Keeping Poor People Poor
One of the strange things about the politics of health reform is the willingness of those on the left to segregate low-income families into a separate and (universally acknowledged) inferior health care system called Medicaid. Half of all the people who will be newly insured under Obama care will be enrolled in Medicaid. The same thing happened under Massachusetts’ health reform. This, despite the observation by yours truly and many others that there is not much difference between Medicaid and the charity care system that Medicaid replaced. In fact, if we abolished Medicaid with the stroke of a pen and let the states spend the money on indigent care, it’s not obvious that low-income families would be worse off.
By contrast, the idea of using Medicaid funds to subsidize private insurance — allowing the poor to participate in the same health care system everyone else has access to — is popular among a lot of conservative Republicans. This dichotomy is not restricted to health care. The left’s entire approach to poverty is to segregate the poor into inferior public provision, while the rest of society enjoys the benefits of quasi-private provision. It’s as though the left wing in American politics wants socialism for the poor and capitalism for everyone else.
If you live in a middle-class household, you generally expect your needs to be met through the marketplace. You buy or rent housing in the real estate market. When you aren’t driving your own car, you catch a taxicab or maybe even hire a limo. You or your employer buy health insurance, and you choose your doctor in the medical marketplace.
For most poor families, the experience is very different. Regulations designed to protect entrenched special interests have succeeded in raising the costs of basic services so much that low-income families have been priced out of the market for many essential services. Middle-class and poor communities differ not just by income. For the middle class, basic needs are met by markets and they benefit from the customer-pleasing innovations that competition produces. All too often, the poor must turn to public programs with all of the customer-pleasing attributes of the Department of Motor Vehicles.
They say our love won’t pay the rent
Before it’s earned, our money’s all been spent.
Take housing, for example. The cheapest form of housing is small, prefabricated homes for zero-lot developments. However, zoning regulations in most cities outlaw them — an act that effectively doubles the price of the cheapest housing. There are also other expensive restrictions on new housing, such as forcing builders to build on bigger lots and mandating specific types of materials and construction methods. Regulations vary widely across the United States. In Houston, a less restrictive city, regulatory costs add about $13,200 to the price of an average home. In San Diego, a multitude of regulations add $240,000. These cost-increasing regulations have essentially priced many low-income residents out of the market for a private home, forcing them to turn to public housing instead.
Then there is transportation. Did you know that people in the bottom fifth of income distribution take more taxicab rides than middle-income families? The reason: a lot of poor people don’t own automobiles. Taxi fares are far higher than they need to be, however, because local governments tightly control entry into the taxi market. (Evidence: in New York City, a taxi medallion sold for a million dollars the other day.) There is no reason in principle why someone with a van couldn’t pick up workers in a low-income neighborhood and transport them to a jobsite, charging each passenger a few bucks. The problem: Most cities make this activity against the law.
When low-income families are priced out of the market for private transportation, they must turn to public transportation. Since only a few cities have subways, that means turning to buses. Yet, even a simple trip to work or a supermarket — to say nothing of a doctor’s office — can be a logistical nightmare if you have to follow city bus schedules.
Consider health care. Sad to say, but the paramedics who treat our soldiers on the battlefields in Iraq and Afghanistan are not allowed to provide the same services back home for people who can’t afford, and perhaps don’t need, the attention of a physician. Although the restrictions differ from state to state, laws everywhere “protect” patients from care delivered by anyone other than a physician. This is despite studies showing that non-physician clinicians can competently provide from 60 percent to 90 percent of all primary care.
In some parts of the country, walk-in clinics in shopping malls allow nurses to give flu shots, take temperatures, prescribe antibiotics and deliver other timely, inexpensive care. But even these innovative services are often saddled with burdensome regulations. For example, in Massachusetts, regulations for clinics have such cost-increasing requirements as a separate entrance for patients, minimum size requirements for exam rooms, and a separate reception desk. When low-income families find they cannot afford private care, what’s the alternative? Community health centers and the emergency rooms of safety net hospitals. Yet these care sites often involve crowding and waiting, which limits access to care.
