A Clouded Vision, Part 2: The Carrot

Please read Part 1 of this post.

The Carrot

If the Obama administration agrees to the Medicaid "reforms" described in Part 1, then Pennsylvania will accept its gift of virtually free money. However, there is an important catch. People who make up to 133% of the Federal Poverty Level (FPL) will be given this money to purchase private insurance policies through the national health insurance exchange. (Corbett refused to establish a PA exchange, so Pennsylvanians will be using the national exchange.) This means that people who would have been eligible for Medicaid expansion under the Affordable Care Act (ACA) will now be exposed to all the disadvantages associated with the private insurance market, including copayments that are likely to be considerably higher than PA Medicaid's current copayments. An exception is made for people in this income group deemed to be “medically frail,” who will be allowed to enroll in PA Medicaid.

Moreover, there is ambiguity in the meaning of this proposal. Most of you probably know that private health insurance offering comparable coverage is significantly more expensive than Medicaid—about $3000 more per person per year, according to the Congressional Budget Office. It is possible that Corbett is asking the federal government to pay the full cost of these private policies, in which case it will be paying more for Medicaid expansion in PA than in other states. The other possibility is that Pennsylvanians will be given a sum of money comparable to the cost of Medicaid, and they will either have to pay part of the premium themselves or accept less comprehensive coverage. A similar plan proposed by Arkansas asks the federal government to pay the full cost of Arkansans' private insurance, but it's not certain if this is legal. If this is what Corbett is proposing, people from other states are being asked to pick up part of the tab for PA's more expensive private health insurance! Since conservatives claim to be concerned about the high cost of providing health care to poor people, this seems like an odd stance for them to be taking.

Not mentioned is the fact that adding so many low income people to the exchanges will almost certainly drive up the cost of insurance premiums for everyone, since they are likely to be in poorer health than the general population.

There is no timetable for when Corbett's plan will take effect, but since it was not submitted to the Obama administration until now, it's unlikely to be available in January 2014.

People who are committed to health care for all Pennsylvanians will find obvious drawbacks to Corbett's Medicaid “reform” package. It significantly weakens the Medicaid program. It increases costs and reduces benefits for the poorest Pennsylvanians, and is almost certain to result in less actual health care being received. The job search requirements are unnecessarily punitive in an economy that falls far short of providing full employment and seem designed to force Pennsylvanians to accept jobs that fail to provide a living wage.

The “expansion” component of the package is likely to drive a wedge between progressive groups. On the one hand, it's just more corporate welfare for the private health insurance companies, corporations that are almost certainly among Corbett's and the Republicans' more generous contributors. On the other hand, if the proposal is accepted, 500,000 to 700,000 working class Pennsylvanians who are presently uninsured will receive some health care. It won't be as good as what they would have received under the ACA, but many progressives will argue that something is better than nothing.

Compared to Medicaid expansion under the ACA, the two parts of Corbett's plan represent a significant transfer of wealth from PA's poor and working class citizens to some of its largest and most profitable corporations.

Single-payer health care advocates are faced with a similar conflict to the one they faced with the ACA. Is half a loaf better than none? As the loaf gets progressively smaller, at what point do we withdraw our support and say, “No more!”?

Whether Corbett's plan will be implemented depends on whether it is accepted by the Obama administration. How “flexible” is the President willing to be? Similar plans have been advanced by Arkansas and Iowa, but Health and Human Services has not yet announced whether they will be approved. One feature of Corbett's plan that is unprecedented is the job search requirement as a condition of receiving Medicaid. Some states charge monthly premiums for Medicaid, but only for people with incomes above 100% of FPL. Are there any health care principles that Obama will not compromise? Having already moved pretty far to the right, Corbett's plan may seem to the White House to be just a baby step further.

Watch this space. Further details of the plan and data describing its financial impact are likely to become available soon. I will update this report as soon as they do.

You may also be interested in reading:

Tom Corbett to PA's Working Poor: “Drop Dead!” (Part 1) (See all four parts.)

