Monday, March 19, 2018

“Medicare Extra” Shows the Convergence of Progressive and Conservative Healthcare Thinking

In public debate, progressives and conservatives often seem poles apart. Yet, behind the scenes, when pragmatic reformers take on a problem, their conclusions often converge, regardless of their political starting points. The Medicare Extra proposal recently released by the Center for American Progress (CAP) is a case in point. Filtering out any ideological language, Medicare Extra bears a strong resemblance to universal catastrophic coverage (UCC), an approach to healthcare reform that originated in conservative circles, but is now attracting wider attention. This post compares the two side by side.

Similarities of Medicare Extra and universal catastrophic coverage

The CAP bills Medicare Extra as an enhancement of traditional Medicare that would ensure that all Americans have healthcare coverage they can rely on at all times. It would cover a broad spectrum of healthcare needs, including dental, vision, and hearing care. Newborns, the currently uninsured, and people turning 65 would be enrolled automatically, while those who now have public or private coverage would have the option of enrolling.

In those respects, as well as in its name, Medicare Extra bears a strong resemblance to Senator Bernie Sanders’ Medicare for All. However, whereas Sanders’ plan would provide first-dollar coverage of healthcare spending for everyone, Medicare Extra builds in a substantial amount of cost sharing. Individuals and families with incomes below 150 percent of the federal poverty level (FPL) still get first-dollar coverage, but those with higher incomes would pay premiums according to a sliding scale that reached 10 percent of income for households at 500 percent of the FPL. Middle- and upper-income families would, in addition, face deductibles and copays. Those would be structured to give Medicare Extra policies an “actuarial value” sufficient to cover 80 percent or more of a household’s expected healthcare costs—the same standard of coverage as a gold plan purchased on today’s ACA exchanges.

New Advances in Genetic Testing Further Undermine the Insurability of Healthcare Risks

 To be insurable, a risk must meet certain criteria. One is that the loss must not be catastrophic. Another is that the loss must be unexpected or accidental.

Genetic testing renders many health risks uninsurable. For example, about 30,000 people in the United States have two copies of the gene that causes cystic fibrosis (CF). Treatment for CF is improving. The average lifespan for people with CF is now 37 years, but for an insurer, those are 37 years of costly treatment. New advances in gene therapy are likely to extend life further, but at even greater cost. Losses from CF are catastrophic, and, since genetic testing can diagnose CF even before birth, the loss is not unexpected or accidental. CF is thus uninsurable by traditional standards.

Single-gene genetic disorders like CF are fortunately rare, but new research by a team led by Lisa Bastarache of Vanderbilt University, published last week in Science, has the potential to greatly enlarge the number of people with uninsurable genetic risks. The authors used a large data base to identify cases in which the interaction of multiple genes produces diseases that are not as easy to spot as CF. They found 807 people with potentially dangerous genetic patterns among 21,701 that they screened. Only 8 of them had been previously diagnosed as being at risk of genetic disease.

A 100-fold increase in the number of people with potentially dangerous genetic patterns would be bad enough, but things might get even worse. Dr. Joshua Denny, one of the co-authors of the study, told the New York Times,
“I’m kind of surprised we found anything. The fact that we did means there’s maybe a lot out there that we don’t know.”
As improvements in genetic testing make the health risks of more people uninsurable in the commercial market, the case for guaranteeing access to health care by way of universal catastrophic coverage or something similar grows ever stronger.

Reposted from

Friday, March 9, 2018

Study of Urban vs. Suburban Emissions Strengthens Case for a Carbon Tax

Environmentalists have long been critical of “suburban sprawl.” A study of carbon emissions in Salt Lake City and surrounding areas, published recently in the Proceedings of the National Academy of Sciences, provides new reasons to question excessive suburban growth. Although the study itself does not make policy recommendations, its findings bolster the case for a carbon tax.

The study was authored by Logan Mitchell of the University of Utah, together with twelve colleagues from various institutions. The authors note that although urban areas account for some 70 percent of global carbon emissions, gaps remain in the understanding of the spatial distribution of those emissions, in part because many monitoring stations are located far from cities. In this case, however, long-term observations were available from five urban and suburban sites in the Salt Lake Valley, plus a reference site in the nearby Wasatch Mountains.

