Is the War on Poverty Really Over?

The Council of Economic Advisers recently released a report that began with the startling statement that the War on Poverty is over and has ended in victory. Properly measured, says the CEA, the poverty rate has fallen to just 3 percent.

Can such a low poverty rate, less than a quarter of the official measure (12.7 percent for 2017), be in any way credible? The answer turns out to be both “yes” and “no.”

There are, in fact, many different measures of the poverty rate. In addition to the official measure, the Census Bureau also publishes a modernized version called the Supplemental Poverty Measure, estimated at 13.97 percent for 2016. The Organization for Economic Cooperation and Development, a club of 36 middle- and high-income democratic countries, defines poverty as earning less than half of a country’s median income. By that definition, the U.S. poverty rate is 16.8 percent, the third highest in the OECD. Only Israel and Turkey have higher poverty rates.

Work Requirements Are the Newest Front in the War on the War on Poverty

On July 12, President Trump’s Council of Economic Advisers released a report titled “Expanding Work Requirements in Non-Cash Welfare Programs” in response to an April 2018 executive order on reducing poverty in America.

The CEA’s basic argument is simple: The war on poverty has been won — properly measured, the poverty rate is just 3 percent, a historic low. However, victory has left an ever-increasing number of able-bodied working-age adults dependent on in-kind welfare, especially on Medicaid, SNAP (formerly food stamps), and housing assistance. This problem can best be addressed by expanding work requirements for non-cash welfare programs. Work requirements will encourage self-sufficiency, strengthen the economy, and ultimately benefit the welfare recipients themselves.

The CEA is right, at least in part, in its critique of current in-kind public assistance programs. However, the picture it draws is misleading in a number of ways, and the case it makes for work requirements is unconvincing. There are better ways to address the weaknesses of the current welfare system. Here are some questions that need to be addressed before undertaking a wholesale expansion of work requirements.

Is Single-Payer the Right Way Forward for Health Care?

America’s progressives are right when they say we need a health care system that guarantees everyone affordable access to essential care, asks everyone to pay their fair share of the cost, but not more, and makes health care transparent, efficient, and consumer-friendly. But are the also right about the best way to get there?

They ask, why don’t we just adopt a single-payer health care system like every other rich democratic country has? Why can’t the government just pay everyone’s medical bills and be done with it?

These are understandable questions, but they oversimplify. If we look closely at the world’s top-rated health care systems – those in countries like the UK, Australia, and the Netherlands – we find that they are not true single-payer systems. Compared with proposals like Bernie Sanders’ Medicare for All, other countries’ health care systems are much more decentralized, and stop well short of paying for all care for everyone.

To get a health care system that is universal, affordable, fair, and efficient, the United States needs to learn from other countries’ experience and adapt it to specific American circumstances. Universal catastrophic coverage offers a more plausible model than an idealized single-payer system that exists nowhere else.

For a full discussion, check out the slideshow of my July 5^th presentation to the Cracker Barrel Society of Northport, Michigan.

High-Risk Pools, Reinsurance, and Universal Catastrophic Coverage

The most challenging problem in health care policy is how to deal with the very tip of the cost curve — the 10 percent of the population who account for two-thirds of all personal health care spending; or among them, the 5 percent of the population who account for half of all spending; or among them, costliest of all, the 1 percent who account for a fifth of all spending.



The challenge is made harder still by the fact that insurance — in the traditional meaning of the term — is not an option. A large percentage of cases at the upper end of the curve fail to meet two standards of insurability.

One is that an insurable risk must be the result of unpredictable chance. In reality, though, many individuals suffer from chronic conditions like diabetes that make them certain to require costly care for the rest of their lives. Others have genetic markers that make them medical time bombs from the point of view of private insurers.

A second standard of insurability is that the actuarially fair premium — one high enough to cover the expected value of claims — must be affordable. However, an actuarially fair premium for many people with costly chronic conditions would exceed their entire income.

There are several partial solutions to the noninsurability of high-end health care risks. Guaranteed renewal requires insurers to continue to issue policies to those who become ill, provided there is no break in coverage. Guaranteed issue, which requires insurers to accept any applicants, regardless of pre-existing health conditions, is an even stronger step in the same direction. Community rating requires insurers to charge the same premium, based on average claims, to everyone in a general category regardless of their health status.

The Affordable Care Act uses a combination of these requirements to ensure that people can buy health insurance at a standard price regardless of pre-existing conditions. However, doing so creates problems of its own. For one thing, these requirements make the system vulnerable to adverse selection since healthy people can remain uninsured and buy into the system only when they become ill. Also, even with community rating, spreading health care costs evenly over an entire population can mean unaffordably high premiums for people with low incomes.

That brings us to the subject of this commentary — policies that aim to cut off the top end of the cost curve in order to make health care more affordable and accessible for everyone else. High-risk pools and reinsurance are two ways of doing this. After reviewing the way these approaches work, we will explain how their benefits can be realized through a policy of universal catastrophic coverage (UCC).

How to Leave the Euro: A Practical Roadmap for Italy

The leaders of Italy’s new populist government say they do not want to leave the euro. Except, no one believes them.

They are on record as saying the euro was a bad idea. Until they were stopped by the President of the Italian Republic, they tried to appoint Paulo Savona, a well-known euroskeptic, as finance minister. Instead, they appointed him European Affairs Minister. In a recent book, Savona called the euro a “German cage” and wrote that “we need to prepare a plan B to get out of the euro if necessary ... the other alternative is to end up like Greece.” In short, it is not surprising that the new government’s commitment to the euro is in doubt.

When whenever the possibility that some country might leave the euro arises. Leaving abandoning one currency and introducing a new one just too difficult, they say. They point to the years of planning that went into launching the euro in the first place. They warn that a country facing currencies would face a host of problems, ranging from panicked runs on banks to the need to reprogram vending machines.

Ultimately, though, such technical difficulties are surmountable. If Italy decides to leave the euro, the key to success will be to learn from the experience of the many countries that have changed currencies in the past. Here is a practical roadmap, drawing on the imaginative, pragmatic, devices that other countries have used to ease the introduction of a new currency.

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.

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