Archive for the ‘Health Care’ Category

Why We Have Such a Wacko Health Insurance System

May 20th, 2011 Comments off

Conservatives love to point out that our employer-based health insurance system is a result of wage controls under FDR. Since employers weren’t able to attract workers with higher wages, they started offering benefits instead — notably health insurance.

I recently read Frank Freidel’s biography of FDR, and the whole story became clear.

The post-Pearl Harbor economic surge was causing rapid inflation.

By March, 1942, food cost almost 5 percent, and clothing 7.7 percent, more than on the day of Pearl Harbor; the cost of living had risen 15 percent since September 1939. [Leon] Henderson predicted prices might rise 23 percent more by the end of 1942. The nation, as Roosevelt well realized, was reaching  the critical point where, as a result of price increases, demands for wage increases could force spiraling inflation.

Roosevelt was desperate to prevent that eventuality.

Heavier taxes to drain excess buying power were imperative. [This is not complicated; see Abba Lerner on “Functional Finance.”]

Conservatives in Congress (then as now) were rabidly anti-tax — gotta protect the monied class — but despite their supposed free-market ideology, they were willing to impose wage controls. (Big surprise.) Roosevelt was able to get this second- or third-best solution through Congress.

So the wage controls that resulted in our ridiculous employer-based health-insurance system were a direct result of conservatives’ hypocrisy.

And now, notwithstanding Ryan’s obviously-never-gonna-happen voucher feint, conservatives have demonstrated themselves to be dead-set on maintaining the status quo of employer-based private health insurance (they had six years of unfettered control, did nothing about it…) — the very “historical accident” that they so bemoan, and that they are responsible for inflicting on the nation.


Barack Obama, Constitutional Conservative?

April 25th, 2011 1 comment

I’ve been just as frustrated as other progressives with the Obama administration’s lack of … progressivity. And I’ve been befuddled by why it hasn’t happened. Why didn’t he take the lead on redesigning our health-insurance system, for instance, instead taking the politically bruising months-long course of delegating its drafting to Congress?

Here’s a possiblity.

Obama — constitutional law professor that he is — is at his very core a constitutional conservative. He believes that laws should be created by Congress, not the executive branch. And unlike so-called conservatives on the right, he’s ready to live by those convictions, sacrificing both short term policy goals and political considerations on the altar of those beliefs.

I think it’s quite possible that when the biographies are written, when the historians get a chance to go through the presidential papers and interview key members of the administration, that constitutional conservatism will emerge as at least one of Obama’s defining characteristics as president.

But I’m not sure. What do you think?

Did I Mention That It’s the Health Care Costs, Stupid?

April 22nd, 2011 Comments off

“Anybody else have a question besides this guy?”

April 20th, 2011 1 comment

PAWLENTY: I like Paul Ryan’s plan directionally. I don’t think it’s fully filled out in terms of the fact that we still have to address Social Security and when we issue our plan later in this process, it will have some differences[…]

VOLSKY: Do you support the Medicare cuts in his plan that he keeps from Obamacare?

PAWLENTY: Anybody else have a question besides this guy?

Just can’t make this stuff up…

via Wonk Room » Pawlenty Dodges Question About Paul Ryan’s Medicare Cuts.

What’s Wrong with Vouchers?

April 12th, 2011 Comments off

James Kwak explains why Paul Ryan’s notion for vouchers replacing Medicare doesn’t work:

If you are forty years old and healthy now, you simply cannot insure yourself against the risk that you will be uninsurably unhealthy when you are sixty-five.

You retire, and you lose your health insurance. But you’ll have vouchers, right? You can use them to buy private insurance. (This assuming — if you’ve gotten sick before that date — that the Obamacare rule re: pre-existing conditions is still in force.)

That’s fine as long as you can, in fact, buy that private policy with the vouchers provided.

But as Kwak also points out:

According to the CBO, if you turn 65 in 2030, that voucher will pay for 32 percent of your total health care costs, including private insurance premiums and out-of-pocket expenses.


