Category Archives: Public Policy and Governance

In 2006, the Economist—hardly a leftwing publication—had this to say about the U.S. healthcare system:

“America’s health care system is unlike any other. The United States spends 16% of its GDP on health, around twice the rich country average, equivalent to $6,280 for every American each year. Yet it is the only rich country that does not guarantee universal health coverage. Thanks to an accident of history, most Americans receive health insurance through their employer, with the government picking up the bill for the poor (through Medicaid) and the elderly (through Medicare).

[…]

In the longer term, America, like this adamantly pro-market newspaper, may have no choice other than to accept a more overtly European-style system.” 

 

We have all heard the litany: Forty-six million Americans are uninsured. America spends more per person than any other country, but ranks 37^th in overall quality of service. If our infant mortality rate was as good as Cuba’s—Cuba’s!—we would save the lives of an additional 2,212 babies every year. Duplicative paperwork wastes billions each year. People with pre-existing conditions are chained to jobs they don’t like. The list goes on, and I don’t intend to stand here and repeat it, or add to it. Most of you are already all too aware of the problems.

 

Instead, I want to make an economic development/American competitiveness argument for single-payer national health insurance—something along the lines of what United Senior Action has called, if I am not mistaken, “Medicare for all.”

 

As I analyze the situation, if the United States adopted a “single payer” health insurance system funded through tax revenues and administered through a single insurer, we could expect a number of positive economic results, in addition to better health and reduced social anxiety.

 

First of all, we would see an increase in economic development/job creation. The business sector currently spends an amount in excess of its net profits to provide  health insurance for employees, and the cost of health insurance is the single largest “drag” on new job creation. The difference between what it costs an employer to create a new position and the amount that employee actually receives is sometimes called the employment “wedge.” As health costs and insurance premiums escalate, the wedge grows larger, and inhibits hiring additional workers. In good economic times, that is troubling; in times like these, it can be catastrophic.

 

For the shrinking number of companies that can afford to offer health insurance, negotiating and administering medical benefits, and complying with the government regulations attendant to them, consumes untold hours of HR time. This is a drag on productivity—a generator of overhead costs that reduce profits and divert effort away from the core business operations.  Single-payer would remove those costs and that burden. If you don’t think that would be economically significant, let me share an example. In the case of our struggling auto industry, amounts paid for employee health adds somewhere between 1800 and 2000 of the price of each new car. No wonder American automakers find it difficult to remain competitive! It should be noted that in a single payer system, doctors’ overhead would similarly decline: currently, medical offices spend considerable sums on personnel whose only job is dealing with insurers—confirming coverage, complying with insurer regulations, submitting claims on multiple different forms and collecting amounts due. The US could save millions of dollars each year JUST by standardizing insurance forms!

 

Smaller companies—the engines of economic growth and job creation—are increasingly unable to offer benefits, and that puts them at a competitive disadvantage when they try to hire good employees. If health coverage were de-coupled from employment, the United States would become a much more attractive location for new businesses, and incentives to outsource production to overseas workers would be reduced. (Tell Toyota/Canada story.)

 

We should also note that, if the burden of providing health care coverage were removed from employers, they could increase wages by some percentage of the amount currently being paid for insurance.

 

There are two predictable, immediate responses to suggestions that we provide national health insurance. The first is that we can’t afford it; the second that quality of care would be compromised.

 

Let’s dispose of  the question of costs first, because there is enormous public ignorance of the costs we already incur. It may surprise many of you to know that any additional tax revenues needed in order to accomplish universal basic coverage would be minimal, for the following reasons:

·         government at all levels already expends huge amounts for health, through Medicaid, Medicare and other federally required programs (Mothers and Children, AIDS, etc.), through health care research grants,  through insurance for public employees (Universities, police, public school teachers, state and municipal workers, etc.), and through support for public hospitals like Wishard. By some estimates, American government at all levels already pays for over 60% of American health care now. We just do it in the least efficient, most wasteful way imaginable. In single-payer countries, governments pay an average of 70% of all health costs.

