Saturday, June 9, 2018

Could We Afford Universal Catastrophic Health Care Coverage?

Universal catastrophic coverage (UCC) is a health care plan that aims to protect all Americans against financially ruinous medical expenses, while preserving the principle that those who can afford it should contribute toward the cost of their own care. It offers a potentially attractive compromise between the current system, which leaves millions of people uninsured or underinsured, and more expensive, “first dollar” proposals that would cover all health care costs for everyone.

Skeptics often ask whether such a plan is affordable. The short answer is “Yes,” but I would prefer to frame the question differently. Rather than asking how much any given health care plan would cost, it is more useful to ask, “What is the best plan we could design for what we are politically willing to spend?” If we set that amount somewhere close to what the government now spends on health care, universal catastrophic coverage looks rather good. This post explains why.

The parameters of universal catastrophic coverage

First, we need to review the basic parameters that define any UCC plan. The simplest version of UCC would have just two parameters, a low-income threshold and, for those above the threshold, a deductible that varies with household income.

Saturday, June 2, 2018

Inflation Increasingly Erodes Wage Gains Even as Unemployment Falls

According to the latest Employment Situation Summary from the Bureau of Labor Statistics, average nominal hourly earnings for all employees on private nonfarm payrolls rose at a compound annual rate of 3.6 percent in May, 2016. That rate is well above the 2.6 percent average for the preceding 12 months, and also above the average CPI inflation rate of 2.5 percent for the same period. Monthly observations are shown by the dotted lines in the chart, while the solid lines show 12-month moving averages.

Monthly data include a lot of statistical noise and are subject to revisions, so policymakers will be paying more attention to trends than to individual data points. The trend lines show that over the past three years, CPI inflation has accelerated more rapidly than has the rate of nominal wage gains. CPI data for May will not be released until June 12, but by April, the last month for which full data are available, the 12-month moving average for wages exceeded that for inflation by just 0.1 percent (2.6 percent vs. 2.5 percent).

The trends of the moving averages contain both not-so-good news and better news. For workers, the news is not so good, inasmuch as the wage gains for May, which are hopeful taken in isolation, may turn out to be a statistical fluke. From a macroeconomic point of view, however, the news is better. With CPI and wage trends still holding at or close to 2.5 percent, there is little sign of overheating yet.

Reposted from Niskanen Notes

Friday, June 1, 2018

How Framing Affects Attitudes Toward the Social Safety Net

An article by Caitlin Dewey in the Washington Post led me to an interesting new piece of research by Rachel Wetts of U.C. Berkeley and Rob Willer of Stanford (unrestricted draft version here). The research, which is relevant for anyone in the area of public policy advocacy, shows how strongly framing—and the framing of charts, in particular—can affect attitudes toward pubic policies.

The specific issue that the authors investigate is the influence of information related to race on attitudes toward pubic assistance. As they put it in their abstract,
We argue that when whites perceive threats to their relative advantage in the racial status hierarchy, their resentment of minorities increases. This increased resentment in turn leads whites to withdraw support for welfare programs when they perceive these programs to primarily benefit minorities.
In one of several experiments, Wetts and Willer presented a questionnaire to a sample of participants recruited from Amazon Mechanical Turk. Before answering questions about welfare policy, participants were shown one of two variants of a chart depicting U.S population trends by race and ethnicity. Both charts were based on the same data from the Census Bureau, but Chart A shows a short time period, over which the trends appear relatively weak, while Chart B shows a longer time period, over which the trends appear stronger. Chart B also adds a line for “all nonwhite” which more dramatically shows that the white population is trending toward minority status.


After viewing the information, participants were presented with scenarios designed to reveal attitudes toward welfare. In one scenario,
participants were told to imagine that they were on a Congressional committee charged with cutting $500 million from the federal budget.  They were given a list of nine spending areas including “Temporary Assistance for Needy Families (Welfare)” and asked to indicate how much they would cut from each area.
White participants said they would cut TANF by 28 percent if they had viewed Chart A and cut by 51 percent if they had viewed Chart B—a statistically significant difference.

Although there were too few minority participants to produce a statistically significant results, their answers provide some food for thought. The nonwhites who had viewed Chart A said they would cut TANF by 53 percent, while those who had viewed Chart B said they would cut by 57 percent. About three-quarters of the recipients of cash assistance programs are nonwhite. Does TANF look better from a distance than from up close, or is this a statistical fluke?

And while we are on the subject of framing—would the results have been significantly different if the parenthetical word "Welfare," which is perceived pejoratively by many people, had not been inserted after "Temporary Assistance for Needy Families," which implies that the people who get it actually need it?

