Obama on Social Security Reform

via Andrew G. Biggs blog

Arnold Kling vs Peter Orszag

Arnold Kling disagrees with Peter Orszag;

Orszag argues, as others do, that because health spending is highly concentrated, catastrophic health insurance will not reduce spending very much. The point is that for very sick people, catastrophic coverage is like comprehensive coverage. This in turn suggests that there is not much to be gained by trying to tinker with insurance incentives.

I tend to disagree. First, I think that having a multi-year term for catastrophic policies, as sketched out in my book (soon to be out in paperback, by the way), would mean that a much larger percentage of health care spending would be subject to incentives than the typical analysis would suggest. Second, it is possible to restructure insurance to use co-payments rather than deductibles as the main mechanism for cost sharing. Third, if we were to phase out Medicare and replace it with actuarially fair catastrophic insurance, the remaining lifetime deductible (again, this is discussed in my book) would be so high that even high-spending consumers would still be responsible for much of their spending.

On balance, however, I am in the same camp as Orszag. Our camp believes that the United States could reduce health care spending substantially without hurting health care outcomes. However, the path to getting there involves lots of research into the efficacy of various procedures as well as changes in behavior (Orszag refers to physician norms as an example).

Medical Tourism in Thailand

The case Bumrungrad Hospital;

Last year, 65,000 Americans went to Bumrungrad for in-patient or outpatient treatment, up from just 10,000 in 2001. And of those 65,000, about half of them were U.S. residents who flew across the Pacific to Thailand for medical care. (The others were American expatriates living in Thailand or other parts of Southeast Asia.) Many of the patients from the U.S. were uninsured, taking advantage of medical costs in Bangkok that are just a fraction of those in American hospitals....

Medical tourism has helped Bumrungrad's bottom line. Revenue from foreign patients rose 14% last year, and non-Thais now account for 55% of Bumrungrad's business. In a Mar. 7 report, Phillip Securities analyst Rutsada Tweesaengsakulthai calls Bumrungrad "Thailand's leading private hospital" and predicts that revenue will grow 11.5% this year, to $618 million, with profits (after stripping out exception earnings from a sale in 2007 of a medical software subsidiary to Microsoft (MSFT) rising 12%, to $41 million.

The big problem, though, is that Bumrungrad is now too popular. It has a 70% occupancy rate for in-patients and outpatients, much lower than its bigger rival, Bangkok Dusit Medical Services. Bankgok Dusit doesn't get as many Americans but it attracts more international patients overall, with 649,000 checking in last year. Bumrungrad "is restricted by its tight capacity," wrote KGI Securities analyst Rakpong Chaisuparakul in a Feb. 20 report. That's one reason Bumrungrad's stock price has sagged, down about 15% for the year and trading near its 52-week low.

Bumrungrad has just started an expansion plan that should boost its capacity by 20% by 2012. Schroeder expects Americans to continue traveling to the hospital. "Medical inflation [in the U.S.] continues to outpace normal inflation and I don't see that reversing," he says.

Via Harry Clarke.

California Health Reform Lessons

Microinsurance - another fancy idea?

A new health insurance plan will enable the poor in India to buy health insurance for less than 10 cents a month, and it will cover natural disasters including Tsunamis.

-Tsunami insurance for the poor

More on the Federal Reserve of Health

Obama's Health Plan -- a Preview;

One of the attractions of "Critical" is that it provides a more detailed blueprint of the Democratic approach to overhauling American health care than either Mr. Obama or Hillary Clinton has offered on the campaign trail. One of Mr. Daschle's co-authors, Jeanne Lambrew, handled the powerful health-care desk at the Office of Management and Budget for the Clinton administration and now works at the Center for American Progress, an influential Democratic think tank. Mr. Daschle is similarly fluent in his party's thinking on health-care policy.

The most important proposal in "Critical" is the creation of a "Federal Health Board," explicitly modeled on the Federal Reserve Board. Its duties would include "recommending coverage of those drugs and procedures backed by solid evidence. It would exert influence by ranking services and therapies by their health and cost impacts."

Mr. Daschle predicts that the board would change the entire health-care market by forcing expanded Medicare, Medicaid and veterans programs to follow its lead. Private health insurers would follow along, too, in part for the political cover such a move would give them to make unpopular but cost-conscious decisions not to pay for certain benefits.

What about the uninsured? Mr. Daschle wants to open to all Americans the Federal Employee Health Benefits Plan -- a menu of private-insurance options now accessible only to government workers. He would offer, in addition to the current plans, a government-run program, presumably similar to Medicare, although he provides few details. There would also be some form of means-tested premium support (or tax benefits) for Americans who couldn't afford one of the available plans.

