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e-Bulletin -- August 20, 2001
Institute for SocioEconomic Studies
SocioEconomic e-Bulletin
August 20, 2001
Welcome to the SocioEconomic e-Bulletin, the e-mail newsletter
of the Institute for SocioEconomic Studies, a non-profit, non-partisan operating foundation that examines issues relating to economic development, poverty, health care reform and the quality of life (http://www.socioeconomic.org/).
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IN THIS ISSUE
1. Results of Welfare Reform Mixed, Evidence Shows: Did the welfare reforms of the
mid-1990s work the miracles often claimed for them by Washington insiders?
2. Study Finds Hardship Does Not Begin at the Poverty Line: Economic Policy Institute study finds that
twice the number of Americans currently defined as living below the poverty line are struggling to make ends meet.
3. Rise of HMOs May Play a Key Role in Declining Doctor Morale: Job satisfaction among physicians has
dropped precipitously over the last 15 years, coincident with the rise of HMOs.
4. Experts Declare 1996 Federal Health Care Legislation a Failure: HIPAA critiqued at conference
hosted by Cato Institute.
5. Health Care Reform in Quebec, Canada: While many still point to the Canadian health care system as a
model of the positive role that the state can play in health care
6. Consumption a Better Measure of Standard of Living than Income, According to Recent Book: While
money is sometimes denigrated as the root of all evil, money income is also an indicator of material well being.
7. New Book Examines Fiscal Challenges Posed by an Aging Population:
As industrial societies continue to age in the coming decades, will social insurance programs be able to cope with the growing populations of the elderly?
8. Individually Owned Health Insurance --"Not Managed Care --"Is the Key to Affordable, High Quality Medicine:
A system based on individually owned health insurance purchased with after-tax dollars could be the best way to hold down costs without sacrificing quality of care.
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1. Results of Welfare Reform Mixed, Evidence Shows
Did the welfare reforms of the mid-1990s work the miracles often claimed for them by Washington insiders? Sufficient
time has passed that econometricians can apply their tools, and some have.
New reports by researchers at City University of New York's Baruch College and the Urban Institute examine the
impressive decline in welfare rolls and the increase in employment among single mothers in recent years. The findings contradict claims by some critics of the 1996 welfare reforms that these developments were simply
the result of a vibrant economy. They also show gains by former welfare participants persisting even as the economy cooled in early 2001.
June O'Neill, co-author of "Gaining Ground? Measuring the Impact of Welfare Reform on Welfare and Work,"
presented her findings at a July 25th Manhattan Institute conference. Using regression analysis on data from the Census Bureau's Current Population Survey (CPS), O'Neill found that reform accounts for more than half of the decline in welfare participation and the rise in employment among single mothers, while the strong economy could be credited for only 20% of these positive developments.
Likewise, Robert Lerman of the Urban Institute's Labor and Social Policy Center cites CPS data to show that among
single mothers employment soared, unemployment fell, and inflation-adjusted wages grew rapidly since 1996. Lerman also notes that progress by this group does not seem to have come at the expense of
growth in wages of other low-skill workers.
While many first jobs are not glamorous, they offer valuable experience. Both reports note that the new work exposure
gained by single mothers who left welfare in recent years could make a great difference in their ability to cope with any further downturn in the economy.
Results from other investigations, though, indicate that reform has not been an unqualified success. One such
study is a March 2001 National Bureau of Economic Research working paper by Jeffrey Grogger, "The Effects of Time Limits and Other Policy Changes on Welfare Use, Work, and Income among Female-Headed
Families." Grogger does find that the imposition of time limits reduces welfare use substantially.
However, lower family earnings and income are also a result, as these limits are powerless to address family living
arrangements or work reductions by other family members. Further, it may be the case that time limits hasten job search, leading to a greater frequency of mismatches and resulting in a shorter job duration and
lower wages.
As always, welfare does not constitute a controlled experiment. During the same period (the 1990s), the Earned
Income Tax Credit (EITC) was expanded substantially, and economic growth in general was quite robust. The EITC expansions themselves account for a sizable reduction in welfare use -- even more than time limits
-- and for more than a fifth of the realized increase in earnings. The rising tide (economic growth, reductions in unemployment) also explains substantial proportions of the decline in the welfare rolls,
growth in employment, and increasing amounts of work done.
