Wednesday, October 3, 2012

How much is government-provided healthcare worth?

In July, the Congressional Budget Office — the nonpartisan arbiter of the costs and consequences of government spending — decided that we had not been valuing these benefits [of government-provided health care] enough. In a report on how income and taxes are distributed across the population, it decided, for the first time, to value health benefits provided by the government at every penny they cost.

The decision stoked a long-simmering debate about how much health care is really worth to poor families who may not have enough to eat. The reclassification of health benefits added $4,600 a year to households in the bottom fifth of income. It shrank the nation’s yawning income gap and muted the increase of inequality over the last three decades. And it changed the picture of what the government does for Americans.

The reasoning behind the budget office’s action seems to make lots of sense: the government spends almost $8,000 on the average Medicaid beneficiary and more than $12,000 for each person on Medicare. Why shouldn’t that count as income? Without it, the recipients could not afford an essential, lifesaving service. Moreover, the budget office considers Social Security benefits as income. And that’s the way it treats the health insurance provided by employers to their workers.

But not everyone thinks health care is worth that much. In particular, the Census Bureau does not include health care and other noncash benefits when computing the official poverty rate. Even its Supplemental Poverty Measure — which was created to capture noncash sources of income, as well as all the costs faced by the poor — sets the value of Medicare and Medicaid at zero. ...

The change in approach alters the calculation of who is living in poverty. Including these health benefits at face value raises by 25 percent the income of households in the poorest fifth of the population, to $23,300 in 2009 from $18,900 under the previous calculation. This is more than three times the average income of the poorest fifth of households before federal taxes and government benefits kick in, which in 2009 was $7,600. ...

Because two-thirds of Medicare funds and 83 percent of Medicaid funds are spent on the poorest 40 percent of the population, the shift also narrows the nation’s income gap. Under the budget office’s old method, the richest fifth of American households made more than nine times the incomes of the poorest fifth, after taxes and government benefits. Under the new method, the rich take home less than 7.5 times what the poor do. ...

More of the nation’s income is being devoted to health care, [economist Richard Burkhauser] says, and that needs to be counted to help us decide the best way to spend our resources. We may ask why we are “spending so much to give poor people ‘Cadillac health care’ and nothing else,” he says.
--Eduardo Porter, NYT, on valuing healthcare at more than zero