Of course, "Critical" includes plenty of laments about the problems of our current system, from overused drugs to insufficient preventive care. Mr. Daschle also includes the familiar paean to Medicare's "lower administrative costs" without acknowledging the central irony: Most of Medicare's costs are borne by doctors and hospitals that must meet the requirements of a host of regulations; if they do not, they may face federal investigations and lawsuits for noncompliance. Private health plans don't have the luxury of burdening doctors and hospitals in this way. Thus Medicare has a mere handful of mostly generalist clinicians reviewing its coverage and payment decisions. A large private health insurer would have to employ hundreds to accomplish the same task.

Despite the fresh enthusiasm Mr. Daschle shows for his federal health-board proposal, it's not exactly a new idea. Mr. Daschle himself proposed it as part of the failed American Health Security Act of 1993. He admits that the board is loosely based on the National Institute for Clinical Excellence in Britain and the Federal Joint Committee in Germany. Both are charged with managing the public's access to higher-cost drugs, medical devices and procedures. But both are growing increasingly unpopular in their home countries -- precisely because they've become a triumph of cost-containment over patient access and choice.

As for America's own Federal Reserve serving as a model for Mr. Daschle's health board: The comparison seems misjudged. The Fed has a single price-setting role -- determining, through interest rates, the price of money itself. By contrast, a health board would manage the pricing, and use, of tens of thousands of medical products and procedures. How can a single board (instead of, say, the market) make so many decisions, and wisely? Mr. Daschle proposes a dozen or so "experts" who would be "chosen based on their stature, knowledge, and experience, ensuring that the decisions they make have credibility across the health-care spectrum."

Surely this is not the best way to go about reforming the U.S. health-care system. That it needs reforming, though, is beyond dispute. The next occupant of the White House, whatever his party affiliation, will undoubtedly try to broaden insurance coverage. One alternative to empowering government agencies would be simply to help individuals buy affordable private insurance. That effort might start by leveling the playing field between big purchasers, who get better rates for their employees, and individuals, who make up the bulk of the uninsured. People buying into an expanded version of the federal employees' health plan, for instance, would get the same tax advantages, deducting the cost of their health insurance as if they had received it through an employer.

A Federal Reserve of Health?

Sen. Tom Daschle on The Daily Show

The time is now for us to take this challenge head-on. What we need is a change in approach. In my book, Critical: What We Can Do About the American Health-Care Crisis, I have proposed a Federal Health Board that would be a foundation from which we could address all three problems. In many ways, the Federal Health Board would resemble our current Federal Reserve Board for the banking industry. Just as the Federal Reserve ensures certain standards, transparency and performance for our banking industry, the Fed Health would ensure harmonization across public programs of health-care protocols, benefits, and transparency. Ultimately, the Fed Health would offer a public framework within which a private health-care system could operate more effectively and efficiently.

The Fed Health could help reduce administrative costs. Roughly 30 cents of every dollar in health care is spent on administration rather than health benefits. Our administrative costs, on a per capita basis, are seven times higher than that of our peer nations. Each state has their own system for Medicaid and insurance regulation. We have different health-care systems for active duty military members versus veterans. And private insurers spend billions trying to enroll the healthy and avoid the sick. A Federal Health Board that sets evidence-based standards for benefits and quality for federal programs and insurance will lower this complexity and thus costs.

The Fed Health could also promote quality and save money by making the health-care system more transparent. Today, the lack of transparency in the system makes it virtually impossible for people to grasp what they are paying for and who provides them with the best care. This shroud of secrecy allows for wildly different prices for similar quality care. For example, a Pennsylvania report on heart surgery found hospitals with similar outcomes charge from $20,000 to $100,000. The Board, by ensuring transparency, would increase competition based on price and quality rather than cream skimming and cost sharing.

Mankiw's Birthday Wish

My birthday wish is for all of us to stop asking what the government can do for us today. Instead, we should focus on what we can do together to prepare the economy for our children and grandchildren. That means getting ready to care more for ourselves in old age, perhaps by retiring later, perhaps by saving more. I hope that when I celebrate my 100th birthday in 2058, my descendants won’t look upon Grandpa and his generation as the biggest economic problem of their time.

-My Birthday Wish: Not Burdening Our Children

Social protection in Pakistan

A recent World Bank report;Social protection in Pakistan : managing household risks and vulnerability

Abstract: The report is the result of an inter-institutional collaborative effort between the Government of Pakistan, civil society, and international donors. This report finds that while Pakistan implements a wide array of social protection programs, the effectiveness of these programs could be significantly improved. The report finds that social protection programs in Pakistan face important constraints in terms of coverage, targeting, and implementation, and inability to respond to vulnerability, which will need to be overcome in order that they can more effectively protect the poor. The report suggests a two-pronged approach for social protection reform: (i) improving the ability of safety net programs to reach the poor, promote exit from poverty, and respond to natural disasters; coupled with (ii) a longer term approach for strengthening social security. Considering social protection as a system rather than a collection of different programs would allow the government to curtail fragmentation, improve the quality of social protection spending, and have higher impact. Given fiscal constraints, the report suggests that coverage expansion first exploits the opportunity for efficiency improvements in current programs, through better targeting and reduction in duplication and overlap. However, the decline in real spending on the two main safety net programs is worrisome. It is therefore welcome that the government is considering how best to ensure adequate yet fiscally affordable spending on safety nets as part of its draft social protection strategy.

