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e-Bulletin: December 7, 2001
Institute for SocioEconomic Studies
SocioEconomic e-Bulletin
December 7, 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. Choice in Health Care: Employees Say "More!," Employers, "Less!": New
report from Employee Benefits Research Institute (EBRI) indicates that most
people who get health benefits at work want a greater choice of plans...but
employers tend to offer the opposite.
2. Do Welfare Recipients Need Work...or Training...or Both? Some mandatory
welfare-to-work programs focus on helping welfare recipients find work
quickly, while others emphasize basic education and training. Which approach
works better?
3. Fewer Applicants to U.S. Medical Schools: Association of American Medical
Colleges' (AAMC) new data on applications to U.S. medical schools for the
2001-2002 academic year show volume of applicants declining for fifth
consecutive year.
4. Do Extractive Economies Contribute to Poor Human Development? An Oxfam
America report argues that "oil and mineral dependence are strongly
associated with unusually bad conditions for the poor." Study, if findings
prove valid, would have broad ramifications for the underdeveloped world.
5. "Gatekeeping" Irks Patients and Doctors, but Doesn't Save Money:
Doctorsand patients have long considered "gatekeeping" to be among managed care's
most objectionable tools. New evidence reported in New England Journal of
Medicine indicates that managed care "gatekeeping" also does not save money.
6. Solving the Problem of the Uninsured: How should the U.S. deal with the
fact that approximately 40 million people lack health insurance? A
University of Pennsylvania, Wharton School study demonstrates that a less
radical approach than those usually considered might make significant
headway.
7. The Coming Welfare Debate: Most of the funding for the Temporary
Assistance of Needy Families (TANF) block grants expires at the end of FY
2002...
8. Book Review: The New World of Welfare, Rebecca Blank and Ron Haskins,
eds., Brookings Institution Press, 2001
9. Managing Welfare Reform in a Changing Economy: Education Is Paramount:
Implications of a recession for present and former welfare recipients
require renewed efforts to provide opportunity and incentive...
10. Financial Incentives Key to Staying Off Welfare: Although welfare reform
has prompted record numbers of formerly dependent households to find
employment, most have failed to become economically self-sufficient...
_________________________________________________________________________
1. Choice in Health Care: Employees Say "More!"; Employers, "Less!"
A new report from the Employee Benefits Research Institute (EBRI) indicates
that most people who get health benefits at work want a greater choice of
plans. Of those questioned in EBRI's "Health Confidence Survey - 2001,"
fully two-thirds expressed a desire for more options in the coverage
available through their job.
But employers have other ideas. The New York Times reports that cost
concerns are driving many large employers in exactly the opposite direction,
to reduce the number of plans they offer. According to benefits experts, the
goal is to increase purchasing clout by concentrating business with
relatively few insurers or managed care organizations. Some employers have
even eliminated choice altogether, and offer just a single plan to employees
who want coverage. According to the sources interviewed, health plans will
typically offer employers a discount of at least 5% in exchange for
exclusive access to the company's workers.
However, since health benefits at work are ultimately paid for with
employees' money (which would otherwise be paid out as wages), it is
inappropriate for employers to be making these decisions in the first place.
Indeed, the EBRI report also indicates that three out of five employees
covered through their job thought they could do as well as--or better
than--their employers in choosing a health plan.
An increasing number of health policy experts favor individually selected
and owned health insurance over coverage that is purchased by employers
(though paid for by employees). Replacing the tax exclusion for health
benefits compensation with an individual refundable tax credit would allow
people to purchase the health coverage of their choice. This would help
return decision-making power where it belongs--with patients and their
doctors.
Sources:
Employee Benefits Research Institute News Release (10/9/2001):
http://www.ebri.org/hcs/2001/index.html
"Fewer Choices for Workers on Benefits," The New York Times (11/9/2001):
http://www.nytimes.com/2001/11/09/business/09CARE.html?searchpv=nytToday
2. Do Welfare Recipients Need Work...or Training...or Both?
Some mandatory welfare-to-work programs focus on helping welfare recipients
find work quickly (the so-called "Labor Force Attachment" approach),
reasoning that they will learn and grow on the job. Others use the "Human
Capital Development" approach, emphasizing basic education and training with
the goal of ultimately finding "better" or "more appropriate" employment.