Medicaid Expansion Update

A Clouded Vision, Part 1: The Stick

With his reelection campaign coming up next year, PA Governor Tom Corbett is apparently no longer able to resist the pressure to accept Medicaid expansion under the Affordable Care Act (ACA). Yesterday he unveiled the bare bones of a plan to expand Medicaid, while claiming that he is not. The plan lacks critical details and leaves many questions unanswered. It has not yet been accepted by the Obama administration, and should they not agree to it, it would fall through. It has, however, been endorsed by two powerful health care lobbies, the Pennsylvania Medical Society and the Hospital and Health System Association of Pennsylvania.

The plan is called “Healthy Pennsylvania,” and is described in official propaganda as “Governor Corbett's vision” for Pennsylvania. Much of the plan is empty rhetoric, referring to health care policies that are already in place, or new initiatives that appear not to be accompanied by any proposed legislation. Some of the new initiatives—such as “reform” of the medical liability system—are not good ideas, but I'll save that argument for another day. Of the four documents the Corbett administration has released, those parts of the plan that refer to Medicaid reform or expansion are described most clearly in this document.

We can think of the plan as having two parts—the carrot and the stick. The stick is “reform” of PA's existing Medicaid program, which Corbett says is too costly. These changes have the effect of reducing Medicaid benefits to healthy adult recipients, and increasing costs for most recipients. The carrot is a flawed version of Medicaid expansion through private insurance, which Corbett insists is not Medicaid expansion at all. (He's right.) He will agree to expand health insurance availability if and only if he gets his way and the feds agree to his “reform” plan.

The Stick

PA's existing Medicaid program is one of the stingiest in the country. Healthy adults only qualify for Medicaid if they earn less than 46% of the Federal Poverty Level (FPL). Children under six are covered up to 133% of FPL, and older children up to 100% of FPL. The aged, blind and disabled are also eligible up to 100% of FPL, but only if they have assets of less than $2000 per individual or $3000 per couple.

Corbett repeatedly refers to PA's Medicaid program as one of the most expensive in the nation. It's true that PA spends 34% more than the national average per enrollee. However, PA has fewer enrollees per capita than most other states. The chart below compares PA's Medicaid recipients to those of the US generally. PA has fewer healthy adults, who are the cheapest to cover, because of its strict eligibility requirements for this group. A higher percentage of its enrollees are seniors and people with disabilities, who require more expensive long-term care. Moreover, only 22% of PA's long-term care budget is spent on community and home-based care. The national average is 40%.

Here is what Corbett is proposing. To avoid confusion, remember that these “reforms” only apply to people who are currently eligible for PA's traditional Medicaid.

1. Changes in benefits. Proposed changes in benefits only apply to healthy adult recipients; benefits for children, seniors and people with disabilities will remain unchanged. Medicaid benefits are to be aligned with the benefits provided by private, commercial insurance available in PA's workplaces. What these benefits will be, of course, depends on what private policies they use as their standard. Will they more closely resemble the corporate executive package or the Wal-Mart package? They don't say. But since the goal of the plan is to save money, it is reasonable to assume that they are planning to reduce benefits below what Medicaid enrollees currently receive.

2. Cost-sharing. Cost-sharing is to be achieved by charging a monthly premium. The premiums begin for people who are above 50% FPL. These minimum premiums are not stated. However, they increase on a sliding scale up to a maximum of $25 per month per individual and $35 per household at 133% of FPL. Although it is not explicitly stated, presumably everyone, including children, seniors and the disabled, will pay these premiums. (Healthy adults are only covered up to 46% of FPL, so there would be no need for this cost-sharing plan if it only applied to healthy adults.) Premiums will be indexed to inflation, so they will go up each year.

3. Copayments. Medicaid copayments, which are not particularly high, are eliminated entirely, with one exception. There is a $10 copayment for “unnecessary” or “inappropriate”—as yet undefined—emergency room use. This latter proposal has long been part of the hospital lobby's wish list.

