Evaluating the Biden Administration Student Debt Discharge Proposal

The Biden Administration student debt discharge proposal is being challenged in the courts and may be overturned. This one-time debt relief proposal does not change the trajectory towards higher student debt burdens. A credible case can be made for student debt relief to prevent a shock to consumption when student loan payments are reinstated. However, the proposal is arbitrary in who it assists and is not the most economically efficient or fairest way to address the pending economic shock from the reinstatement of student loan obligations.

The Biden Administration student debt discharge proposal is being challenged in the courts and may be overturned.  This one-time debt relief proposal does not change the trajectory towards higher student debt burdens.  A credible case can be made for student debt relief to prevent a shock to consumption when student loan payments are reinstated.  However, the proposal is arbitrary in who it assists and is not the most economically efficient or fairest way to address the pending economic shock from the reinstatement of student loan obligations.

The student discharge proposal:

The Biden Administration is proposing a one-time discharge of federal student debt.  Borrowers with a Pell grant can have up to $20,000 discharged.  Borrowers with a federal loan that were not eligible for a Pell grant could receive a loan discharge of up to $10,000. The amount discharged cannot exceed the amount of the loan.

Taxpayers with income less than $125,000 (single filers) or $250,000 (married filers) are eligible for the one-time debt discharge.

Student loans taken out after June 20, 2022, are not eligible for the loan discharge program.

Six states have brought litigation to stop the Biden Administration student discharge program on grounds that the Biden Administration exceeded their legal authority and that the law damages institutions in their state.  The Biden Administration claims their authority to provide student loan debt relief due to COVID stems from the 2003 Heroes Act which allows for relief under a national emergency and that the plaintiffs do not have standing to litigate this issue. The Supreme court has agreed to rule on this matter and the debt discharge proposal has been stayed pending the decision.

Some issues with the Debt Discharge Proposal:

Opponents of proposals to discharge student debt argue the programs are regressive because people with access to education due to their student loans will earn more over their lifetime than workers who never go to school.  This view was espoused by the moderate candidates in the 2020 Democratic primary including Joe Biden.

The student loan debt relief package is a one-time benefit.  It only favors people with debt incurred prior to June 2022.  It does not benefit future student borrowers.  It does not change the trajectory toward higher debt burdens for future cohorts of student borrowers.  

The absence of debt relief for people taking out student loans after June 2022 is necessary because the legal justification of the program is the COVID emergency.  It would be difficult to maintain that people taking out loans after June 2022 needed financial assistance because of COVID, at a time when all other COVID relief packages were ending.  

The Biden Administration attempts to ameliorate concerns that student debt relief favors high income professionals over workers by imposing income limits on eligibility for the debt discharge and by having a larger level of debt discharge for people who initially had income low enough to qualify for a Pell grant.  These arbitrary provisions don’t lead to the program automatically targeting the student borrowers who are most in need of assistance.

Income is highly variable, especially at the beginning of a person’s career.  The need for the loan discharge depends on salaries over many years not salary in one arbitrary year.

A person starting her career in the year of the discharge at a modest starting salary would automatically receive the discharge.  A person three years advanced on the same career path might not receive any financial assistance if her salary has risen.  For example, the debt discharge will be available for a doctor who is a resident during the year of the debt discharge program but will be unavailable for an attending physician.

A person leaving a high-powered job a year (a law associate who does not become partner) after the financial discharge provision would not receive any financial assistance despite the decrease in salary.

Many medical students who take on hundreds of thousands of dollars of debt may be more deserving of a debt discharge than students with less debt and lower debt burdens.  

The person who received a Pell grant may be better off than middle-class people who are ineligible for the Pell grant when the loan was granted.

The Biden Administration claims that the Heroes Act of 2003 gives the Administration the right to modify student loans in the case of a national emergency.  The plaintiffs in this case are arguing that relief offered the proposal is broader than what is allowed under the law and that the COVID emergency was only a pre-text for the program.  

The Biden Administration argues that without debt relief there will be a historically large increase in delinquencies and defaults.  A less expensive way to reduce defaults might involve freezing interest payments and reducing monthly minimum payments for a year or two after reinstatement of loan payments. However, the Heroes Act does not state that financial relief must be offered in the most efficient way.

