Topic: Health Care & Welfare

Happy Birthday, Welfare Reform

Ten years ago today, Bill Clinton signed welfare reform into law. As we look back on the results of those 10 years, it’s worth reflecting on just how wrong the critics were.

At the time the bill was signed, the welfare rights lobby warned that “wages will go down, families will fracture, millions of children will be made more miserable than ever.” One frequently cited study predicted that more than a million children would be thrown into poverty. 

Rep. Jim McDermott wasn’t satisfied with that prediction — he raised the estimate to 2.5 million starving children. Welfare advocates painted vivid pictures of families sleeping on grates in our cities, widespread starvation, and worse.

The New York Times claimed “the effect on our cities will be devastating.” Sen. Frank Lautenberg  (D-NJ) predicted “Hungry and homeless children” would be walking our streets “begging for money, begging for food, even…engaging in prostitution.”  The Nation warned bluntly, “people will die, businesses will close, infant mortality will soar.”

If one listened to the welfare lobbies, you would have expected to be stepping over bodies in the streets every time you left your house.

Now, with 10 years of experience, we can see that those claims were about as correct as claims of weapons of mass destruction in Iraq. Welfare rolls are down. Roughly 2.5 million families have left the program, a 57 percent decline. Undoubtedly, some of this was due to a growing economy, especially in the late 1990s, but welfare rolls remain down despite the post-9/11 economic slowdown.

At the same time, poverty rates today are below the rates before welfare reform was enacted. Child poverty rates declined from more than 20 percent in 1996 to 17.8 percent today. Roughly 1.6 million children were lifted out of poverty. Perhaps even more impressively, the poverty rate among black children has fallen at the fastest rate since figures have been recorded. 

Dependent single mothers, the group most heavily affected by welfare reform, account heavily for this decline. Since the enactment of welfare reform, the poverty rate for female-headed families with children has fallen from 46 to 28.4 percent. The decline in poverty among female-headed households has been greater than for any other demographic group.

Most of those who left welfare found work, and the vast majority of them work full-time.  It is true that most first jobs found by those leaving welfare are entry-level positions — on average, they earn about $16,000 per year. That’s not much, but for many it leaves them better off than they were before. Moreover, studies show that as these former welfare recipients increase their work experience, their earnings and benefits increase. And, for better or worse, many continue to receive other forms of government assistance.

Surveys of former welfare recipients indicate that they believe their quality of life has improved since leaving welfare. And they are optimistic about the future. A majority of former welfare recipients believe that their lives will be even better in one to five years. Many of the former recipients actually praise welfare reform as a stimulus for their beginning to look for work and as an opportunity for a fresh start, and a chance to make things better for themselves and their children. Both the women and their children appear to benefit psychologically from the dignity of working.

Certainly, I’ve had my own criticisms of welfare reform. It didn’t go far enough toward making people truly independent of government. It is too prescriptive, setting too many detailed rules for states to follow. The recent reauthorization of the reform added a worthless $1.7 billion program to encourage marriage. And, Congress has failed to build on welfare reform to restructure other federal anti-poverty programs.

Still, by almost any measure you can think of, it is clear that the critics of welfare reform were quite simply wrong.

That’s worth keeping in mind when those same Chicken Littles raise similar scare stories about the proposed reform of other government programs, from Medicare and Medicaid to Social Security. Once again, we are hearing that any changes, reductions, or “privatization” of these programs will lead to widespread poverty, suffering, and other disasters. For example, they claim that allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts will leave seniors eating cat food. But given their track record, maybe we should be a little bit skeptical the next time they predict the sky is falling.

Preference for Ignorance

Yesterday, I had a Tech Central Station column that said:

In the fields of health care, education, and assistance to poor countries, we rarely measure value properly. It seems as though we prefer to be ignorant about what succeeds and what fails. We know shockingly little about the cost-effectiveness of very expensive programs.

And today, the New York Times reports:

Some medical experts say Elyria’s high rate of angioplasties — three times the rate of Cleveland, just 30 miles away — raises the question of whether some patients may be getting procedures they do not need or whether some could have been treated just as effectively and at lower cost and less risk through heart drugs that may cost only several hundred dollars a year. Or whether, in some cases, patients might be even better off with bypass surgery — even though a bypass is a riskier, more invasive and more expensive procedure.

