health care

/ / , , , , , , , , /

Earnings, Poverty, and Health Insurance

Today’s release by the Census Bureau of its annual Earnings and Poverty report has some interesting information in it that should give us all pause as we consider public policy options for the next few years.

Not surprisingly household incomes have taken a beating over the last twelve months: the median household income adjusted for inflation dropped from $52,163 in 2007 to $50,303 in 2008 – a decline of 3.6%. Such a drop is not unusual during a recession. This business cycle has seen a deep cutback into both the average work week and benefits considered as worker incomes . Throw in the more normal loss of wages and the result is quite steep loss of earnings. Also: this is household, not per capita, income so some of the loss stems from jobs being lost by one or more of the ‘householders’.

By comparison, however, the decline in incomes is less than that suffered through the 1973/75 recession which saw incomes decline by 5.7%, or the 1980/82 recessions which saw a 6.0% drop. This calls for a bit of explanation since the current recession is generally regarded as being more severe than both of those. The answer lies in the comprehensive nature of the 2007/09 decline: it is fairly well spread across all groups in the economy. This is a generalized drop in buying power, which is why it is so hard to predict a strong return to the levels of growth we had become familiar with. There were a few regional differences: the entire country saw losses except for the Northeast where there was no change. In the past the losses were much more concentrated in manufacturing, which meant that large sections of the economy were relatively untouched and thus able to help sustain a recovery, and also implied a fairly rapid recovery in incomes after the recovery had begun – manufacturing being much more cyclical in its employment pattern.

Or at least that’s what I imagined until I reached page 18 of this report.

Then I was brought to an abrupt halt.

On page 18 is a chart that plots inflation adjusted incomes [expressed in 2008 dollars] over the past few decades. The chart is depressing. Why?

Because it shows clearly that incomes have stagnated for longer than I originally thought. I think we are familiar with the notion that wages have been on an unhealthy trend for some time – since the Reagan years – but to see that the problem actually stems from the early 1970’s is sobering.

The chart shows separate data for male and female workers. It is the line for male workers that stands out most: it is virtually unchanged since about 1972. Wages for female workers have gained steadily, with blips during recessions, so the ratio of wages for women to those of men has risen sharply over the past four decades – there remains a stubborn disparity – but male workers are no better off in ‘real’ terms than they were in 1972. Yet productivity has grown throughout that period. Obviously the additional wealth implied by that productivity went to someone else other than the average male wage earner. Women were paid a substantial piece, but the rest must have gone to capital – profits are taking a much larger share of business incomes than they did back then.

When I look at this chart is hard for me not to conclude that the decades immediately following World War II were an anomaly, and any expectations built upon the experience of those twenty to thirty years is simply irrelevant to our thinking today. Static real incomes lie at the root of many of our current problems: the only way to re-create the advances in living standards of the 1950’s and 1960’s has been through debt for many people.

Further the ‘social contract’ made with the returning veterans of WWII that wages would claim a larger portion of profits – as is implied by the numbers – was set aside after the 1970’s oil shocks, trodden on further by the Reagan/Bush deregulatory and corporate bias, and buried by globalization.

The middle class created after WWII has stagnated. the only advance coming through the wider participation of women in the workforce and through their simultaneous wage gains. Since both those trends are one time adjustments – we will reach a point where the workforce is closely balanced with respect both to gender mix and wage equality – neither will provide future impetus.

So where will improved living standards come from in the future?

The usual answer is from productivity – the invention and deployment of new technologies. But in the absence of a strong social commitment by business to pass on those gains to a broad swathe of the workforce it is quite likely that what gains there are will be highly concentrated.

And this is what we have seen happen in the Reagan/Bush era. During the last two or three decades a disproportionate part of the nation’s increase in earnings was syphoned off into the pockets of a very small number of people – about two thirds of the increase of the last few years has gone to the top 1% of income earners. The rest were left behind. The result has been a huge distortion in the distribution of income and along with it an erosion of social cohesion, or at least an increase in the harshness of political discourse.