No one knows how the Court will rule.  The Court is not well equipped to deal with the economic aspects of this issue. Congress has other levers, including the budgetary process and the debt limit, to force changes to the program.  

The one-time debt relief proposal is at best a band aid.  It does not address the continuing acceleration in college costs and student debt.  The debt discharge proposal is only one component of the Biden Administrations efforts to assist student borrowers.  Other programs including revisions to Income Driven Replacement (IDR) and some waivers for the discharge of current IDR loans will be addressed in a future post.

David Bernstein is the author of A 2024 Health Care Reform Agenda and Alternatives to the Biden Student Debt Plan.   

Insurance Company Abuse of the Medically Necessary Decision

Health Insurance companies often deny benefits for health services that they deem medically unnecessary even when there is no other option and even when the option may be cost effective in the long term. This post examines insurance company abuse of the medically necessary determination and potential policy responses.

Health Insurance companies often deny benefits for health services that they deem medically unnecessary even when there is no other option and even when the option may be cost effective in the long term.  This post examines insurance company abuse of the medically necessary determination and potential policy responses.

Background:  Insurance company denials of claims based on the view that the procedure is not medically necessary is widespread and can involve serious life-threatening health care cases.

This Kaiser Family Foundation article shows many requests for benefits are denied and the denials for medical necessity are seldom challenged.

A denial based on the view that a procedure is medically unnecessary can occur when a patient is in great pain and faced with a life-threatening condition. This ProPublica article describes a decision by United Heath Group to deny the only viable treatment for a patient suffering from a severe case of ulcerative colitis.  

Symptoms of the disease for this patient included severe arthritis, diarrhea, fatigue, and blood clots.  The medical bills were running $2.0 million per year.   Bills of this magnitude are not unusual for new biologic drugs.  The expensive drugs were the only therapy that worked.   The patient could not function and would die without the treatment.   

The family responded with a lawsuit, which revealed that employees at United Health Group misrepresented findings and ignored warnings from doctors about risks of altering an expensive drug treatment. 

The amazing ProPublica article, reveals that insurance companies will basically lie to avoid expensive claims.  The denial in the ulcerative colitis was motivated by the cost of the drug.  The insurance company was willing to lie and commit fraud to avoid paying for the expensive treatment. 

Insurance companies will also resist making claims when a procedure is economical in the long term.  For example, insurance companies have denied patients access to the Coflex medical devise for spine surgery even though there is evidence that the procedure is safe and actually cost effective compared to other procedures.  

The denial of benefits in the Coflex device decision was motivated by a desire to force or encourage people with expensive back problems to switch to a different more expensive insurance plan.  This process of tailoring benefits away from people who are likely to be big health care spenders or denying benefits for expensive health conditions is a practice call “Cherry Picking.”

Policy Implications:  The ACA eliminated lifetime and annual health expenditure limits under insurance plans.  Insurance companies responded by restricting access to care and by deeming more procedures medically unnecessary.

One response to this problem might be to move the decision on whether a process is medically necessary to an independent board outside of the insurance company. I doubt this would work. 

Most people currently don’t appear adverse decisions and insurance companies have much more resources for the appeal process. However, moving the appeals process to an external board might speed up decisions and encourage more people who are denied benefits to appeal the decision.  A streamlined appeals process can be extremely important when the patient has been approved for a less expensive option but is appealing for access to the newer potentially better procedure.  (This occurs with denials of access to the Coflex medical devise because patients are often approved for a less expensive, less effective surgery that does not involve use of the device.) 

A second more practical approach is to have government pay part of the cost of the most expensive health care procedures through a reinsurance program.  I might have government pay 50 percent of all health care costs over $100,000. This type of cost-sharing arrangement would result in several benefit – including lower premiums and tax expenditures on the private health plan, decreased demand for short-term health plans that do not provide comprehensive coverage, and a reduction in claim denials.

An increased use of expensive biologic drugs will lead to either higher denials as discussed in the ProPublica article or higher health insurance premiums.  This problem can only be resolved by a partnership where the costs of these high-cost cases is shared with taxpayers. 

My first paper on the use of reinsurance to improve health insurance options and increase access to health care can be found here.  A cost-sharing program is part of my 2023 Health Care Reform proposal.  Go here for a quick outline of the proposal. 