When it comes to treating blocked arteries, there are no definitive studies showing which approach most benefits patients in the long term.

The absence of cost-benefit analysis in medical decision-making is one of the main issues raised in my new Cato book Crisis of Abundance. On Tuesday, August 29th, Cato will be having a lunch forum on the book, where you can hear me as well as comments from Washington Post columnist Sebastian Mallaby and Democratic wonk Jason Furman.

Dr. Cardin’s Misdiagnosis

Maryland congressman Ben Cardin is running for the Democratic nomination for US Senate.  But apparently he has a higher calling in mind.  Cardin promises that if he’s elected, we will find a cure for cancer.  He even released a television commercial in which a cancer survivor credits Cardin, who is not a doctor, with saving his life.  “Thanks to Ben Cardin, others can have their chance. … He’s literally a lifesaver.”  (The ad is an apparent reference to Cardin’s advocacy of early screening under Medicare.)

However, if Cardin truly wants to help cancer patients, perhaps he should reexamine his policy proposals.  The congressman is a supporter of single-payer national health care.  However, the rationing under such national health care systems means more cancer patients die.  For example, even though American men are more likely to be diagnosed with prostate cancer than their counterparts in other countries, we are less likely to die from the disease.  Fewer than one out of five American men with prostate cancer will die from it, but 57 percent of British men and nearly half of French and German men will.  Even in Canada, a quarter of men diagnosed with prostate cancer die from the disease. 

That is in part because in most countries with national health insurance, the preferred treatment for prostate cancer is… to do nothing.  Prostate cancer is a slow-moving disease.  Most patients are older and will live for several years after diagnosis.  Therefore it is not cost-effective in a world of socialized medicine to treat the disease too aggressively.  The approach saves money, but comes at a significant human cost.

Similar results can be found for other forms of cancer.  For instance, just 30 percent of U.S. citizens diagnosed with colon cancer die from it, compared to fully 74 percent in Britain, 62 percent in New Zealand, 58 percent in France, 57 percent in Germany, 53 percent in Australia, and 36 percent in Canada.  Similarly, less than 25 percent of U.S. women die from breast cancer, but 46 percent of British women, 35 percent of French women, 31 percent of German women, 28 percent of Canadian women, 28 percent of Australian women, and 46 percent of women from New Zealand die from it. (For more data on international comparisons, see here and here [.pdf]).

Even when there is a desire to provide treatment, national health care systems often lack the resources to provide it.  In Britain, for example, roughly 40 percent of cancer patients never get to see an oncology specialist.  Delays in receiving treatment under Britain’s national health service are often so long that nearly 20 percent of colon cancer cases considered treatable when first diagnosed are incurable by the time treatment is finally offered.

The Canadian Society of Surgical Oncology recommends that cancer surgery take place within two weeks of preoperative tests.  Yet one study indicates that median waiting time for cancer surgery in Canada ranged from 29 days for colorectal cancer to more than two months for urinary cancers.   Radiation treatment and new therapies, such as brachytherapy, are also far less available than in the United States.  Consider this: seven out of ten Canadian provinces report sending prostate cancer patients to the United States for radiation treatment.

If Ben Cardin is determined to practice medicine, he’s already learned about malpractice.

“Chaoulli has brought Canadian Medicare to a fork in the road”

Colleen Flood of the University of Toronto law school has a working paper out on the impact of the Canadian Supreme Court’s ruling in Chaoulli v. Quebec. In that case the court basically said that if the government prohibits private health insurance, but then threatens people’s lives by making them wait for care in the state-run health care system, it is violating the people’s rights to life, liberty, and personal security.

Prof. Flood’s paper is titled, “Chaoulli’s Legacy for the Future of Canadian Health Care Policy.” From the abstract:

The decision was initially considered of limited importance by many given that technically it applied only to Quebec. In the six months since the decision was released, however, it has become clear that the legal impact of Chaoulli will be dwarfed by its normative impact on policy debates across the country. Chaoulli has brought Canadian Medicare to a fork in the road. At the time of writing, critical decisions are about to be taken across the country.

Flood’s paper is available from the Social Science Research Network here (subscription req’d).

Dr. Chaoulli – the chief litigant in the case – authored a paper for Cato on the ruling and its potential impact, available here.