New findings from research at the Department of Health and Human Services
shed light on the relative effectiveness of these two approaches. As part of
the National Evaluation of Welfare-to-Work Strategies, investigators
examined the use of these strategies in welfare-to-work programs in Atlanta,
GA; Grand Rapids, MI; and Riverside, CA.
Both approaches increased the prevalence of work among people previously on
welfare, and neither had significant adverse effects on children. However,
compared with programs that focus on rapid employment and basic job search
assistance, the study found no added benefit from the more expensive basic
education and skill building approach. It would seem the most efficient way
to get ahead in the workplace is by going directly to work.
But wait! The study cites as most successful of all a Portland, OR program
that is primarily employment oriented but also incorporated human capital
development features.
It appears that a combination of higher expectations and a helping hand is
the best recipe for successful transition to mainstream society. Welfare
reform that is merely punitive is no more productive than welfare programs
that only foster dependence.
Sources:
HHS Executive Summary: (http://aspe.hhs.gov/hsp/NEWS)
For more information on a National Tax Rebate as an alternative to welfare:
(http://www.socioeconomic.org/Tax_Rebate_/tax_rebate_.HTM)
3. Fewer Applicants to U.S. Medical Schools
The Association of American Medical Colleges (AAMC) has released new data on
applications to U.S. medical schools for the 2001-2002 academic year. The
numbers show the volume of applicants declining for the fifth consecutive
year.
This year's 34,859 candidates still outnumber openings at the nation's 125
accredited medical schools by more than two to one, but it is notable that
the trend continues despite a stalled economy and major setbacks in the
stock market, which might be expected to lessen the relative attractiveness
of other career paths.
The AAMC did not cite reasons for the continuing trend, but a major factor
is certainly the negative impact of managed care on physician satisfaction.
Micromanagement of medical practice is extensive under both private managed
care plans and the government's Medicare program. This undermines
physicians' ability to deliver what they feel to be the highest quality
medical care, and to be responsive to their patients. Physicians who
inadvertently run afoul of Medicare's arcane and extensive regulations often
find themselves facing criminal charges.
By deterring many talented students from pursuing a career in medicine, and
by driving large numbers of experienced physicians from practice, meddling
by third party payers reduces satisfaction among doctors and patients alike.
The ultimate effect is to severely impair the performance of the U.S. health
care system.
Sources:
AAMC Press Release: http://www.aamc.org/newsroom/pressrel/011102.htm
For more on alternatives to managed care:
http://www.socioeconomic.org/Healthcare__/healthcare__.HTM
4. Do Extractive Economies Contribute to Poor Human Development?
Oxfam America has issued a report that argues that "oil and mineral
dependence are strongly associated with unusually bad conditions for the
poor." According to the report, "A country's over-reliance on commodity
exports contributes to its inability to improve measures of human
development with respect to income, health, and education." This study would
have broad ramifications for the underdeveloped world should its findings
hold true.
A closer look at oil- and mineral-dependent countries that also takes into
account political and economic freedom reveals that the presence or absence
of such freedom, and not a disproportionate reliance on extractive
industries, is a better indicator as to whether a country will achieve
meaningful human development progress.
Three notes are relevant: First, the lower the Human Development Rank, the
better the human development performance, e.g., a rank of "30" means that
the average performance of the states would place 30th in the world. Second,
the indicators employed in calculating the scoreClife expectancy at birth,
adult literacy, school enrollment ratio of the eligible population, per
capita GDPCwere based on internationally standardized data for purposes of
making valid comparisons. Third, only the 45 countries in the Oxfam report
were analyzed, but they were assessed against the 162-nation list published
by the UN Human Development Programme.
This closer look reveals:
1. Among states that are both politically and economically free:
Average Human Development Rank: 34.2
Percentage of states in the top quarter of human development: 80%
2. Among states that are economically free but politically unfree or
partially so:
Average Human Development Rank: 63.3
Percentage of states in the top quarter of human development: 17%
3. Among states that are politically free but economically unfree:
Average Human Development Rank: 94.5
Percentage of states in the top quarter of human development: 0%
4. Among states that are both economically and politically unfree:
Average Human Development Rank: 120.8
Percentage of states in the top quarter of human development: 0%
In conclusion, over-reliance on extractive industries might have its
pitfalls; however, this over-reliance does not by itself ensure poor
performance in terms of human development. Rather, economic and political
freedom play a far more prominent role in shaping the outcomes, with the
majority of free nations among the oil- and mineral-dependent states faring
well in terms of human development.
