A Shovel or a Ladder?

Economists got as exercised as they ever do this week over whether tax credits or expansion of Medicaid would be the best way to help the uninsured get health coverage. The battle is clearly engaged, and, in the arcane world of economics, the ammunition in this battle is over “modeling assumptions.” Arcane, but important.

The Kaiser Family Foundation is funding an analysis by MIT Professor Jonathan Gruber et al allegedly “comparing” the impact and costs of tax credits or expanding Medicaid. While not actually a comparison, it shows that Medicaid expansion for parents to 200% of poverty would cost $11.3 billion and cover 3.8 million more people, while tax credits (of their own design, not those in President Bush’s proposal) would cost $4.5 billion and add coverage to 1.6 million Americans. (Treasury says that the president’s plan would extend coverage to 6 million people.)

The Medicaid expansion supporters didn’t seem to notice that the nation’s governors were in town this week practically screaming about their soaring Medicaid costs. For example, New Mexico has the highest uninsured rate in the country, yet the state is about $50 million short in being able to finance Medicaid for current recipients next year. Adding millions of working Americans to Medicaid rolls appears neither politically nor financially feasible.

During a seminar on Wednesday, sponsored by the Kaiser Family Foundation, to analyze the study, economists dueled over the Kaiser report’s conclusions, based upon their assumptions of how the world would work if either of these policy changes were implemented, such as how much a policy would cost and how many people would use tax credits.

One economist explained economic assumptions this way: Two economists are stuck in a hole and are trying to figure out how to get out. One “assumes” a shovel, and the other, a ladder.

Unfortunately, in the case of the draft Kaiser study, these economists came closer to assuming a shovel when it came to modeling tax credits and a ladder for their Medicaid expansion idea.

Then a day later, one of the authors of the paper, Dr. Judy Feder of Georgetown University, and I were on the same panel testifying before the House Energy and Commerce Subcommittee on Health. I presented arguments for tax credits, explaining how the current system so badly discriminates against lower-income working Americans and their families and that tax credits are a way to provide some measure of equality to help the uninsured get private health coverage. Links to my oral testimony (the Cliff Notes version) and to the full testimony are provided below.

Dr. Feder presented the findings of the Kaiser study in her testimony. “Thank God for Medicaid,” one Democrat exclaimed, echoed by Dr. Feder. Yet, during the hearing, we also we learned that the average Medicaid recipient is on the program for only five months, clearly not stable coverage. And we learned last week that in California, only about half of doctors will even see a Medicaid patient. Nonetheless, several Democrats used their opening statements to pledge allegiance to a single-payer health care system.

During the questioning, I did have a chance to highlight some of the concerns raised at the Wednesday meeting about the study.

Also, Jesse Hixson’s talk at the American Enterprise Institute last Friday, which we mentioned last week, was very well attended, showing an interest in reassessing fundamental principles of health reform. Jesse’s respondents see the health care world as a place much in need of government direction, while Jesse explained how reshaping incentives can transform the health care system to one providing consumer choice, innovation, and affordable care and coverage. We have many copies of the study. Let us know how you might be able use this in your public education activities.

Grace-Marie Turner

Oral testimony: www.galen.org/news/022802.html
Full text of testimony: www.galen.org/news/022702.html

Grace-Marie Turner is president of the Galen Institute, a not-for-profit research organization focusing on ideas to promote free-market health reform. She can be reached at P.O. Box 19080, Alexandria, VA, 22320.


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