Category: Health Alerts

Why Are The Poor, Poor?

Have you ever wondered why poor people are poor? It’s not as though there aren’t plenty of role models around. Millions of people live highly successful, productive lives in this country. So why don’t people at the bottom of the income ladder copy the behavior of those several rungs above them and better their lot in life?

If this question doesn’t really interest you, that’s understandable. What’s not understandable is why it is not an interesting question for those who regard inequality of income the burning issue of the day.

For example, when is the last time you saw a Paul Krugman column on why poor people are poor? When Krugman writes about poverty, he can’t get more than a few sentences into the piece without launching into an attack on Republicans for being racists and indifferent to the plight of the poor. And that’s on a good day. When he’s in a bad mood, he depicts Republicans as actually delighting in the suffering of the poor. What motivates Krugman more: Concern for the poor? Or hatred of Republicans? You decide.

Okay. What about the rest of the paper? When is the last time you saw a New York Times unsigned editorial on why the poor are poor? How about any editorial in The New York Times?

Actually, there was one — just a few days ago. Under the heading “Where The GOP Gets It Right,” Nicholas Kristof writes that Republicans have been right all along — especially in stressing the role of strong families, job creation and education reform. (You wonder if Paul Krugman and Nicholas Kristof ever talk to each other.)

Yet good as it is, the Kristof column has one gaping hole: it totally neglects the role of incentives.

A Personal Note on Inequality

Today I’m going to get personal. The reason? To see if readers have had similar experiences.

There were about 450 students in my high school graduating class. I don’t remember a single one I would call “poor.” Only one would I call “rich.” All the rest were squarely within the 20 yard lines. Socioeconomically, we were all very much alike: solidly middle class. We went to school together, played sports together and socialized with each other. Since my school was segregated by law at the time, all of the students were white.

Now let’s run the tape forward and approach the time of normal retirement. At this point I made five observations.

School is out.

Why Is ObamaCare a Rube Goldberg Contraption?

Paul Krugman has written another one of those columns where almost every single sentence is wrong. But he did get one thing right:

The crucial thing to understand about the Affordable Care Act is that it’s a Rube Goldberg device, a complicated way to do something inherently simple. The biggest risk to reform has always been that the scheme would founder on its complexity.

Have you ever wondered why ObamaCare is burdened with so much complexity? Here’s the answer: Barack Obama. Obama? Yes, the president himself. He campaigned on the promise that he would put partisanship aside and unite the country behind sensible answers to pressing problems. Then he didn’t.

How could that possibly have worked in health care? Easy. Obama could have adopted the approach taken by his 2008 opponent, John McCain. In fact we now know that Zeke Emanuel and others on the White House staff were urging him to do just that. Also, before he became the president’s chief economic adviser, Jason Furman wrote a paper in which he endorsed a McCain-type approach to health reform. Since McCain’s approach was more progressive than ObamaCare, it would have been easy to garner support on the left. And how many Republicans would have opposed the plan, after campaigning for McCain and defending his health plan during the election?

Instead, the president chose a course that garnered not a single Republican vote. That meant that in order to get the Affordable Care Act passed, the administration had to appease every single Democratic constituency and every major special interest group. Imagine going around a table asking each group what is the one thing they must have in order to support the legislation — the insurance companies, the drug companies, the hospitals, the labor unions, AMA, AARP, etc., and no one making sure that all the separate demands fit together in a sensible way.

That’s how ObamaCare was created. No wonder it’s a Rube Goldberg nightmare.

You Can’t Buy Insurance until Next November

Here’s something that’s really odd. Let’s say at the end of last year there were almost 50 million uninsured people in the United States. Averaging over all the different estimates, let’s say that 5 million of them have now acquired insurance because of ObamaCare. But now it’s April and the open enrollment period is over. That means that 90% of the uninsured are still uninsured and they won’t be able to buy an individual insurance plan until next November.

As AP reporter Connie Cass explains:

With limited exceptions, insurers are refusing to sell to individuals after the enrollment period for HealthCare.gov and the state marketplaces. They will lock out the young and healthy as well as the sick or injured. Those who want to switch plans also are affected. The next wide-open chance to enroll comes in November for coverage in 2015.

The exceptions are generally limited to “qualifying life events” — marriage, loss of a job, etc.