The Abortion Debate After Dobbs

The abortion debate is more complex after the Dobbs decision. Women with life-threatening health conditions are being denied access to medical care and Republicans are seeking new restrictions on reproductive rights. Democrats need to do more than just assert support for abortion. They must outline how repeal of abortion has endangered the health of many women, the new legal threats to reproductive rights, and the steps they want to take going forward.

The abortion debate is more complex after the Dobbs decision. Women with life-threatening health conditions are being denied access to medical care and Republicans are seeking new restrictions on reproductive rights.  Democrats need to do more than just assert support for abortion.  They must outline how repeal of abortion has endangered the health of many women, the new legal threats to reproductive rights, and the steps they want to take going forward.


In the recent State of the Union Address President Biden called for Congress to pass legislation that would reinstate the abortion rules under Roe v. Wade.  This is unlikely to happen in the new Congress because Democrats lack control of the House and are unable or unwilling to break a filibuster in the Senate. 

President Biden did not outline the impact of the Dobbs decision on women’s health and the new Republican initiatives to further restrict reproductive rights.  The complex post-Dobbs abortion debate deserves a more complete or robust response.

Abortion Issues After Dobbs:

Issue One:  Women are not receiving necessary health care, when their life is in danger, or they have a miscarriage.

There are many examples of women who nearly died or had suffered from lack of access to medical care because of new abortion laws.

Here are links to some articles on women being denied access to adequate medical care because of laws restricting access to abortion.







Issue Two:  There is a lot of litigation involving restrictions of mifepristone, a medicine that provides an abortion early in a woman’s pregnancy.  These cases could easily end up at the Supreme Court.

Here are some articles on these cases.




Issue Three:  States are considering banning inter-state travel to obtain an abortion.

Issue Four:  Many prosecutors are refusing to prosecute women or providers who violate state abortion laws.  Some governors and legislators want to eliminate prosecutorial discretion and remove some duly elected pro-choice prosecutors.

Here are some articles:




Concluding thoughts:  The Democrats need to do a lot more than assert they want to restore Roe.  Democrats need to react the threats and anguish that exist in the world because of Dobbs.   

A political advertisement that says “my opponent opposes abortion so vote for me” is not enough.  Democrats, to be successful, need to discuss the way that Roe is creating misery, how things could get even worse, and outline the actions they are taking on each aspect of the abortion debate.

David Bernstein is the author of A 2024 Health Care Reform Proposal on Kindle and on Sell Wire.  Also, this manuscript on long term care insurance, while a bit dated, provides a valuable perspective that differs from the insurance industry line. 

Bring Back the Jackson-Vanik Approach to Russia

Many policy makers want to give Russia an exit ramp from the war. The existence of the exit- ramp option, gives the aggressor an incentive to continue hostilities because if events on the battlefield go poorly the aggressor can take the ramp. The United States and NATO need to convince Putin that consequences from this aggression cannot be easily reversed. Targeted economic sanctions have not caused western businesses to leave Russia. The key to resolution of the war in Ukraine is a difficult-to-reverse restriction on economic activity with Russia patterned after the Jackson-Vanik Amendment.

Background on the Jackson Vanik Amendment:

The Jackson-Vanik Amendment to a Trade Act passed in 1974 restricted trade with non-market economies that restricted Jewish emigration and violated other human rights groups.

The Jackson-Vanik restrictions on trade were repealed in 2012 in the same law that imposed trade sanctions on some Russian officials for the murder of Sergei Magnitsky.    The repeal of Jackson-Vanik led the United States to grant most favored nation trade status to Russia and Russia was granted entry to the WTO in August of 2012.

Russia remains a member of the WTO in good standing despite Russian involvement in the downloading of civilian airliner over Ukraine, the invasion of Crimea in 2014, and the current war in Ukraine.

The Current Situation:

Russian aggression and genocide In Ukraine haven’t been prevented by targeted sanctions that would be easily reversed.  Go here for a discussion of child abductions by Russia in Ukraine.  Go here for a discussion of Russian war crimes since 1991.  Go here for a discussion of recent civilian casualties in Ukraine.

Economic sanctions have not prevented many western nations from continuing business in Russia as discussed here.