The study found that population growth in rural areas that experienced suburban development was associated with increasing emissions while population growth in the developed urban core was associated with stable emissions. The study, which controlled for natural emissions, atmospheric mixing, and seasonal effects, identified fossil fuel use as the main driver of increased emissions.

These findings have clear implications for the choice between a market-based approach to carbon abatement vs. a command-and-control approach.

A carbon tax could incentivize greater urban population growth and less suburban expansion in two ways. First, it would increase the cost per mile of driving, thereby raising the cost of living farther from the urban core. Second, since urban residential buildings are more energy efficient than those in the suburbs, a carbon tax would increase the relative cost of heating and air conditioning in less densely populated areas.

In contrast, command-and-control environmental regulations would have less effect, or even perverse effects, on locational choices. For example, performance standards for furnaces and air conditioners raise the cost of building suburban homes but lower the cost of occupying in them. Their purpose is to nudge people to choose heating and cooling equipment that have lower long-run costs, but to the extent that they do so, they can reduce the long-run cost of suburban living not just in relative terms, but in absolute terms. Similarly, CAFE standards for automobiles increase the cost of new cars, but lower the marginal cost of driving an extra mile. Once a fuel-efficient car is in the driveway, they decrease the opportunity cost of a longer commute.

A shorter version of this post appeared on

Wednesday, February 28, 2018

Latest Richmond Fed Non-Employment Index Shows US GDP at or Close to Potential

The Richmond Fed has released the latest reading of its Hornstein-Kudlyak-Lange Non-Employment Index (NEI). At 7.93 percent, the NEI has now fallen below its pre-recession minimum of 7.99 percent, reached in March, 2007, and it is fast approaching the value of 7.70 percent reached in October 2000, just before the 2001 recession. Data for the NEI are not available before 1994.

The NEI gives important insight into the question of whether or not the U.S. economy is now approaching, or has passed, its potential level of GDP. The standard unemployment rate (U-3) is often criticized as misleading because it does not count people who are out of the labor force. Experience suggests that such people represent a “hidden” labor reserve, since some of them can be drawn back to the labor force when the job market tightens.
The NEI deals with this problem in two ways:
  1. It counts not only the unemployed, but also those out of the labor force. The latter is a diverse group that includes individuals who want a job (such as the marginally attached who are willing and able to work and sought employment in the past, but have stopped searching) and those who do not want a job (such as retirees, the disabled, students, and those who are neither retired, nor disabled, nor in school).
  2. It weights the different groups of non-employed (that is, both the unemployed and people out of the labor force) according to their labor market attachment, or the likelihood that a non-employed person will transition back into the job market. Specifically, each group is weighted by its historical transition rate to employment relative to the highest transition rate among all groups (the transition rate of the short-term unemployed).
The latest reading, shown in this chart, suggests that the hidden labor reserve is fast disappearing.

Reposted from

Tuesday, February 27, 2018

From the Nixon Era, a Pioneering Proposal for Universal Catastrophic Health Insurance

 People today remember the Nixon era mainly for the fiasco of Watergate, but there were positive moments, as well. Those included the first moon landing, passage of the Clean Air Act, and a dramatic diplomatic opening to China. There were also some bold policy initiatives that did not immediately bear fruit. This post takes a look at one of them, a proposal for universal catastrophic health insurance from Elliot Richardson’s Department of Health, Education and Welfare. It went nowhere then, but its time may now have come.

Elliot Richardson and the Mega Proposal

The child of a wealthy Boston family, Richardson was seemingly destined for public service. By the time he came to Washington, he had graduated from Harvard, landed at Utah Beach on D-Day, returned to Harvard for a law degree, and served as both Lieutenant Governor and Attorney General of Massachusetts.