The figures for poverty support this story: while it is normal to expect an increase in the poverty rate as we go through a recession, what is more interesting, and disappointing, is that the poverty rate ticked up slightly throughout the last decade – even before the recession. So we entered the current crisis already losing ground – again I see this as a direct outcome of the redistributive nature of the policy choices made during the Bush years, especially the tax cuts that disproportionately benefitted the wealthy. Having said that the poverty rate remains below that of the recent peak reached after the recession of the early 1990’s. Perhaps the most distressing news about poverty is that the age of the poor has shifted radically as a result of public policy: it is a triumph of the post-war era that the poverty rate amongst the elderly has been reduced to low levels – in the late 1950’s it was as high as 35%, and it is now down to about 10%. The social safety net of Social Security and Medicare account for much, if not all, of this gain. Unfortunately we have paid nowhere near as much attention to the young: the poverty rate for those under 18 years of age dropped during the years of prosperity after WWII, crept up in the 1980’s, was forced down somewhat in the 1990’s and is now rising again – it is now about 19%. It seems our priority focus on the elderly have come at the cost of the young, which is a trend that will be worsened as the population ages and the elderly claim an ever increasing share of our wealth for health care.

The final point to be made from today’s report is directly supportive of the need for health care reform: while the total numbers of people wit health insurance were relatively stable between 2007 and 2008, the make-up of the total shifted slightly: there was an increase in the number covered by government programs and a similar drop in those covered privately – 29% of the population were covered by government programs [Medicare and Medicaid] in 2008, compared with 27.8% in 2007. Fortunately, the proportion of the population without insurance didn’t move much during the year – the number rose, but so did the population and seems to be stuck at about 15.4%.

Lastly for the million or so people who have lost their employer provided health care coverage – I refuse to call it ‘insurance’ since is clearly simply an employer benefit and not an actual insurance policy – the current dispute over reform of the health care system must seem larger than life. Their problem is not ideological or abstract it is immediate, real, and potentially devastating.

The notion that someone can find themselves unable to pay for health care simply because they have just been fired is absurd. Truly absurd. It distinguishes this country from all the other industrial and advanced nations – we just don’t care. That’s not the ‘rugged individualism’ Obama referred to in his speech last night it is rugged lunacy and cold-heartedness. It is immoral. Adhering to a broken system just because it’s the way things have been done traditionally is beyond plainly silly, it is stubbornly self-destructive. It’s certainly not sensible.

Funny how a dull government report can trigger so much discussion.

/ / , , , , , , , , , , , /

Hot Topics For the End of Summer

We have truly hit the end of summer: the flow of data has ebbed to a lazy trickle, analysts are hanging up their ‘gone fishing’ signs, Wall Street is slow, and the President is on vacation. Even the Federal Reserve Board is taking a break – they had their annual Jackson Hole gathering of world central bankers last week the photos from which conclusively prove that these guys really don’t know how to relax.

So I thought that I would provide you all with a cheat sheet of the current hot topics so you have something to read as you wile away the next two weeks.

The Federal Debt

Last week the administration published its revised estimate of how the Federal Debt was going to grow over the next decade. The headlines in the financial press immediately blasted away with references to the 27% increase from the prior estimate and the ‘horrendous’ $9 trillion that is now the administration’s best guess. I want you all to yawn when you hear that $9 trillion. Ten years from now $9 trillion will not be that big a deal. So relax and enjoy that next drink.

Why should we not panic at the sight of such a large number?

Because debt should always be put in context. Absolute figures are not very helpful. Remember: everything is relative. The simple fact is that our economy is already at $14.5 trillion. Grow it at a conservative rate and throw in a low estimate for inflation and it will be in the $22 to $23 trillion range in ten years. Already that $9 trillion has become more manageable.

Next we should always think of the national debt as a percentage of GDP: that gives us a better handle on how difficult it would be to repay. In ten years time, given the conservative estimates I just mentioned, the debt will be approximately 40% of GDP. That’s lower than many other industrial countries have now, and it’s a level that we have seen here before.

So the debt explosion is not so explosive after all.

