Scott Sumner  

Has Medicaid succeeded?

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Fifty years ago America spent about 8% of GDP on "national defense" and 0% of GDP on Medicaid. By 2015 spending on both programs is forecast to be about 3% of GDP (roughly $540 billion--including the state portion of the program.) That's a big change in priorities. On the whole I'd say it's a welcome change, but mostly because we were spending much too much on national defense. (That does not include other big government health programs; Medicare, the VA, public employees, etc.)

Now dial back the clock to 1964 and ask yourself what sort of outcome people expected from the Medicaid program. What would have been viewed as a success? Recall that 1964 was "the liberal hour," a time of boundless optimism about the ability of government programs to solve problems. Suppose you told people that by 2015 Medicaid would be spending as much as the military. They would obviously have thought you were insane. But suppose you convinced them otherwise, what would they have expected for that money? It seems clear that there were two goals:

1. Helping low income people pay for healthcare.
2. Better health outcomes for low income Americans.

We've done a pretty good job on the first goal, and ObamaCare will fill some of the remaining gaps. And that may well be a huge success. But I can't help thinking the second goal would also have been viewed as being very, very important.

Morgan Warstler directed me to an interesting discussion of Thomas Piketty's book by Larry Summers and Balaji Srinivasan. Both made some excellent points. But I was particularly struck by how Larry Summers responded to Srinivasan's claim that consumption inequality is becoming less of a problem. Summers pointed out that while this is true for many consumer goods, the gap in life expectancy between those in the bottom and top 10% of income has widened by 3 or 4 years since the 1970s, comparable to a doubling of cancer mortality. Indeed he seemed to view this as the great failure of American society in terms of equality. Perhaps it is.

He did not mention Medicaid, but I couldn't help thinking of the program. Here are two questions:

1. Has Medicaid improved the health care for the poor relative to the rich?
2. Has the US healthcare regime improved health outcomes by more than European healthcare regimes have improved health outcomes?

It seems to me that the answer to both questions is probably "no." I concede that in theory there are counterfactuals that make these two claims less than ironclad. Yes, we live shorter lives than Western Europeans, but without our policy of spending almost 18% of GDP on healthcare the gap might be even wider. And yes, the health outcomes of the poor relative to the affluent have deteriorated dramatically since the enactment of Medicaid, but the deterioration might have been even worse without Medicaid.

I'm skeptical of both claims.

Here's my question. Do American liberals believe the answer to the first question is yes, and the answer to the second question is no? If so, what evidence do they have for holding those two beliefs?

My hunch is that the increasing gap between the longevity of the poor and rich reflects lifestyle. When I was very young the stereotypical rich man was a fat banker who smoked a cigar, ate lots of steaks and drank martinis. The stereotypical low-income person ate much less, and got lots of exercise picking crops, or working in mining or manufacturing. Obviously things have changed. And yet low-income people in the Great Plains states still live pretty long. So it's not just income.

If (as Robin Hanson would say) healthcare isn't about health, maybe we don't need to spend 3% of GDP of Medicaid. Morgan Warstler suggested providing a low cost single-payer option for the poor---similar to the Cuban system that Michael Moore likes so much. Instead of thinking about how to pay for CAT scans and MRIs for the poor, perhaps we should think about whether poor actually need CAT scans or MRIs. Singapore's government spends 1.2% of GDP on healthcare (vs. close to 8% in the US) and has universal coverage. Obviously we could not hope to achieve those efficiencies in a country of 320 million, but then that raises the question of whether these ought to be federal programs, or whether (as in Scandinavia) healthcare might be more effectively managed at the local level, with local taxes.

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COMMENTS (18 to date)
Brett writes:
1. Has Medicaid improved the health care for the poor relative to the rich? 2. Has the US healthcare regime improved health outcomes by more than European healthcare regimes have improved health outcomes?

1. I'm not sure about "relative to the rich", but the counterfactual you'd have to compare it with would be if you had no Medicaid at all. We have a good idea of what that looked like in certain states that rejected Medicaid initially for years (such as Arizona), and it wasn't pretty. Local hospitals and county governments got stuck with heavy bills for indigent care, the poor, and the uninsured (this was before EMTALA, mind you), and went to the state government and asked why they were leaving money at the table.

My guess is that it's being swamped by other factors, maybe including life-style. Job changes could be a factor, too, if a disproportionate number of poor people no longer have employer-insurance and are more reliant on the inferior Medicaid.