To support the work requirements and benefit time limits already in place, policymakers should pursue creative ways
to help former welfare recipients move up the ladder to self-sufficiency. Eligibility for health care, childcare, and other forms of assistance should be adjusted as necessary to assure that work pays.
Sources:
The Manhattan Institute: Center for Civic Innovation (http://www.manhattaninstitute.org/html/cr_17.htm)
The Urban Institute: "Single Parents' Earnings Monitor" (http://www.urban.org/pdfs/SPEM_1.pdf)
National Bureau of Economic Research (http://www.nber.org/papers/w8153)
2. Study Finds Hardship Does Not Begin at the Poverty Line
Twice as many Americans are struggling to make ends meet as are currently defined as living below the poverty line,
according to a study released by the Economic Policy Institute. The study, detailed in the book Hardships in America: The Real Story of Working Families, takes a close look at the cost of living in
communities nationwide. It examines the minimum amount that a family must pay each year, depending on where they live, for the "basics" -- food, rent, utilities, transportation, health insurance, childcare, other
household necessities, and taxes.
For example, the study reveals that a two-parent, two-child family living in the District of Columbia in 1999 would
need approximately $49,218 in yearly income to meet its basic needs. Although the official poverty measure for a family of four for that year was listed at $17,463, researchers found that families making
substantially more than that amount continued to struggle to make ends meet.
While the Census Bureau has consistently cited food as the largest monthly expense for a family, study data reveal
that in recent years food costs have been surpassed by daycare and housing expenditures. In Washington, DC, day care for two children costs $1,042 a month, compared to $820 a month for family housing and around $510
for food.
The book notes that families headed by single parents, young workers, minority workers, and workers with less than a
high school diploma are still among those most likely to struggle, but an increasingly large number of families typically not thought of as needy are also financially strapped. Of families with incomes falling
below basic budget levels, one-half include a parent who is working full-time, nearly 60% are two-parent families, and three-quarters are headed by a worker with at least a high school degree.
Source:
Economic Policy Institute (http://www.epinet.org)
3. Rise of HMOs May Play a Key Role in Declining Doctor Morale
Job satisfaction among physicians has dropped precipitously over the last 15 years, according to a recent study
funded by the Agency for Healthcare Research and Quality and the Robert Wood Johnson Foundation. The newly released report, which compares job satisfaction among Massachusetts' primary-care physicians in 1997 with
satisfaction levels recorded in 1986, finds that declining morale coincides with the rise of HMOs both in Massachusetts and across the nation.
The report suggests that the way healthcare is delivered has an effect on the physicians responsible for providing
patient care. Under the current system, fewer than half of doctors are satisfied with the amount of time they are allowed to spend with patients, with the incentives for providing high quality care to
patients, and with the time available for a family and a personal life.
Doctors' experiences are found to differ depending on how their medical practice interacted with insurers.
Almost 50% of doctors whose practices contracted with multiple insurers reported at least one instance where an insurance company denied patient care in the previous year. Physicians working in these practices, as
opposed to those who dealt primarily with a single insurer, were extremely dissatisfied with the process for authorizing patient care. Less than one half of these physicians indicated that they would recommend the
health plans they dealt with to family members and friends.
Physician satisfaction levels can have a significant impact on quality and continuity of care, according to the
study. Low doctor morale not only leads to high turnover rates, but to a decreased level of satisfaction among other healthcare workers and patients. Increasingly, many dissatisfied physicians are opting out of
their practices or choosing early retirement.
Sources:
"Doctor Feelbad," New York Magazine, August 6, 2001 (http://www.newyorkmag.com/page.cfm?page_id=5044)
"Doctors' Dissatisfaction Grew Steadily over the Last Decade," Press Release, Agency for Healthcare Research
and Quality, July 18, 2001 (http://www.ahcpr.gov/news/press/pr2001/dissatpr.htm)
4. Experts Declare 1996 Federal Health Care Legislation a Failure
Institute staff joined an array of experts gathered at Washington's Cato Institute on July 31st for "Making a Federal Case out of Health Care: Five Years of HIPAA." The Health Insurance Portability and Accountability Act was made law amid much fanfare. Supporters hailed the Act as partial implementation of the vast changes the Clinton administration had been unable to push through Congress. With time, however, the Act has proven a prime example of the unintended consequences that may result from complex federal programs.