Further: the majority of the growth in the debt originates from tax cuts not the fiscal stimulus or the various bail-outs. Don’t forget that taxpayers will most likely get a return on some of the bail-out money: we already hauled in a nice 24% return on our investment in bail-out of Goldman Sachs. The Citicorp investment is doing quite well also. Even all those toxic assets will have some value eventually, minimal yes, but something, so the bail-outs will not hit us as hard as some people think. The stimulus helps get the economy back on track faster and so was a wise investment in ourselves: we all benefit from having the economy recover and avoid depression. The only component of the recurring deficit that turns out to have been a bad investment were those Bush tax cuts: they didn’t stimulate the economy, they were paid for with borrowed money, and most of us received very little because they were skewed towards the wealthy. Those tax cuts could be reversed and most of us wouldn’t notice a thing.

This is not to say that the debt isn’t an issue: it is. The notorious bond market gets the jitters whenever it reads the headlines, so we need to placate it. We do that by keeping our focus on the debt to GDP ratio and not letting it explode into uncharted territory – which appears unlikely – and by undoing those tax cuts. Simple.

Healthcare

The ‘debate’ is vacuous, and it is very hard to separate fact from fiction. I don’t blame anyone if their eyes glaze over. But this reform has to happen. We simply cannot afford to keep going the way we are. So the discussion should be about what kind of reform, not whether we reform at all.

The numbers are simple: we spend twice as much as any other country per person. We get nothing extra for our extra spending. We have a perfect right to spend whatever we like on health care, but we also need to be aware that every penny spent on health is not spent on something else – we have to ration our spending. To the extent that we are wasting money, which we apparently are due to the lack of return on that extra spending, we are undermining our overall ability to generate wealth for the future. And we are giving up ground to our competitors.

So reform we must.

Also bear in mind what I have tried to explain in the past: our system is exactly the one you would design if you wanted to waste money. It doesn’t make sense.

The central issue is that a free market system can never deliver a good bang for the buck in health care because the incentives are always misaligned. There is no way to rid the system of perverse incentives. Doctors and hospitals will always increase prices because it is not possible to introduce the normal market feedback method -competition – that keeps things under wraps in other markets. Doctors don’t compete the way auto companies do. They are not typical businesses. So typical business rules break down in the world of health care. That’s why we need more government intervention to establish better rules to force costs down. As long as we pretend that markets are the way to go in health care the longer we delude ourselves and waste money. Even free market believers should see that the incentive structure can never be fixed.

Wait is that true?

Not exactly. We could force the health care system to behave more like a proper market by establishing rules to force doctors and insurance companies to compete. We do that in some other markets. The problem with that is that the moment we introduce competition many of the same issues that opponents of reform fear most will pop in the so-called market system: profits will drop, services will be eliminated as wasteful, and doctors will earn less. In other words the reform scenario and a ‘pure market’ scenario look a lot alike up until this point.

The reason why reform is superior is that the pure market scenario goes further and takes rationing to an unacceptably high degree. Because a market rations by price it inevitably squeezes out any consumer who ‘wants’ a service, but cannot afford it – this is one reason we have so many people without coverage today. As doctors and insurers seek to protect their profit margins in a ‘pure market’ system they will also eliminate services to marginal customers – they will pay more attention than they do now to credit scoring and other measures of ability to pay. In all likelihood this will increase the number of people being tuned away. Price rationing is a worse form of rationing for a service like health care than any other form of rationing.

In terms of cost, we should all bear in mind the drag that our current system has on wages: American wages are at least 6% lower because employers pay most of the coverage cost and equate health care provision with other forms of employee benefit. As health care cost escalate they eat into the amount of money employers have available to pay wage increases. This drag is a back-door ‘tax’ on workers. It exacerbates the skewed allocation of resources in our economy: the health care industry is not just expensive and inefficient, imposes this hidden tax on the rest of us and contributes to all our other economic problems as a result.

So, the onus is fair and square upon the opponents of reform to justify the continuation of our system. In that regard: one last number, 37th. That’s our rank internationally in terms of our health care system. So the question is this: if we have the ‘best doctors’, the ‘best technology’ and the ‘best facilities’ as the opponents of reform claim we do, why do we have the world’s 37th best system? Something is terribly wrong. Are Americans really satisfied with coming in 37th after all the money we’ve poured into the system?

I am waiting for an answer.

Meanwhile reform is urgent.