The appeasement advocates claim to be motivated by fear of a wider conflict.  There already is a wider conflict.  Russia committed human rights violation in Georgia, a regime that jailed its former president.  Russia supports the dictator in Belarus.  Go here for an article on Belarus.

Bring Back Jackson Vanik:

Targeted economic sanctions have not affected Russian behavior.

The linkage of the Magnitsky sanctions to the repeal of Jackson-Vanik did not deter Russian aggression.  On balance the combination of the repeal of Jackson-Vanik with the enactment of Magnitsky sanctions was a good deal for Russia.

The WTO claims that it contributes to peace and stability.  Let’s be clear.  Russia’s entry into the WTO did not contribute to peace and stability.

Despite sanctions, western firms have not left Russia.  The western firms and the Russian government both believe sanctions can be largely ignored and will be reversed.

Only Congress and the Administration working together can send a signal to the Russians that they will not get away with aggression and crimes.  The way to do this is to abolish most favored nation trade status, remove Russia from the WTO, and prohibit trade and investment with Russia until Congress passes legislation removing these penalties. 

A key to ending the Ukraine war and deterring future Russian aggression involves broad penalties imposed on the entire Russian economy not narrow sanctions on the elite who will be compensated for their sacrifices.

A successful deterrent strategy requires penalties that cannot be reversed unless there is proof supporting the view that the aggression will end and will not be repeated.

We need a return to the Reagan philosophy of Trust but Verify.  A law similar to the Jackson-Vanik Amendment is a first step in instituting this approach.

David Bernstein is the author of A 2024 Health Care Reform Proposal.  

A 2024 Retirement Security Agenda

Pension and Social Security reform are inextricably linked because many retirees are highly dependent or Social Security, many workers nearing retirement are not in good financial shape and young adult are spending retirement funds early in their career. The recently enacted Secure Act 2.0 does very little to assist workers who are having the hardest time saving for retirement. Republicans and Democrats are far apart in their ideas on how to fix Social Security and neither party recognizes that meaningful enhancements in private retirement savings are essential to a successful Social Security reform. This post discusses ways to fix both the private retirement system and Social Security.


Many American workers are not preparing well enough for retirement.

Around half of older workers do not have any funds in a defined contribution plan (401(k) or IRA.)

The median amount of retirement assets for people with retirement plans is around $109,000.

Around 13.7 percent of the 65-and-over population lives in poverty.

More older workers are entering retirement with mortgage debt or consumer debt.

Many older workers cannot remain in the workforce because of poor health.

Economic downturns tend to result in a larger increase in unemployment for older workers than for younger or middle-aged workers.

Around 40 percent of older Americans are entirely dependent on Social Security.

Current law links future Social Security payments to the balance in the trust fund. Projected decreases in the trust fund would lead to a 20 percent in Social Security benefits in 2035, barring changes to the trust fund or current law.

Nearly 60 percent of young workers between the ages of 18 and 34 have already taken funds out of their retirement accounts to maintain current spending.   Early disbursements from retirement plans by young adults are especially high for people with high levels of student debt.

The traditional 60/40 portfolio held by many retirees loses substantial value in a period where the stock market falls, and interest rates rise. 

Congress and the Administration have not prioritized retirement income issues and are not close to addressing the looming Social Security problem.

Documenting the lack of progress:

Our leaders are not moving us forward on efforts to increase private savings for retirement or on efforts to fix the looming Social Security problem.  

Congress has passed some legislation, most recently, the Secure Act 2.0, impacting savings through 401(k) plans and IRAs.  Unfortunately, the recently enacted law does more to benefit investment firms and high net-worth savers than the workers who are struggling the most to save for retirement.  A more complete description of the Secure Act 2.0 can be found here and some of its shortcomings are listed below. 

  • Delays in implementation of Required Minimum Distribution do not assist retirees with low levels of retirement assets, people who tend to deplete their retirement accounts early in their retirement.  Provision increases fees received by investment firms.
  • Shorter waiting period for participation in 401(k) plans does not shorten vesting requirement and may benefit relatively few workers because many part-time workers do not stay at the same firm for a long time.
  • A provision clarifying that employers can contribute matching funds to 401(k) plans for student loan payments does not assist workers at firms without a 401(k) plan or firms with a 401(k) plan that do not match employee contributions.
  • The automatic 401(k) enrollment provision and automatic increases in contribution will reduce savings through other vehicles and will lead to relatively little additional savings if funds are distributed prior to retirement.