Four panels of experts -- in law, economics, and health policy -- critiqued the Act's record in such areas as
portability, privacy, and fraud control. Among their observations:
- The Act failed to assure portability, the aspect usually given most attention. Because it focused on limiting
preexisting condition exclusions, but not on the cost this entailed, it didn't help those suffering "job lock" because they can't afford to do without the insurance their employer arranges. Similarly, provisions
for guaranteed renewability without regard to cost constituted what economist Mark Pauley termed the "individual insurance version of a bad joke."
- Though they haven't taken full effect yet, HIPAA's privacy "protections" are virtually incomprehensible, and are
at best likely to be ignored by most patients. At worst, they will have negative consequences on health care delivery. In any event, they will be a major drain on the resources of the health care industry, and
will actually increase government's access to personal health information.
- HIPAA came down hard on physicians who run afoul of the 132,000 pages of rules for the Medicare and Medicaid
programs, effectively criminalizing inadvertent billing errors. It aimed to rein in a few shady providers, but has led to harassment and intimidation of already beleaguered doctors.
The keynote address -- "Just Gotta Learn from the Wrong Things You Done" -- was delivered by House Majority Leader
Dick Armey (R-TX). When casting his vote in favor of HIPAA, Armey said, he viewed the overall legislation as an acceptable price to pay for establishing a pilot Medical Savings Account program. He now regrets his
vote for HIPAA. Armey called for tax changes that would let individual employees own their insurance, in contrast with current practice, which forces them to rely on their employers for coverage. While
patients should have the right to sue their HMOs, he said, more important is having the ability to fire their plan if it is not performing up to their expectations.
Source: http://www.cato.org/events/hipaa/program.html
Additional information: http://www.socioeconomic.org
5. Health Care Reform in Quebec, Canada
According to a report released by the Commission of Study for Health and Social Services (Commission d'etude sur les services de sante et les services sociaux)
entitled "Emerging Solutions" ("Solutions emergentes") the current health care system in Quebec is in need of fundamental reform. The report argues that a "new paradigm" is needed to transcend present
challenges and the substance of current policy debates.
Specifically, the report observes that several "revolutions" are needed in the way health care is delivered and
financed in the province. These ideas are founded on the premises that (1) there are limits to what the state can provide, and (2) difficult choices need to be made to identify what services lie within those
limits.
The report also addresses the adverse effects of "moroseness" among health and social services providers in the
contemporary provincial health care climate. In order to combat this situation, it advises that providers be given greater autonomy and treated as professionals. Finally, the report also calls for citizens to become
more involved in the health care debates and discussions, especially when it comes to determining what services will or will not be covered by the state.
This report is important from the perspective of U.S. health care, as well. Here, the federal government
-- sometimes in combination with the states -- is expanding the share of health care services that fall under state auspices. Quebec's experience concerning limits and choices could be of interest to U.S.
policymakers in addressing problems that result from this shift, and the growing government role in financing health care services:
U.S. Government Payments for Hospital Care and Physician Services
U.S. Government Share of Total National Health Care Expenditures
1990 40.5%
2001 estimate 44.8%
Source: U.S., Census Bureau, Statistical Abstract of the United States: 2000,
Washington, D.C., 2000, p.110-Table 157; p. 111-Table 159.
Certainly, in the long run, as Medicare and Social Security face increasing financing imbalances, such debates
are expected to grow. Hence, this report is an important marker not just for Quebec, but also for U.S. policymakers who have an eye to the future. How Quebec responds to its difficulties today will offer important
insights into the challenges that the U.S. health care system will likely encounter in the medium- and longer-terms.
6. Consumption a Better Measure of Standard of Living than Income, According to Recent Book
While money is sometimes denigrated as the root of all evil, money income is also an indicator of material well
being. Personal income has long been the official measure of poverty and relative living standards, and thus a common denominator for evaluating the outcome of social policies. But income statistics can be
misleading, as they do not account for assets, taxes, and public benefits.