4. Work search requirements. Healthy adult recipients will be treated just like people who apply for unemployment. All working age, unemployed recipients will be required to engage in a job search through PA JobGateway program. There is a premium reduction—amount unspecified—for people participating in job training and work search.

5. Wellness programs. There is also a premium reduction—amount unspecified—for people who participate in wellness programs. Research has so far not shown wellness programs to result in measurable health improvements.

Corbett says his Medicaid “reform” package will result in “significant cost savings.” Will it actually save money? The monthly premium seems to be the only financially significant part of the package. Most of the rest of the plan only applies to healthy adult recipients, which limits its ability to save money, since so few current enrollees fall into this category.

Please read Part 2 of this post.

You may also be interested in reading:

Tom Corbett to PA's Working Poor: “Drop Dead!” (Part 1) (See all four parts.)

Medicaid Expansion Update

A Question of "Money"

It's no secret that '50s and '60s rhythm and blues artists were often ripped off by white record company owners, as well as by club owners, deejays, managers, and various other non-musicians making a profit from the music business. Unfortunately, black ownership of the means of production was not always a remedy for these abuses. Berry Gordy, Jr., was the owner of Motown, the most successful of the black-owned labels. From all that we know about how Gordy treated his artists, he is deserving of the title of “honorary white man.”

One way to cheat musicians was through manipulation of song copyrights. While musicians often wrote their songs, record executives sometimes required musicians to sign over part or all of the copyright to the songs to them or their cronies as a condition of allowing them to record. Barrett Strong, who recorded the 1959 R&B classic “Money (That's What I Want),”—ironically, a musical endorsement of materialism—is suing to have his name reinstated as one of the authors of the song. Mr. Gordy disputes his claims of authorship.

Barrett Strong claims that while working as a session musician for Motown, he developed the tune—a spinoff of one of the riffs in Ray Charles' “What'd I Say?”—and the lyric hook. A studio musician and a recording engineer confirm Strong's claim of authorship. Gordy liked the song and assigned staff writer Janie Bradford to help him with the lyrics. The copyright registration, filed in 1959, lists Strong, Bradford and Gordy as co-authors. The song was released went to #2 on the R&B charts in 1960 and also crossed over to the pop charts. It was one of Motown's first hits.

In 1962, Motown instructed the copyright office to remove Strong's name from the song, claiming that he was “erroneously listed” as a co-author. Under the law, he had three years to contest the change, but there was an important Catch-22. The copyright office has no obligation to inform authors of such changes, and he did not know about it.

There are some additional twists and turns to the story. For example, when the copyright was renewed in 1987, Strong's name was restored, but then removed the following year. (He didn't know about those changes either.)

The song has made a pile of what Mr. Strong wanted. It was covered by other artists, including the Beatles; it appeared on film soundtracks, in a Broadway play, and in television commercials. Strong was a one-hit wonder, retired from the music business, and spent most of his life working in an auto plant. In 2009, he suffered a stroke. Now 72, he lives in a retirement home and is unable to pay his rent or medical bills. He says he also wants to set the record straight and receive proper credit for his composition.

Legal experts say he has little chance of success due to the statute of limitations. If this story were to receive more publicity, I suppose there's always a chance that the multimillionaire Berry Gordy, Jr., could be publicly embarrassed into doing the right thing.

This article is cross-posted from my music blog, The Blues and the Abstract Truth.

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The Whitest Kids in Town

Big Brother is Watching

This paper is not about the NSA, but the more mundane surveillance that takes place in workplaces every day. Drs. Lamar Pierce, Daniel Snow and Andrew McAfee have published a new study of the effects of surveillance of employees in the restaurant business using informational technology (IT).

The setting is so-called “casual dining” restaurants. The authors don't identify the five chains they studied, but say they come from the market that includes Applebee's, Chili's and Olive Garden. Employee theft in the restaurant industry is estimated at 1% of revenue. The management of these chains installed Restaurant Guard, a computer software product sold by NCR designed to identify suspicious transactions by servers (waiters and bartenders). The sample was large: 392 restaurants in 38 states, employing over 30,000 servers, who conducted about 630,000 transactions per week.

