More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio and recent public appearances | Research archive at CBPP.org


“Generational Accounting” Is Misleading and Uninformative

February 24, 2015 at 9:55 am

The topic of “generational accounting” will likely surface when economist Lawrence Kotlikoff, who helped develop the approach over 20 years ago, testifies at tomorrow’s Senate Budget Committee hearing.  Generational accounting purports to compare the effects of federal budget policies on people born in different years.  But it’s far more likely to obscure than illuminate the budget picture, as we have explained.

Generational accounting calculates “lifetime net tax rates” for each one-year cohort of the population through at least age 90 and a separate lifetime net tax rate for all future generations combined.  Those measures are supposed to reflect each generation’s tax burden, minus the benefits it receives through programs such as Social Security and Medicare, under existing budget policies.

But generational accounting rests on several highly unrealistic assumptions.  Its calculations of lifetime net tax rates assume that there would be no changes whatsoever in current law for taxes or benefit policies for anyone now alive.  It doesn’t account for the benefits that government spending can have for future generations (for example, education and infrastructure spending that raises living standards).  And it ignores the fact that our children and grandchildren will be richer than we are and have more disposable income, even if they pay somewhat higher taxes.

Generational accounting’s most serious flaw may be that it requires projecting such key variables as population growth, labor force participation, earnings, health care costs, and interest rates through infinity.  Budget experts recognize that projections grow very iffy beyond a few decades — and spinning them out to infinity makes them much more so.  The American Academy of Actuaries describes projections into the infinite future as “of limited value to policymakers.”

The Congressional Budget Office, CBPP, and other leading budget analysts focus instead on the next 25 years or so, which amply documents future fiscal pressures and presents a reasonable horizon for policymakers.  These organizations produce simple, straightforward long-run projections that show the path of federal revenues, spending, and debt under current budget policies.  In that way, they show clearly what’s driving fiscal pressures, and when (see chart).

Policymakers should certainly look beyond the standard ten-year horizon of most budget estimates, but they already have the tools to do that. Generational accounting is hard to interpret and easily misunderstood, and including it in the federal government’s regular budget reports and cost estimates would be a mistake.

Disability Allowance Rates Fall as Social Security Strengthens Oversight of Hearings

February 10, 2015 at 9:43 am

The rate at which Social Security administrative law judges (ALJs) approve claims for disability benefits dropped for the fifth straight year in 2014, new Social Security Administration (SSA) data show.  The ALJ allowance rate has fallen from 63 percent in 2008 and 2009 to 45 percent in 2014.  (See figure.)  Thus, claims that ALJs are “out of control” are without merit.

Claimants for Social Security Disability Insurance (DI) or Supplemental Security Income disability benefits apply to SSA, which rejects people who are technically disqualified (chiefly because they lack a sufficient work history) and submits the rest to each state’s disability determination service (DDS) for medical evaluation.  If denied, the applicant may ask the DDS to reconsider, and then — if rejected again — appeal to an ALJ.  (Many denied applicants give up at each stage and don’t appeal.)

The allowance rate has been considerably higher at the ALJ level than the DDS level, which has led to concerns about inconsistency in decisions.  Critics charge that SSA has prioritized speed over accuracy in decision-making, resulting in many ALJs awarding benefits to claimants who don’t meet the programs’ requirements.

The continuing drop in the allowance rate likely stems in large part from SSA’s increased monitoring and oversight of ALJs in response to these criticisms.  (The Great Recession also contributed.  Higher unemployment leads more workers to apply for DI, but approval rates fall.)

SSA now monitors ALJs more closely to identify those with extremely high or low allowance rates, assigns fewer cases to each ALJ, assesses the quality of ALJ decisions by reviewing a sample of allowances before they take effect, and has given ALJs new tools to help them review their own performance.

Since these management improvements took effect, the number of ALJs with unusually high allowance rates has fallen very sharply (from about 30 in 2007-2009 to seven in 2013), as has the number of quality issues in their decisions, according to SSA’s Inspector General.

Although allowance rates remain higher at the ALJ level than at the initial level, it is important to remember that ALJs often see claimants whose condition has deteriorated in the 18 months or so since their application was turned down and whose application is better documented (typically with the help of an attorney) than at the DDS stage.

Projected Health Spending Has Fallen Since 2010, Even With Health Reform’s Coverage Expansions

January 28, 2015 at 11:20 am

The Congressional Budget Office (CBO) now projects that federal health spending — including the costs of health reform’s coverage expansions — will be about $600 billion less over 2011-2020 than CBO projected in January 2010 without health reform (see figure).

