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Evidence on the Value of Medicaid

By Joshua D. Gottlieb and Mark Shepard·July 2
University of British Columbia and Harvard University

The Issue:

The largest increase in health insurance coverage from the Affordable Care Act (ACA) came from expanding Medicaid. House and Senate proposals to repeal and replace the ACA would dramatically cut the program, with spending reduced by an estimated $772-834 billion over a decade and enrollment by 14-15 million. Understanding the benefits and costs of Medicaid is key for evaluating the potential impact of these policy proposals.

The Facts:

  • Access to Medicaid provides risk protection, shielding enrollees from the financial impact of particularly adverse health events, which is the most fundamental role of an insurance product.
  • The best existing evidence says having access to Medicaid improves enrollees’ health, but establishing this with precision is difficult and varies depending on the programs studied and the outcomes measured.
  • Medicaid involves substantial costs in the form of government expenditures to fund health care that is essentially free to beneficiaries. The Medicaid program cost about $532 billion in 2015 to cover 74 million people--almost one in four Americans. Extending coverage also leads enrollees to consume more health services and introduces administrative costs.
  • How to evaluate these substantial costs and benefits? One way is to examine how much beneficiaries themselves value Medicaid. Recent evidence indicates that beneficiaries value Medicaid at less than its full cost. This may be because Medicaid provides less complete choice of doctors and hospitals than other insurance. In addition, many of the benefits of Medicaid go to compensating medical providers who would otherwise provide uncompensated or unpaid care to the same people.

What this Means:

Recent evidence suggests that Medicaid’s effects are largely consistent with the predictions of economic theory: insurance provides risk protection. But the costs are high, health benefits are less clear, and benefits are largely captured by providers rather than patients.

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Should Immigrants be Admitted to the United States Based on Merit?

By Jennifer Hunt·June 28
Rutgers University

The Issue:

President Trump has praised the immigration systems of Australia and Canada, which prioritize skilled immigrants through a system of points, referring to them as “merit”-based systems. Could the U.S. benefit from adopting such a system? Which immigrants benefit the United States?

The Facts:

  • About one million foreign-born people are granted legal permanent residence in the U.S. each year, the vast majority on the basis of family ties. But people on temporary visas, many of them students and temporary workers, also have an economic impact. About half of new permanent residents are already in the U.S. under temporary visas (see chart). They may transition to a family-based green card if they marry a U.S. permanent resident or citizen, blurring the distinction between foreign-born individuals qualifying to live in the U.S. on the basis of education, employment or family.
  • The U.S. government influences the skill mix of immigrants through the design of visa categories, but does not choose the individuals entering within those categories. Employers tend to play a more direct role in the selection process for individual applicants and they seem to do a good job in selecting foreign workers. Those entering the U.S. on temporary work visas earn much more than natives and produce a higher number of patents; they also outperform those who enter on green cards, who are presumably mostly sponsored by relatives.
  • In Australia and Canada the government draws up a set of desirable characteristics for immigrants, weights the characteristics by assigning differing numbers of points to each, and chooses a threshold number of total points.
  • Immigrants selected on the points system seem to perform less well in the labor market than one would expect. College-educated immigrants to Canada earn only high-school level wages and do not innovate more than natives. New Zealand, Australia and Canada have amended their points systems to prioritize immigrants who both pass a threshold of points and are selected by employers.
  • The United States can also benefit from unskilled immigration. When immigrants are most different from natives, the labor market becomes more efficient as workers specialize in the tasks they do best.

What this Means:

It is likely that immigrants’ economic contribution to the United States is greater under a system with a major role for employers, and it is not clear on either theoretical or empirical grounds that this is best done through a points system. The U.S. economy will gain most from immigration if low-skilled immigrants continue to be admitted, with or without a points system. However, this has less desirable distributional consequences than a system focusing on skilled immigration, which is less likely to have a negative impact on the wages of less-skilled native workers.

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SNAP: A Temporary, Fraud-Resistant, Family Friendly Policy

By William A. Masters·June 28
Tufts University

The Issue:

Large cuts on America’s anti-poverty programs have been proposed and are under debate in Congress, motivated in part by legitimate concerns that providing assistance could encourage fraud, create dependency, and distort behavior.