·         Furthermore, the economies of scale available in a national system would allow us to effect significant savings. We could save money not just by standardizing paperwork, but also by lowering the  costs of administration. It is estimated that between 25-30% of private U.S. healthcare expenditures are eaten up by administrative overhead. Medicare, on the other hand, keeps its overhead costs between 2 and 3%. It’s not just big salaries for the insurance executives—although that’s part of it. The biggest chunk is marketing, including the costs involved in “cherry-picking” (explain). We could save a very large percentage of these overhead costs by administering insurance through government, or even by doing as some European countries do—by contracting with a few insurers to administer the program on government’s behalf, on condition that the premium structure eliminate the marketing costs that are now included.

·         An often-ignored benefit of a national system is that it would provide an incentive for more effective public health and prevention services—incentives our current, patchwork system lacks. Total costs decline when people are able to access routine medical care soon after the onset of symptoms, rather than visiting far more expensive emergency rooms when they can no longer ignore the problem.

·         A national system could—and should—save money by negotiating with drug manufacturers and other medical vendors for lower prices. Every other industrialized country does this, and to be honest, I was outraged when the Bush Administration prohibited such negotiations in the bill that expanded Medicare’s prescription drug coverage. That bill was a cynical give-away to drug and insurance companies. I used to believe the drug company argument that research and development would suffer if they couldn’t price new drugs at high levels. But that was before I understood how much medical and pharmaceutical research is underwritten by taxpayers through grants from institutions like the NIH. Frankly, we would all be better off if drug companies diverted some of the five billion dollars they spend each year on television ads for Viagra and the “purple pill” to research and development. 

·         Cost controls would also be enormously enhanced by eliminating the practice of cost-shifting by hospitals. Those practices are increasingly irrational; as you all know, those of us who are hospitalized and who have insurance pay prices that have been inflated in order to cover the costs that cannot be recovered from those without. On the other hand, because insurance companies exercise considerable pressure on hospitals, those same providers will often charge uninsured but solvent patients more for the same procedures. There is no uniformity to these practices, and they make rational cost accounting difficult, if not impossible. (Dan Hodgkins story)

 

These savings are often identified by proponents of national health care. What is far less frequently recognized is that even if taxes did go up, individuals would save money as well.

·         Automobile and homeowners insurance premiums would decline significantly, because the underwriting would no longer need to take the costs of medical care into account.

·         The considerable percentage of citizens who are currently uninsured would not incur significant out-of-pocket costs attributable to illness or accident.

·          And of course, those who are currently paying for their own insurance would have that considerable expense lifted. I had a student a year or so ago who did not have employer-paid coverage. She worked for a nonprofit CDC, and she and her husband were paying over 12,000/year for their family of two adults and two children. That is without co-pays and other out-of-pocket costs.

 

Those are just a few of the quantifiable, cash savings we could realize under a single-payer system. But there are also significant social costs associated with our current haphazard approach to healthcare. If all citizens had basic health coverage, America would arguably see a decline in the social costs associated with the current dysfunctional system. Let me just give you a few examples of what I mean:

·         Over 50% of personal bankruptcies are attributable to medical bills; those bankruptcies cost local businesses millions of dollars, and are a drag on the economy.

·         Employees with pre-existing conditions would no longer be chained to jobs they dislike.

·         Absenteeism could be expected to decline.

·         Immunizations would increase, and infant mortality decline.

·         Studies also suggest that violent crime rates decline and social trust climbs as social safety nets increase.

Even a small drop in crime yields huge savings and increases the quality of life.

While not quantifiable, these consequences are far from insignificant.

 

So much for costs. What about the argument that “socialized medicine” will cause a decline in the quality of American health care? That markets are most efficient way to allocate services/costs?

 

I am a great believer in markets. But functioning markets require a willing buyer and seller, both of whom have access to adequate relevant information. They do not work in areas where there is unequal access to information and widely unequal bargaining power. Both of those situations characterize the sale and purchase of medical care.

