In Praise of Administrative Costs

Advocates of socialized medicine, such as Physicians for a National Health Program, love to argue that America’s health care sector is less efficient than socialized systems because private insurers appear to have higher administrative costs. In yesterday’s New York Times, Tyler Cowen reveals the flaw in that logic:

The monitoring, marketing and overhead costs of private insurance are what allow more expensive medical treatments through the door. It is precisely because competing insurance companies spend money evaluating the appropriateness of claims that they are willing to pay for so many heart bypasses, extra tests, private hospital rooms and CT scans.

If European health care systems appear to have lower administrative costs, it is because, rather than scrutinizing claims, they limit the overall amount they will spend on medical services. Of course, that just means they shift costs to patients who either must pay for medical services themselves, or deal with the costs of waiting.

If the U.S. Medicare program appears to have lower administrative costs, it is because, rather than scrutinizing claims, Medicare just shovels money out the door. That merely shifts those costs onto taxpayers by driving up Medicare spending and taxes. 

In Medicare Meets Mephistopheles, Cato adjunct David Hyman delights in the irony that medicine-socializers praise one of Medicare’s greatest failings (inadequate oversight of claims payment) as if it were a virtue.

The Real College Sports Madness

Tonight the mighty Hoyas of Georgetown University will square-off against the Vanderbilt Commodores in a Sweet 16 hoops tilt.

In light of Georgetown’s dominance this season (28-6 overall, winners of 17 of their last 18, champions of the Big East Conference, and easy victors over the Commodores back in November), it’s probably a bit cruel to make Vandy face the Hoyas again. At least in the big picture, though, this is a fair match-up: both teams are from relatively small, private schools with pretty high academic standards, and both rely on voluntary fan and booster support to compete.

Unfortunately, a bit of breaking college basketball news on ESPN.com yesterday demonstrates that the latter is not always the case. The story was about Steve Alford leaving his head coaching job at the University of Iowa to take the reins at the University of New Mexico, a move many college hoops fans consider a bit of a step down. Iowa, after all, plays in the powerful Big Ten Conference, while New Mexico toils in the lesser Mountain West. So what was Alford’s inducement to trade corn for sand?

One possibility is that Alford was on his way out of Iowa anyway. He had only three NCAA Tournament appearances in eight seasons there, and not every Iowa fan exactly loved him. But, important as this might have been in Alford’s decision, it wasn’t what ESPN said ultimately attracted him to Albuquerque (it also wasn’t the city’s famed petroglyphs):

Sources said Alford was thrilled with the commitment from recently hired New Mexico athletic director Paul Krebs and impressed by the university’s decision to upgrade the famed Pit, which, according to Krebs, will receive $12 million from state government for renovation. There also is hope that the figure could rise to $20 million. [Italics added]

Now, as a matter of principle, I’m against forcing taxpayers to fund entertainment venues, arenas, or any of the other “bread and circuses” projects on which politicians love to lavish public dollars. But what really makes me angry about public schools like UNM building new basketball arenas with taxpayer funds is the unfair advantage it gives those schools over little private schools like Georgetown and Vanderbilt, who need people to give them money voluntarily. Facilities have been an especially big problem at GU, where the on-campus gym seats at-most 2,500 people, forcing the team to play almost all of its home games at the downtown Verizon Center and lose lots of revenue in rent.

Of course, UNM is not the only public university where the sports teams benefit from forced taxpayer largesse. Last May, for instance, the State of Minnesota decided to pay $10.25 million per-year for 25 years to help finance a new U of M football stadium. Similarly, the University of Pittsburgh’s Petersen Events Center, where the school’s basketball teams play, was financed with $10 million from the couple after whom it was named and $53 million from state taxpayers who, as always, have remained nameless. 

Now, colleges and universities in general — both public and private — benefit from all kinds of tax breaks, pork projects, and government subsidies, so don’t feel too sorry for Georgetown and Vanderbilt. When it comes to big-time sports, though, recognize what private schools are up against, and perhaps root for them a little harder. And, come to think of it, maybe do feel sorry for Vanderbilt. Georgetown is going to crush them tonight.

(In the interest of full disclosure, Neal McCluskey in a Georgetown graduate and a huge Hoya fan.)

Bob Herbert, What Are You Talking About?

Give New York Times columnist Bob Herbert credit — not many writers can pack three ridiculous claims into a single lede. Somehow he manages to do so in his latest column, which begins:

One of the weirder things at work these days is the fact that we’re making it more difficult for American youngsters to afford college at a time when a college education is a virtual prerequisite for establishing and maintaining a middle-class standard of living.

Did you catch all three? They are:

  1. “American youngsters” are finding “it more difficult “to afford college.”
  2. “[W]e’re” the ones who are “making it more difficult for American youngsters to afford college.”
  3. “[A] college degree is a virtual prerequisite for establishing and maintaining a middle-class standard of living.”

