Two weeks ago, President Bush has declared his opposition to expanding the Children's Health Insurance Program (CHIP). Bush's opposition to the plan, according to White House spokesman Tony Fratto, is at least in part due to the fact that the reauthorization of CHIP does not incorporate health savings accounts (HSAs) into its provision.
So what's the deal with HSAs? According to a Treasury Department information sheet, HSAs are accounts that "you can put money into to save for future medical expenses." There are, of course, more to them than just that.
First up, HSAs are supposedly tax friendly, providing "triple tax savings" by giving account holders tax deductions when they contribute to their accounts, allowing for tax-free investments with HSA funds, and tax-free withdrawals for qualified medical expenses. Second, they are portable in the sense that, like a 401k, you can take an HSA with you from job-to-job, state-to-state, etc.
HSAs are only available for people who participate in a High Deductible Health Plan (HDHP). An HDHP is a plan with low premiums (i.e. you don't pay a lot for health coverage) and high deductibles (i.e. you pay a lot out-of-pocket, up front, for medical services).
A lot of folks, particularly conservatives, like HDHP's because, as the Commonwealth Fund succicntly notes, they allegedly (a) lower health care costs by causing patients to be more cost-conscious, and (b) make insurance premiums more affordable for the uninsured. You can why, in theory, this might make sense: if you have to pay more out-of-pocket you will be more wary of spending money on health matters, and if the basic 'membership fee' (i.e. the premium, i.e. what you need to pay to get basic coverage) is low, then more people can afford it.
The problem with the logic behind HDHPs, of course, is that if you don't have the cash on hand to pay deductibles, you have trouble getting access to care. In theory, HSAs are supposed to help you with this, by helping you save for health care when you need it. But studies (from places like the Kaiser Foundation to Families USA) have cast some doubt on this potentiality, particularly for low-income families.
First off, low-income families will not benefit from the tax breaks built into HSAs, because the tax deductions come from income taxes. Income tax is progressive: the more money you make, the bigger the tax rate. Thus, the tax breaks of HSAs associated with income--like tax-free investment and tax deductions for money put in the account--will greatly benefit the rich, and not so much the poor.
Second, as I've made mention in other blog posts, low-income households only have a limited amount of funds to spend outside of current expenditures. A reliance on high-deductible plans essentially presupposes that HSAs will allow everyone to be rich enough to cut-back on readily available funds for cost-of-living expenditures. This is no guarantee by any means, particularly given disparities in start-off wealth among socioeconomic groups and the skewed distribution of financial literacy. HSAs could end up preserving--if not exacerbating--existing inequalities.
Third, the goal of cost-consciousness is a risky one. If low-income families have to pay a bigger percentage of their entire pool of funds for out-of-pocket expenses, they might be less inclined to get health are for any reason, no matter how serious. Traditional insurance schemes pool the healthy and the unhealthy together, in order to dilute the cost of care. But with HSAs, the unhealthy may become too expensive to be effectively ensured.
This is problematic: health is positively correlated with socioeconomic status. A number of social factors, such as wealth and education, are strongly associated with health. This is also true for older Americans. Thus in a broad sense, the people who would benefit the least from HSAs need them the most.
Ultimately, HSAs--at least in their current form--just don't cut it.
Monday, July 30, 2007
Wednesday, July 25, 2007
Spending, Saving, and Social Policy
The question of whether or not we can reasonably ask poor people to save is a good one. I've addressed it in part already, but I think it warrants further discussion, or more appropriately I guess, additional monological rambling on my part.
For the poorest Americans, expenditures exceed income. Check out this graph to the left I slapped together form the Consumer Expenditure Survey (CES). You'll note that it's not until you get into the middle quintile of income earners that income exceeds expenditures. For the bottom 40 percent of America, spendings outstrip income.
On its face, this suggests that poor Americans really don't have room to save. But, as I've noted, these expenditure measures include everything from shelter to cigarettes, meaning that there is some wiggle room to work with. Here I want to address the relationship between this wiggle room (i.e. non-essential expenditures that can be cut back to induce saving) and the graph above.