Double Dip Recession

The risk of a double dip recession is much higher than most people think. It is probably unlikely, but the risk is growing rather than shrinking.

Recession used to end with a sudden surge in GDP growth and an associated spurt in job creation. the last few however have not been like that.

Why?

Because our economy is very different from a few decades ago. We have far fewer manufacturing jobs, and it was the fire/hire cycle within manufacturing that dictated those sharp turns in fortune. We have outsourced most of those jobs, so we have outsourced the sharp recovery too.

What we are left with is a white collar and service oriented economy where job creation is not as tightly coupled with GDP growth. Worse: businesses tend to continue layoffs well past the point at which the economy has begun to recover: for instance, after the 2001 recession job creation did not get under way until well into 2003, and was anemic even then.

This phenomenon coupled with our need to reduce household debt means that the economy is very vulnerable even though it is now beginning to recover: take away the government stimulus and we would still be declining. In other words the private economy has not yet reached a level that is self-sustaining. I doubt that it will well into 2010 and possibly into 2011. So although the headlines blare ‘recovery’, for most of us it won’t feel much different than it does today. And for those who have lost their jobs it will be a very hard climb back on board. This has all the hallmarks of a jobless recovery.

That is a problem because it exposes us to continued risks.

The longer unemployment lingers close to 10% or more the longer we run the risk of rising loan defaults adding to the strain on our banks. Don’t forget: the banks remain very weak. Their recent improvement is largely an illusion resulting from the assistance they have been getting from the government. Low interest rates, tons of cheap capital, lose accounting regulations, easy money, and the reduction in competition has made banking an simple business right now. But capital is thin and could not withstand another battering. So credit is tight: banks have huge reserves as a result of the help of the Fed’s policies, but they are stashing them rather than using them to make loans.

Add in a run up in losses in commercial real estate and credit cards and we could face another banking crisis.

Meanwhile as the stimulus wears off the private economy will have to stand on its own feet. This means that consumers will have to get back to spending. Without that we will fall back down.

So as long as the banks are fragile and consumers are defensive the chances of a ‘double dip’ grow rather than diminish.

There you have it: three subjects to chew on.

  1. The Federal Debt.
  2. Health Care Reform.
  3. A Double Dip recession.

Hot topics for the end of summer. Or at least food for thought.

/ / , , , , /

Martin Feldstein: And That Rationing Lie

Humph.

Some people just won’t stop. Now it’s OK for an average peson to get into an argument about health care reform and make claims that a government plan will introduce rationing. But it absolutely not OK for a Harvard professor of economics and former advisor to Presidents to do so.

“Repeat after me: all economic systems ration. The only possible debate we can have about rationing is, therefore, what kind of rationing we would prefer.”

So I get really annoyed when Martin Felstein writes this absurd article for the Wall Street Journal. I give the WSJ itself a pass on the basis that its editorial staff don’t know any better, and they simply shill for the Republicans.

But Feldstein?

He should know better. It makes me wonder what he actually teaches.

I have had my say on this many times, most recently here. For those of you who want to dig deeper go to Professor Mark Thoma’s blog and get a proper education.

For those who may be sending their children to Harvard: make sure you avoid Martin Feldstein’s classes.

No wonder few people have a clue what to think.

Poor people and, in this economy, unemployed people, do not ‘prefer’ not to buy insurance or health care services: they cannot afford them. Choice and affordability are not the same thing. Only a dyed in the wool right wing neo-classical economist would confuse affordability with choice. Even then they wouldn’t shouldn’t mislead readers into thinking that a free market does not ration when rationing is its exact reason for being. And contrary to Felstein’s apparent belief reducing the number of high cost/low effectiveness procedures makes very sound economic sense. Then again sense doesn’t seem to motivate Feldstein much in this case.

This really is embarrassing for the Harvard economics faculty. It’s also ridiculous that the rationing canard keeps finding its way into print in serious, or ostensibly serious, media outlets.

Repeat after me: all economic systems ration. The only possible debate we can have about rationing is, therefore, what kind of rationing we would prefer.

Duh!

/ / /

Mort Zuckerman: And His Very Bad Analysis

Well, he may be a fine and upstanding fellow, but his views on health care reform are just shallow.