Child care is another basic service needed by many low-income families. In fact, low-income families spend about a third of their income on child care, as much as a typical middle-income family might spend on a home. In recent years, state and local governments have been making child care ever more costly, however. All manner of regulations are emerging, including the licensing of day care workers. Did you know that in most places, it’s illegal for a neighbor down the street to oversee children from the neighborhood for pay? Again, what’s the alternative? Low-income mothers must seriously consider abandoning the labor market altogether and rely solely on the welfare state.
Even a basic activity like keeping the neighborhood safe runs into regulatory barriers. In response to inadequate public police protection, an increasingly popular alternative is private police. In the United States, private security guards actually outnumber public police officers by a ratio of three to one; and they can perform most, if not all, of the necessary law enforcement tasks. Yet, government regulation has created substantial barriers for would-be security firms, including criminal background checks, examinations, training requirements, and insurance and bonding minimums.
A task force report produced by the National Center for Policy analysis calls for an end to these senseless policies, and advocates allowing our lowest-income citizens access to the benefits of the free market. I’ll write about it in a future Alert.
Society has certain norms, one of which is that the poor should use the same medical providers that richer households use. As a result, regulators don’t let unlicensed medical practitioners treat people willing to forgo a medical doctor. Yet, by deciding everyone needs to be protected from substandard medical practitioners, regulators create barriers where the poor opt for no care because they lack insurance and / or don’t want to pay the fees charged by providers in the more highly regulated environment. In a market free of protectionist professional associations, self-interested medical societies and strict licensure regulations, there undoubtedly would be options (e.g. Healthmarts) that would provide services outside the traditional practice models.
Well said, look forward to the next alert on this.
These community areas of service all need custom, localized solutions because each communities’ needs are different. Yet, entrepreneurs struggle against the cost and time of smothering, one-size-fits-all federal regulations. We are in a huge job crisis! Why can’t people wake up and realize small local start-up companies could both provide needed services and make enough to hire local people?!
Love the blog, and this was my favorite post in a while. It goes back to the point you made recently about how the left isn’t about doing good, just about feeling good. Regulations make it easy to say that they are helping the poor, as long as they don’t think too hard. (Of course, the same is true for much of the right, they just prefer to feel good about being independent and AMERICANS) Just need to get more people committed to being right, instead of being on the right. Thanks for putting this stuff out, keep fighting the good fight.
I couldn’t agree more with the importance of allowing private transportation. Many large cities have huge gaps in public transportation that serve as physical barriers to labor and commerce.
While regulations are of some importance, they go too far when they prohibit effective child care and individual health treatment. Consumer choice should be the guiding principle. Getting a babysitter or the needed medicine should be made easier, not more difficult.
The leftist approach only makes sense when you understand that what they care about is not helping the poor, but getting votes from them. If that means they do things that sound good and appeal to envy and emotion, but hurt the poor, well, tough. I will link to this from my Old Jarhead blog.
Robert A. Hall
Author: The Coming Collapse of the American Republic
(All royalties go to a charity to help wounded veterans)
For a free PDF of my book, write tartanmarine(at)gmail.com
Food stamps is a good exception. We didn’t create separate grocery stores for the poor. They get the same quality, selection and prices. So, why do we need a separate Medicaid healthcare system for the poor? Can anyone on the left spell vouchers?
Ron makes a good point. How hard would it be for the poor to buy food if food stamps came with an open-ended benefit; but contained regulations on what could be purchased; when it could be purchased; and price controls on how much the government would pay.
In all seriousness, let me ask you some straight questions:
1. Imagine a family of four with an income of, say, $35,000. There are lots of families like that in the US. According to the Milliman data, taking into account all out-of-pocket spending and premiums, the average actuarial cost for a family of four under age 65 in the US is now $19,000. In you view, how much should such a family be expected to pay for health care (premium + out of pocket) with its own income, and how much in the way of public subsidy should it get?
2. For the nation as a whole how many billions of government subsidies per year should be made available to help lower-income families get health care that is better than, say, the kind of care they get under Medicaid?
I know you all are having fun criticizing particular absurdities in what anyone else proposes, but my experience is that I have never been able to pin you or like-minded colleagues down on concretely what you would do, in dollars and cents, to help low-income Americans get health care.
At least Obama put his cards on the table. You guys never do.
