The Economic Impact of the Senate Healthcare Reform Bill

One notable complaint about both the House and senate healthcare reform bills is the fact that there would be significant cuts in Medicaid offset by major tax cuts, primarily for the wealthy.  Focusing only on the senate version, only 5 or 6 of the 52 Republican senators oppose the senate bill.  Senators such as Susan Collins of Maine, Rob Portman of Ohio, and Shelley Moore Capito of West Virginia oppose the bill because the Medicaid cuts would severely hurt their states.  One question not being asked is “What states will benefit from this bill?”

The Medicaid cuts will affect primarily rural states and rural areas of major states such as New York and Pennsylvania.  These states and areas tend to be more conservative and represented by Republicans.  They have been the most vociferous supporters of the repeal and replace Obamacare movement.  For example, Kentucky, the state represented in the senate by Mitch McConnell, the majority leader, and Rand Paul, is an interesting example.  Senator McConnell is the primary driver of the senate bill, known as the Better Care Reconciliation Act (BRCA).  Senator Paul opposes it not because of the Medicaid cuts and tax cuts, but because it does not go far enough in repealing Obamacare.

However, the same can be said for New York.  Both New York and Kentucky accepted expanded Medicaid dollars, so both will lose from BCRA.  According to a Business Insider article, New York will lose 17% in Medicaid funding and Kentucky will lose 20%.  The two Democratic senators for New York, Charles Schumer, the minority leader, and Kirstin Gillibrand, oppose BCRA for the same reasons.  They don’t want Medicaid cuts so the wealth can receive tax cuts.

This does not answer the question I posed above.  What states will benefit from BCRA?  However, the answer is in where the wealthy live.  According to Fortune magazine, the number 1 metropolitan area where the wealthy live is New York City.  There is no area in Kentucky that falls within the top 10 areas where the wealthy live.  This means that even though both New York and Kentucky lose on the Medicaid side, New York gains from the redistribution of dollars from Kentucky (and other rural states) to New York (and other urban regions).  From an economics perspective, the economic stimulus from dollars in tax breaks for New York can offset the de-stimulus effect of the Medicaid losses.  Kentucky just loses, as does West Virginia, Ohio, and other primarily rural states.

Let’s do some rough calculations.  According to a Brookings Institution article, about 11.5% of households making $200k or more live in the New York Metropolitan area.  For Kentucky, it is less than 1%.  According to the Healthcare consulting firm, Avalere, New York loses $40.880 billion and Kentucky loses $7.894 billion.  The Congressional Budget Office (CBO) estimates the tax cuts at $772 billion.  If we apply our household percentages, it roughly means that New York will get about $62 billion of the tax cuts while Kentucky gets only about $5 billion.  That means New York nets a gain of about $21 billion while Kentucky loses a net $2 billion.  New York wins!  The table below gives the rough estimates.

	New York	Kentucky
Tax Cuts	$62.215	$5.410
Medicaid Cuts	$40.880	$7.894
Net Impact	$21.335	$(2.484)
In  billions of dollars

(Perhaps senators Schumer and Gillibrand should reconsider and support the bill.)

Seriously, if the senators from New York and Kentucky were only interested in the economic impact to their states, Senators McConnell and Paul would oppose the Medicaid cut/tax cut aspects of BCRA and senators Schumer and Gillibrand would support BCRA.  Why is the opposite true?  Senators Schumer and Gillibrand are adhering to the Democratic Party principle of supporting working families.  So even though on one hand there is an economic interest to support the provisions above for their state, Schumer and Gillibrand recognize that the loss to working families (both in and out of New York) outweigh the economic gains to New York.

For residents of red states, you have to ask yourself “Are my congressmen and senators working in my interest or in the interest of wealthy New Yorkers?”

Mr. Trump, Pittsburgh, and Climate

I was particularly amused when President Trump, in his speech withdrawing from the Paris Climate Accord, stated “I was elected to represent the citizens of Pittsburgh, not Paris,” because he once again demonstrated his ignorance of history.  I grew up in Pittsburgh.  My father worked for US Steel.  I know about the impact of pollution on an economy such as Pittsburgh.