And we’re not talking about shiftless lazy good-for-nothings who’ve failed to save for retirement:

This is not a poverty problem. If you have a major illness, you will not be able to pay for all of your medical care without insurance unless you are truly, deeply rich; being merely affluent or “high net worth” won’t cut it.

Ryan’s “plan” is smoke and mirrors. Or perhaps more a propos: loaves and fishes.



Intolerable Socialism

March 12th, 2011 Comments off

Best line of the week (with a couple of elisions by moi):

Any effort to reduce government spending on health care … is intolerable socialism, and any effort to increase government spending on health care … is also intolerable socialism.

via Yglesias » Making Sense of the Rationing Switcheroo.

Do We Need More Doctors?

February 22nd, 2011 Comments off

Since the rapidly rising cost of health care services is basically the only thing that matters in the whole government budget discussion, I’ve been thinking about it a lot lately.

One frequent assertion is that the limited supply of doctors (because of semi-monopolistic medical-school, licensing, and immigration policies) is a big contributing factor.

So when I came across the following data set, I decided to chart it:

It doesn’t seem to have any obvious correlation with health-care costs:

The low-doctors-per capita phenomenon actually seems to be more related to the anglo model (and Japan). Only Australia is an outlier.

I’m not saying the idea is wrong. More doctors sounds like a good idea to me. Just that this slice of data doesn’t say so.

(I threw in China just cause I was curious.)

Government Consumption Spending Revisited

January 29th, 2011 2 comments

I really love it when somebody points out that I’m wrong. (At least, when they’re right that I’m wrong.)

Jazzbumpah in an email pointed out a whopper of an error in a previous post, in this graphic:

The blue slice is State and Local. The red slice is Federal.

Here’s the real picture:

(Expenditures: NIPA table 3.9.5, lines 12, 17, and 22; GDP: NIPA GDPA. Grants in aid:

Reminder: government consumption expenditures is government expenditures minus outlays for social-insurance programs like Social Security, Medicare, etc. (they’re insurance programs that happen to funnel the money through the government), and minus government investment in fixed assets. As Tyler Cowen points out, it’s the best measure of what government is actually “spending” — what it delivers in government services.

We’re so used to believing the “massive federal government” meme that even while staring directly at the data I misinterpreted and misrepresented it.

This also prompted me to add an important slice that I’d thought of before, but hadn’t included: federal transfers, or “grants in aid” to state and local governments. This is money that is taxed at the federal level, but transferred to state and local governments for spending — usually with strings attached. (Largely based on the “locals know their needs better” meme — which may be true.)

Since (as Jazzbumpah again pointed out) stacked area charts can be hard to read, here are a few slices broken out for you:

Notice that grants in aid tend to compensate for the business cycle/state of the economy. When times are bad and state and local budgets (most of which are required to be balanced) are strapped, grants in aid smooth things out and provide for those who are hurt by the down economy. In other words, they’re “countercyclical” — which is a good thing both for the economy as a whole and for individuals.

Long story short, government consumption spending has been basically flat since the 70s. The notion of massive runups is delusional. (Yes, we need to control health-care costs that are overwhelming our economy and our government budgets [Medicare and Medicaid]. That’s a different issue. Also pension plans. Social security really isn’t an issue at all.)

As always, I’m happy to share my work. Drop a line if you want the spreadsheet.

Tyler Cowen’s The Great Stagnation: Government Spending Section

January 26th, 2011 10 comments

I’m quite taken with the central notion of Tyler’s new mini-book — that America has been picking the economic low-hanging fruit for decades or centuries, and that there’s a lot less of it around over the last three to six decades.

Before I get to the parts I like, I have to instantly respond to his section on government, because it has some flaws and falsehoods that I’m really stunned to hear from him — because I know for a fact that he knows they’re not true.

He uses the marginal utility argument (you only need so many apples, so additional — marginal — apples yield progressively less benefit per apple) to argue that as government grows, the marginal additions yield progressively less value:

Even if you think everything our government does is awesome, successive units of government are on still on average less valuable than the core functions.