2. It depends on the European health care system you look at (and I hate that they're all grouped together, because they're very different), but I'd say "no" as well.

Morgan Warstler suggested providing a low cost single-payer option for the poor---similar to the Cuban system that Michael Moore likes so much.

That's going against the political trend on public health coverage, which has been a patchy move towards "more" even before Obamacare. Medicaid survives because while it does impose limitations that aren't there for people with higher-paying-insurance plans, it still basically gets people the care they mostly need - I have a friend whose mother got her chemotherapy treatment through Medicaid, and she was pretty satisfied with the process even if there were more limitations on where she could go for a Family Doctor.

Personally, I think Medicaid would go much farther if you made some supply side improvements, like allowing nurses, nurse-practitioners, technicians, and so forth to do more care. An individual doctor in a solo practice might not be able to take tons of Medicaid patients and make it, but a clinic helping many more people and staffed with lower-paid medical workers might.

BC writes:

"Summers pointed out that...the gap in life expectancy between those in the bottom and top 10% of income has widened..."

Actually, I think he compared the bottom and top 20%. Regardless, he did not compare life expectancies of the top 1% or 0.1% to the rest of the top 10% or 20%, where we're told most of the gap in income inequality has arisen. Have billionaires' life expectancies improved relative to the merely mass affluent? If not, then that would be an example of widening income inequality *not* corresponding to widening outcome inequality. It would also suggest that, to the extent income inequality matters, the inequality that matters is the inequality between the bottom 20% and the top 20%, at least, and probably the top 50-70%. The largest lifestyle differences are probably between those in dire poverty and those in mainstream American life. The obsession over the gap between the exceptionally wealthy and the merely mass affluent seems to be a classic example of #FirstWorldProblems.

Josiah writes:

I thought Medicaid *was* a low cost single-payer for the poor.

ZC writes:

Thought provoking post.

You're an astute observer noting that, "My hunch is that the increasing gap between the longevity of the poor and rich reflects lifestyle," as your hunch is supported by the results of numerous studies in the medical literature. Just this month, in JAMA Surgery, a review of surgical outcomes in Michigan comparing those with private insurance and those on Medicaid found much worse outcomes for those covered by Medicaid. Notably, they were twice as likely to smoke, and had higher rates of chronic illnesses which can be attributable to lifestyle choices. Poor lifestyle choices, not poverty itself, readily explain the disparity in longevity and health outcomes between socioeconomic groups in the US. The logical next step from this is an entertaining discussion about the extent to which poverty contributes to, or is merely the result of, the same cultural/personal factors that lead to these poor lifestyle choices...

There are all kinds of problems comparing the people in the USA in the 1970s with those today. The ethnic/racial/culture mixture is quite different.

Nor do I remember an epidemic of obesity in the 70s.

mickey writes:

2015 spending on "national defense" forecasted at 3% or roughly $540 billion? Where do you get that? Count me skeptical.

mike shupp writes:

Hmmm, in the country I was born in, the US back in 1946, white males on average lived to the age of 67, white women to maybe 69 or 70, and blacks had a life expectancy of 3-4 ye4ars less. Currently in the US comparable figures are about 77 for men, 82 for women.

Obviously, increased spending on health care has been a total failure.

Joel Aaron Freeman writes:

South Korea: 81 years, $25,000 per capita

Malta: 81 years, $21,000 per capita

US: 79.8 years, $50,000 per capita

Qatar: 76 years, $100,000 per capita

Anyone see the correlation? Apparently, money kills!

Alex Griffen writes:

Interesting post. One has to wonder exactly how isolated Harvard and other top Universities are when you consider Mr Summer's comments. Medicaid has been a gross failure from any rational standpoint. It has shifted costs since it often reimburses both hospital and doctors at below their cost of providing services. This has dramatically increased the costs of private insurance. Medicare has dumped a fortune into the medical system and has made US Doctors the world's highest paid professionals ironic since the American Medical Association initially opposed it. Now the Doc's set their reimbursement rates to continue the fire hose of money flowing to them. The cost of Medicaid appears to be a bottomless pit giving access to high cost medical care to a group of people (the poor) who seem to be in a contest to kill themselves through so called life style choices. And really why not if fools who get up and go to work everyday have to pay for their life style choices why not take advantage of those suckers? Between massive fraud in the programs run by incomptent public officals and public servants and the poor getting free health care at every working stuff's cost what is not to like? Medicaid costs are now nearly exceeding education costs in many States and generally going up at a much higher rate. Of course we also pay a very high amount for education in the US and are near the bottom of international rankings. Sound familar? Spend a fortune on health care cover nearly everyone but get worst out comes. Spend a fortune on education also like medical get a worst result than most other so called advanced developed countries. A coincidence? Something is driving these outcomes that are no longer sustainable however I do not thing it is inequality the search for that illusion is what brought us to this point.

