One of the big questions about Americans without health insurance is how much of a subsidy they would need in order to purchase such insurance willingly. The existing evidence on this point isn\’t especially on-point: for example, it sometimes involves looking across firms at the generosity of the health insurance policies that they offer, then looking at how many employees take up policies at each firm, and then drawing conclusions about the price people are willing to pay for insurance coverage. It\’s not clear how results from such studies would extrapolate to buying health insurance directly.
Alan Krueger and Ilyana Kuziemko tackle this question with survey data in a recent working paper. The Gallup Poll included some questions that they wrote in daily polling during late August and early Septemer 2008. The opening question took the form: \”If you could get a health insurance policy for yourself that is as good as the one that members of Congress have, given yourcurrent fi nancial situation, would you buy it for $X a year, which works out to $X/12 per month?\” As they explain, individuals were randomly assigned different starting values for X, and then if individuals said \”no,\” they were asked a series of follow-up questions with a lower X. The survey also asked lots of other questions, so it was possible to figure out who was uninsured, along with health status and other useful variables. Based on this data, they calculated a demand curve for subsidized health care which looks like this:
They write: \”Our results suggest that subsidizing the purchase of insurance plans would signi ficantly reduce the population of the uninsured. For example, we estimate that about sixty percentof the uninsured would voluntarily enroll for an annual premium of $2,000. Under the current specfii cation of subsidies in the ACA [the Affordable Care Act of 2010], we estimate that over 75 percent of uninsured adults would enroll, implying that some 39 million uninsured individuals would gain coverage as a result of the law. We also estimate that stripping the individual mandate fromthe law|the constitutionality of which is being challenged in federal court|would lead to between 7 and 12 million fewer individuals gaining coverage.\”
Of course, as the authors\’ recognize and try to address in various ways, there\’s always reason to be dubious about survey evidence: it\’s easier to say that you would buy insurance at a certain price than actually to buy it. But as part of an accumulation of evidence on what it would take to cover the uninsured, the results struck me as intriguing.
Peter Orszag wrote a column for Bloomberg describing some advances in technology that can help people track their health status. Along the way, Orszag cited a recent study by the National Academy of Sciences that inequality in mortality was rising in the U.S. He writes: \”Among 50-year-old men, for example, those in the highest education group are now projected to live almost six years longer on average than those in the lowest education group — and this differential has been rising sharply.\”
I looked up the NAS report, or at least the free pre-publication uncorrected proofs copy available here. The report is generally well-done, as one would expect. But both on issues of mortality inequality within countries and between countries, there seemed to me some narrowness of perspective that left out complementary views.
On mortality inequality within countries
The report explains that inequality or mortality is increasing within countries because mortality rates for those with higher socioeconomic status (proxied by education, income, or a mixture of the two) are experiencing larger gains in mortality than those with lower socioeconomic status. This seems to hold true in recent decades not just in the United States, but also in a number of countries of western Europe. In turn, the report seeks to explain these differences in terms of behavioral patterns (like smoking and obesity) and health issues related to social status.
While this increase over the last few decades in inequality of mortality is certainly worthy of discussion, it is also worth noting an enormous decline in inequality of mortality, in countries all over the world, in the longer term. In my own Journal of Economic Perspectives, Sam Peltzman took on this topic in Fall 2009 issue in \”Mortality Inequality.\” Peltzman uses a measure of inequality familiar to economists called the Lorenz curve, which is usually applied to measures of income. The top figure is based on data for 1852; the bottom figure on data for 2002. The straight line at a 45-degree angle shows perfect equality of mortality: that is, 20% of the population lives 20% of the total life-years at this time; 40% of the population lives 40% of the life-years for this group, and so on. The curved line is based on actual data. It shows that with high infant mortality, the bottom 30% of the distribution lived close to 0% of the life years. The gap between the perfect-equality line and the data curve shows the degree of inequality. By 2002, life years are MUCH more evenly distributed across the population.
This huge decrease in inequality of mortality outcomes over the last century or two is not just in the United States, but also in a wide array of other high-income and lower-income countries. Peltzman writes: \”The substantial increase in longevity over the last century, both in the United States and around the world, is well-known. This essay has documented another aspect of that progress: a considerable contribution to social equality. The dominant fact about this history from a worldwide perspective is how much this aspect of human inequality has diminished. … Inequality of lifetimes is well along in a historical transformation from a major source of social inequality into a minor one.\”
The recent trends from the NAS report do not alter Peltzman\’s basic conclusion.
