Letter from Washington: D.C. as insurance haven, millionaire subsidies and benefits mandates

by Eli Lehrer on December 13, 2011

I met with Del. Eleanor Holmes Norton, D-D.C., last week to discuss her proposed District of Columbia National Disaster Insurance Protection Act. The bill, which OOTS has written about before, is a very good idea that deserves widespread support.

Essentially, the bill would allow for tax-free catastrophe reserving in the District of Columbia. This would bring billions of dollars currently kept offshore into U.S. banks in the district. It would create enormous new wealth in the district, (probably) increase the U.S. tax base overall and, I’d imagine, slightly reduce reinsurance prices in hurricane-prone states like Florida.

The losers: A few offshore insurers might lose a competitive advantage (although no insurer that picks a location for tax treatment alone is going to win) and perhaps a few offshore jurisdictions themselves. On balance, however, the bill would be an enormous win for the United States and for the region where I live. It’s a great idea and deserves enthusiastic support from both sides of the aisle.

Heartland will be working with Norton’s office to schedule a briefing sometime early in 2012. We’ll announce it on OOTS and via our (probably too active) e-mail listserve as well.


Steve Moore and Walter Williams’ proposed Millionaire Subsidy Elimination Act, floated in the Dec. 9 edition of the Wall Street Journal, surely has a lot to recommend it. People who make a huge amount of money surely don’t deserve any true individual benefits from the state. Nice as it sounds on paper, however, making the idea work in practice seems to present a lot of practical and logistical hurdles. None seem insurmountable but all would have to be dealt with in some way. Here are four:

  1. Timing of benefit loss: While nobody who realizes a $1 million yearly income is poor, a fair number of people who earn very high incomes do so only for a few years or, quite often, one year. A married couple of reasonably diligent savers earning a good-but-not spectacular income of $100,000 combined who sell a paid-off house while realizing capital gains from 401(k) asset sales can easily have an income of $1 million in one year. Such a couple, however, is almost certain to continue to rely on Medicare and, to a lesser extent, Social Security to live in retirement. Do they give up benefits forever? Just for the year?  This could make a large difference. If they have a strong reliance on the benefits but have to pay out of pocket for similar services (or remain enrolled in Medicare but have to pay the full cost) during the year that they earn an unusually high income, then isn’t that really just a surtax on wealth for some people?  If they lose benefits forever, then it’s a huge invitation to shelter income in various ways.
  2. Unless subsidies are eliminated for everything , then eliminating subsidies for the wealthy alone could end up actively punishing achievement. Plenty of heavily subsidized activities–energy production, education, farming–are obviously worthwhile. Receiving subsidies gives individuals and firms an advantage. Cutting them off to firms or people with incomes over $1 million could actively discourage growth and risk-taking beyond a certain level.
  3. Unless all subsidy programs are actually cut, the plan won’t save money. The way a great many subsidies are structured, narrowing the range of people eligible for them won’t actually save a dime. The actual budgets of the subsidies would need to be cut. This would require a lot more than a single law and would require significant political tussling. And, of course, program budgets could always be brought back up to their previous levels.
  4. By Grover Norquist’s definition, the plan is probably a tax hike. Many subsidies are provided through the tax code. If wealthy individuals are denied these tax benefits, then they will pay more taxes and whatever negative consequences come from hiking taxes on the well-off will take place anyway. If these benefits aren’t denied to the well-off, then the plan will produce less savings than promised.

Eliminating subsidies for millionaires is a good idea but presents logistical and ideological hurdles. It’s worth study and investigation but, in reality, it probably can’t save anywhere near the $200 billion that Moore and Williams say it would.


I have always believed that the attention those on the political right have paid to mandatory health insurance benefits is, in many ways, overblown. On balance, the benefits that sound stupid (toupees for chemotherapy patients) aren’t expensive and the benefits that are expensive (mental health parity) aren’t stupid. The result is that you would either end up with health insurance plans that didn’t cover things that people actually needed or save very little money. If literally all mandatory benefits are eliminated then the definition of health insurance would also be eliminated, and any favorable tax treatment/subsidies provided for bona fide health care would also have to be provided for, say, crystal healing or Orgone Therapy.  (Already, these forms of quackery get more subsidies than they should.)

In fact, many additional benefits, which do obviously make health insurance more expensive, are actually driven by market forces. Even though they are all facing other new mandates to provide benefits, a survey by the Human Rights Campaign has found that about a third of big U.S. employers provide benefits for gender reassignment surgery. To my knowledge, no state requires this–and, even if they did, nearly all of the big companies have ERISA plans that wouldn’t be subject to the requirements. Furthermore, the number of employees who give the presence or absence of such a benefit a second thought is probably quite small except for those likely to take advantage of the benefit at significant cost to the health plan and, at least indirectly, the employer. (Yes, the benefit is probably also a signaling mechanism to show that an employer welcomes diversity.)

If a benefit such as gender reassignment is growing in popularity, then it offers a hint as to what mandatory benefit elimination might do. On one hand, it might well not reduce the cost of health insurance since the market demand for benefits would exist anyway. On the other hand, it could save money, but only by eliminating benefits that people really want and would pay for. Either way, it’s not that good of a deal.

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