The authors don't explain how the IT product works, which is probably a trade secret, but give examples of suspicious transactions. A voided check is regarded as suspect because one way servers steal is to void the check after the customer has paid and pocket the money.

The study uses an interrupted time series design. The main problem with before-after designs is the possibility that some unknown outside events coincide with the treatment and influence the results. In this study, the IT was installed on a staggered basis over a two year period (March 2010 to February 2012), protecting the results from what the authors call “week-specific shocks” (but not from long-term economic trends).

The researchers had no control over how the restaurants used the information about suspicious transactions. It is their understanding that they usually informed servers when Restaurant Guard was installed in order to take advantage of its deterrent effect. The restaurants agreed to apply the software retroactively to the time before it was installed, which allowed the researchers to measure changes coinciding with the intervention. Here are the main results:

• Theft losses averaged only $108 per restaurant per week before the intervention, and were reduced by 22%, or $23 per week. Either there was not much theft or the IT was not detecting all of it. (The authors assume the latter.)
• The impact of IT monitoring on total revenue was substantial. Revenue from food sales increased 7%, or $2975 per restaurant per week. Drink sales increased 10.5%, or $927 per restaurant per week.
• Tip percentage could only be measured on credit card transactions, so we must assume that the results were similar when customers paid cash. Tip percentage was basically unchanged. It increased by .3%, going from 14.8% of the bill before the intervention to 15.1% after.
• The researchers analyzed the results for individual workers. The effect of the surveillance was fairly uniform across workers. There were no significant differences in behavior between “known thieves”—servers whose behavior was flagged as suspicious—and “unknowns” who had not behaved suspiciously. There was more attrition among the “known thieves,” but it was seldom traceable to specific incidents, suggesting that they were leaving voluntarily rather than being fired.

If Restaurant Guard was not identifying much theft and few workers were fired, why did revenue go up sharply? The authors speculate that before the IT intervention, workers were “multi-tasking;” that is, both working and stealing. The software had the psychological effect of increasing fear of detection and discouraging theft. The workers compensated by increasing their efforts to make sales—for example, by asking customers whether they wanted another drink—in order to compensate for lost theft income by increasing their tip income.

The circumstances suggest the possibility of a Hawthorne effect, or reactivity, in which participants change their behavior due to the awareness that they are being observed. This effect might disappear over time as they gradually forget about the intervention. The authors compared changes in behavior during the first three months following the intervention and found no systematic trends. I'm not sure that three months is long enough to measure the decline of a Hawthorne effect.

The other main conclusion the authors draw from the study follows from the relative absence of individual differences among workers, whether “known thieves” or “unknowns.” The conventional wisdom is that you protect yourself from theft by hiring honest workers and firing those who turn out to be dishonest. But they conclude that employee theft is influenced more by environmental factors—in this case, surveillance—than by worker traits.

This study, and the role of social scientists in conducting it, makes me uncomfortable. Restaurant workers are some of the most dramatically underpaid workers in our society. The minimum wage for servers is $2.13 per hour. The Restaurant Opportunity Center, which advocates for better working conditions in restaurants, reports that the average restaurant worker earns $8.89 per hour (including tips), for a total of $15,092 per year; 89.7% don't have health insurance; and 87.7% don't have paid sick days. While theft is an inappropriate response to this situation, it is not surprising that they steal and that some of them feel justified in doing so.

The authors, all business school professors, adopt a somewhat self-congratulatory tone at having induced these servers to become more productive—to stop stealing (if they were actually stealing) and work harder for the same low wages. The increased value of their labor went almost entirely to the restaurant owners. Tip percentage increased by only .3%. The main way these servers profited was from the fact that their tips were based on larger checks.