On differences across countries
The main emphasis of the NAS report is, as the title reveals, \”Explaining Divergent Levels of Longevity in High-Income Countries.\” A particular emphasis is that gains in U.S. life expectancy haven\’t been keeping up with gains elsewhere. \”For US males, life expectancy at birth increased by 5.5 years from 1980 to 2006, the equivalent of 2.04 years per decade. While this is a significant achievement, it is less than the average increase for the other 21 countries examined for this study. Similarly, between 1980 and 2006, life expectancy at birth for US women increased from 77.5 to 80.7 years, only slightly more than 60 percent of what was achieved, on average, in the same period in the other 21 countries examined.\”
In turn, it traces these differences back to death rates for lung cancer, heart disease, and stroke. In turn, this is traced back to international differences in smoking behavior in decades past. \”Fifty years ago, smoking was much more widespread in the United States than in Europe or Japan: a greater proportion of Americans smoked and smoked more intensively than was the case in other countries. The health consequences of this behavior are still playing out in today’s mortality rates.\” The report also discusses diet and obesity.
All this is true enough, and intriguing. But there are reasons for differences in mortality across countries that don\’t trace back to smoking and diet. One interesting comparison from a few years ago by Robert L. Ohsfeldt and John E. Schneider, which appears in their 2006 book The Business of Health, compares actual life expectancy rates across countries to a \”standardized rate\” that is calculated after taking out fatal injuries due to causes like driving deaths and murder (using OECD data). I was surprised to see that if you leave out fatal injuries, it turns out that that average U.S. life expectancy vaults from near the bottom of the list of high-income countries up to the top.
To be fair, the NAS report is more focused on gains to life expectancy for those over the age of 50, and deaths in motor vehicles and from murder typically affect younger people. Still, in all the discussions that do use overall life expectancy numbers (not just life expectancies at age 50), it felt like an oversight to me that these causes of violent death don\’t come up in the NAS report.
\”Place is the most important correlate of a person’s welfare. In the next few decades, a person born in the United States will earn a hundred times more than a Zambian, and live three decades longer. Behind these national averages are numbers even more unsettling. Unless things change radically, a child born in a village far from Zambia’s capital, Lusaka, will live less than half as long as a child born in New York City—and during that short life, will earn just $0.01 for every $2 the New Yorker earns. The New Yorker will enjoy a lifetime income of about $4.5 million, the rural Zambian less than $10,000. A Bolivian man with nine years of schooling earns an average of about $460 per month, in dollars that reflect purchasing power at U.S. prices. But the same person would earn about three times as much in the United States. A Nigerian with nine years of education would earn eight times as much in the United States than in Nigeria. This “place premium” is large throughout the developing world. The best predictor of income in the world today is not what or whom you know, but where you work.\”
I think I work hard. Lots of Americans think they work hard. But when you compare the economic situation of modern America with the rest of the world, or with long-ago history, then (in a phrase commonly attributed to the old football coach Barry Switzer) we\’re all born standing on third base, congratulating ourselves for hitting a triple.
The official federal budget projections are dishonest. They make future budget deficits look smaller by enacting spending cuts and tax increases that won\’t kick in for some years–but then then Congress and the President postpone or eliminate those changes before they actually take place. As a result, the nonpartisan Congressional Budget Office has for some years offered two sets of budget projections: the \”extended baseline scenario\” is based on what current law says will happen in the next 10 years; the \”alternative fiscal scenario\” assumes that certain changes aren\’t going to be made, and thus probably presents a more realistic picture. The CBO\’s 2011 Long-Term Budget Outlook shows the difference.
Start with the basic projection of how much debt the U.S. economy will accumulate in the next 25 years. The \”extended baseline scenario\” says that the rise in the debt/GDP ratio has pretty much topped out at this point, and will rise to a little over 80% of GDP by 2035. The \”alternative fiscal scenario\” is much more grim, suggesting that the debt/GDP ratio would approach 200% of GDP by 2035. Just to be clear, this forecast doesn\’t mean that the U.S. government would actually be able to borrow this much–only that we are on a debt accumulation path that looks unsustainable.
What are the different underlying assumptions here? Take a look at the different paths of taxes and spending in the two scenarios.
On the tax side, the \”extended baseline\” scenario has a bunch of tax increases arising in future years: for example, the expiration of the Bush tax cuts of the early 2000s, a gradual rise in the revenues collected by the alternative minimum tax, and others. As a result, it is based on federal taxes collecting 23% of GDP by 2035–far above the level seen in recent decades. In contrast, the \”alternative fiscal scenario\” is that federal taxes in the long-term will be more-or-less at their historical average for the last few decades of 18% of GDP.