Sources:
Oxfam America's Extractive Sectors and the Poor:
(http://www.oxfamamerica.org/eireport/index.html)
The United Nations Human Development Programme's Human Development Report
2001: (http://www.undp.org/hdro/)
Freedomhouse's Freedom in the World:
(http://www.freedomhouse.org/research/freeworld/2001/table1.htm)
The Heritage Foundation's Index of Economic Freedom:
(http://www.heritage.org/index)
5. "Gatekeeping" Irks Patients and Doctors, but Doesn't Save Money
Doctors and patients have long considered "gatekeeping" to be among managed
care's most objectionable tools. The practice requires that patients obtain
permission and referrals from primary care providers in order to access the
services of most specialists.
Despite efforts by managed care plans to frame the issue in terms of quality
or "appropriateness of care," gatekeeping has been widely seen as primarily
a cost containment mechanism. But new evidence indicates that the much
resented rules do not even save money.
As reported in the New England Journal of Medicine, Harvard Medical School
researchers studied the effects of a decision by Harvard Vanguard Medical
Associates (the former Harvard Community Health Plan) to drop its
requirement that patients get referrals to see specialists.
Researchers looked at service utilization patterns of plan members before
and after the 1998 policy change, but found no overall increase in visits to
specialists after gatekeeping requirements were abolished. (There was an
increase in the number of specialist visits for back pain.)
The researchers cautioned that their findings are not necessarily predictive
of what a similar policy change would mean for other health plans. Among the
caveats: specialists in this HMO were salaried, and so had less incentive to
see more patients. Also, the study only looked at the first 18 months after
restrictions were relaxed, and behavioral changes might take longer to
emerge.
However, over the past few years, other health plans have come to appreciate
how gatekeeping requirements alienate doctors and patients, fueling the
backlash against managed care. As evidence has mounted that such
restrictions do not in fact save money, more and more plans are dropping
these and other onerous managed care requirements.
Source:
New England Journal of Medicine:
(http://content.nejm.org/cgi/content/abstract/345/18/1312)
6. Solving the Problem of the Uninsured
How should the U.S. deal with the fact that approximately 40 million people
lack health insurance? Answers range widely, both from popular and academic
sources. Some would have us revamp our entire health care system; others
suggest that the government take on the task of providing health insurance
itself. However, Mark Pauly (University of Pennsylvania, Wharton School) and
colleagues provide needed research to demonstrate that a much less radical
approach might make significant headway in solving the problem. They examine
the likelihood that a simple tax credit of reasonable size ($1,000 per year)
might induce significant proportions of the uninsured population to purchase
currently available market insurance.
In their NBER working paper, "Tax Credits, the Distribution of Subsidized
Health Insurance Premiums, and the Uninsured," Pauly, Bradley Herring and
David Song are laudably comprehensive in their approach. They employ
superior databases (and more of them) and report on the results of very
different estimation techniques (not just the technique which delivers
preferred results). The task is complex, since the authors must develop the
means of estimating the net price (premium net of tax credit) at which
people who now choose not to do so would purchase health insurance.
Estimates are made for policies having different size deductibles, with high
deductible policies showing the most promising rates of purchase. For
policies having these higher deductibles ($1,000), it is estimated that the
tax credit would be sufficient to induce purchase by 56% to 85% of the
currently uninsured. In short, this simple approach might solve the major
portion of one of this country's largest public policy problems.
Not provided in this study is any breakdown of the results by income,
certainly a concern on equity grounds and definitely of political relevance.
Perhaps a later version of this research will pursue this and will take up
the implications of making the tax credit income contingent.
Source:
"Tax Credits, the Distribution of Subsidized Health Insurance Premiums, and
the Uninsured," National Bureau of Economic Research Working Paper No. 8457:
(http://www.nber.org/papers/w8457)
7. The Coming Welfare Reform Debate
Most of the funding for the Temporary Assistance for Needy Families (TANF)
block grants expires at the end of FY 2002Con September 30th. Consequently,
the Congress will likely debate reauthorization of this legislation in its
next session.