Around 40 percent of retired households are totally dependent on Social Security and many more are highly dependent on Social Security.    Expansion of private retirement spending is important by itself and has major implications for Social Security reform efforts.  

The implementation of some Social Security reform proposals that would lead to abrupt changes in benefits could not be applied to workers nearing retirement without causing large increases in poverty among the elderly.   

The Social Security trustees project that automatic benefit cuts to Social Security could occur in 2035 and that automatic Medicare benefit cuts could occur as early as 2028.

Democrats and Republicans are wide apart on what needs to be done to prevent automatic cuts to entitlement programs.  Democrats stress the need for additional revenue.  Republican proposals often call for large benefit cuts, many of which are applied to workers nearing retirement.

One proposal that could receive some bipartisan support inside a larger package involves increasing the cap on wages subject to Social Security taxes.  Current rules apply Social Security taxes to the first $160,200 of wages.  Go here for a discussion of proposals to eliminate or modify the cap on Social Security taxes.

Republicans tend to favor plans to reduce benefits, raise the retirement age, and create private accounts to replace all or part of the current Social Security system.  Some of the Republican proposals discussed herewould result in quick changes impacting potentially impacting workers close to retirement.   For example, a proposal to increase the retirement age for full Social Security benefits by 3 months per year until 2040, when the full retirement age reached 70 would result in substantial poverty among the elderly because private retirement savings could not be increased in this time frame.

Timely changes to Social Security are essential to prevent automatic benefit cuts that would lead to large increases in poverty because of the lack of private retirement savings.  

Reforming private retirement savings:

Reforms of private retirement savings that expand savings for low-income and middle-income households are a prerequisite for meaningful Social Security reforms because so many households are dependent on Social Security.   

There are six problems preventing workers from accumulating sufficient retirement savings prior to retirement.  Steps must be taken to address each problem. 

First, workers are free to disburse all entire savings from their 401(k) plans prior to retirement. Around 60 percent of young workers have tapped part of their retirement savings prior to age 34.  Steps must be taken to restrict pre-retirement disbursements from retirement plans and to incentivize workers from reducing retirement savings prior to retirement.

Proposed policy changes to address pre-retirement leakages from retirement accounts include:

  • Prohibit pre-retirement distributions from retirement plans for 25 percent of all contributions.   The prohibited distributions could be used to purchase an annuity that would not pay out until the retiree reaches a certain age.
  • Require automatic rollover into IRAs for all workers making a job transition with 401(k) balances less than $50,000.  (Current law allows but does not require automatic rollovers.)
  • Prohibit loans from 401(k) plans. Replace loans with limited tax-free and penalty-free distributions from the newly created emergency funds inside a 401(k) plan.

Second, workers reliant on Individual Retirement Accounts (IRAs) have less generous saving incentives than workers with access to employer-based 401(K) plans. Workers dependent on an IRA without access to a 401(k) have a lower contributions limit, do not have access to an employer match, and do not have access to retirement incentives for student loan payments.

Proposed changes to rules that reduce or eliminate discrepancies between savings through IRAs and savings through 401(k) plans include:

  • Create automatic contributions to IRAs for people without access to employer-sponsored 401(k) plans, patterned after the rules that are currently applied to automatic enrollment into 401(k) plans.
  • Change tax law to allow for employers to make matching contributions to worker contributions to IRAs like the ones currently allowed for 401(k) plans.
  • Equalize IRA and 401(k) contributions limit and deductibility limits on IRA and 401(k) contributions.  
  • Change tax law to allow tax-free contributions to IRAs by firms hiring contractors or gig workers instead of direct employees.

Third, the current tax preference for contributions to 401(k) plans and deductible IRAs favors higher income people with higher marginal tax rates.  Tax savings from expenditures from Roth IRAs in retirement also disproportionately benefit higher-income taxpayers.  Income related gap in subsidies could be altered by changes to the tax code.

  • Replace existing tax exemption for contributions to traditional 401(k) plans and the tax deduction for contributions to deductible IRAs with a tax credit.
  • Create a tax credit for first $2,000 contributed to a retirement plan and allow tax deduction for additional contributions up to a cap.