On the spending side, both scenarios show that in the future, when you are asked for a short description of what the federal government actually does, the appropriate answer will be \”retirement and health care spending.\” The two scenarios don\’t differ in projected Security spending. In Medicare spending, the \”extended baseline scenario\” incorporates cuts to physician pay in the future; the \”alternative fiscal scenario\” says that physician pay will remain at 2011 levels. Also, in the \”extended baseline scenario,\” CBO explains that \”government spending on everything other than the major mandatory health care programs, Social Security, and interest on federal debt—activities such as national defense and a wide variety of domestic programs—would decline to the lowest percentage of GDP since before World War II.\” In the alternative scenario, these other areas of government spending remain at the current levels as a share of GDP.The other big spending difference is that the \”primary spending\” lines shown here leave out interest payments on past borrowing, which grow MUCH larger with the larger deficits in the the \”alternative fiscal scenario.\”
Of course, one can quibble with the details of what is assumed in the \”alternative fiscal scenario.\” But from where I sit, the official budget predictions in the \”extended baseline scenario\” look intentionally misleading, and the CBO is performing a public service by offering more plausible projections.
Mark A. Wynne of the Dallas Fed asks: \”Will China Ever Become as Rich as the U.S.?\” The standard answer here is that the total size of China\’s economy may well exceed that the total size of the U.S. economy within a couple of decades, but because China has nearly four times the U.S. population, it will take much longer for China to catch up in per capita terms.
Wynne writes: \”The simplest approach is to measure GDP in U.S. dollars at 2005 prices and use 2005 exchange rates. Doing so results in estimated 2010 Chinese GDP of $3.88 trillion in 2005 dollars, or just less than 30 percent of U.S. GDP. China\’s economy will exceed that of the U.S. in 2025 if it continues expanding at its past-decade rate of just more than 10 percent a year and the U.S. keeps growing at the 1.7 percent annual rate it experienced during the period. Per capita GDP allows us to compare the relative well-being of residents of the two nations. Based on the 2010 U.S. population of 309 million, per capita GDP was $42,874 last year. China, with a 2010 population of 1.34 billion, had per capita GDP of $2,893 last year, or 6.7 percent of the U.S. figure.\”
Of course, it is not inevitable that China will continue at this rapid rate of growth for the next several decades. Wynne points out that on average, countries with lower per capita GDP have faster growth rates. However, it also seems to be true that as countries reach some level of middle-income, their growth rates slow down. On explanation for this \”middle income trap\” is that the growth policies that help in catch-up growth do not work as well as an economy reaches higher-income levels. Wynne offers a nice figure to illustrate how the G-7 economies caught up to the U.S. economy since 1950, at least to some extent, but then seemed to stop catching up up when they hit (very roughly) 80% of U.S. per capita GDP. The figure also puts China\’s growth path in perspective.
I wonder whether China isn\’t likely to experience more than one \”middle income trap\” as its economy expands. The Chinese pattern of growth in the last decade or so from a macro perspective has been based on extremely high savings rates, rapid growth in heavy manufacturing, large trade surpluses, and huge internal migration of labor. Over the years and decades to come, as these patterns evolve, China\’s economic growth will almost inevitably have some fits and starts.
Focus on six populous Middle Eastern countries where solid labor market data is available: Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia. Abdih writes: \”High unemployment in these countries, together with low labor force participation rates, has resulted in very low ratios of employment to working-age population. With less than 45 percent of working-age people actually employed, this regional rate is the lowest for any region in the world.\”
When you look at youth employment in particular, the situation is equally dismal. They write:\”The average unemployment rate among youth in these nations was 27 percent in 2008, higher than in any other region in the world … In contrast to most of the world, joblessness in many Middle Eastern countries tends to increase with schooling: the unemployment rate among those with college degrees exceeds 15 percent in Egypt, Jordan, and Tunisia.\”
They provide a useful table showing different levels of the gas tax, and revenue-equivalent levels of a vehicle-miles traveled tax. For example, the current federal gas tax of 18 cents/gallon is equal to a vehicle-miles traveled tax of about penny per mile. A federal gas tax of $2/gallon would be equal to a vehicle miles travelled tax of about 10 cents per mile.
They make a case: \”Although gas taxes advance environmental stewardship and energy security, VMT fees provide a more sustainable future for funding of transportation infrastructure.\”
My own sense is that there are multiple policy goals here: funding transportation infrastructure, reducing fossil fuel use for a variety of reasons, and addressing traffic congestion. It may take several policy tools–perhaps including a fuel tax and a vehicle-miles traveled tax and congestion pricing–to hit all three goals.