So I hope you can answer these questions forthrightly.
Best
Uwe
Regulations often times do more harm than good. Research shows that loosening regulations in child care would lower households’expenses and increase female participation in the labor force.
Uwe,
You are looking at it the wrong way. We are a nation of individuals, not statistical averages. Not all families with $35K income have the same needs or the same priorities. A family with a very sick member will be willing to pay more for healthcare than a family in good health. Is this fair? Damn right! It is not only fair but absolutely necessary to allow people with greater needs to spend more on whatever THEY feel they need.
A family with a college aged kid will spend more on education than one without. A family in their 50s will be putting more money into retirement programs than a family in their 20s. A family that lives in exurbia will spend more on transportation to work than one that lives in walking distance to the job. A newly formed family will spend more on furniture than one that has been together for a long time.
YOU might think every family should spend X% of income on health care, no more and no less. You have every right to your opinion. But that is ALL it is — YOUR opinion. What makes you think you can dictate YOUR opinion on MY family?
Geez, Greg, chill out. Your statement, “A family with a very sick member will be willing to pay more for healthcare than a family in good health” has no basis in fact, if that family is poor. Such a family is likely to be uninsured or on Medicaid (which is essentially equivalent these days to being uninsured or underinsured) and simply cannot afford the cost of healthcare for a sick member, and reluctantly will seek treatment in an emergency room. If you’ve been to the ER recently & gotten sticker shock at the bill, or you noted your insurance premiums for 2012 have increased, then you know that you & I are ultimately paying the cost of care for a poor family. And we have absolutely no way to block their ER utilization.
Uwe,
I believe the point of the post is that interfering to protect or guard consumers has negative unintended consequences. In reality, the only proven way to help the poor is to grow the economy. All other ways, especially government administrated ways, have mediocre results.
James,
The hypothetical Uwe posed was a family with $35K income. Now you are changing the subject.
Being on Medicaid is NOT the same as being uninsured if that family goes to the ER, though it certainly is if the family is looking for a personal doctor. The cost of uncompensated care in the ER is a trivial amount of money, something like 2% to 3% of total costs. You would pay a whole lot more in taxes to provide the “coverage” to avoid this expense.
New Bumper sticker:
“HONK if I pay for Your Healthcare”
Live uninsured for a year. Then, live on Medicaid for a year. Then, come tell me that your health needs were so much better taken care of when you were uninsured.
To say that Medicaid and the “charity system” are essentially the same is wrong and denigrates the efforts of all of the private Medicaid managed care plans.
This conclusion also ignores the Oregon Medicaid study, which showed improve physical and mental health when individuals were covered. http://www.nber.org/papers/w17190
If I recall correctly, the Oregon Medicaid study showed that self-reported health improved after getting Medicaid coverage even before there had been an increase in utilization of care. It looks a lot like a placebo effect.
Furthermore, the sample was composed of people who enrolled in the coverage lottery (comparing those who got coverage and those who didn’t). This is not the same as comparing with all those who would have been eligible if selected as a lot of them didn’t enroll.
As for insured versus uninsured, a LOT of people who are eligible for Medicaid don’t bother to enroll. In effect, they choose to be uninsured. To them, apparently, Medicaid really doesn’t matter.
This posting explains what the Left’s strategy has been for so long – separating people into groups (poor and middle class) and crafting policies based on those distinctions. As a result, many people who would otherwise not be poor are enticed by the social medicine-welfare state to not work – thus, they stay poor and the Medicaid program grows and grows.
In regards to Sandy’s comment and Linda’s response, I believe the argument about charity care has been misunderstood. The comparison does not equate the quality of Medicaid with charity care as it is now. Rather, it states that charity care, as it would be in the absence of Medicaid, is more or less the same quality, thereby emphasizing that Medicaid is essentially crowding charity out of the market. While this seems unsupportable as these arguments so often rely on proving the negative, studies on this topic emphasize the efficacy of charity in this field long before Johnson’s not-so-Great Society began.