He’s basically applying his low-hanging fruit contention (which is different from the single-good marginal-value argument) to government: all the high-value services (i.e. the low-hanging fruit) have already been delivered. That contention may be true; more below. But first we need to look at the basic facts he presents.

Full credit: though he waits a bit to do it, he acknowledges that government expansions of medicare, social security, etc. are not necessarily subject to the marginal-value rule, or at least that they shouldn’t be considered in evaluating it.

The relevant number for government here is not “government as a percentage of the economy,” because that includes a lot of transfer and welfare and social security payments, which simply shuffle money from one person to another. A better measure is “government consumption” – what government itself is doing

In addition to the money-shuffle argument (which is correct): medicare etc. are not so much additional services as existing services for which the money is funneled through government instead of through private enterprises. (Far more efficiently than the private enterprises, it so happens, so the value returned from those additional government revenues/expenditures is higher, not lower, than if the money flowed through private enterprises.*)

Here’s where it gets really dicey.

that figure [government consumption] commonly falls in the range of 15 to 20 percent of U.S. GDP. As long as the absolute size of government consumption is rising — as it generally does — we are getting less value than our measurements indicate.

What in the heck???!!! He cites consumption relative to GDP, states that it’s been pretty steady, then talks about the “absolute size” of government consumption, and says that it generally rises. He really seems to be talking out of both sides of his mouth.

1. Yes, the absolute size of government consumption does tend to rise — no duh. The population is getting larger and the economy is getting larger even faster.

2. The relative size, on the other hand — which really is the most useful measure, which is presumably why he cites itdoes not generally rise (which he acknowledges) — making his “it generally does” a patently false statement.

Update! See corrected graphs here. The Federal and State/Local labels should be reversed.

(Expenditures: NIPA table 3.9.5, lines 12, 17, and 22; GDP: NIPA GDPA.)

I don’t even have to comment on this graph; the import is clear on its face. Tyler’s doing the typical righty thing here: making assertions based on facts from the sixties and seventies — facts that have not been facts since that time.

And I know Tyler knows this.

But to return to his basic assertion, which is not and really can’t be based on quality data: has government already picked all the low-hanging fruit? We can’t really answer that for the reason that he states (accurately): in measuring GDP, government services are measured by what they cost, not what people payed for them. They could be worth more than they cost, and they could be worth less. Since we don’t have the pricing information by which to judge their value, we have to use other methods that are probably far less accurate, and are certainly more subject to disagreement.

Are additional government services inevitably less productive than existing ones? Let’s think about the government consumption expenditures that were thrown into enforcing civil rights and fair employment starting in the sixties. Were those less productive than consumption expenditures that preceded them? I would argue “no,” and suggest that just because some government public service has not been offered in the past, it is not necessarily less productive than existing services (though it may well be). It’s an assumption, not anything like a fact or a given.

And in fact, it’s not even asking or answering the right question, which is: is money taken from circulation in the private economy and spent by government on service X more or less productive than if the money was left circulating in the private economy? With $55 trillion of purely financial assets in this country — most of which is chasing its own tail and producing nothing — and desperate, gaping shortages of clearly productive government spending, I would say “yes.”

The basic truth, though — by Tyler’s own assertion — is that we just don’t know. Which means that Tyler could have deleted this whole government section from the book without removing any of the book’s value. He just interjects some ideological axe-grinding here — promulgating a belief that is at best faith-based, and at worst completely false — even though it has little or nothing to do with his central thesis. This government section is a digression — an unhealthy pseudopod that could be lopped off with great benefit to the creature as a whole.

* 25% of health-care dollars disappear on the way through the private-insurance funnel. Only 3% of the dollars disappear on the way through Medicare. Health care: 17% of GDP. 22% of that is 3.8% of GDP that we could use for other things if everyone was on Medicare instead of private insurance. That’s half a trillion dollars a year, which would pay for almost all our governments’ nondefense consumption expenditures combined.

Equality, Growth, Lane Kenworthy, and the Earned Income Tax Credit

January 16th, 2011 Comments off

Update 10/26/2011: Lane has a great article on upping the EITC here.