 

Even if markets in medical services did work, however, we don’t have a market now, if we ever did. We already have socialized medicine, but we have the very worst possible system—we have socialized medical care through the private insurance companies. The result is that we have the worst of both systems. A recent study by the Commonwealth Fund found that 82% of Americans are dissatisfied with our current patchwork approach to health care, and believe the system should be fundamentally changed.

 

One in three adults reported their doctors had ordered a test that had already been done, or had recommended unnecessary treatment or care within the past two years.  Forty-seven percent had experienced poorly coordinated care—meaning they hadn’t been informed of test results, or had to call repeatedly to get them, or that important medical information had not been shared between doctors and nurses, or between primary care physicians and specialists.

 

We hear a lot about waiting times in nationalized systems, but wait times are a significant problem in the US right now. Nearly 3 out of 4 Americans reported difficulty getting timely doctor’s appointments, telephone advice, or after-hour’s care, and that included people with health insurance. There is a reason that America consistently ranks 37^th or 38^th in quality of health care, despite the fact that we spend over twice as much per person as the next most expensive system.

 

I do not pretend to have expertise in how we should proceed to overhaul our system, but I do know we are not limited to Canada and Great Britain as models. (Which is not to say those systems aren’t working; despite the criticisms we hear, I have friends in Canada and a granddaughter in Great Britain, and they are very happy with their care.) But France and New Zealand have widely praised systems, just to name two others. My son lived in France for three years (explain).

 

 We have the luxury of learning from the history and performance of multiple other systems. All that stops us is ideology and a stubborn refusal to believe that other countries might have lessons to teach.    

 

The one bright hope is that the bankrupt nature of our current system has become apparent to anyone who cares to look. Large employers like GM, who have historically been opponents of national health care, are now favorably inclined. Even the AMA has offered a plan—although it is a pretty flawed one. Doctors have largely come to recognize that their interests would be better served by a single-payer system, and groups like Physicians for National Health Care are working hard to make that happen. There are rumors that Senator Kennedy is working feverishly on a plan, because he wants health care to be his legacy. And with the election of a President who actually understands the economics of our current situation, I am cautiously optimistic that the time for change may FINALLY have come.

 

It can’t happen a moment too soon!

 

 

 

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Recently, a lunchtime discussion turned to the extent to which Indiana lags in mass transit. Wouldn’t it be great, someone said, if we had high-speed rail to Chicago?

That question recalled one of our state’s multiple “missed opportunities.” I’m told that when I65 was being built, the question arose whether overpasses should be built with a single support pillar, or with two. Two supports would make it far cheaper and easier to lay track for a train at a later time; there would be no need for added land acquisition, and the train could be run between the two pillars.

Anyone who has driven to Chicago knows that immediate gratification—in the form of lower front-end costs—won out. Now, in order to use the right-of-way, we would have to replace all the existing single supports with doubles, at far greater cost than would have been incurred by doing two pillars at the time.

Penny wise, pound foolish.

On November 4^th, Indianapolis voters living within the IPS boundaries will face a similar choice, in the form of a vote on the bond issue for the third phase of IPS building renovations. (The need for the bonds is yet another example of our “penny-wise” politics; had improvements been made in a timely fashion, rather than constantly postponed, the upgrades would have been far less expensive.) These bonds will improve learning environments at 32 schools, housing 15,000 children.

The timing is hardly auspicious—but of course, it seldom is. In recognition of the economic climate, IPS has dramatically reduced the scope of work to include improvements needed for health, safety and academic achievement. The original cost estimate was 475 million; that has been reduced to 278 million. And IPS points out that payment on the bonds will not kick in until 2010—after property tax controls have taken effect. Thus, even with the increase from Phase 3, property taxes will be lower than they currently are.