Fourth, many workers are now diverting retirement savings to health savings accounts and flexible savings accounts to pay for health expenses that are no longer covered by health insurance.  This is a growing problem due to the growing use of high-deductible health plans.

Proposed policy changes to offset the loss of retirement income due to the growth of cost-sharing between insurance companies and insured households include:

  • Allow for the use of health savings accounts for people with lower deductible health plans to reduce the need for large contributions to health savings accounts.
  • Change rules governing flexible savings account to allow people to place unused flexible savings account funds in a 401(k) plan or IRA rather than lose the unused funds.  It would be appropriate to tax funds transferred from a flexible savings account to a retirement account.

Fifth, fewer than 15 percent of retirees have an annuity inside their retirement plan.   The primary reason for the low level of annuity income is the cost of annuities.

  • Mandate that 25 percent of funds contributed to a retirement plan be used to purchase an annuity.

The source of funds for the mandatory annuity purchase could be the funds the person is not allowed to disburse prior to reaching retirement age.

The rule requiring all workers make an annuity purchase would lower annuity prices because voluntary annuity purchases are favored by healthy people with long life expectancy.   

Sixth, retirees often suffer when inflation erodes the value of bond and stocks. Many workers cannot afford to save much outside their retirement plan and current tax law does not allow individuals to purchase series I bonds inside a 401(k) plan or an IRA.  Many assets inside a 401(k) plan that proport to be inflation hedges lose value in an inflationary or high interest rate environment.

  • The most effective way to prevent reduction in retirement plan wealth in a period when inflation and interest rates rise, and stock prices fall is to allow and encourage the purchase of Series I savings bonds inside a 401(k) plan or IRA.  Series I savings bonds never fall in value and have substantial upside in an inflationary environment.   Go here for a discussion of advantages of Series I Savings Bonds.

The primary effect of the current restrictions on Series I Savings bonds is to increase the demand for financial assets and ETFs that are less effective in protecting investors from inflation than Series I Bonds.

Reforming Social Security:  

The expansion and improvement of private retirement savings options will reduce dependence on Social Security by future generations and allow for the consideration of a broader range of Social Security reform options including eventual reductions in benefits.

The Social Security reform measures considered here include:

  • A new tax earmarked for Social Security and Medicare.    The tax would be imposed on all forms of income and would have a progressive tax structure.
  • Increase in both the minimum retirement age for Social Security benefits and the age for full benefits, by one year each phased in over a 24-year period with a one month increase in the retirement age every two years.   The age at which people receive the maximum allowable Social Security benefit would remain unchanged.
  • Guarantee future Social Security benefits by allocating some general tax revenue towards future benefits if the Trust fund balance falls to a certain level.

Economic Notes on the Policy Package:

  • The combination of tax credits to stimulate private retirement savings, tax increases to fund current Social Security and Medicare benefits and long-term increases in the retirement age create a healthy macroeconomic environment and will lower household financial distress in retirement.
  • Short-term changes in tax revenue will be modest because losses in tax revenue from tax credits to stimulate private retirement savings are offset by increases in tax revenue from the new tax to maintain Social Security and Medicare benefits.
  • The phased in increases in the retirement age will not have an immediate impact on government deficits but will reduce future Debt-to-GDP ratios.   Since markets are forward looking the projected lower future debt burdens will have a beneficial impact on asset prices even if near term deficits rise. 
  • The tax base to continue funding Social Security and Medicare benefits should be relatively broad.  The tax could be imposed for all households making more than $50,000.  The tax would be progressive.  The marginal tax rate might range from 0.5 percent to a cap of 5.0 percent.  The tax would be applied to both wages and investment income.

Concluding Remarks:  Unless changes are made to rules governing Social Security and Medicare there will be automatic benefit cuts once trust funds assets are partially depleted. Many Republicans favor large and abrupt changes to Social Security benefits and the retirement age.  Any abrupt change in benefits would have an extremely adverse impact on household poverty and on aggregate demand.

A reduction in Social Security benefits that is not preceded by a substantial expansion in private retirement savings by the workers who are now having the most difficulty saving for retirement would lead to catastrophic financial impacts for many households.  This outcome can only be avoided by coupling private pension reforms with Social Security reforms.

David Bernstein is the author of A 2024 Health Care Reform Proposal.