Here is a picture of Pittsburgh at noontime 1940, at the corner of Liberty and Fifth Avenues (source: http://digital.library.pitt.edu).

The smog was so dense that it was more like night than day.  The streetlamps and car headlights had to be on.  I don’t know if even Beijing can compare to Pittsburgh before World War II.  Like in Beijing, people wore surgical masks because of the soot and smoke.

One consequence of World War II was the rise of new powerhouse businesses such as Westinghouse, ALCOA, Gulf Oil, Rockwell International, just to name a few.  Along with existing businesses like H.J. Heinz, these businesses ran into a major problem.  They found it hard to recruit new managers to their corporate headquarters because the pollution was so bad.  As a result, in 1949 Allegheny County (where Pittsburgh is located) passed a smoke control ordinance, pushed by these companies.  This began the trend for improvement in air quality.  Pittsburgh’s success was so highly regarded that The U.S. State Department made a film documenting Pittsburgh’s achievement and presented it in London.  Since pollution from coal-fired plants are a major source of greenhouse gases, the new laws reducing pollution contributed to the slowing of the growth of these gases.

Contrary to President Trump’s assertion about negative economic impacts, Pittsburgh and the Steel industry continued to prosper.  By the 1960s, Pittsburgh was the third largest corporate headquarter city after New York and Chicago.  Today, Liberty and Fifth Avenues look like this (source: Google Maps).

No streetlights on and beautiful sunshine brightens the intersection.  As for the steel industry, it’s decline was not due to pollution control (they changed technology away from coal), but to other economic factors and foreign competition.

One of the problems we have is that we see what exists today as always having been that way.  Many of the anti-vaccine activists never experienced life when measles, mumps, whooping cough, and many other diseases, especially polio, harmed and killed millions.  Most Americans born after 1960 grew up with much cleaner air and water.  This was all due to government actions taken to prevent pandemics and reduce the health costs associated with pollution.  However, we face the threat of global warming.  It is a fact that the average planetary temperature is rising, that the ice is melting at the poles, that the ocean levels are rising threatening coastal areas. 

In addition, people tend to discount the future.  In recent years, we have seen changes in our weather and I leave it to the climatologists to explain it, but as an economist, I know that there are growing economic costs associated with these trends.  Homeowners on the coasts are facing flood conditions they had never experienced before, necessitating spending more on insurance and prevention.  Think about our major cities on the coasts.  Rising ocean levels will require them spending hundreds of billions, if not trillions, of dollars on infrastructure to protect themselves.  The heartland is not immune.  They too face increasing environmental costs.  We see that already.  We worry about the costs of entitlements on our children, but ignore the costs of global warming.

President Trump’s decision to withdrawal from the Paris Accords is short-sighted and ultimately hurts Americans.  Even Pittsburghers will agree with that.

Liberal Elites Hate Middle America. Really?

Ed Kilgore in a recent post makes some good points ("Do Coastal Elites Hate Middle America").  There is a narrative among conservative circles that the liberal elites care more about minorities and the environment, etc., than working class people.  Is this really true?

I can go into a long essay on the subject but how about a few factoids?  Let's go with the new Trump budget.  This budget calls for major cuts in programs that affect the heartland.  Included are eliminating the Rural and Business Cooperative Service that helps rural business in Trump states, the Rural Water and Waste Disposal Program, and the Rural Economic Development Program, all suported by urban liberal elites.

Then there is the elimination of Appalachian Regional Commission, the Delta Regional Authority, the Denali Commission, and the Northern Border Regional Commission, all serving the heartland, Trump country, and all supported by the liberal elites.

The fact is that the liberals in the coastal states looked upon in such disdain by the heartland tend to be the groups fighting to keep the programs that help them.  None more so than Medicaid and funding for opiod addiction, a major problem in Trump country.  It is Trump and the conservative Republicans that want to cut or eliminate this aid.

Let us not forget that the liberal coastal states like New York and California pay more in taxes than they receive in benefits.  If we liberal elites were more self-interested, we would support the Trump budget since our taxes would go down more.  That we think the Trump budget is an abomination should say something about our "disdain" for Middle America.