Proponents of a “yes” vote make a number of arguments: every year of delay increases the cost of needed renovations by between 16-20 million dollars; 25,000 IPS children and teachers are working in aging and inadequate buildings; even after the contemplated improvements are made, IPS buildings will not be comparable to suburban ones. There are no fancy athletic facilities, computers, or other “frills” in this budget—only basic needs.

The question we will answer on November 4^th is really more basic than whether we will vote to give our children an adequate learning environment, important as that is. It is whether—for once!—we will choose our long-term best interests over short-term gratification. We know that failing to invest in children today will cost us all much more in the long run. An educated workforce attracts the employers who provide jobs and pay taxes. Educated citizens are less likely to need welfare services, or engage in crime. Investing now will save dollars later.

Can we be “pound wise” for once? We’ll see on November 4^th.

 

 

 

 

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One of my all-time favorite editorial cartoons appeared a couple of days after the 2004 Presidential election; it showed a dejected John Kerry standing next to a barn, gazing at what appeared to be a large pile of manure. The caption read: “This could all have been mine!”

As I write this, four years later, Americans are trying decide who to trust with a pile that has grown much, much bigger.

The next President will take office at a time when our most basic institutions are broken. The litany is familiar to all of us: we are bogged down in two wars, one of which we had no business waging. Our enemies are reveling in our troubles; our allies are bewildered by our incompetence. The economy is tanking. We increasingly rely on China to buy our debt, which means that China now owns a substantial portion of America. Our infrastructure is crumbling. We haven’t rebuilt New Orleans, or other places devastated by natural disasters for which we were unprepared. Healthcare is increasingly unaffordable. The checks and balances we learned about in government class are a distant memory, and the U.S. Constitution—the document that has shaped our culture and made us the envy of people around the world—lies in tatters.

It is really hard to believe that so much damage could be done in just eight years. Other administrations have made poor policy choices, been fiscally irresponsible, and elevated people unequal to their tasks.  But none has wreaked this much havoc on the nation.

One result of this wholesale devastation is that Americans have lost confidence in the integrity of our common social and legal institutions—and partially as a result, have become increasingly distrustful of each other. Repairing that trust—in our institutions and our neighbors—may be the biggest challenge we face; in its absence, we can only go so far in solving our collective problems. (The recent bailout negotiations are a case in point.) 

The sobering question that confronts us is whether any President, any Administration, can stem the bleeding and put this nation back on the long and difficult path to competent governance, fiscal sanity and the rule of law.

The realist in me says the prospects are grim. The Pollyanna in me (yes, she’s still there!) says that every challenge is an opportunity, that when you make lemonade, you start with lemons.

With proper leadership, we could use this time as an opportunity to learn from our mistakes and remake our country. We could reach back into our national psyche, and rediscover the sources of our strength and productivity. We could recognize and act upon the truth that it will take all of us working together to reclaim our heritage and mend our broken institutions.

The “usual suspects”—campaign strategists, spin doctors, and talking heads—are busy shilling and selling. This year, we need to ignore them all and ask ourselves one simple question: which candidate is most likely to help Americans make lemonade?

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We have just emerged from an election season during which, in addition to the usual (and bipartisan) charges, smears and indiscriminate insults, we were told that Barack Obama’s policies amounted to “socialism.”

Leaving aside the obvious—that most people engaging in these arguments on both sides used the terms “socialist” and “capitalist” very loosely, raising the question whether they really could define either system accurately—what struck me most about the debate was an unacknowledged premise, the assumption that America must choose between capitalism and socialism. The argument underscored the persistence of what I sometimes refer to as our bipolar political culture. Voters are either right or wrong, other countries are either friend or foe, policymakers and politicians are either sleaze-balls or valiant warriors for civic virtue.

Reality isn’t so neatly divided into “either-or” formulations. Sometimes we’re right, sometimes not. Our national interests may align on some measures with Country A, and diverge on others. Policymakers can be good people who are simply mistaken—or for that matter, they may be sleaze-balls who are on the right side of an argument. As I tell my students, reality is generally more complicated than we like to admit.