Here is something you may find even more surprising: most of the uninsured don’t even know the market is closed –

A survey by the Kaiser Family Foundation in mid-March found that 6 out of 10 people without insurance weren’t aware of the marketplace deadline on March 31.

If you don’t find all this a bit odd, let’s review the bidding. During the 2008 presidential campaign every Democratic candidate for president from Barack Obama to Hillary Clinton left no doubt about the goal of health reform: It was to achieve universal health insurance coverage. But if that was the original goal of the Affordable Care Act, why would anybody design the system so that 45 million people are precluded from buying insurance for the next six months?

Answer below the fold.

Is that all there is?

Can ObamaCare Be Fixed? Part II

The reason we have so many problems in health care is that almost everywhere we look, people face perverse incentives — patients, doctors, employers, employees, etc. When they respond to those incentives they do things that make costs higher, quality lower, and access to care more difficult than otherwise would have been the case.

At the root of those perverse incentives is bad public policy.

Pre-ObamaCare Distortions That Affected Important Choices

Insurance or Uninsurance? Because we were spending far more on free care for the uninsured than we were spending on subsidies for individually-purchased insurance, millions of people had an incentive to be uninsured.

Public or Private? Because we spent far more on such public programs as Medicaid and CHIP than we spent on subsidies for individually-purchased insurance, millions of people had an incentive to choose public insurance rather than private insurance.

Individual or Group? Because employer-provided insurance was generously subsidized through the tax law while individually-purchased insurance received almost no tax relief, the vast majority of people with private insurance had non-portable, employer-provided coverage.

Third-Party or Self Insurance? Because employer-provided insurance was liberally subsidized through the tax law while people’s ability to get similar subsidies for Health Savings Accounts (HSAs) was greatly restricted, people had too much of the former and too little of the latter. This in turn led to third-party payer domination of the entire medical marketplace and the elimination of real market-determined prices.

Choices in the Market for Risk Avoidance. Because normal market forces had been so completely repressed, outside the individual market real health insurance simply didn’t exist.

ObamaCare Distortions

So what did the Affordable Care Act do about these problems? It made every one of them worse!

Why Contraceptives Are Important

As readers of this blog might suspect, the (ObamaCare) contraceptives issue is not of much concern to me. It is of interest only because it reflects the mindlessness that permeates so much of the Affordable Care Act.

In a free market, no one would ever purchase insurance coverage for contraceptives, any more than they would use health insurance to pay for seatbelts or airbags in automobiles. Because of their low cost almost everybody can afford contraceptives and if price is a deterrent they are available for free from local public health authorities or from such private organizations as Planned Parenthood.

Further, how did anyone ever get the idea that people should give up their First Amendment rights when they incorporate? This issue goes far beyond the Hobby Lobby and Conestoga Wood cases now before the Supreme Court. I don’t think the federal government should be able to put the executives at Pfizer in jail if they distribute an article from the New England Journal of Medicine describing an off label use of a Pfizer drug. Pfizer executives should have the same free speech rights as anyone else.

But here is something else that should be of interest to all of us: why would Congress pass a law mandating free contraceptives but leave people exposed for thousands of dollars of out-of-pocket costs if they need bypass surgery? I have been trying to explain this phenomenon to people for 30 years — ever since I discovered similar anomalies in the British National Health Service.

I call it the “politics of medicine,” and it illustrates why government should always play a very limited role in health care and why individual choice and competition should be given maximum reign.

And she’ll have fun fun fun
‘Til her daddy takes the T-Bird away

Can ObamaCare Be Fixed?

It’s a 2,700 page bill. There are 20,000 pages of regulations. Major provisions seem to change every other week. And despite Nancy Pelosi’s promise, four years after it passed most of us still aren’t sure about everything that’s in it.

How can something like that possibly be fixed?

It’s easier than you might suppose. Previously, I recommended four simple ideas:

  1. Replace all the ObamaCare mandates and subsidies with a universal tax credit that is the same for everyone.
  2. Replace all the medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax free withdrawals).
  3. Allow Medicaid to compete with private insurance, with everyone having the right to buy in or get out.
  4. Denationalize and deregulate the exchanges and require them to institute change of health status insurance.

Clearly much more needs to be changed. But you could keep an awful lot of ObamaCare and still have a workable health care system by making these changes and these changes alone.

In this post, I will describe all of the mechanical problems that would be solved with these four changes. In a subsequent post I will show that these changes would also get all the important economic incentives right.