I’ve long been meaning to post about the Earned Income Tax Credit (EITC), which I believe we should expand significantly. Much of my thinking on the subject has its roots in work done by Lane Kenworthy, so it’s not surprising that his latest post (on winner-take-all economies) prompted me to get verbose in the comments.

I’ll simply repeat my comments here, as always curious to know if my gentle readers think it makes any sense.

Lane sed:

A good substitute [for very rapid economic growth] might be moderately strong growth coupled with strong unions (as in the 1950s and 1960s) or low unemployment (as in the late 1990s).

I sed:

Lane, I’m surprised you don’t mention expanding the EITC, which you make such a good case for in the last chapter of Egalitarian Capitalism.

Your suggestion of “moderate growth” seems to accept implicitly that strong unions would preclude fast growth (?). That may well be true.

But I know of no good evidence (only rather hoary theory, i.e. Okun) suggesting that redistribution per se is antithetical to growth — that equity and economic efficiency collide in some inevitable zero-sum tradeoff.

In fact, quite the contrary:

1. In your paragraphs on “Left government” in the Oxford Handbook of Comparative Institutional Analysis you cite multiple studies showing that left governments correlate with faster economic growth. You cite no studies to the contrary.

2. A. In aggregate, the econometric literature (including yours) states pretty resoundingly that in prosperous countries, equality and long-term growth either correlate positively, or have no significant correlation. (My rather amateurish analysis of the Luxembourg Wealth data suggests a quite strong correlation between wealth equality and long-term growth.) B. You’ve shown that that equality is the result of redistribution, not market forces.

3. There is not a single prosperous, modern country that does not engage in massive quantities of redistribution. If that redistribution was a constraint to growth, should we not expect to have seen more “efficient” countries emerge, and surge ahead of the rest? Hasn’t happened.

Now it’s possible that prosperity breeds bleeding hearts, and that explains the ubiquitous redistribution — that if humans were more steely-eyed, we’d all be better off. But the absence of even a single exemplar makes that surmise seem . . . libertopian. (And we all know how planned utopias have turned out over the centuries.)

Here’s the possibility I’d like to suggest, that I have yet to see even considered in the professional economics literature: that a certain level of redistribution is in fact necessary for a modern, technological, high-productivity economy to thrive. The theory would probably have much to do with:

1. Maintaining and increasing aggregate demand — keeping the log rolling, and growing.

2. Increasing the amount of money circulating in the real economy, and overall monetary velocity.

3. Allocation of financial capital into productive pursuits, especially fixed capital. (IOW, money flows being directed to producers by consumers based on their wants and needs, rather than by the omniscience of a supplier elite. Wisdom of the crowds.)

4. The increasing inability in advanced economies of less cognitively blessed individuals to find work which gives them an economic claim on a decent share of our country’s spiraling prosperity, hence an income to contribute to aggregate demand and money velocity.

5. Wider distribution of the opportunity that economic security delivers — providing a safe and solid springboard and platform for tens of millions to move into more productive pursuits.

If this notion holds any water, as you’ve pointed out, the EITC could be the best vehicle for that redistribution. Friedman’s “negative income tax” with a big improvement: incentive to work. (You’ve shown in your work that more employment is key to more prosperity.)

(Should also do a campaign teaching EITC recipients that they can receive their payments on their regular paychecks. Only about 1% do. This would increase “salience,” increasing the incentive effect.)

If the EITC was sufficient to provide a guaranteed income for all who work (and especially if all had guaranteed health care [and to some extent education]), we would have much more freedom to implement more economically efficient labor and trade policies that would otherwise be draconian — at least locally (temporally and geographically).

Your work does much to put in question some key truisms of neoclassical macroeconomics — truisms that may not be truths, but that I nevertheless find lurking in, haunting, and in my opinion sometimes misdirecting your work and your conclusions.

Think of the Earned Income Tax Credit as equivalent to the turbocharger on a car — recirculating hot, volatile waste gases (i.e. financial profits on borrowed money) back into the carburetor.