The authors did not attempt to measure this increased tip income; in fact, there's no evidence that they even cared about it. It's impossible to determine tip income per server accurately from the data they provide. I did some rough back-of-the-envelope calculations making what I thought were reasonable assumptions and estimated that the average server in the study, who worked 22 hours per week, netted about $15 a week in additional tip income. I would hesitate to call this a “raise,” since it was obtained by working harder.

This study is consistent with theory and research in social science that suggests that one of the effects of new technology is to increase inequality. New technologies, such as computers, increase the income of the wealthy, who are able to take advantage of them, relative to those who are unable to afford the technologies or who are not trained to use them.

It's unfortunate that these social scientists are not interested in looking at the causes of illegal behavior among the wealthiest 1% of Americans. I guess there's no corporate financial support for that kind of research.

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Raising the Floor

Catch-22

No Medicaid Expansion = Higher Health Insurance Premiums

The Rand Corporation has published a study of the predicted effects of the Affordable Care Act (ACA) on private insurance markets in 2014. Like several other recent reports, they conclude that the claims of ACA opponents that insurance premiums would increase dramatically are not justified. However, one aspect of their report is of special interest to Pennyslvanians. It concerns the effect of Governor Tom Corbett's decision not to expand Medicaid on the costs to those Pennsylvanians who purchase their health insurance as individuals—that is, who do not purchase health insurance through their employer. First, let's review a few facts.

• The ACA expands eligibility for Medicaid to all legal residents whose income is less than 138% of the federal poverty level (FPL). Medicaid is administered by the states. However, the federal government will pay the full cost of Medicaid expansion in 2014. The feds' share declines to 90% by 2020.
• The Supreme Court ruled that the ACA's Medicaid expansion was coercive, and that states can decide whether or not to expand eligibility for Medicaid beyond their current limits. Governor Corbett has announced that Pennsylvania will not participate in Medicaid expansion.
• Pennsylvania is currently one of the least generous states in providing Medicaid. Adults only qualify for Medicaid if they earn less than 46% of FPL. Children under six are covered up to 133% of FPL, and older children up to 100% of FPL.
• To encourage people to buy private insurance, the ACA provides subsidies, known as advance premium tax credits, to people making between 100% and 400% of FPL. The lower their income, the greater the subsidy.
• This means that Pennsylvanians making between 46% and 100% of FPL are screwed. No Medicaid and no subsidy means that most of them will be uninsured. They will simply die at a higher rate than they would if Medicaid were expanded. (See my earlier series of four posts for estimates of the effect of Corbett's decision on mortality in Pennsylvania. Here's part 1.)
• However, people making between 100% and 138% of FPL will be eligible for fairly generous subsidies. Many of these folks are currently uninsured. It is anticipated that most, though not all, of them will purchase private insurance.

The Rand study looked at the effect of the entry of this group—people between 100% and 138% of FPL—into the non-group private insurance market. They analyzed it in three states, Florida, Louisiana and Texas, chosen they said because these states were least likely to expand Medicaid. Rand estimates that the effect of rejecting Medicaid expansion in these will be to increase private insurance premiums by 8-10%. There are two reasons for this:

1. Extensive research shows that there is a positive relationship between income and health. The higher your income, the healthier you tend to be. Thus, people between 100% and 138% of FPL are sicker than the average adult and will require more medical care. This will drive up insurance premiums for everyone in the risk pool.
2. Not all of the people between 100% and 138% will try to buy insurance. Some will decide they can't afford it, even with the subsidy. When not everyone purchases insurance, adverse selection occurs. Adverse selection refers to the fact that sicker people are more likely than healthy people to buy health insurance. This adds further to insurance costs.

Rand is confident that premiums will go up, but admits that their estimate of 8-10% is uncertain, primarily because it's hard to predict what percentage of the people between 100% and 138% of FPL will purchase insurance. Unfortunately, they didn't include Pennsylvania in their analysis. My guess is that our premium increase will be less dramatic because we have a slightly lower percentage of poor people than the three states they analyzed.

You may also be interested in reading:

Tom Corbett to PA's Working Poor: “Drop Dead!” (Part 1) (See all four parts.)

Medicaid Expansion Update