Podcast of the Day- Social Security Lessons

Social Security Reform Abroad: What Lessons for the U.S.?

What are other nations doing to keep their Social Security systems solvent and make sure benefits are adequate? Partial privatization, individual accounts, benefit cuts, tax increases, automatic trigger mechanisms: are these working? What can the U.S. learn from these efforts? Is the climate right for reform in Washington?

A Goolsbee Podcast

Austan Goolsbee, Obama's economic advisor,discusses the health care debate, the credit debacle, the Federal Reserve's limitations,etc

from 'Radio Free Megan'

America is living beyond its means

David Walker, US Comptroller General, continues to repeat the message.



Some people seem to be listening.
Social security may pressure US ratings in very long term - Moody's

Krugman on Charlie Rose

Conscience of a Liberal

Today's Debate

Lately, Barack Obama has been saying that major action is needed to avert what he keeps calling a “crisis” in Social Security — most recently in an interview with The National Journal. Progressives who fought hard and successfully against the Bush administration’s attempt to panic America into privatizing the New Deal’s crown jewel are outraged, and rightly so.

But Mr. Obama’s Social Security mistake was, in fact, exactly what you’d expect from a candidate who promises to transcend partisanship in an age when that’s neither possible nor desirable.

To understand the nature of Mr. Obama’s mistake, you need to know something about the special role of Social Security in American political discourse....

As Peter Orszag, the director of the Congressional Budget Office, put it in a recent article co-authored with senior analyst Philip Ellis: “The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country’s financial health will in fact be determined primarily by the growth rate of per capita health care costs.”

How has conventional wisdom gotten this so wrong? Well, in large part it’s the result of decades of scare-mongering about Social Security’s future from conservative ideologues, whose ultimate goal is to undermine the program.

-Paul Krugman op-ed, Played for a Sucker

Mankiw responds
Don Boudreaux responds

More at Economist's View

Every American Insured?

Every American Insured—Expanding Access to Health Care
Lecture by Mike Leavitt, Secretary of Health and Human Services. Secretary Leavitt delivered a speech on the state of our nation's health care system. His lecture and the question and answer session that followed touched on topics ranging widely from state-based initiatives to broaden insurance coverage, the current debate on renewal of the S-CHIP program, to efforts to improve the sharing of health information while protecting patient privacy.

Two Explainers for the Day

Beyond Those Health Care Numbers by Greg Mankiw

See also comments at Economist's View and Prostates and Prejudices

Labor Force Participation and the Prospects for U.S. Growth

Growth in the labor force is one of two key determinants of the nation's maximum sustainable, or potential, rate of economic expansion. For more than five decades, a growing labor force provided a sizeable boost to the potential rate of expansion in the U.S. economy. Driven by the emergence of the baby boom generation and the entry of women, growth in the labor force added about 1.7 percentage points per year to the average annual growth in potential real GDP from 1948 to 2001 (CBO 2007).

The current period and foreseeable future look quite a bit different. Since 2001, labor force growth has contributed an average of just 1.1 percentage points to potential real GDP growth, with the contribution tending to diminish over time. In fact, as baby boomers age into retirement and key drivers of rising participation rates over the past 50 years (in particular the entry of women) stabilize, the Congressional Budget Office (CBO) expects labor force growth to add only 0.9 percentage point to potential real GDP growth from 2007 to 2012 and 0.5 percentage point from 2013 to 2017. Absent faster gains in productivity—the other key determinant—these developments translate into projected potential growth in real GDP of 2.7% per year compared to the annual average rate of 3.4% between 1950 and 2006.

This Economic Letter reviews the factors contributing to the projected slower pace of labor force growth over the next decade and focuses in particular on the challenges and uncertainties surrounding one aspect, labor force participation behavior.

Is the Welfare State Justified?

Debate of the Day- From CATO;

Is the Welfare State Justified?

In his new book, Is The Welfare State Justified?, philosopher Daniel Shapiro insightfully combines moral and political philosophy with contemporary social science to argue that proponents of the welfare state — egalitarians, communitarians, and liberals alike — have misunderstood the implications of their own principles, which in fact support more market-based or libertarian institutional conclusions than most people realize. Please join us for a discussion of this important and controversial new book on the missing moral foundations of the welfare state.

Deabte for the Day

RAND Hits Back

Not the best of free-access economics

Pluralist Economics Review- via Tyler

The following is recommended from the list;
Uncovering the American Dream: Inequality and Mobility in Social Security Earnings Data since 1937, Wojciech Kopczuk, Emmanuel Saez and Jae Song

Also this week's The Economist is almost free.

Reading for Today

What If RAND Were WRONG?- thanks to Tyler

Comment on "Tests of Statistical Significance in Economics"

Treasury: Is the Social Security Trust Fund Real?