However, I struggle with many of the conclusions of this post. While I understand the economic theories proposed and the explanation of the financial damage done to the poor through these regulations, I believe that many of these regulations seek to protect consumers of every class in markets where information does not flow freely:
– Whether or not the taxi cab you’re about to enter is leaking emissions into its passenger compartment
– Whether your privately owned prefabricated house was built up to code and not produced by what first-commenter Devon might call “housemart” (see Haiti earthquake for visual depiction of consequences)
– Whether the security agent at your work is or isn’t a mentally unstable, trigger-happy guard who now possesses a high-voltage taser.
In the end, I acknowledge with no difficulty the additional costs that such regulations place upon the poor, but I believe that these regulations simultaneously protect them from market-forces that can in fact be dangerous. The assumption allowed in economic theories that information flows freely between producers and consumers is not one that can be relied upon in real world analysis.
John ,
And the right always sees a way to subsidize a private market from government funds.
Left pushed for a universal one payer system not separate systems. Right wants it split up in many parts or many different insurance companies. Right has most won the game , so we have the most expense system in world with worst coverage of a population of any modern economy perhaps. Part D was good example of worst govt. program one could design to make it so complex , many people decided not to sign up. Designed by the Right, not by the Left.
It is strange how we see world different.
Stan
@Alex – Regulations might be justified by some as protecting the poor from market forces, but the long-term existence of those regulations over the course of decades creates a situation where there is a class of people that don’t know what else to do other than use government healthcare, which is inferior and inadequate.
If you think about it, if there was no Medicaid and a not-too-regulated private sector was charged with providing health insurance for poor people,the competition fostered would ensure that someone in the private sector would offer the most basic low-grade coverage for those people that want it and not something better. Companies would compete with each other, offering various plans and degrees of coverage. Like with auto insurance.
One idea of a smart regulation that could be put into effect that would solve the lack of free flowing information to the poor problem……require insurance companies to clearly post coverage details on a government website viewable and understandable to pretty much everyone, and that is formatted in a certain uniform way.
The government could then advertise the heck out of it so people don’t have any reason to claim that they don’t have access to enough information.
Uwe and others…
Premiums, as they are, reflect the “one standard of care” idea in our system. They, in effect, lock in care by licensed health professionals, unionized workers,and providers that divide the work into hundreds of highly-specialized jobs, resulting in something like 1000 workers for a 225-bed hospital. Not to mention the other levels of care, where labor costs are the largest budget item, which comes with many regulations on who should do what, how much training they should have and how long they should work.
Call this the formal health system.
Now, look at the informal health system. It consists of expanded health services at pharmacies, community nursing in churches, health fairs, on-site primary care sponsored by employers, traveling sports med staff at athletic events, volunteer Doulas (Birth coaching) and many more. This informal system is larger than policy-makers realize, and could be larger. There is now a cash market for doctors practicing “boutique” medicine. There are cash discounts for those who use credit cards or cash to pay. This sector would grow substantially if health plans were allowed to revert to only specialty and tertiary care, leaving primary care to the patient. As a matter of fact, some cultural groups have long cared for each other with herbal medicine, delivered each other’s babies at home, and set each other’s bones. There are now enormous resources on the Internet to explain symptoms and describe actions that can be taken. So knowledge distribution is good for anyone who has access to the Internet. I guess I’m making the case that a freer healthcare system would benefit the poor more fully than the present one represented by the formal system.
Costs are a huge problem and even the insured should be putting their shoulders to the wheel of being aggressive customers, insisting that insurers and providers not overdo everything, including the stupid HIPAA regulations. My own take of a multi-fold strategy for reducing costs over time goes something like this:
1) Delegate as much primary care as possible to the patient and family through tools and education, plus financial incentives to reduce risk factors, such as obesity and smoking. [Already demonstrated to have a substantial effect on costs.]
2) For remaining primary care, the entry point into the health system, liberate nurses, med techs from the military, physician assistants and foreign-trained doctors to set up independent practices, charging what people can afford to pay. This is how the original healthcare system began. And don’t forget nurse-mid-wives. We already have a serious shortage of Obstetricians due to the terrible state of malpractice insurance and our court system.
3) Allow specialty physicians to practice in teams with the above associates, and to practice both one on one medicine, as well as cohort/group care for people with the same chronic disease, such as diabetes, or osteo.