Let's take a collection of categories from the CES as our 'expendables': alcohol, smoking/tobacco, entertainment, and personal care products. We'll treat alcohol and smoking/tobacco as completely expendable, and the other two as only partially so (no one can reasonably go without entertainment or personal care). So let's say the average household in the bottom two quintiles cuts its spending in these areas by half. Over one year, eliminating booze/smokes and 50 percent of entertainment/personal care would save the lowest quintile $1,006; the second lowest would save $1,441.50 with the same cutbacks.
Of course, there are some significant caveats that dilute this scheme. Firstly, at least some of the households in CES were families (the average number of people in households for the bottom two quintiles hovered around two), meaning that expenditure cutbacks aren't always so easy, particularly with regards to personal care and entertainment (i.e. stuff kids need/want). Second, the $1,006 and $1,441.50 in savings do not make up the difference between income and expenditures represented in the graph above for the average household in these income brackets.
But before we close the book we need to look at two variables: the Earned Income Tax Credit (EITC) and Individual Development Accounts (IDAs). A qualified head of household with one qualifying child who brought in the reported CES income of the lowest quintile ($9,626) would be $2,740 in 2006. For the second quintile ($25,546) it would be $1,030. If this same individual had two kids, (s)he would bring in $3,870 (lowest income quintile) or $2,270 (second lowest quintile) from the EITC.
So as it stands, a head of household who cuts spending in the ways discussed here and qualifies for the EITC already has somewhere between $3,746 and $4,876 (if in lowest quintile) or $2,471.50 and $3,276 (if in second lowest). Now, what if this earner was to put this amount of savings in an IDA?
The usual match rates for IDAs are 2:1. meaning that for every dollar deposited by the account-holder, 2 are deposited by the matching bodies. Most IDA programs are built to last from 1 to 3 years, and some often are only matched up to a certain amount (e.g. $500). If we play it safe and take a 1 year IDA program with a 2:1 match rate and a max matching scheme of $500, this means that over the course of a year, we can in essence tack on an extra $1,000.
So now we have between $4,746 and $5,876 (if in lowest quintile) or $3,471.50 and $4,276 (if in second lowest) in saved funds. These amounts don't help the poorest quintile break even, but they do in fact make it possible for the second quintile to bridge the gap between income and expenditures in the graph above.
The message should be clear: helping working families is a patchwork pursuit that needs to be fought on multiple fronts. There's an important role for individual decision-making and personal responsibility as well as for creative social policies that feed into one another and help 'snowball' assets and well-being. The more we view poverty as a one-dimensional social condition, the more we tie our hands; the more we focus on viewing low-income individuals as active participants in their own life--in addition to being a policy-relevant population--the more we can get some novel ideas to surface.
For the poorest Americans, expenditures exceed income. Check out this graph to the left I slapped together form the Consumer Expenditure Survey (CES). You'll note that it's not until you get into the middle quintile of income earners that income exceeds expenditures. For the bottom 40 percent of America, spendings outstrip income.
On its face, this suggests that poor Americans really don't have room to save. But, as I've noted, these expenditure measures include everything from shelter to cigarettes, meaning that there is some wiggle room to work with. Here I want to address the relationship between this wiggle room (i.e. non-essential expenditures that can be cut back to induce saving) and the graph above.
Let's take a collection of categories from the CES as our 'expendables': alcohol, smoking/tobacco, entertainment, and personal care products. We'll treat alcohol and smoking/tobacco as completely expendable, and the other two as only partially so (no one can reasonably go without entertainment or personal care). So let's say the average household in the bottom two quintiles cuts its spending in these areas by half. Over one year, eliminating booze/smokes and 50 percent of entertainment/personal care would save the lowest quintile $1,006; the second lowest would save $1,441.50 with the same cutbacks.
Of course, there are some significant caveats that dilute this scheme. Firstly, at least some of the households in CES were families (the average number of people in households for the bottom two quintiles hovered around two), meaning that expenditure cutbacks aren't always so easy, particularly with regards to personal care and entertainment (i.e. stuff kids need/want). Second, the $1,006 and $1,441.50 in savings do not make up the difference between income and expenditures represented in the graph above for the average household in these income brackets.
But before we close the book we need to look at two variables: the Earned Income Tax Credit (EITC) and Individual Development Accounts (IDAs). A qualified head of household with one qualifying child who brought in the reported CES income of the lowest quintile ($9,626) would be $2,740 in 2006. For the second quintile ($25,546) it would be $1,030. If this same individual had two kids, (s)he would bring in $3,870 (lowest income quintile) or $2,270 (second lowest quintile) from the EITC.