The Facts:

  • The Supplemental Nutrition Assistance Program (SNAP) awards low-income beneficiaries state-issued electronic benefit transfer (EBT) cards, replenished monthly with an average of $125 per person for use to buy food at eligible grocery stores. The program reaches about 42 million Americans each month and is funded through the Farm Bill legislation that is up for renewal in 2018.
  • More than 98 percent of SNAP benefits are used as intended, according to the U.S. Department of Agriculture. In 2011, SNAP had a rate of total overpayment above mandated benefit levels of 3 percent, which is lower than other government programs (see chart).
  • SNAP is primarily temporary aid, with median length of SNAP participation falling to 8 months in the 1990s then rising to 12 months during and after the 2008 recession, before falling again. Able-bodied adults without dependents who do not work are eligible for only up to three months every three years. SNAP rules interact with tax laws in ways that let recipients keep a slightly larger fraction of their earnings than other Americans, thus avoiding  incentives that would promote dependency and discourage paid work.

What this Means:

Paul Ryan, Speaker of the House, has forcefully articulated the need for “an incentive-based system where people want to get up and make the most of their lives, for themselves and their kids. We don't want to turn this safety net into a hammock.” SNAP adheres closely to Speaker Ryan’s blueprint, using economic incentives to provide temporary aid in cost-effective manner, with less fraud than other major U.S. assistance programs. It helps families with children bounce back from periods of hardship — more like a trampoline than a hammock.

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Has the day of the Congressional Budget Office come and gone?

By Dan Sichel·June 12
Wellesley College

The Issue:

In an interview with the Washington Examiner in May, the Director of the Office of Management and Budget, Mick Mulvaney, asked whether the Congressional Budget Office (CBO) — Congress’ own budget analysis agency — has outlived its usefulness.

The Facts:

  • The CBO was established 40 years ago to evaluate the budget and economic implications of policy changes through a neutral lens. The Director of the CBO is appointed by the Congressional leadership. The current Director, Keith Hall, was appointed in 2015 by Speaker Paul Ryan and president pro tempore Orrin Hatch — both Republicans.
  • The agency hires technically skilled staff and never makes policy recommendations. It has filled this role under Directors appointed by both Democratic and Republican congressional leaders, and its work is widely recognized as non-partisan.
  • Given the complexity and controversial nature of the issues CBO analyzes, their work has, at times, frustrated Presidents and members of Congress from both parties. It has countered the assessments of energy policy under the Carter Administration, budgetary issues during the Reagan Administration, and the impact of Health Care proposals under the Clinton Administration, among others.

What this Means:

Mulvaney’s attack on CBO’s credibility stems, no doubt in part, from his frustration that the agency’s analysis of the House’s ObamaCare repeal bill has become such an important piece of the argument against the bill. But, his attack also fits with a broader effort to push the country even further away from relying on factual analysis in policy making. In this time of “fake news” and questions about the accuracy of information reported in the media, the nation needs, more than ever, the best possible unbiased, non-partisan analysis of complex issues. The CBO provides just such analysis.

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The Effects of ‘Ban the Box’ on the Employment of Black Men

By Amanda Agan and Jennifer Doleac·June 9
Rutgers University and University of Virginia

The Issue:

"Ban the Box" policies prevent employers from asking about someone’s criminal record until late in the job application process — giving applicants an opportunity to explain their qualifications first. The goal is to increase employment for people with criminal records, in the hopes of reducing recidivism, and to reduce racial disparities in employment. Over 150 cities and counties across the United States had adopted versions of the policy as of 2017, and President Obama ‘banned the box’ on federal employment applications in November 2016.

The Facts:

  • Young, low-skilled black men are more likely to have recent convictions than white or hispanic men. Employers who do not want to hire people with criminal records may try to guess the likelihood an applicant has a record based on their perceived race.
  • Amanda Agan and Sonja Starr found that when employers were allowed to inquire about criminal history, white applicants had only a slight advantage over similar black applicants who had the same criminal record status. After Ban the Box policies were implemented, white applicants were 43 percent more likely to get called back for an interview than similar black applicants (see chart).
  • New research by Jennifer Doleac and Benjamin Hansen finds evidence that changes in interview callback rates translate to differences in employment outcomes: They found that BTB reduces employment for young black men without a college degree by 5.1 percent, and that effect grows over time.

What this Means:

Criminal records are a clear barrier to employment. However, banning employers from asking about criminal histories early in the application process has the unintended consequence of reducing employment opportunities for young, low-skill black men without criminal convictions. New evidence shows it may even reduce employment for men with criminal records. It is worth experimenting with other policy options that could be more effective at achieving the laudable goals of Ban the Box without this unintended consequence.

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