The Greatest Anti-Poverty Program the World Has Ever Known

Economic growth is a miracle cure.

For the last 50 years real income per person in the United States has been growing at a rate of about 2.3% per year. Although that may not sound like such a big deal, that small increase adds up year after year. So much so that real incomes will actually double every 31 years. If we think of the average year for child birth as being close to age 31, then income will double for every generation.

Let’s assume you are in an average income family earning about $50,000 a year. If your children also earn an average income, by the time they grow up and reach your age they will be earning $100,000 a year — and that’s in current dollars. If your grandchildren follow the same trajectory, by the time they reach your age they will be earning $200,000. That’s what Barrack Obama calls rich. Your great grandchildren will earn $400,000 — which is enough to put them in the top 1% of the income distribution, were they alive today!

Provided our descendants don’t do dumb things and stop this miracle from continuing to produce its bounty, the future just gets better and better. As Stephen Landsberg has noted:

…[I]f that 2.3 percent growth rate continues, then in fewer than four hundred years, your descendants will earn about $1 million per day — a little less than Bill Gates’s current income, but at least in the ballpark. I want to make clear that these are not some future inflation-ravaged dollars we’re talking about; they’re the equivalent of a million of today’s dollars.

What about poverty? If we roughly define the poverty level as a family with 50% of the average income, then the poverty level for the great grandchildren of today’s poor will be $200,000. In other words, if tomorrow’s poor have a poverty level income they will be rich. And, of course, 400 years from now they will be fabulously wealthy.

Now here is something that may surprise you: The economic growth that you and I take for granted is in fact very rare. For almost all of the history of human existence, there was no growth at all.

A Better Way to Save $1 Trillion

Health economist Victor Fuchs argues that if we spent the same fraction of national income on health care that other countries spend we could save $1 trillion. How could we do that? By organizing our health care system the way other countries do. That would mean, he tells us:

  • Fewer visits to specialists and a higher proportion of physician visits to primary care providers.
  • A sharp reduction in the number of high-tech procedures such as MRI and CT scans.
  • A reduction in aggressive medical interventions for the very sick elderly.
  • Longer waits for access to specialized care and high tech interventions except for emergencies.
  • Less privacy, space and amenities for in-hospital patients.

And he adds: the number of beds per capita would actually increase as would the number of physicians ― which is a hint that there might be something seriously wrong with the whole argument.

While it is true that we spend more than other countries in an accounting sense, we actually use fewer real resources: fewer doctors, fewer nurses, fewer hospital beds, shorter lengths of stay, etc. That means that from an economist’s point of view, we aren’t necessarily spending more than other countries.

Fuchs says that with an extra $1 trillion, we could have more bridges, more highways, more teachers, more R&D, etc. But once again, this confuses money flows with real resource use. We can’t devote more real resources to non-health care unless we use fewer real resources in health care. But if we copy other countries, the resource flow will go in the opposite direction. That is, in order to have more doctors, nurses, hospital beds, etc., we will have to have fewer teachers, fewer roads, less R&D!

I find this same error in some of the writings of Uwe Reinhardt and Sherry Glied and their colleagues. I cannot understand why good economists continue to make this mistake ― especially after I have pointed it out.

That said, I agree with Fuchs’ overall conclusion. I too think we could save $1 trillion in health care, but not by copying what other countries do. We can save that much money by liberating the marketplace.

You can’t always get what you want

Silence of the Left

The topic du jour on the left these days is inequality. But why does the left care about inequality? Do they really want to lift those at the bottom of the income ladder? Or are they just looking for one more reason to increase the power of government?

If you care about those at the bottom then you are wasting your time and everyone else’s time unless you focus on one and only one phenomenon: the inequality of educational opportunity. Poor kids are almost always enrolled in bad schools. Rich kids are almost always in good schools.

So what does the left have to say about the public school system? Almost nothing. Nothing? That’s right. Nothing. I can’t remember ever seeing an editorial by Paul Krugman on how to reform the public schools. So I Googled to see if I have missed something. The only thing I found was a negative post about vouchers. And Krugman is not alone.

You almost never see anything written by left-of-center folks on reforming the public schools. And I have noticed on TV talk shows that it’s almost impossible to get liberals to agree to the most modest of all reform ideas: getting rid of bad teachers and making sure we keep the good ones.

What did you learn in school?