Debate on the impact of TANF continues. Some trends concerning the effects
of TANF that will likely influence the debate include:
The number of families receiving cash welfare benefits has fallen almost
60% since March 1994 when the number peaked at 5.1 million families.
The employment rate for single mothers, who typically comprise the largest
share of TANF adults, rose to 73%. The rate also increased to 28% for those
remaining on the welfare rolls.
The poverty rate for children fell to 15.7%, after averaging around 20%
for more than two decades. However, it remains at almost 40% for children
living in families headed by single mothers.
Areas that will be considered in the debate include TANF, childcare, and
child support enforcement legislation. The persistence of the above cited
trends in the face of an economic slowdown is likely to weigh heavily in the
debate.
Source:
Gene Falk, Vee Burke, Melinda Gish, Carmen Solomon-Fears, Joe Richardson and
Emilie Stoltzfus, "Welfare Reform Reauthorization: Brief Summary of Issues
for the 107th Congress," Congressional Research Service, Updated November
14, 2001. (Contact your Member of Congress to obtain a copy.)
8. Book Review: The New World of Welfare, Rebecca Bland and Ron
Haskins, eds., Brookings Institution Press, 2001
In preparation for the vote on TANF reauthorization, just ten months away,
considerable debate will be in order. Popular reviews have concluded that
the reforms of 1996 were a great success; however, a more careful scrutiny
is warranted by the size and importance of TANF.
The New World of Welfare, just published by Brookings Institution, contains
nineteen papers from respected authorities that pose and evaluate questions
concerning the 1996 Personal Responsibility and Work Opportunity
Reconciliation Act (PRWORA). They review the effects of several important
elements of the 1996 reforms: the transfer to the state level of the primary
responsibility for designing cash-assistance programs and their eligibility
rules; work and other behavioral requirements for assistance; a block grant
approach to funding the states; lifetime limits on welfare participation; a
tightening of the standards by which children qualify for Supplemental
Security Income; improved enforcement of the child support payments made by
non-custodial parents; the elimination of welfare for non-citizens; the
reform and merger of several programs that provide child care; restricted
eligibility for food stamps; and provisions to reduce illegitimacy. Further,
there are reviews of the degree to which the reforms have reduced poverty
and changed the well being of children.
The collection of papers is impressive for the range of welfare reform
topics addressed, for the quality of its contributors, and for the political
balance represented.
Source:
The Brookings Institution: (http://www.brookings.org/)
9. Managing Welfare Reform in a Changing Economy: Education is Paramount
A strong economy greatly increases the likelihood that welfare recipients
can successfully make the transition to independence. In a 1997 Urban
Institute report, Daniel P. McMurrer and colleagues project that if the
economy continued to grow at the pace it had since 1993, it could easily
accommodate the approximately 140,000 additional low-skilled job seekers who
would be coming off welfare from 1997 to 2002. A recession, however, would
cause job growth to decline. Depending upon states' reactions, increasing
numbers of people could become unemployed, making it harder for those
leaving welfare to find jobs.
Likewise, according to the Department of Labor's Occupational Outlook
Quarterly, the anticipated retirement of increasing numbers of baby boomers
will lower the number of college graduates forced to look for lower-skilled
jobs from 14 percent within the previous decade to only 7 percent between
1998 and 2008. However, in a weakening economy, the number of college
graduates may exceed available high paying jobs, compelling some to seek
non-college level positions. This also makes it more difficult for welfare
recipients to find work.
Most welfare recipients will fill jobs in the lowest tier. But education and
adequate training will nonetheless play an increasingly important role in
the fate of those attempting a sustained transition from welfare to work.
It is not enough to say that because public policy has moved welfare
recipients to work, it has been effective. Many welfare recipients have
acquired the means and motivation to move up the economic ladder, but many
more will not. Policy makers must make every effort to ensure that welfare
recipients have ample opportunity to succeed in seeking better paying jobs
that will keep them out of poverty. This may mean higher federal and state
spending to help poor people move from assistance to work, on the premise
that their self-sufficiency represents a worthwhile investment. Legislators
should abandon their obsession with raising the minimum wage and focus
instead on financial incentives that help the poor to compete effectively
for jobs paying good wages, thus reducing the likelihood of their return to
poverty.