In other words, projected health spending over the decade has fallen by $600 billion since 2010, despite $1 trillion in additional spending for premium tax credits and expanded Medicaid to help cover 27 million more Americans.

The decline in projected spending, which continues a pattern of downward revisions to CBO’s projections in recent years, stems from several factors.  One is health reform’s cuts in payments to Medicare providers and health plans.  Another is the recession, which has reduced the demand for health care services by slowing income growth.

But CBO and other experts have also concluded that a substantial part of the health care cost slowdown reflects structural changes in the health care system.  Professional associations, hospitals, and doctors are taking steps to curb costly and ineffective procedures and treatments.

CBO’s new report says, “Although views differ on how much of the slowdown is attributable to the recession and its aftermath and how much to other factors, the slower growth has been sufficiently broad and persistent to persuade [CBO and the Joint Committee on Taxation] to significantly lower their projections of federal health care spending.”

Health reform itself has most likely contributed to the slowdown as well.  As Kaiser Family Foundation President Drew Altman has written, “Even though its direct effects on system-wide costs may be limited so far, I believe Obamacare is having a significant indirect effect, although cause and effect and the magnitude are hard to prove. . . .  [It] is entirely likely that Obamacare has played and will continue to play a role in the slowdown in health-care cost growth and accelerating market change.”

To be sure, federal health spending — even if cost growth remains moderate — will keep rising as more baby boomers become eligible for Medicare and Medicaid.  Making the U.S. health care system more efficient thus remains a major budget challenge.  But CBO’s latest projections show that we’ve already made substantial progress.

Case for Repealing Medical Device Tax Is as Weak as Ever

January 16, 2015 at 12:41 pm

As the New York Times’ Robert Pear explained this week, health reform’s 2.3-percent excise tax on medical devices “has become a prime target for Republicans, some Democrats and a small army of lobbyists for the industry.  But a new report from the Congressional Research Service [CRS] challenges economic arguments that are being made to justify repealing the tax.”

The CRS report reaffirms what we’ve said repeatedly:  the tax, which will raise $26 billion over the next decade to help pay for health reform, has only a very limited economic impact, contrary to industry lobbyists’ dire predictions.

  • “The effect on the price of health care,” CRS says, “will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.”
  • “The drop in U.S. output and jobs for medical device producers due to the tax is relatively small, probably no more than 0.2%.”
  • “[I]t is unlikely that there will be significant consequences for innovation and for small and mid-sized firms.”
  • “The tax should have no effect on production location decisions, since both domestically manufactured and imported medical devices are subject to the excise tax.”

In short, the scare talk about the medical device tax doesn’t square with reality.  Moreover, proponents of repeal need to explain how they would replace the billions in lost revenue.

House Bill Raising Health Reform Threshold to 40 Hours Would Affect More Workers

January 6, 2015 at 2:22 pm

House leaders have scheduled a vote this week to raise the threshold for health reform’s employer mandate from 30 hours of work per week to 40 hours.  House Speaker John Boehner and Senate Majority Leader Mitch McConnell call the 30-hour threshold “an arbitrary and destructive government barrier to more hours” of work and propose raising it to 40 hours.  In reality, as our newly updated paper explains, that step would lead to fewer hours of work for employees and more part-time work — the exact opposite of what their rhetoric about “restoring” the 40-hour work week implies.

Health reform requires employers with at least 50 full-time-equivalent workers to offer health coverage to employees who work 30 or more hours a week or pay a penalty.  Recent data provide scant evidence that the 30-hour requirement is causing a significant shift toward part-time work, contrary to the claims of critics.  The number of part-time workers who would rather be working full time is shrinking, as the figure shows.  And there’s every reason to believe that health reform will have only a small effect on the part-time share of total employment.

More importantly, raising the threshold from 30 hours a week to 40 hours would make a shift toward part-time employment much more likely — not less so.  That’s because only a small share of workers today — 7 percent — work 30 to 34 hours a week and thus are most at risk of having their hours cut below health reform’s threshold.  In comparison, 44 percent of employees work 40 hours a week, and another several percent work 41 to 44 hours a week.  Thus, raising the threshold to 40 hours would place many more workers at risk of having their hours reduced.

In short, it’s the House Republican bill, not health reform, that threatens the traditional 40-hour work week the bill’s sponsors say they want to protect.