So as it stands, a head of household who cuts spending in the ways discussed here and qualifies for the EITC already has somewhere between $3,746 and $4,876 (if in lowest quintile) or $2,471.50 and $3,276 (if in second lowest). Now, what if this earner was to put this amount of savings in an IDA?
The usual match rates for IDAs are 2:1. meaning that for every dollar deposited by the account-holder, 2 are deposited by the matching bodies. Most IDA programs are built to last from 1 to 3 years, and some often are only matched up to a certain amount (e.g. $500). If we play it safe and take a 1 year IDA program with a 2:1 match rate and a max matching scheme of $500, this means that over the course of a year, we can in essence tack on an extra $1,000.
So now we have between $4,746 and $5,876 (if in lowest quintile) or $3,471.50 and $4,276 (if in second lowest) in saved funds. These amounts don't help the poorest quintile break even, but they do in fact make it possible for the second quintile to bridge the gap between income and expenditures in the graph above.
The message should be clear: helping working families is a patchwork pursuit that needs to be fought on multiple fronts. There's an important role for individual decision-making and personal responsibility as well as for creative social policies that feed into one another and help 'snowball' assets and well-being. The more we view poverty as a one-dimensional social condition, the more we tie our hands; the more we focus on viewing low-income individuals as active participants in their own life--in addition to being a policy-relevant population--the more we can get some novel ideas to surface.
Tuesday, July 24, 2007
Poverty and Smoking
So my last post introduced my new favorite toy, the Bureau of Labor Statistics' Consumer Expenditure Survey. Blair Benjamin over at Asset Almanac (one of few, and much-needed, anti-poverty blogs) had some kind words to say about my use of the data.
It really is a pretty powerful set of numbers, once you get to crunching them. For example, I mentioned that the proportion of income that the lowest quintile and highest quintile of US income earners spend on tobacco are vastly different: the bottom quintile spends 1.4 % of expenditures on tobacco, while the top only spends .03 %. That means that the poor proportionately spend 467% more on tobacco than do the top-earners.
The correlation between tobacco use and poverty is actually an international phenomenon: across the world, poorer (and poorer educated) people, especially men, are more likely to die than their wealthier counterparts, with smoking accounting for more than half the difference
between mortality rates.
Here in the U.S., the CDC found that
The pressing question is why we think there's such a socioeconomic disparity when it comes to smoking: why do poor people smoke more? There are three lines of thought that come to mind:
(1) Lack of education. This is somewhat obvious in the sense that education is strongly correlated to smoking behavior. Interestingly, the correlation seems to be to general education, rather than particular anti-smoking campaigns. In fact, education correlates with pretty much every measure of success, including good health.
(2) Culture. Culture is often thrown around as an (irritatingly) obtuse term, but here I think it has some use. Back in 2002, sociologist Philippe Bourgois wrote a book called In Search of Respect that clearly detailed the social patterns and cultural cues that differentiated low-income urban communities in the midst of social disorganization and 'mainstream' America. What Bourgois makes clear is this: what it takes to 'make it' in poor neighborhoods is a hell of a lot different than what is needed for conventional success. Smoking then, could serve as a social tool, a status symbol, regardless of how much information is had about it. To what extent is smoking part of a subculture (the same way that other drugs can be), rather than an individual vice?
(3) Stress/strain. Studies have found that women smoke to suppress negative feelings, and men smoke to promote positive ones. Low-income individuals have also articulated their habits as a tool of boredom, release, and privacy (page four of this study). In this case, smoking is kind of a social 'fix', trying to compensate for strain or social isolation.
Taking these three together as possibilities, we have a pretty overwhelming picture where smoking is related to education, culture, and social isolation. Assuming more than one of these possibilities is true (which seems likely based on existing research), than we have smoking being less of a pure health issue and more of a comprehensive poverty issue. Our initial concern--cutting down the amount that low-income folks spend on tobacco--may be much more closely linked to general community development and poverty relief than initially assumed.
The more we think of issues in this multi-layered sense, the clearer it is that 'quick fixes' are no replacement for the fundamentals of life--education, integration, connection--that bring with them a wealth of positive consequences. That's why it's so important to keep pushing on these fronts, because of their cumulative impact on all facets of life--even how much of your paycheck you blow on a pack of smokes.