After having sung the praises of the Financial Times in the last day or two I suppose it was only natural that it would publish a clunker. It duly obliged in the form of an op-ed by the aforementioned Mort Zuckerman.

His point?

That Obama has it all wrong. The focus of health care reform should be exclusively on cost cutting and not at all on extension of coverage.

Zuckerman started off so strongly too. He pinpoints a critical weakness in the American system straight away: doctors and hospitals have no incentive to cut costs. On the contrary our system encourages never ending price increases. Doctors and other providers can layer in new costs whenever they feel like raising their incomes: whether it be through simple price increases or through prolonging treatments, or through the prescription of new and expensive tests. There is no negative feedback in the system, other than the greed of insurance companies, to put a brake on a permanent upward trend in costs.

As he illustrates this upward trend will only get worse as we discover new and even more expensive technologies. The trajectory of costs is not only upward it is accelerating. Disaster looms.

Up until this point Zuckerman is making sense. Medical providers are making too much money and have no incentive to reduce costs. In essence they are gaming the system to their own advantage just like those awful bankers who gamble and then ask for bailouts. In economics we call this ‘rent seeking’. The solution is to get the incentive structure re-aligned so that costs are controlled and price reductions are passed back to the consumer. This will mean that any income growth doctors achieve will have to come from improvements in efficiency and service quality rather than through simple increases in bulk. It’s called competition – a fine all-American concept, and not at all socialist!

Since I have talked about this issue here before I totally agree with Zuckerman on this issue.

Unfortunately he then vectors into a transparently ideological tour through right wing bete-noirs.

His attack is focused on extending care to the uninsured. He quotes the now discredited report by the Congressional Budget Office that suggested that the proposed Obama legislation would raise costs substantially but not extend coverage much at all. The implication being that we are being asked to pay for a very ineffective plan. That report was tossed out because it didn’t include any of the parts of the plan related to cost control or revenue increases because they had not yet been determined when the report was written. This meant that the CBO report was a very early and tentative draft at best. It was not at all definitive. Zuckerman follows the party line by ignoring this little detail. He thus undercuts his previous argument.

He then goes on a populist looking tirade against the objectives of the Obama plan: it’s all wrong. The objective should be to cut costs before extending coverage. That way no one will go bankrupt as a result of being sick, which is an all too common problem nowadays – inability to cover health care bills is the most common reason for bankruptcy in America, which is ridiculous and is a source of shame to us all. This venture into populism sounds very well until we think through what Zuckerman is really suggesting.

He says that costs are the real issue. No doubt about that, although coverage ranks right up there too. He attacks the medical profession, rightly for being entrepreneurial rather than medical: again a nice populist ring to it. He quotes surveys that show that cost is not associated with healthier outcomes: again very good stuff and very true.

But then he just stops.

He says that’s it.

That’s all we need: bash the doctors about, limit what they can do so they don’t game the system and that’ll be it. Mission accomplished [has any phrase ever been so tarnished as that one?].

The problem of simple cost cutting is never made clear: once we have put a collar on our doctors so they actually have to act like the business people they think they are, what incentive remains to extend coverage? None.

That’s great for the wealthy and those who are lucky enough to be employed and thus get their costs covered as an employer benefit, but what about the poor or the unemployed?

Zuckerman cares not a jot for them.

Nor does he see that this ever growing group is a great cost burden on the rest of us: we have to provide care to them via emergency rooms, which are very expensive. If Zuckerman were truly committed to cost control he would want to extend care so that those currently without coverage could avail themselves of cheaper services and thus reduce that burden on the rest of us.

So all that early bluster turns out to be simple smoke screen to mask the underlying argument: a more egalitarian system is wrong in Zuckerman’s mind. What we need is cost relief for the wealthy and the employed. To heck with the rest. They don’t count. After all they probably deserve to be unemployed and even might have chosen not to get insurance.

A more plain description of the standard right wing ideology could not be made.

And under the clever guise of an attack on costs.

Nice.

And very bad analysis.