Which brings us back to that scary word, “socialism.” I happen to be a fairly rabid believer in markets and limited government. But markets only work when buyers and sellers operate in accordance with sound rules and with equal access to relevant information. Throughout our history, Republican and Democratic administrations alike have intervened when they believed particular markets weren’t working. Often that intervention was misguided. At other times, lack of intervention was the problem. Whether markets work in a particular economic area is—or should be—an empirical inquiry, not an ideological one.

There are different ways to “socialize” costs. Americans socialize risk using private markets when we purchase insurance.  We use government—through social security—to socialize the risks of poverty among the elderly. The real question is whether a particular endeavor should be left to the market, under fair but not excessive regulation, or whether there may be compelling reasons to have government handle it.

In fact, when you think about it, a decision to have government manage a particular task is a decision to “socialize” that task—to pool our resources in the form of taxes to provide a social good or service. Public safety is a good example—we have decided, as a society, that police protection should be “socialized” and available to all citizens, not just the ones who can afford private security.

Principled people can certainly disagree whether this or that service should be provided by government or by the market.  But it is unhelpful, to put it mildly, to substitute accusatory labels for thoughtful discussion of the pros and cons. It is worse than unhelpful to suggest that every government initiative is tantamount to turning the country socialist. America has been a mixed economy for a long time. The proper question is the appropriateness of the mix.  

 

 

 

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Every four years, candidates for offices high and low attribute the problems of government to a distressing lack of bipartisanship, and promise that—if elected—they will “reach across the aisle” to “solve real problems.” These promises are so predictable, and so empty, that most of us simply tune them out.

Wonder of wonders, however, a genuinely bipartisan effort is being mounted right now, right here in Indiana, to address what most impartial observers agree is the most significant governance problem we Hoosiers face.

MySmartgov.org has been formed to enact recommendations initially made by the Kernan-Shepard Commission, a bipartisan group of Indiana leaders who studied the structure of Indiana government and issued a report with numerous recommendations in December 2007. As its name suggests, the commission was led by former Governor Joe Kernan and Chief Justice Randall Shepard, who accepted the task at the request of Governor Mitch Daniels.

It is telling that the Commission’s recommendations closely mirrored those made by Gov. Paul McNutt—in 1936.  Never let it be said that Hoosiers rush into anything.

MySmartgov.org proves the old adage that politics makes strange bedfellows. Its most prominent member-supporters, other than the original Commission participants, are the Indiana Chamber of Commerce, the Central Indiana Corporate Community Council, the Indiana Realtors, and the Professional Firefighters Union. Its Executive Director is Marilyn Shultz, formerly the State Budget Director during the Kernan Administration. Even the organization’s blogging is being done by a team consisting of one Republican and one Democrat.

Why is this a big deal? Because Indiana’s inefficient and bloated governing structure is strangling us, driving up property taxes while starving service delivery.

Governing decisions enacted in 1816 and 1851 are still on the books, and as a result, Indiana citizens pay for, and are governed by, more than 10,300 local officials. The state “boasts” 3,086 separate governing bodies, hundreds of which have taxing authority. When we compare Indiana to 11 other states our size, we have more levels of government than all but two of them.

It is this bloated superstructure that makes it nearly impossible to follow through on the other perennial promise of political candidates—the promise to root out waste. Here in Indianapolis, for example, Mayor Ballard is belatedly realizing just how limited his options are. It’s easy to criticise incumbents and demand to know where our tax dollars are going; what too few of those critics understand is that most of the waste is in our governing structures, in overlapping and outmoded units of government. It’s certainly not in service delivery, which has been cut to the bone.

In Indiana, we don’t put tax revenues to work enhancing our quality of life. Instead, we use them to pay for 1008 Township Trustees and other officeholders we no longer need.

In some contexts, bipartisanship is code for retaining the status quo. In this case, however, it is the only way Indiana can progress. Liberal or conservative, Republican or Democratic, we all deserve efficient, accountable government. Smart government.

 

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