A previous version of this post appeared on Niskanen Notes

Monday, May 21, 2018

Why We Should be Skeptical About Guaranteed Jobs

The idea of a national job guarantee (JG) is about to go mainstream. The concept is far from new, but for the first time in decades, it is being endorsed by politicians with national stature. Sen. Bernie Sanders has promised to submit a legislative proposal. Other Democratic presidential hopefuls are showing interest. Academics, including Levy Economic Institute’s L. Randall Wray and Pavlina Tcherneva, have provided detailed blueprints for a national JG program.

No one denies that it would be nice if everyone who wanted to work could find a job, but before we start to beat the drum for a full-bore national job guarantee, we need a reality check. In a recent post, my  Niskanen Center colleague  Samuel Hammond outlined three reasons to be skeptical:
  1.     The private sector is better at allocating labor than public bureaucracies.
  2.     A JG program would be too easily politicized.
  3.     Other active labor-market policies, including wage subsidies, would work better than a JG.
These are valid points. Let me add three more reasons to be cautious about a national job guarantee.

4. Don’t exaggerate the pool of eligible candidates

As of April 2018, some 6 million people were officially unemployed, that is, counted as not working but actively looking for work. However, not all of those would be candidates for public-service jobs. Both in good times and bad, many of the unemployed are merely on temporary layoff or engaged in short spells of unemployment between jobs. At present, 33 percent of unemployed workers have been out of work for 5 weeks or less and another 31 percent for 5 to 14 weeks. Even in a bad year like 2010, nearly 40 percent of the unemployed were out of work for 14 weeks or less. Providing short-term in-and-out jobs for the temporarily unemployed is not the purpose of a JG. Even if offered such jobs, most of the short-term unemployed would probably prefer to keep looking for something more suited to their skills and interests.

Friday, May 18, 2018

Crop Insurance Should Die, Yet It Lives On

As I post this, Congress is debating the farm bill renewal. In a rational world, it would eliminate or greatly scale back our absurd system of crop insurance, but it appears that once again, the program will live on.

Insurance plays an essential role in any market economy. By spreading losses among members of a group with similar exposure, insurance encourages people to take prudent risks while protecting them from financial ruin in case they are the unlucky ones. But not all insurance is equal. Sometimes, rather than representing the public interest, a public insurance program can come to represent a special interest subsidy in disguise. Crop insurance, the multi-billion-dollar government subsidy that lies at the heart of the farm bill that is now working its way through Congress, is a case in point.

Let’s take a look at the strange economics of crop insurance, and what can be done to fix it.

Crop losses are not an insurable risk

The problems of crop “insurance” begin with the fact that crop losses are not really an insurable risk. Crop insurance violates three of the most important rules that economists have developed to identify which risks are insurable and which are not.

Sunday, May 6, 2018

The Role of Preventive Care in Healthcare Reform


“Remember the old saying that ‘an ounce of prevention is worth a pound of cure’?” asks United Healthcare. “Maintaining or improving your health is important – and a focus on regular preventive care, along with following the advice of your doctor, can help you stay healthy … Routine checkups and screenings can help you avoid serious health problems, allowing you and your doctor to work as a team to manage your overall health, and help you reach your personal health and wellness goals.”

You would think that a private insurer, on the hook for big claims down the road if preventive measures did not catch health problems early, would know, if anyone did. Popular opinion seems to agree. Readers of some of my own earlier healthcare posts have often offered opinions such as, “A couple hundred dollars of preventive medicine will prevent tens to hundreds of thousands of dollars being spent,” and, “Anyone who has ever visited a physician knows that preventive care is cheaper in the long run.”

But there is more to the story. Yes, healthcare reform needs to get preventive care right, but preventive care by itself will not make us healthier and cut national healthcare spending. Here are some of the issues.

Thursday, April 12, 2018

Why a Balanced Budget Amendment Would Be Profoundly Destabilizing

This week the House is expected to vote on a balanced budget amendment (BBA), introduced by Bob Goodlatte (R-VA), chairman of the Judiciary Committee. The amendment would require federal budget outlays to equal receipts each year.

Subjecting fiscal policy to rules, rather than allowing it to be driven purely by political impulse, would be a good idea, but not if the rules are the ones envisioned by this amendment. Far from stabilizing the economy, this kind of BBA would radically destabilize it, leading to dizzier booms and deeper recessions. Here is why.

How the budget affects the business cycle, and vice versa

To see why a balanced budget amendment would undermine stability, we need to understand how the budget affects the business cycle, and how the business cycle affects the budget. When we look at the pattern of federal receipts and outlays over time, as shown in the following chart, we see a lot of ups and downs. Where do they come from?