Selling the Rope with Which They’ll Hang Capitalism

From the Washington Post:

Late last month, the U.S. Chamber of Commerce began broadcasting television ads that extolled several Republican lawmakers for supporting the new Medicare prescription drug program. The spots were part of the chamber’s $10 million midterm advertising and voter mobilization budget.

Even if the Medicare expansion were popular – which is not at all clear – the Chamber of Commerce’s ads would just encourage voters to increasingly expect transfers and handouts from Washington. If the Chamber of Commerce praises Republicans for expanding entitlements by a trillion dollars over the next decade, then it’s just contributing to an environment in which spending and deficits and unfunded liabilities continue to soar. Surely the Chamber could find something good the Republicans have done to highlight in its ads.

Couldn’t it?

Medicare and Overall Health Spending

MIT’s Amy Finkelstein argues that much of the increased use of technology in American medicine (what I term “premium medicine” in Crisis of Abundance) has been induced by Medicare, which reduced out-of-pocket costs and thereby increased the demand for care.

Perhaps the easiest place to grasp her work is at an archived presentation at the AEI, particularly the powerpoint slides that may be found as a link there. Also, see links given by Tyler Cowen.

Finkelstein compares the change in insurance coverage induced by Medicare across different states–in some states the elderly were relatively well insured prior to Medicare, and in other states they were not. Using this “natural experiment” methodology, she finds that Medicare accounts for a large share of the increased spending on health care since 1965. However, she does not find any corresponding increase in health. She does, however, argue that Medicare had a very large risk-reduction benefit, by saving the very sick from having to suffer huge financial costs.

To me, this suggests trying to maximize the insurance benefits of health insurance (reducing financial risk) while minimizing its distortionary effects. The proposals in my book would head in that direction.

My proposals are politically radical but economically sensible, as the research of Finkelstein reinforces. You can hear more about Crisis of Abundance at this this Cato event on August 29th, which also will feature journalist Sebastian Mallaby and Democratic wonk Jason Furman.

P4P Hubris

Dr. Rob Lamberts also comments on my paper on pay-for-performance (P4P) in Medicare. Lamberts (like Holt) seems to have blogged that paper having only read the press release. Though the paper probably would answer most of the questions they raise, I’ll respond to two of Lamberts’ comments.

1. Lamberts argues that a P4P experiment in Britain’s National Health Service (NHS) refutes my claim that “provider-focused P4P incentives can encourage inappropriate care or reduce access to care for patients with multiple illnesses or low incomes.”

Not quite. A P4P scheme can avoid those effects, but not without causing other problems. For example, the financial incentives could involve only additional payments to physicians and no payment reductions for “low-quality” care. That’s what the NHS did; physicians’ gross incomes increased by an average of $40,000.

A rewards-only approach reduces the incentive for physicians to avoid very sick or very poor patients, who make it difficult for the physician to meet the performance goals. However, that approach makes the P4P effort more costly. Lamberts himself suggests that Medicare’s P4P efforts should be budget-neutral, which would make it more likely that physicians would give outlier patients inappropriate care, avoid those patients, or otherwise game the system.

Another way the NHS experiment avoided inappropriate care or a reduction in access for outliers was by allowing physicians the discretion to disregard as many of their patients as they wished when calculating their compliance score. But the availability of such “exclusion reporting” also gave physicians an opportunity to game the system. Rather than provide the desired type of care to their patients, physicians could use exclusion reporting to increase their incomes without changing their behavior. The authors of the study cited by Lamberts note: “More research is needed to determine whether these practices are excluding patients for sound clinical reasons or in order to increase income.”

2. Lamberts writes that the Brits “were able to achieve astonishing improvements to their quality numbers and improve physician incomes at the same time.”

Of course, these two ends are not in conflict. It’s easy to get people to do what you want when you dangle $40,000 in front of them.

But we can’t even be sure that the NHS P4P experiment made any improvements in quality — much less astonishing improvments in quality. Although median reported achievement was an impressive-sounding 83.4 percent, according to the authors of that study:

There is no baseline with which to compare performance in the first year of the U.K. program, although the quality of care was already improving before its introduction.

If we don’t know what compliance rates were before the NHS introduced financial incentives for compliance, and quality was improving anyway for other reasons, how do we know whether or how much their quality numbers improved, or how much of that change was due to P4P? 

If we don’t even know that, we certainly don’t know whether the effort was worth the $3.2 billion the NHS spent in 2004.