Let’s tackle these in order: 

If American youngsters are finding it more difficult to go to college, that’s not showing up in college enrollment data. The enrollment rate of recent high school graduates for 2004, the most recent year for which data are available, was the second-highest in history at 66.7 percent. The years 2000, 2002 and 2003 are also among the seven highest in history, with enrollments of 63.3, 65.2 and 63.9 percent, respectively. And, looking forward, projected enrollment numbers out to the 2015–2016 school year suggest enrollment rates will continue to rise.

What of Herbert’s claim that “we’re” the ones who are making it more difficult for youngsters to go to college? If by this he means that American taxpayers aren’t doing enough to help college students pay their tuition bills then, again, the data aren’t on his side. Funding for federal Pell grants has increased 80 percent in real terms between 1994 and 2006, while the money available through federally subsidized student loans (Perkins Loans, Direct Student Loans, and Family Education Loans) has increased 87 percent in real terms over that time. Data from the 2003–2004 school year (the most recent data available) show that more than half of undergraduates that year received grant money (in the average amount of $4,000) while 35.1 percent of undergraduates received subsidized loans (in the average amount of $5,800).

What of Herbert’s claim that a college degree is a “virtual prerequisite” for a middle-class standard of living? To be sure, higher education translates into increased earnings over a person’s lifetime. However, people who lack a college degree are not doomed to a life of lower-class living. Earnings data for 2004 show that a high school diploma and some work experience can add up to a middle-class lifestyle. The mean earnings per person in 2004 were $37,897; the mean earnings for a person with only a high school diploma who was between 35 and 44 years of age were $32,060. If that person had some college education but no degree, mean earnings were $38,076.

Herbert’s column goes on to lament the debt burden incurred by recent college graduates, including grad- and professional school graduates. Remarkably, he gives no thought to the value of the degrees that were purchased with that debt. Fortunately, more-thoughtful people have done present-value calculations on various college degrees (see, e.g., these calculations by Arizona State’s Carey School of Business, or these by Don Burleson of Burleson Consulting, or these by MSN Money’s Liz Pulliam Weston). The general consensus is that a bachelor’s degree, after subtracting tuition and other college costs as well as lost earnings from the years spent in school, has a present value of about a quarter-million dollars. Advanced degrees provide mixed returns (my MA in philosophy is of great personal value, but it doesn’t deliver much bling in the marketplace), but degrees in law and medicine deliver a present-value payback of upwards of $1 million dollars or more. And the still-ridiculously-cheap associates degree is the best deal in higher education, delivering well over $100,000 in present value for a mere few thousand dollars in cost.

Now, ask yourself: Would you be willing to spend $5,000 in exchange for something worth $100,000? Or $50,000 in exchange for $300,000? Or $100,000 in exchange for $1 million? Apparently, Herbert wouldn’t — unless taxpayers subsidize him (more) to do so.

Herbert’s column strikes me as yet another example of the all-too-common “progressive” lament that not enough money is being redistributed to the upper middle class. He would tax people (including many with no college degrees) to help out the soon-to-be-well-off.

Curiously, Herbert’s column says absolutely nothing about the one obvious issue in higher education financing: Why has a four-year college education gotten so expensive? My Cato colleague Neal McCluskey has discussed that, and you can read some of his thoughts here.

South Carolina Makes a Mockery of Informed Consent

Yesterday the South Carolina House passed a bill mandating that women seeking abortions sign a sworn statement that they have seen an ultrasound of their fetus before having the abortion. Rep. Greg Delleney, the sponsor of the bill and a Republican from Chester, said, “I’m just trying to save lives and protect people from regret and inform women with the most accurate non-judgmental information that can be provided.” This is an amendment to the existing South Carolina informed consent law that requires doctors to give women information about fetal development and alternatives to abortion.

Informed consent is probably the most important principle of modern medicine. Its purpose is to enable autonomous decisionmaking. The South Carolina ultrasound law does everything but empower the patient. Offering a woman the option of an ultrasound as part of the informed consent process or doing one that is medically necessary is understandable, but forcing her to watch one as a prerequisite to having an abortion is an abuse of the informed consent process. The scene in A Clockwork Orange where Alex’s eyes are forcefully held open as he is shown images intended to recondition his social behavior comes to mind.

I believe abortion is morally wrong, but I also believe that current U.S. law correctly recognizes that, in a conflict between mother and fetus, the woman’s rights take precedence over those of her fetus. A human being’s rights under the law increase with maturity. That has been the tradition under Anglo-American law as well as worldwide for most of history.

The suggestion that a fetus should have the same legal standing as an adult is not only unprecedented, but unacceptable. In balancing the rights of fetuses with those of their mothers, women’s rights must always take priority; otherwise the law is treating women as second to, or of lesser value than, the fetuses they are carrying – the law would be treating women first and foremost as communally owned vessels for bringing forth life and only second as autonomous individuals.

For those, like myself, who believe abortion is fraught with moral difficulties, the correct course of action is to teach, communicate, and discuss our views with our daughters, our female neighbors, and our friends. We must use the strength of our convictions and good clear reasoning to help them come to the right conclusions. To force someone to carry a pregnancy to term and give birth unwillingly is not far from slavery, no matter what the rationale. Pregnancy and birth are the most dangerous things most women will ever do in their lives. Not to give them the choice to escape those dangers, let alone plan their lives, is to treat them with the greatest disrespect.