Daniel Slesnick, the Rex G. Baker, Jr. Professor of Political Economy at the University of Texas, Austin, has
addressed this issue in a recent book, Consumption and Social Welfare: Living Standards and Their Distribution in the United States (Cambridge University Press, 2001). The conventional method for assessing the standard of living in the post-War United States is to use income (usually median family income) as a measure of social well being and inequality among people. As Slesnick demonstrates, this approach is flawed. A person's material standard of living is much more closely approximated by what he/she can buy than by the gross amount shown on the W-2 form.
Income measures diverge from consumption measures largely because of taxes paid (especially for those with high
incomes) and government transfers (especially for those with low incomes). Saving and dissaving can also drive a wedge between income and consumption.
Using per capita consumption as the measure of the standard of living, Slesnick demonstrates that poverty is of
smaller magnitude, inequality less severe, and economic growth greater than they appear when using median family income as the measure. While Slesnick's study leaves open certain questions about the treatment
of saving and dissaving, his is a significant contribution to the fields of social welfare and policy analysis.
Source:
Slesnick, Daniel. Consumption and Social Welfare: Living Standards and Their Distribution in the
United States. Cambridge University Press,December 2000, 242 pages, hardback, $54.95 (http://us.cambridge.org/)
7. New Book Examines Fiscal Challenges Posed by an Aging Population
As industrial societies continue to age in the coming decades, will their social insurance programs be able to adjust
to the growing populations of the elderly? It's hard to say, seems to be the conclusion of a conference of international scholars held at UC's Berkeley campus in 1998. The proceedings of the conference have
been published in a recent book entitled Demographic Change and Fiscal Policy (Cambridge University Press, 2001).
There is widespread agreement that the transition will require major restructuring of national spending
priorities. However, planning for these changes depends on long-term forecasting, which can be imprecise at best. Demographic variables such as immigration, marriage and childbearing, and technologies and changes in
lifestyle of the elderly are extending life spans and pushing acute health costs further into the future.
For fiscal policy advisors, it may seem like navigating in a fog. But navigate we must, given the magnitude of the
consequences, where even under the best of circumstances the likely shortfall could dwarf current projections of budget surpluses.
While offering few long-term answers, this book raises many critical questions on social policy and provides a wealth
of data on demographic change.
Source:
Auerbach, Alan J. and Lee, Ronald D. (eds), Demographic Change and Fiscal Policy. Cambridge University
Press, 2001, 446 pages, hardback, $80.00 (http://us.cambridge.org/)
8. Individually Owned Health Insurance -- Not Managed Care -- Is the Key to Affordable, High Quality Medicine
A system based on individually owned health insurance purchased with after-tax dollars could be the best
way to hold down costs without sacrificing quality of care. That is the message of a recent policy paper entitled "Financing Health Care: There Is a Better Way" by Walter Cadette, Senior Scholar at the Jerome
Levy Economics Institute of Bard College.
Cadette says that our employer-centered insurance system -- an "accident" of World War II-- worked well enough at
first, especially when supplemented with the Medicare and Medicaid plans for the elderly, disabled, and poor. (The working poor essentially relied on charity care.)
However, advancing medical technology, cost-plus financing, and tax exclusions for employer-sponsored benefits
drove expenditures up dramatically. Public and private payers responded with a variety of payment reforms and managed care tools. The result? Costs were held down, but hospital finances were dangerously squeezed,
satisfaction among doctors and patients plummeted, and incentives for quality medical care were weakened.
Cadette's prescription is to take health insurance out of the workplace. Eliminating the tax exclusion for
employment-based benefits would encourage a return to insurance with significantly higher deductibles. This would make insurance more affordable, and hold down medical costs in general. Such a change would also
yield over $100 billion in new revenues, which Cadette would devote to refundable tax credits covering most or all of the cost of insurance for low- to middle-income earners.
Among other observations, Cadette notes the folly of financing health care for the affluent elderly through the
public sector. As great numbers of Baby Boomers approach retirement age, he suggests we restrict government subsidies under Medicare to those whose financial need is greatest.
Source:
Levy Institute Policy Note (#2001/3), "Financing Health Care: There Is a Better Way" (http://www.levy.org/docs/pn/01-3.html
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