HEALTH CARE AS INCOME FOR THE POOR

By Eduardo Porter

NY times , October 2, 2012

http://www.nytimes.com/2012/10/03/business/debating-real-value-of-health-benefits-in-poverty-calculations.html?pagewanted=all&_r=0

Presenter :

Rajendra Dulal

FACTS AND FIGURE

1/6 of total Govt. spending on Health care.(double of last 30 years).

Total $1,139.4(billions) Per capita $3596 (Est. 2013) Total US Federal Spending(2011) $3598 B Medicaid/Medicare

$835B(23%)2/3 of Medicare funds and

83% of Medicare spent on poorest 40% of the population.

HOW MUCH WORTH TO POOR FAMILY

On July 2012, the Congressional Budget office decided to value(first time) the benefits of Health Care

Including these health care benefits(face value) raises 25% income(household) in the poorest fifth of the pop

($18900+$4400 = $23300 in 2009)

Income of a family of two parents and two children crosses the threshold of poverty line($21,756).

Narrows income gap-rich take home less than 7.5 times what the poor do( old method..>9 times)

Government spending reduces inequality by 21% (old method 17%)

Removes many senior citizens from the poorest group

DEBATING THE REAL VALUE Scholars(economists) differ as always In favor of the new change from Budget Office:

Govt. spends almost $8000 to a Medicaid beneficiary $12,000 per person to Medicare

without Medicare/Medicaid No life saving service

Gary Burtless claims that our entire system of redistribution is inclined in favor of giving the poor medical care and not counting-- ridiculous.

Jonathan Gruber says that the recipients have utility value from being insured, which goes above and beyond the cash cost of insurance—not counting it –Major shortcoming.

Richard Burkhauser argues that it is particularly important after the passage of PPACA, which will increase government’s footprint in health care.

DEBATING CONTD… Arguments against the change(proposal) General approach of the Census Bureau: health

benefits are worth only the amount that a family otherwise would have spent on doctors and other medical services. So the benefit of these programs to a poor family is Zero..without the benefits the family would not spend on medical care at all.

Timothy Smeeding,: you cannot eat health care.Statistically many people out of poverty..but not

enough money to afford housing, utilities and food. He argues that the new measure makes the poor better off than they really are and their improvement overtime better than it was.

CONCLUSION AND ECONOMICS

Count Medicare/Medicaid spending as an income and raise the threshold of poverty line.

Income of poor families increases but they are still poor. ECONOMICS

Redistribution of Medical care:Income effect: poor people demand positive

amount of medical care.(evidence support that medical care is a normal good).

Price Effect(moral hazard): Health insurance

boosts the “true willingness to pay”—Poor people may buy more than they need.---Welfare economic loss

ECONOMICS CONTD:

Income transfer(effect) Price effect(Moral Hazard) Price N demand w insurance Price Demand -- Demand-

D demand w/o ins. w/o ins. insurance

Pο M K H P₀ A B

Cο R C₀ C Qo Q1 quantity Q₀ Q₁

Quantity

Area DMKN =Increased consumer surplus Area ABC =welfare loss

Area KHR = Loss of welfare

Redistribution of wealth: Medicaid /Medicare are instruments for systematic redistribution of wealth. These tools have an advantage as these are less obvious vehicles for redistribution and the taxpayers may oppose less.