There is no question that decisions about abortion are horrendously difficult, but the mere fact that such decisions are difficult doesn’t mean women aren’t fit to make them, or as is required by the South Carolina law, that women must be forced “for their own good” or “for the good of their fetuses” to undergo an unnecessary procedure and view images, as Alex was in A Clockwork Orange, that they don’t wish to see. Life is fraught with difficult decisions, many of them involving life and death. Men make decisions about how to protect their families and their way of life – unfortunately sometimes those decisions involve going to war and killing innocents. Women, like men, make decisions about what is best for their families and their way of life — unfortunately sometimes such decisions involve abortions.

It is a perversion of the concept of informed consent, let alone an unconscionable intrusion into the doctor-patient relationship, to impose a medically unnecessary procedure on women seeking abortions. Fetuses are potential children, not full grown adults, and women are full grown adults, not children. It is time we start treating both with the respect and dignity they deserve.

The NCLB Backlash

David Broder delivers a pile of Beltway Consensus in his column today.  Broder insists that Bush fight his fellow Republicans on the Hill who have come back round to realizing that the Feds 1) Aren’t authorized by the Constitution to direct the education of the public, 2) Don’t improve education with their involvement, and 3) Just spend more money and make more trouble the more they’re involved.  Return to the consensus, he admonishes.  These folks, some of whom recently announced their legislative intentions at a Cato event, are leading what Broder refers to as a “backlash” against No Child Left Behind.

The column is rather unremarkable, but I love this closer:

“But the dissenting Republicans’ idea of letting every state set its own standards and measure its own progress is a certain way to consign many youngsters to second-class educations. And that would be a serious step backward.”

Getting a second-class education is bad, and sunny days are good!  Indeed.  But one can’t step backward if he doesn’t have the room.

The only way forward for education is to walk down the path of educational freedom. That means states putting parents back in charge of their children’s education and getting the Feds out of the issue entirely.

Market Education Is Not a Theory

Two weeks ago, I sat beside Andrew Rotherham at a Cato Institute forum. After he provided several thoughtful, empirically-supported answers to questions on teacher training and certification, I was surprised to hear him declare that there is essentially no such thing as a truly free market in education, and that education must be extensively regulated to succeed (audio and video are here).

This evening, I read a blog post by Sara Mead, the Senior Policy Analyst with Rotherham’s Education Sector organization, in which she asserts that

Vouchers are all about allocation of children amongst spaces in existing schools and do almost nothing to expand the supply of high-quality options…. Some voucher proponents claim that making vouchers available will create market incentives that expand the supply of high-quality schools in these communities, but there’s not really evidence to bear that out.

One thing that these statements (and several others made in Mead’s post) have in common is that they are directly contradicted by decades of empirical research. Another is that they make no mention of that research. Rotherham and Mead do not seem to be disagreeing with the relevant literature. They seem unaware of it.

Taking the latter point first, there are two well-established nationwide school voucher programs, one in the Netherlands, the other in Chile. The first was created in 1917, the second in 1982. In both cases, the supply of private schools rose dramatically to meet demand. Roughly three quarters of Dutch students are now enrolled in private schools. In Chile, private sector enrollment doubled within the first decade and passed the 50 percent mark in December of 2005.

Sweden and Denmark enacted voucher programs more recently, and both are seeing the creation of new private schools as a result. Swedish private sector enrollment rose from 1 percent to 10 percent of the student population in a decade, and continues to rise. I discuss this issue at greater length in my chapter in the Cato book: What America Can Learn from School Choice in other Countries.

Turning to Mr. Rotherham’s assertion, I pointed out at our forum that there are vibrant, unregulated, rapidly growing education markets all over the world. In some areas, such as the U.S., Japan, and South Korea, these are niche markets – mainly after-school tutoring. In other parts of the globe, particularly South Asia and Africa, they are mainstream elementary and secondary schools.

In 2004, I reviewed the empirical research on the relative performance of market versus monopoly provision of elementary and secondary schooling. That research favors market systems in the areas of academic achievement, efficiency, responsiveness of the curriculum to parents’ demands, and even the maintenance of physical facilities. In the achievement and efficiency areas, where the most research has been done, the statistically significant results favor markets by a ten to one margin.

Subsequently, the Cato Institute published a paper by James Tooley and Pauline Dixon showing that private schools serving the poorest people on Earth, in the urban slums and rural villages of Africa and India, are doing a better job, at a far lower cost, than their government-run competitors. These schools are not simply unregulated. In many cases, their respective governments did not even know that they existed. They are also the fastest-growing part of the education sector in the developing world, already enrolling majorities of students in several of the areas studied – including several of the poorest areas.

It is possible that other policy analysts may review this research and find studies that I have missed. It seems very unlikely, however, that any such oversights or new contributions to the literature will reverse the clear pattern that has been established to date.

There is one other thing about which I am convinced: every education policy analyst commenting on market reforms should be familiar with the academic literature on the subject. The futures of millions of children hang in the balance.