Setting the stage. \”The number of science doctorates earned each year grew by nearly 40% between 1998 and 2008, to some 34,000, in countries that are members of the Organisation for Economic Co-operation and Development (OECD). The growth shows no sign of slowing: most countries are building up their higher-education systems because they see educated workers as a key to economic growth … . But in much of the world, science PhD graduates may never get a chance to take full advantage of their qualifications.\”
In the United States: \”To Paula Stephan, an economist at Georgia State University in Atlanta who studies PhD trends, it is “scandalous” that US politicians continue to speak of a PhD shortage. The United States is second only to China in awarding science doctorates — it produced an estimated 19,733 in the life sciences and physical sciences in 2009 — and production is going up. But Stephan says that no one should applaud this trend, “unless Congress wants to put money into creating jobs for these people rather than just creating supply”. The proportion of people with science PhDs who get tenured academic positions in the sciences has been dropping steadily and industry has not fully absorbed the slack. The problem is most acute in the life sciences, in which the pace of PhD growth is biggest, yet pharmaceutical and biotechnology industries have been drastically downsizing in recent years.\”
In Japan: \”Of all the countries in which to graduate with a science PhD, Japan is arguably one of the worst. In the 1990s, the government set a policy to triple the number of postdocs to 10,000, and stepped up PhD recruitment to meet that goal. The policy was meant to bring Japan’s science capacity up to match that of the West — but is now much criticized because, although it quickly succeeded, it gave little thought to where all those postdocs were going to end up. Academia doesn’t want them: the number of 18-year-olds entering higher education has been dropping, so universities don’t need the staff. Neither does Japanese industry, which has traditionally preferred young, fresh bachelor’s graduates who can be trained on the job. The science and education ministry couldn’t even sell them off when, in 2009, it started offering companies around ¥4 million (US$47,000) each to take on some of the country’s 18,000 unemployed postdoctoral students …\”
In China: \”The number of PhD holders in China is going through the roof, with some 50,000 people graduating with doctorates across all disciplines in 2009 — and by some counts it now surpasses all other countries. The main problemis the low quality of many graduates.\”
In Germany: \”Germany is Europe’s biggest producer of doctoral graduates, turning out some 7,000 science PhDs in 2005. After a major redesign of its doctoral education programmes over the past 20 years, the country is also well on its way to solving the oversupply problem. Traditionally, supervisors recruited PhD
students informally and trained them to follow in their academic footsteps, with little oversight from the university or research institution. But as in the rest of Europe, the number of academic positions available to graduates in Germany has remained stable or fallen. So these days, a PhD in Germany is often marketed
as advanced training not only for academia— a career path pursued by the best of the best — but also for the wider workforce.Universities now play a more formal role in student recruitment and development, and many students follow structured courses outside the lab, including classes in presenting, report writing and other transferable skills. Just under 6% of PhD graduates in science eventually go into full-time academic positions, and most will find research jobs in industry…\”
In India: \”In 2004, India produced around 5,900 science, technology and engineering PhDs, a figure
that has now grown to some 8,900 a year. This is still a fraction of the number from China and the United States, and the country wants many more, to match the explosive growth of its economy and population. … But there is little incentive to continue into a lengthy PhD programme, and only around 1% of undergraduates currently do so. Most are intent on securing jobs in industry, which require only an undergraduate
degree and are much more lucrative than the public-sector academic and research jobs that need postgraduate education.\”
In one interesting figure, he compares oil price shocks of 1862-1865, 1973-1981, and 2002-2009. He argues that a common factor in each of these episodes (not the only factor!) was \”declining production from the maturing oilfields on which the world had been depending at the time\”: specifically, the decline of the Pennsylvania oil fields in the 1860s, the decline of U.S. oil production starting in the 1970s, and the fall in oil production from mature oil fields in the North Sea and in Mexico in recent years.
Hamilton also argues that \”in fact all but one of the 11 U.S. recessions since World War II were preceded by a sharp increase in the price of crude petroleum,\” and presents an intriguing table showing some patterns for the five recessions before the Great Recession.
How many people go abroad for medical procedures? \”In 2009, Deloitte revised its estimates down to 648,000 travelers annually, but forecast 35 percent increases in each of the threesucceeding years. It predicts that more than1.6 million Americans will travel abroad for health care in 2012.\”
What is the assurance of quality? \”Accreditation from the Joint Commission International (JCI) is recognized worldwide as the gold standard for hospitals. JCI screens facilities for the condition of their physical plants, their management of medications, the quality of their surgical care, their commitment to continuous improvement, and their responsiveness to feedback from patients. In the United States, the organization accredits more than 17,000 facilities, from hospitals to laboratories to long-term-care centers. JCI began accrediting hospitals outside the country in 1999. Today, the organization vouches for the quality of care at some 400 institutions in 45 countries from Austria to Yemen.\”
What are some of the potential cost savings?
Incidentally, the Milken Institute Review, with Peter Passell as editor-in-chief, is a consistently excellent source for lively and well-written essays on economic policy. The contents are available free on-line, although you do need to fill out a registration form.