Addendum:

For those of you who don’t know what I am referring to when I talk about studies regarding costs and outcomes: recent analysis of different parts of the US have shown clearly that the amount doctors charge for services has no bearing on the health care outcomes. For instance: people in parts of Texas pay way more for health care than is parts of Minnesota and get worse results. Likewise for Florida.

What these analyses show is that when doctors try to be ‘entrepreneurial’ they seem simply to drive up costs without providing any better results. Nor do they engage in open competition to drive down costs or provide better service. Since consumers of health care services are at a terrible disadvantage when they purchase those services: they have no medical background on which to base a critical discovery of the best provider, it is easy for doctors to game the system. Their competence has to be trusted. Unfortunately this leaves litigation after the fact as the only response for a consumer who received poor service. And litigation can be abused – lawyers want to game the system too. If doctors are serious about wanting to curb litigation costs they have to accept quality control in some other way.

But that’s for another post.

/ / /

Health Care: Where Do We Rank? [Hint: Not High]

Now that the ‘debate’ over health care has calmed somewhat from the ludicrous to the merely ridiculous I thought it might be timely to inject a little actual research into it. You know, like, facts.

The problem with the ‘debate’ is that it is not a ‘debate’ at all. On one side we have reformers like myself who want to change the current system for one reason or another. And on the other are arrayed a goodly number of folks who want no reform at all. So there is no ‘debate’. When one side’s position is simply ‘no’, you can’t make subtle concessions or search for a middle ground. There is none. Within the reformist camp there are a wide range of positions from the ‘tinkerers’ to the ‘complete overhaulers’, so it’s possible to have a debate within that camp. But with the opposition: not a hope. They’ve dug in and are willing to use every slur and epithet in the book to prevent sense or calm dominating.

Why?

Maybe they understand the situation.

Maybe they see just how rotten the current set up is and are comfortable with its rottenness. Like an old shoe: we need to replace it but this one fits so well …

Frankly I am sick and tired of people telling me that our system is the world’s best without being able to back that statement up. By what criterion?

Rating health care systems comparatively is a complex task. Different societies value different things. So there is no easy way of looking at all the world’s health care systems and producing a score card for us to check where we stand.

But the World Health Organization has done exactly that. They examined the different systems of all its members – pretty much all the nations of the world – and came up with a classification method so that we can see where we rank.

The WHO is much less concerned whether someone in Manhattan can get immediate face lifts than whether a country’s population at large has access to basic care. After all the idea is not to compare the care available to just the wealthy, it is to evaluate the entire system and its delivery of care to the entire population.

In other words the efficacy of the system as a whole is what matters not just its highlights.

And the US falls flat. Horribly flat.

The WHO report dates from 2000, so there may have been some movement in the rankings since. Even so I doubt wheteher any of us would have expected that the US ranks as low as it does. Especially given the amount of money we spend.

We rank 37th.

Right underneath Costa Rica, but just ahead of Slovenia. The French are top.

How can this be?

We spend twice as much per person as the French and we rank 37th? After Costa Rica?

The answer has to be that we spend a disproportionate amount on non-care things within the system. Things like insurance company administration. Duplication of effort is rife because our system is so fragmented. Paperwork is everywhere absorbing huge amounts of money that never flows to actual care. Our system is relies on market forces to keep it efficient, but it has been co-opted by the big insurance companies and the big businesses who supply care as a benefit – the effect is that competition is severely reduced. We have a state driven system too: a small business cannot shop across state lines to get a better deal. The system reeks of oligopoly and price fixing. And it is not comprehensive: millions of our fellow citizens are not covered, which raises the cost to the rest of us when they turn up in the emergency ward.

In fact our system is the poster child for failure.

And yet I keep hearing this story about it being the best.

Is that simply denial? Is it malicious? Is it driven by an obsessive ideology?

It doesn’t matter: the fact is that in the only credible comparative analysis available at the moment we rank 37th. Right after Costa Rica. Just ahead of Slovenia.

That just sucks.

We have created the world’s least efficient, most expensive, Rube Goldberg, junk heap of a system in a haphazard, ad hoc way. And it is a failure.

Time to fix it. Before it sweeps us away in a sea of red ink and ineffectiveness.

«< 12 13 14 15 16 >»