supposedly harms the “bros” today.

Did this country at some point lose the notions that we’re all in this together, that we’re sharing burdens, and that we’re all only one accident away from catastrophe? The phrase is “there but for the grace of god go I”; a just society protects everyone from unexpected, uncontrollable disaster. I hope we can relearn this.

Corey Robin gets at what’s so annoying about Obamacare — December 10, 2013

Corey Robin gets at what’s so annoying about Obamacare

Excellent post. Just one sample:

> A version of this notion came home to me not long ago when my wifes employer announced that they were changing their healthcare coverage. It used to be that our entire familymy wife, daughter, and Iwere covered under her plan, which provided great insurance for fairly low cost. Very old school. Then the employer announced that from now on any member of the familyi.e., mewho was eligible for coverage from their employer would have to use that insurance first. But, and heres the kicker, if that insurance didnt cover some particular procedure or doctors visit, then my wifes insurance would cover it. So now, on certain procedures or visits, I have to submit two claims: one to my insurance, and then, once they refuse to provide coverage, one to my wifes insurance. And then, because we have one of those health care accounts that makes the right so giddy, I can submit a third claim to that company (in the event that my wifes insurance does not provide full coverage).
> One procedure, three claims, all to get what, in more mature democracies, would be mine by right. Thats some freedom.

That comes by way of Robin’s post at Crooked Timber. Like Robin, “Im not interested in arguing here over what was possible with health care reform and what wasnt; weve had that debate a thousand times.” I too would like single-payer. I too think it would just be radically simpler. You pay your taxes, you get your services. Done.

I’m feeling this lately in particular. Our insurance has decided to emphasize “consumer-directed health care,” which means “making the user of health insurance pay more attention to how much things cost.” (We’ve also been offered a new, low-premium, higher-deductible health-insurance plan, paired with a health savings account. An HSA is like a 401(k) for your medical expenses. I hate 401(k)s and love Social Security for the same reason that I hate HSAs and love Medicare.) Two things to note about this:

1. Most of us are not responsible for most of this country’s health-care costs. Getting me to buy a generic medication rather than a name-brand one is just not going to solve any problems. So when a health-insurance company tells me that it’s “consumer-directed,” that’s when I reach for my revolver.
2. There are numerous points of negotiation in the health-care system. There’s the insurer negotiating with the provider (refusing to pay for certain services, say). There’s the insurer negotiating with the health-services consumer (refusing to cover certain procedures). There’s the health-services consumer negotiating with the provider (insisting on generics, or opting for a CAT scan at a scan center rather than at a hospital). And then there’s the government interacting with all the other parties. “Consumer-directed health care,” as I understand it, only works on the provider-consumer side. I’m not convinced that there’s very much negotiation to be had there.

Health care in this country costs more because it’s more expensive. This is not a tautology. For a given unit of care, we pay more for it. You can break down costs in various ways, but basically (total health care cost) = (cost per unit) times (number of units consumed). We don’t consume more units of care; we use hospitals less, in fact. We just spend more for a given unit of care than other countries do. One very obvious way to pay less for a given service is to change the balance of power between the provider (the doctor) and the insurer. If there were only one insurer out there that paid for all of your medical services, it could strong-arm the doctors. This is not rocket science; it’s how Wal-Mart offers low prices. It’s how Medicare offers low prices.

So whose problems is the insurance company solving when it makes me negotiate more with my doctor? It’s not solving the health system’s problem as a whole. It’s not likely to lower my prices. [foreign: A priori], my assumption is just that this is a disguised way for the insurer to make more money, by covering a smaller fraction of my costs with Obamacare’s blessing and with a friendly pat on the back while they tell me I’m on my own. If we had perfect price transparency, then maybe our negotiating power would have some teeth. And maybe Obamacare has some innovations to push in that direction; it certainly is filled with experiments that may really pay off. And Medicare is putting price data for individual providers up on the web. It’s not consumer-friendly at the moment, but it’s a start. With that sort of transparency, maybe we could actually make some use of “consumer-directed health care.” Even then, I’d still prefer that someone else — someone who spends all his or her time working to get good deals on health care — do this for me. Someone like my employer, say. But then, why would my employer want to do this? My employer is good at building software; there’s no reason to expect that it’s any good at judging which tests the doctor should give me. Let’s centralize the bargaining.

Incidentally, I’m also convinced that, within my employer, everyone is going to end up on bronze plans, or what would be called bronze plans if we were buying them through the exchanges rather than through our employers. Imagine that you have a choice between a high-deductible, low-premium plan and a low-deductible, high-premium plan. People who believe that they’re not going to need much health care (the young, the healthy) will opt for the high-deductible plan. Those who are more worried about their health will opt for the low-deductible one. This will lead to something that looks a lot like the classic adverse-selection death spiral: since the high-deductible plan is getting the healthy people, the low-deductible plan will have higher costs this time next year, which means it’ll have to raise its premiums. But then more people (now a somewhat sicker group) will rationally decide that the low-deductible plan doesn’t make financial sense for them, and will opt for the high-deductible plan. And so on.

I don’t know how much of this was planned ahead of time, but it seems perfectly obvious now. The cynical but, I’m afraid, probably correct take on it is that we now have two choices:

> to be ground down a bit at a time by technocrats who either wont admit to or do not understand the ultimate consequences of the policy infrastructures they so busily construct or to be demolished by fundamentalists who want to dissolve the modern nation-state into a panoptic enforcer of their privileged morality, a massive security and military colossus and an enfeebled social actor that occasionally says nice things about how it would be nice if no one died from tainted food and everyone had a chance to get an education but hey, thats why you have lawyers and businesses.

“Conservative” health reform — November 23, 2013

“Conservative” health reform

You should go read Uwe Reinhardt. That’s true 100% of the time, but it’s especially true here. Reinhardt writes about “conservative” health reform, where “conservative” somehow means “involving a great deal of intrusion into everyone’s life.” Remember how one of the big problems with HealthCare.gov is that it’s required to connect to so many other systems to confirm details of the beneficiary’s life? It needs to confirm that you’re not in the U.S. illegally; needs to confirm that your income is low enough to qualify for subsidies; needs to connect to private insurers’ websites; etc. How is that conservative? It’s likely to make an already inefficient system even less efficient.

Why is this so hard? I don’t need to sign up for bronze, silver, and gold national defense. I pay my taxes, and I get a service in response. Let’s just expand Medicare to everyone and call it a day. Or extend the VA hospital system to everyone and call it a day. Inasmuch as ‘conservative’ should mean ‘delivering a given level of service as cheaply efficiently as possible’, those approaches would be highly conservative. Instead we get systems that are more and more jerry-rigged over time, with more and more obvious flaws. Enough already.

LazyWeb request: Uwe Reinhardt, “The Disruptive Innovation of Price Transparency in Health Care” — November 13, 2013