Expect me to keep babbling on about the Consumer Expenditure Survey and its implications in the near future.
It really is a pretty powerful set of numbers, once you get to crunching them. For example, I mentioned that the proportion of income that the lowest quintile and highest quintile of US income earners spend on tobacco are vastly different: the bottom quintile spends 1.4 % of expenditures on tobacco, while the top only spends .03 %. That means that the poor proportionately spend 467% more on tobacco than do the top-earners.
The correlation between tobacco use and poverty is actually an international phenomenon: across the world, poorer (and poorer educated) people, especially men, are more likely to die than their wealthier counterparts, with smoking accounting for more than half the difference
between mortality rates.
Here in the U.S., the CDC found that
- smoking prevalence was highest among adults who had earned a General Educational Development (GED) diploma (43.2%) and those with 9--11 years of education (32.6%)
- prevalence generally decreased with increasing education. Adults aged 18--24 years (24.4%) and 25--44 years (24.1%) had the highest prevalence.
- the prevalence of current smoking was higher among adults living below the poverty level (29.9%) than among those at or above the poverty level (20.6%)
The pressing question is why we think there's such a socioeconomic disparity when it comes to smoking: why do poor people smoke more? There are three lines of thought that come to mind:
(1) Lack of education. This is somewhat obvious in the sense that education is strongly correlated to smoking behavior. Interestingly, the correlation seems to be to general education, rather than particular anti-smoking campaigns. In fact, education correlates with pretty much every measure of success, including good health.
(2) Culture. Culture is often thrown around as an (irritatingly) obtuse term, but here I think it has some use. Back in 2002, sociologist Philippe Bourgois wrote a book called In Search of Respect that clearly detailed the social patterns and cultural cues that differentiated low-income urban communities in the midst of social disorganization and 'mainstream' America. What Bourgois makes clear is this: what it takes to 'make it' in poor neighborhoods is a hell of a lot different than what is needed for conventional success. Smoking then, could serve as a social tool, a status symbol, regardless of how much information is had about it. To what extent is smoking part of a subculture (the same way that other drugs can be), rather than an individual vice?
(3) Stress/strain. Studies have found that women smoke to suppress negative feelings, and men smoke to promote positive ones. Low-income individuals have also articulated their habits as a tool of boredom, release, and privacy (page four of this study). In this case, smoking is kind of a social 'fix', trying to compensate for strain or social isolation.
Taking these three together as possibilities, we have a pretty overwhelming picture where smoking is related to education, culture, and social isolation. Assuming more than one of these possibilities is true (which seems likely based on existing research), than we have smoking being less of a pure health issue and more of a comprehensive poverty issue. Our initial concern--cutting down the amount that low-income folks spend on tobacco--may be much more closely linked to general community development and poverty relief than initially assumed.
The more we think of issues in this multi-layered sense, the clearer it is that 'quick fixes' are no replacement for the fundamentals of life--education, integration, connection--that bring with them a wealth of positive consequences. That's why it's so important to keep pushing on these fronts, because of their cumulative impact on all facets of life--even how much of your paycheck you blow on a pack of smokes.
Expect me to keep babbling on about the Consumer Expenditure Survey and its implications in the near future.
Monday, July 16, 2007
Do Working Families Have 'Room to Save'?
At this past weekend's Policy Expo (which was a great success thanks to the hard work of
References
Tuesday, July 10, 2007
The Economics of Gay Marriage
Ah, 2004. Shrek and Spider-Man battled at the box office, the excellent Funeral from Arcade Fire was released, and the banning of gay marriage was a hot topic in political culture.
Now it's 2007 and we've witnessed Round 2 of Shrek v. Spidey, Arcade Fire's follow-up Neon Bible, and continued political activity surrounding gay marriage, but in a direction vastly different than we witnessed in 2004. In the spirit of changing political winds, I just wanted to call attention to some of the unexpected benefits of gay marriage that may or may not be affecting the positions of leaders and officials. Back in 2004, the Institute for Gay and Lesbian Strategic Studies (IGLSS) reported that
"The Congressional Budget Office found that allowing same-sex couples to marry would boost federal income tax revenues by $400 million per year til the end of this decade, mainly because of the so-called “marriage penalty" [i.e. when individuals marry they, as a couple, are subject to higher taxes]...the net impact would be a federal budget savings of nearly $1 billion per year."