Richardson was seen by those who worked under him as a rare combination of policy analyst and practical-minded politician. He had big ideas that went far beyond the clutter of overlapping programs he found when he arrived at HEW in June of 1970. Over the next two years, he put his staff to work on a sweeping plan for reform, known as the Mega Proposal, which covered all of the major areas for which HEW was responsible. The plan for healthcare reform was part of it.
The rationale of the Mega Proposal was explained in its preface:

Thursday, February 22, 2018

How Universal Catastrophic Care Could Ease Class Tensions

I have written frequently about universal catastrophic coverage (UCC) as a possible healthcare reform compromise. Under such a program, the government would provide health insurance with a deductible scaled to household income. [1] [2] [3]  The UCC policy would protect people against financial ruin caused by healthcare costs. At the same time, they would be responsible for financing their own routine care through by cash, health savings accounts, or private supplemental insurance. 

My early posts provide hypothetical examples, but how would real people fare? An article by Abby Goodnough in this week’s New York Times provides two real world examples. We can see how they would fare under UCC compared to their present situation.

One is the middle-class Hurd family, who struggle to afford coverage on the ACA exchange. Both Gwen and Matt Hurd workwork but neither gets healthcare benefits. They earn about $82,000, more than four times the poverty level for their family of three, too much for ACA subsidies. Their healthcare premium is $928 a month with a $6,000 deductible per person, plus copays. The NYT article does not give full details, but based on averages, their maximum out-of-pocket healthcare costs would be about $25,800, or 32 percent of their total income.

Compare this with two possible UCC formulas. Under Formula 1, which might set the deductible at 10 percent of the amount by which income exceeds the Medicare threshold (138 percent of the federal poverty level), with a family maximum of 20 percent, the Hurds would pay at most $10,000 even if two or more of them were seriously ill in one year, or about 12 percent of their total income. Formula 2, less generous, might set the maximum at 15 percent of the amount by which income exceeds the federal poverty level. The Hurds would pay a maximum of about $17,500, ir about 21 percent of their total income. In either case, they would pay less under UCC than on the ACA exchange.

The other NYT example is Emilia DiCola, a single woman working part-time while trying to establish a career in opera. She now earns $15,000 from occasional singing gigs plus part-time driving for Uber. Her earnings are just low enough to qualify for Medicaid. Even if her state introduces work requirements for Medicaid, she will qualify because of her part-time jobs.

Under UCC she would still get for full coverage, given her $15,000 income, but she would face substantially different incentives to increase her earnings. At present,  she must carefully limit her hours of work to stay under the Medicare threshold. If, say, she worked enough hours to double her income, she would need to purchase insurance on the ACA exchanges. Even with subsidies, her premiums and out of pocket costs would rise substantially compared with Medicare. 

Under UCC, her out-of-pocket costs would remain lower than under the ACA even if she doubled her earnings. She would have a far greater incentive to seek additional work.

In her NYT article, Goodnough notes that the current system is a source of social tension between the working middle class and the poor. Middle class families like the Hurds are sometimes resentful of those like DiCola, who from their perspective, do not enough effort to support themselves but get everything paid for by the government. UCC could ease the tension, both by leveling the playing field in terms of heathcare costs and by providing the poor with greater work incentives.

Based on a shorter version posted earlier on

Tuesday, February 20, 2018

Smart Reforms of the Social Safety Net Could Make the Economy More Growth-Friendly

 A rising tide lifts all boats, does it not? That cliché of economic policy is meant to highlight the ways in which economic growth, as a substitute for targeted social policies, can make life better not just for the privileged, but for the disadvantaged, as well. However, the cliché is misleading in that the causation is not all one way. A better social safety net can contribute to a stronger economy and faster growth of both actual and potential GDP.

A new report from the Congressional Budget Office provides some insights into one of the mechanisms linking social policy to growth, namely, labor force participation (LFP). Recent LFP trends in the United States have not been favorable to growth, but a close examination of the data suggests that better social policy, especially in the areas of income support, healthcare, and disability, could significantly improve participation. Increased LFP, in turn, would boost both actual and potential GDP, making room for additional monetary and fiscal stimulus.

Recent trends in Labor Force Participation

Let’s look at some of the key findings of the CBO report. First, we find that labor force participation as a whole has declined since its peak in the early 1990s. As the following chart shows, LFP rates are expected to stabilize for men and increase slightly for women over the next decade, but not to return to their former peak values. (Gray bars denote recessions.)