We have to do this anyway as we are beginning to lose Boomer-age physicians who are retiring, and themselves going into Medicare. Remove “Corporate practice of medicine laws, such as the one in California, that forbid doctors to be hired by, say, hospitals, to work on salary.
4) Combine a region’s tertiary programs that largely involve elective procedures, so the combined resources are efficiently used, there is little non-productive capacity, and so the programs could contract with health plans on a packaged price for their procedures. A competitive market could be maintained regionally, if not in a small town. [Kaiser estimates that its enrollees becomes an in-patient only once in 14 years.]
5) Convert as much pill-format medication as possible to patch and slow-release implants. This will help insure that the medication is actually taken, and wholly prevent its mis-use by family members or those who steal and re-sell for recreational use. You can’t swallow a patch. it is also idea for treating the mentally-ill who are very likely to “go off their meds.”
6) At both the specialty and tertiary care levels, aggressively substitute curative technologies for those that merely treat symptoms. Several new vaccines are coming out that are true preventive products. There is a new nanotechnology treatment for malignant tumors that employs gold nanobeads with an enzyme that helps them enter tumor cells where a radio-frequency device heats them, the cells pop open and are flushed from the system. This single treatment will replace surgery, chemo and radiation therapy. (MD Anderson–clinical trials under way.)
7. Put all health insurance on a “mutual’ basis so all
members have a stake in how well they are their families do, as well as their fellow members. It has been shown that when a group of friends begins to gain or lose weight, others in their group do so as well.
8. Collapse/modernize all state and federal regulation about health care to focus only on safety and financial integrity. All else is probably excessive. [This week a Federal department ordered that patient bathrooms in hospitals should have a clearance between the door and the toilet of 60 inches (5 feet), for wheelchair patients.[Hospital construction costs are now above $2 million per bed.]
9. Reframe laws that protect union demands that cannot be paid for by the insured public. Unfunded union benefits are as much a drag on the private healthcare provider as unfunded Social Security and Medicare are on the Federal purse.
10. And, it would be nice if policy-makers had more exposure to the actual healthcare system than just a law degree, so they might have some inkling of the implications of the laws they pass. We had one for hospital modernization that the legislature thought would cost only $24 billion; it was up to $400 billion by 2005, and it is not over yet. Of course, no one who wants to bash providers for their high prices will remember that it was the legislature that set this particular locomotive in motion.
For those who believe that our health system is okay, it’s just that a lot of people lack insurance to pay for it, I hope you will take another look and see that the “main event” is the delivery system itself, and that insurance is secondary. Insurance companies should be liberated to also help their members take advantage of “medical tourism” to such countries as Malasia, [See current issue of National Geographic] where there is a deliberate national strategy of offering first class Western medicine at a fraction of what the costs would be in the US.
As an old, old hand in the healthcare system, I am leery of simple solutions, those that are too centralized, and those that require massive expansion of government oversight staff. I’ve lived through three different planning laws under Truman, Kennedy and Nixon; they are all gone, because they became unnecessary (the Hill-Burton Act for Hospital Planning and Construction) or were useless because they became mired in conflicts over the ethnic composition of boards and committees.
An image to keep in mind is the Bell-shaped curve; there are lousy plans and providers at the tail end; there are super-terrific organizations at the front end; then there is the middle where one hopes that they are all in a position to continually improve and attain ever more tighter fit between the needs of their publics and the services they offer.
John–A very good topic; and Uwe will never agree with anything that is not super liberal, no matter that removing people from the rolls of the uninsured means stripping money from the middle class through taxes.
Wanda J. Jones, President
New Century Healthcare Institute
San Francisco
I am on the Board of Directors for the Georgia Free Clinic Network. We provide care to over 100,000 people without insurance. Volunteer doctors, nurses, and other providers serve theor communities with free care to those in need (including those non-citizens that PObamaCare leaves out). Under ObamaCare, volunteerism is diminished when government takes over. Rules, regulations, and medical liability replace helping a neighbor in need.
This is my favorite topic. Having operated a free clinic for the past eight years, I have gotten a very upfront and personal experience with the poor.
The poor are poor for very different reasons– some have severe relational problems, some have no place to live, some have had bad breaks in life and other have caused their own problems. Each one feels alone and needs kind people to help them. A clinic staffed by friendly volunteers is the best way to do that.