Another study from IGLSS and UCLA showed that "California would have a net savings of $22-25 million per year if same-sex couples could marry. A 2003 study of New Jersey’s Domestic Partnership Act, which goes into effect in July, predicts that the state is likely to see a net savings of $61 million per year by giving same-sex couples rights."
From these same datasets, a short piece in Mother Jones in March of this year outlined additional fiscal benefits stemming from gay marriage:
Newly formed gay households move up in income and are cut from programs such as Medicaid, resulting in savings of $50 to $200 million
the largest cause of these enormous deficits has been the remarkable drop in personal income taxes, which fell from 10.1 percent of the gross domestic product in fiscal 2000 to an average of only 7.3 percent of the GDP in fiscal 2002 through 2006 — a 28 percent drop. In fact, income tax revenues have been at or near their lowest levels as a share of the GDP in 55 years.
So, lower taxes contribute to a huge deficit. The Right remains committed to the mantra of low taxes, even in the face of a myriad of fiscal obligations (many of their own creation). For number-crunchers inside State Houses and inside the Beltway, the creation of a whole new category of taxable populations, and the reorganization of a demographic along cost-effective grounds, is probably looking mighty appealing just about now.
How much longer can symbolic acts of 'shrinking government 'be reconciled with realities? It might not be too long before a vocal economic consensus is reached regarding not only the moral, but the financial, need for gay marriage. If there is, any urgency will be a product of willy-nilly, tunnel-visioned policies that grow the deficit. One can only imagine the chaos in the conservative tent if such an economic movement should arise.
Now it's 2007 and we've witnessed Round 2 of Shrek v. Spidey, Arcade Fire's follow-up Neon Bible, and continued political activity surrounding gay marriage, but in a direction vastly different than we witnessed in 2004. In the spirit of changing political winds, I just wanted to call attention to some of the unexpected benefits of gay marriage that may or may not be affecting the positions of leaders and officials. Back in 2004, the Institute for Gay and Lesbian Strategic Studies (IGLSS) reported that
"The Congressional Budget Office found that allowing same-sex couples to marry would boost federal income tax revenues by $400 million per year til the end of this decade, mainly because of the so-called “marriage penalty" [i.e. when individuals marry they, as a couple, are subject to higher taxes]...the net impact would be a federal budget savings of nearly $1 billion per year."
Another study from IGLSS and UCLA showed that "California would have a net savings of $22-25 million per year if same-sex couples could marry. A 2003 study of New Jersey’s Domestic Partnership Act, which goes into effect in July, predicts that the state is likely to see a net savings of $61 million per year by giving same-sex couples rights."
From these same datasets, a short piece in Mother Jones in March of this year outlined additional fiscal benefits stemming from gay marriage:
Newly formed gay households move up in income and are cut from programs such as Medicaid, resulting in savings of $50 to $200 million
Uninsured gays and lesbians, whose health care costs are now paid by the government, join their spouses’ insurance plans. If a third do so, federal costs drop by $190 million
If half the same-sex couples now living together get married (the rate seen in Vermont and Massachusetts) and spend a quarter of what straight couples do, it results in a wedding-industry boon of $2 billion
TOTAL SAVINGS: Up to $3.1 billion
the largest cause of these enormous deficits has been the remarkable drop in personal income taxes, which fell from 10.1 percent of the gross domestic product in fiscal 2000 to an average of only 7.3 percent of the GDP in fiscal 2002 through 2006 — a 28 percent drop. In fact, income tax revenues have been at or near their lowest levels as a share of the GDP in 55 years.
So, lower taxes contribute to a huge deficit. The Right remains committed to the mantra of low taxes, even in the face of a myriad of fiscal obligations (many of their own creation). For number-crunchers inside State Houses and inside the Beltway, the creation of a whole new category of taxable populations, and the reorganization of a demographic along cost-effective grounds, is probably looking mighty appealing just about now.
How much longer can symbolic acts of 'shrinking government 'be reconciled with realities? It might not be too long before a vocal economic consensus is reached regarding not only the moral, but the financial, need for gay marriage. If there is, any urgency will be a product of willy-nilly, tunnel-visioned policies that grow the deficit. One can only imagine the chaos in the conservative tent if such an economic movement should arise.
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