Scott Sumner writes:

Brett, If the Medicaid gains are "swamped by other factors" is that true of the US/Europe comparisons?

BC, You said:

"Actually, I think he compared the bottom and top 20%."

He first compared the top and bottom 10%, then people at the 20th and 80th percentile. I do not recall him comparing the top and bottom 20%.

Josiah, Yes, and it's amusing that people who like the European systems overlook the fact that Medicaid is far more expensive than those European systems.

ZC, Thanks for that info.

Mickey, That was just a ballpark estimate. I've seen estimates ranging from $495 billion to $600 billion depending on assumptions about the Afghanistan war and Obama budget requests. I'm no expert, perhaps someone else can chime in. How involved will we be in Afghanistan next year? I'm not sure.

Mike, Not sure how your comment relates to this post.

Jonathan writes:
Summers pointed out that while this is true for many consumer goods, the gap in life expectancy between those in the bottom and top 10% of income has widened by 3 or 4 years since the 1970s, comparable to a doubling of cancer mortality.

Scott, with the caveat that I haven't listened to the discussion, your description of Summers' point raises the typical question when life expectancy is used as a yardstick for healthcare. How much of the widening gap is due to inequality in healthcare and how much is due to environmental factors, especially violence or obseity? The latter can still be thought of as a form of inequality, albeit not the kind that Summers seems to have in mind here.

(BC's point on this is much more insightful than mine, but it's also worth examining the relationship between Summers' statement and the underlying data.)

Jonathan writes:

Sorry, just realized that your discussion of "lifestyle" probably makes the same point I noted in my comment, especially regarding obesity. Reading too quickly...

mickey writes:

I'm on my cell but from what I can tell that CAP Report leaves out what Higgs to me quite reasonablely includes as "national defense": Department of Homeland Security and Veterans Affairs, and parts of Justice, Treasury, Energy, State, and the interest, etc.

Capt. J Parker writes:

Another great post! But, please allow me to quibble with one thing:

"Yes, we live shorter lives than Western Europeans..."

According to Avik Roy:

Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to…you guessed it…first. Japan, on the same adjustment, drops from first to ninth. It’s great that the Japanese eat more sushi than we do, and that they settle their arguments more peaceably. But these things don’t have anything to do with socialized medicine.

I have no problem with Dr. Sumner's conclusion that Medicaid isn't the unqualified success some would claim it to be. And Europeans might get more healthcare bang for the buck than the US. But, life expectancy has too many confounds to be a useful measure of healthcare system outcomes. In particular I would point out that violent inner city crime goes hand in hand with poverty, takes the lives of mostly young men and consequently has a big impact on life expectancy of the poor.

Scott Sumner writes:

Jonathan, My focus was on the double standard in the rich/poor comparison as compared to the US/Europe comparison.

Mickey, Fair point.

Captain, Interesting. I doubt that injury data is still true (It's fairly old.) If I'm wrong I'll do a post.

Jerome Bigge writes:

If Medicaid is more expensive than European health care is, then how can their hospitals afford to take patients? How much do medical staff "over there" earn? How much do their doctors earn?

In some European countries a doctor's education is paid for by the national government. This allows them to start and maintain a medical practice for far lower costs than here in the US. Additionally, the legal profession "over there" is kept on a "tight rein" so it doesn't "dream up" things to increase its income at the expense of everyone else as is done here in the USA.

In France, the doctor is paid by the patient at the time of service and then submits the bill to his or her insurance company to be compensated. Because of this, there is no "billing staff" to add to costs like it is here in the US. The patient also carries a special card with all their medical data on it. Which means that you can go visit the doctor of your choice since you carry your "medical records" with you.

These are all things we could do here if we wanted to.

Scott Freelander writes:


I think it should be pointed out that in all the states I'm aware of, Medicaid only covered children and the very poor parents of those children, when they live in the same home as the children. Single poor people are only now getting coverage under Medicaid since Obamacare became law, so let's see what the effect is.

Also, doesn't treatment under Medicaid cost far less than that under private insurance or Medicare?

Floccina writes:

Indeed, the health-income gradient is slightly steeper in Canada than it is in the U.S.

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