Sources:
Daniel P. McMurrer, Isabel V. Sawhill and Robert I. Lerman, "Welfare Reform
and Opportunity in the Low-Wage Labor Market," The Urban Institute:
(http://www.urban.org/oppor/opp_05.htm)
Employment Projections, Bureau of Labor Statistics, U.S. Dept. of Labor:
(http://www.bls.gov/emp/emptab4.htm)
"The Outlook for College Graduates, 1998-2008: A Balancing Act,"
Occupational Outlook Quarterly:(http://www.bls.gov/opub/ooq/2000/fall/art01.htm)
10. Financial Incentives Key to Staying Off Welfare
Although welfare reform has prompted record numbers of the formerly
dependent to find employment, most have failed to become economically
self-sufficent. That's often because few former recipients are working in
full-time jobs.
This issue is explored in a recent study published in the New York Federal
Reserve's Economic Policy Review, "Using Financial Incentives to Encourage
Welfare Recipients to Become Economically Self-Sufficient," by Philip K.
Robins and Charles Michalopoulos. The authors, a professor of economics at
the University of Miami and a senior research associate at the Manpower
Demonstration Research Corporation, analyze the work incentives contained in
state welfare reform plans, and estimate how those incentives might be
adjusted to encourage full-time work.
A persistent dilemma associated with public assistance is how to provide
sufficient benefits without busting the budget. Typically, this requirement
is met by conditioning eligibility on economic need and reducing benefits as
income increases. Unfortunately, this policy imposes a high marginal tax
rate on earned income and thus often discourages recipients from working
themselves off welfare. Reducing benefits one dollar for every dollar earned
represents a marginal tax rate of 100 percent, more than 22 times the
highest federal marginal tax rate. In addition, eligibility for food stamps,
housing assistance, child care and other programs is also conditioned on
income, raising the marginal rate even higher.
In order to preserve work incentives, Congress in 1967 passed legislation
allowing for disregard of a third of income in calculating benefits. This
provision was eliminated in 1981, and was later replaced by individual state
disregards allowing people to keep more of their income without losing
benefits, and by the Earned Income Tax Credit, a federal program designed to
supplement the earnings of the working poor. These initiatives helped boost
income, making some changes to the formulas for benefit reduction. The
ultimate "solution" in the 1996 welfare reform bill was to impose employment
requirements on recipients deemed able to work, and time limits for welfare
eligibility.
In the 1990s, the responsibility for providing work incentives passed to the
states, initially in federally-funded pilot programs, and then after the
1996 legislation, through provisions in the Temporary Assistance for Needy
Families (TANF) program allowing for local discretion. Currently, 47 states
employ some form of enhanced income disregard.
Although income disregards have had a positive effect on employment,
particularly under strict welfare rules, many recipients are still out of
work or earning too little to be self-sufficient. That's because the
disregards provide an incentive to work part-time, but phase out too quickly
to reward full-time employment, according to Sheldon Danziger, writing in|
Poverty Research News.
Robins and Michalopoulos cite a social experiment in the Canadian provinces
of British Columbia and New Brunswick that subsidizes the income of welfare
recipients only if they work full time. They then apply these incentives to
selected programs in Oregon, Florida and Minnesota to determine if they
would have an effect on work effort. The subsidies are equal to one-half the
difference between actual earnings and two target earnings levels of $20,000
and $30,000, so that potential rewards increase with actual earnings. A
worker with earnings of $15,000 would thus receive a benefit of $2,500 (half
of what would be needed to bring income up to the lower target level of
$20,000.)
The results of each of the reform programs studied show a significant gain
in full-time employment and a decline in costs to the TANF and food stamp
programs, even with the increased subsidy amount. That's because many of
those who go from part-time to full-time work had been working very few
hours and were receiving practically their full welfare grant.
Sources:
Philip K. Robins and Charles Michalopoulos, "Using Financial Incentives to
Encourage Welfare Recipients to Become Economically Self-Sufficient," the
New York Federal Reserve's Economic Policy Review:
(http://www.newyorkfed.org/rmaghome/econ_pol/2001.801prob.pdf)
Sheldon Danziger, "How They're Faring: Work and Earnings under Welfare
Reform," Poverty Research News, September/October 2000:
(http://www.jcpr.org/newsletters/vol4_no5/index.html)
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