The Medicaid system is wildly expensive. In NJ it costs $10 billion where our whole budget is $30 billion. Of the $5 billion that is for acute care, $2.8 billion goes to managed care and federally qualified health centers. Assuming 20% administrative costs, that means $500 million pays for administrators.
$90 million pays for physicians, labs and x-rays (lumped together because the sum is so small). Medicaid DOES NOT PAY PHYSICIANS.
So in NJ, we are proposing a plan whereby doctors will volunteer 4 hours a week in non-government free clinics. In exchange, we will ask the state to cover us for medical malpractice for all our medical activities in the state. Don’t pay us, just protect us, and thank us. No billing, no administrators, no codes– just simple charts and common sense care.
The people will get care. The doctors will have lower overhead in their own practices, and the taxpayers will save a bundle. The economy will revive and private sector jobs will increase as the tax burden is lessened. Win-win-win. NJAAPS.org
I gave a lecture to 50 medical students today and they LOVED the idea. We will see the return of private practices as patients transition out of the free clinics and into the practices of those who helped them when in a tight spot.
Alieta Eck, MD
President, Assn. of American Physicians & Surgeons
Uwe:
you are not as well read as I though you were. The original proposal for refundable tax credits — structured so that all the economic incentives are right — was made by yours truly and Mark Pauly about 15 years ago in Health Affairs. Here is the cite:
http://content.healthaffairs.org/content/14/1/125.full.pdf
This is the basis for the Coburn/Burr/Ryan/Nunes bill and the John McCain proposal.
For an explantion of how you can do this and still retain safety net institutions for those who do not insure, see the “Chacteristics of an Ideal Health Care System”:
http://www.ncpathinktank.org/pub/st242
These are the sorts of classics that ought to be on you night stand.
@ Elizabeth and Brian
Like your approach. Power to the people.
@ sabre51 and others
Thanks for the kudos.
@ Robert Hall
Cynical, but probably true.
@ Ron Bachman
Good point about food stamps.
@ Buster and Celine
I gree with both of you on the need for deregulation.
@ Greg Scanlen
I like you response to Uwe
@ Sandy Lutz and Linda Gorman and Brian and Alex
I am going to revisit the Medicaid issue (via Mass Health) on Monday.
@ Alex and Brian on whether we need regulation
Don’t you think it is ridiculous that your neighbor can drive you to work for free and there is no regulation whatsoever; but if he charges you $10 he is subject to all manner of regulation?
@ Wanda
Your comments are insightful, as always.
@ Ron Bachman and Alieta Eck
Thanks for sharing your experiences.
As I’ve long said, “Medicaid” is an abbreviation for “Medical Apartheid”…
Kent Lyon
I think the question of “being driven to work for free vs paying $10” shows that government will regulate anything involving a monetary transaction because it knows it can make money off it.
I would contend that there should only be the minimal regulations necessary to ensure that the public is getting true and complete information regarding the service they are purchasing.
@ John
No, I don’t believe that’s ridiculous, and here’s why: the friend who drives you to work for free out of charity (or any other generous motivation such as environmental concerns) has no incentive to hide potential faults or defects. There is no obstacle to the flow of information except the producer’s own ignorance. Now, when your neighbor is able to charge you a fee, a new factor enters the decision-making arena as to whether or not to disclose that smoke comes from under your hood when you drive more than 20 miles. The flow of cash creates a vested interest in keeping the consumer in the dark, as a lack of facts provides little incentive to change the status quo.
Again, this is just an example, and some of the regulations that you emphasize are much more pervasive. However, I have little difficulty looking at almost any given reg and understanding how it is meant to protect consumers from pareto-suboptimal market outcomes. Whether or not a given reg accomplishes this goal is of course up for debate; my only point is that consumer-protecting regs are not inherently evil.
“The flow of cash creates a vested interest in keeping the consumer in the dark…”
Really? About things that matter?
If that taxi driver strands someone that’s the end of their business relationship. All the consumer has to know is that the taxi will get him there. The friend, on the other hand, can fail to perform as advertised and tap a reservoir of good will to get another chance.
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