Does Internalizing Health Care Reduce Inequality?

A new NBER paper (h/t Thoma) by Richard Burkhauser and Kosali Simon says that it does. From the abstract:

 We show that ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend.

This argument is one of the key ones we often here to rebut the wage/productivity divergence we’ve witnessed in the last thirty years. It’s definitely landed me in uncomfortable “gotcha” moments at times. However, digging into the paper a little bit, the argument is left a bit wanting.

If we accept the methodology, the results are robust. For instance, using the standard measure of income, the 90/10 ratio increases from 8.3 to 8.5 from 1995 to 2008. Using their measure of income including health insurance, the ratio decreases from 9.3 to 9.1 over the time period. Similarly, instead of having the Gini coefficient increase from 0.422 to 0.433, it increases only slightly, from 0.396 to 0.398. With the new measure, income gains are much broader across deciles; except for the lowest 10%, income gains are uniformly higher as one moves down the income distribution.

I have two issues with this study:

1) They use the insurance value of health care in all cases, including Medicare and Medicaid, when we all know that costs have increased over time while quality has remained stagnant. Thus, as a measure of economic well-being, their “total income” metric will almost certainly overstate the reality. Further, health insurance “income” is a much higher share of “total income” at the bottom of the distribution, so the exercise will naturally lead us to less inequality. My suggestion would be using cross-country metrics of health expenditure to capture the well-being. With this change, the added income would likely be reduced by half and the picture would be much different.

2) The authors will inevitably argue that their study is positive economics, not normative. They are right; in fact, much of their paper could be construed as an argument in favor of health care reform. My concern is that many will take their paper as a sign that we should worry less about wage inequality and its systemic drivers, especially if health care is the main explanatory factor. I think their analysis is useful, because of my reservations above, I worry it might be useful for wrong and normative purposes, and the systemic causes of wage inequality are ignored enough as is.

So, to answer my question from the title, I think health insurance does reduce inequality, but less so than the authors state insofar as we are concerned about economic well-being.

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“Class War”

No, not talking about Notre Dame this time (although there does appear to be a war for the classrooms). [End hyperbole]. This article is the latest from Rick Wolff in MRZine, in which he argues that capitalists have been engaging in a class war since the 1970s (and have been pretty successful):

Across the same 30-year period, the productivity of labor kept rising: the average worker produced ever more output for the average employer to sell.  Thus, capitalists’ revenues rose relative to workers’ wages.Capitalists used those rising revenues to intensify class war on US workers.  First, capitalists weakened their adversaries by lending one portion of their rising revenues back to US workers as high interest “consumer loans.” […]

Second, capitalists used their rising revenues to finance (1) the relocation of production and other facilities outside the US and (2) computerization of production…

Third, capitalist boards of directors used another portion of rising revenues to raise salaries and bonuses for upper-level managers (including themselves), people who contribute significant sums to politicians favoring conservative, pro-business laws and regulations…Official politics shifted rightward even when mass popular opinion, when polled, clearly pointed elsewhere.  Politicians understood that their careers and policies could not survive the money flood that capitalist corporations and rich upper-management personnel could pour into campaigns against them.  They reacted to facts that workers increasingly did not learn about, let alone finance and participate in, politics (emphasis his)…

Thus, while majorities supported ending involvement in Iraq, large US forces remain there.  A majority now opposes the Afghanistan occupation, but the administration proceeds.  A majority favored government help for ordinary people alongside helping banks, insurance companies, etc., in the economic crisis, yet we have no real solution for the foreclosure disaster and no public employment program for the millions laid off by private employers…

Yet this class war — focused on shifting income, wealth, and power from workers to capitalists — cannot take from workers their most powerful weapon.  Workers produce and deliver to their adversaries the resources then used against them — that difference between their productivity for employers and their wages from employers.  The dilemma of capitalism is this contradiction: the workers that capitalists hire, exploit, and struggle to dominate are the same workers on whom they depend for the means to hire, exploit, and dominate.

Class war flows from capitalism’s deeply embedded structure that pits capitalists against workers…But class war was not only a result, it also helped cause real wages to stop rising in the first place…

In times of prosperity as in times of crisis, capitalism entails class war.  Only system change will end that.  Capitalists have fewer reasons to change the system.  Workers remain, as always, in position to make the break.  Meanwhile, they suffer the consequences of not doing so.

It is not uncommon these days to read liberals in the blogosphere and op-ed pages decrying the fact that corporate interests have captured reform (health care reform, in particular). For whatever reason, this discussion rarely occurs on class terms. OK, that was a dodge…it’s not “for whatever reason,” but instead because it is anathema in our society to discuss any issue in terms of class. Even reference to a group of people as “capitalists” is rarely seen. Is class war the root of our political and economic problems? If so, what are the consequences of nobody in the mainstream talking about it? And finally, when will this veil be pierced?

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If It Ain’t Broke…

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“One more American myth bites the dust”

Via Paul Krugman, a new CEPR study shows that:

Contrary to popular perceptions, the United States has a much smaller small-business sector (as a share of total employment) than other countries at a comparable level of economic development…The authors observe that the undersized U.S. small business sector is consistent with the view that high health care costs discourage small business formation, since start-ups in other countries can tap into government-funded health care systems.

Krugman proposes two explanations:

One is our lack of national health insurance; I personally know a number of people who gave up jobs at small firms in order to get health coverage. Another possibility, more favorable to the United States, is that in some European countries (Italy comes to mind) firms stay small to escape onerous regulations.

And piles on:

Either way, though, one more American myth bites the dust. We’re not independent free spirits; on the contrary, we’re more likely than Europeans to be cubicle rats working for big employers.

If reforming health care is the key to revamping small businesses (even if removing the employer tax exclusion is initially painful), then by all means. This report should only increase the drive of progressive politicians to do the right thing, and it should hold to account the “centrist” senators that taut the American free spirit.

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Healthcare Bankruptcy

Numbers too large to ignore?

Medical problems contributed to nearly two-thirds (62.1 percent) of all bankruptcies in 2007, according to a study in the August issue of the American Journal of Medicine that will be published online Thursday. The data were collected prior to the current economic downturn and hence likely understate the current burden of financial suffering. Between 2001 and 2007, the proportion of all bankruptcies attributable to medical problems rose by 49.6 percent. The authors’ previous 2001 findings have been widely cited by policy leaders, including President Obama.

Surprisingly, most of those bankrupted by medical problems had health insurance. More than three-quarters (77.9 percent) were insured at the start of the bankrupting illness, including 60.3 percent who had private coverage. Most of the medically bankrupt were solidly middle class before financial disaster hit. Two-thirds were homeowners and three-fifths had gone to college. In many cases, high medical bills coincided with a loss of income as illness forced breadwinners to lose time from work. Often illness led to job loss, and with it the loss of health insurance.

[…]

According to study co-author Dr. Steffie Woolhandler, an associate professor of medicine at Harvard and primary care physician in Cambridge, Mass.: “We need to rethink health reform. Covering the uninsured isn’t enough. Reform also needs to help families who already have insurance by upgrading their coverage and assuring that they never lose it. Only single-payer national health insurance can make universal, comprehensive coverage affordable by saving the hundreds of billions we now waste on insurance overhead and bureaucracy. Unfortunately, Washington politicians seem ready to cave in to insurance firms and keep them and their counterfeit coverage at the core of our system. Reforms that expand phony insurance – stripped-down plans riddled with co-payments, deductibles and exclusions – won’t stem the rising tide of medical bankruptcy.”

Co-author Dr. David Himmelstein sums it up best:

Private health insurance is a defective product, akin to an umbrella that melts in the rain.

Full article here

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