The Agenda

On Philanthropy Theater and Medicaid Cuts

Felix makes an important and neglected point about what he calls “philanthropy theater,” but I wonder if he’s missing the broader implications. First, he notes that Mayor Bloomberg is giving employees of the City of New York the option of setting aside part of their paychecks to aid reconstruction efforts in Japan. Then he notes that the CEO of Thomson Reuters, his employer, has made a similar offer to employees. And finally he goes for the jugular, in the way only Felix can:

What we’re seeing here, I think, can be considered “philanthropy theater”, much as the TSA engages in “security theater”. The point is really to be seen to be doing good, to feel as though you’re making a difference. And frankly that’s not a particularly bad thing. There are lots of reasons why people donate money to good causes, and not all of them are or should be entirely selfless. If acts like these acculturate us to giving money to charity, then maybe the effects here can be positive. Certainly there’s no sense in which giving money to Japan does any harm.

Still, I do worry about the way in which philanthropists like Bloomberg continue to conflate giving money, on the one hand, with making a real difference, on the other. If we continue to concentrate overwhelmingly on inputs rather than outputs, we’ll only serve to encourage ever more inefficiency and even fraud in the non-profit world. [Emphasis added]

This, of course, is exactly how many conservatives and libertarians feel about arguments for higher levels of public spending. We fixate on inputs, e.g., how much we spend on social services, rather than outcomes. 

Earlier today, Ezra Klein wrote a post on how Republican policies impact poor people:

I’m not saying that congressional Republicans don’t care about poor people. But they really care about rich people. So far, the policy agenda they’ve pushed has been a mixture of very expensive tax cuts for the very wealthy and very deep cuts to a lot of programs that focus on the very poor. It’s . . . curious.

He then goes on to make an excellent point:

Among other cuts, they’ve proposed slicing more than $1 billion off Head Start, $1.1 billion off the Public Housing Capital Fund, $752 million from the Special Supplemental Nutrition Program for Women, Infants and Children, or WIC, and $5.7 billion from Pell Grants. I could, of course, go on. Democrats have tried to widen the cuts out to other categories so their impact falls less heavily on the disadvantaged, but so far, Republicans have refused. If we’re going to cut spending, we’re going to do it on the backs of the poor.

As for the 2012 budget, we know Social Security is being left alone, and we know Medicaid — which is to say, health care for poor people — is taking a $1 trillion cut. If we’re going to reform entitlements, it seems, we’re going to start with the one that serves the poor.

It’s very difficult to argue that these programs are the most wasteful in the federal government. The Pentagon is burning through a lot more cash than Head Start. Medicare spends much more for health services than Medicaid. The mortgage-interest tax deduction is regressive, as is the deduction for employer-based health care, but as of yet, Republicans haven’t proposed reforming either. Again, I’m not saying Republicans don’t care about poor people. But so far, their policy proposals don’t.

I’ve made many of these arguments in this space and in The Daily, though I tend to emphasize different things, e.g., why cut work supports rather than K-12 education, as we’ve seen in Gov. Jerry Brown’s budget proposal in California? There is considerable waste in K-12 spending in the U.S., and there is reason to believe that the combination of structural reform and fiscal discipline could improve organizational discipline and improve educational outcomes. And why emphasize hiking marginal tax rates rather than reforming the mortgage-interest tax deduction if not to protect the interests of politically vocal under-$250,000 households that form a bedrock of the Democratic coalition as well as the Republican coalition? 

I do, however, think that we’ll be hearing much more about proposed cuts to Medicaid, so it’s worth thinking about what a $1 trillion cut to Medicaid expenditures might mean. This cut represents a reduction of planned expenditures over 10 years, or roughly $100 billion a year. The idea, as Jonathan Allen explains in The Politico, is to fundamentally change the way Medicaid works:

Ryan’s preferred treatment for Medicaid, outlined in a policy booklet called “A Roadmap for America’s Future,” is to convert current federal payments to states into direct assistance in the form of $11,000 per year per recipient, which could be used to purchase private insurance. It’s not clear whether Ryan envisions pursuing his prescription for Medicaid or a different formula for restructuring the program.

Chuck Loveless, legislative director of the American Federation of State, County and Municipal Employees, said any cuts that approach $1 trillion over 10 years would have “devastating consequences for the disabled, the working poor and children,” as well as seniors who rely on long-term care. “It shines a bright light, we think, on what the House Republican leaders are attempting to do in these various budget discussions as we go forward. They’re seeking to savage the safety net for the most vulnerable in our society [at] a time when corporations are enjoying record profits.”

Direct assistance would even the playing field between rich and poor states. One of the flaws of many block grant proposals is that they base their formula on current expenditures. Ryan’s approach in the Roadmap avoids this potential pitfall, though it remains to be seen if this is the approach that will eventually be embraced. 

Right now, states that spend more on their Medicaid programs receive more federal assistance. Richer states tend to spend more, and they also tend to face stronger lobbying pressure from public employees and from the health sector, which is where Chuck Loveless comes in. Suffice it to say, Loveless has a dog in this fight. 

According to the Center on Budget and Policy Priorities, which is hostile to Medicaid cuts and is generally a reliable ally of public employee unions, Mississippi is one of the five lowest-spending states:

In fiscal year 2007, the five lowest-spending states (California, Georgia, Alabama, Louisiana, and Mississippi) expended $3,828 per beneficiary, on average, according to the Kaiser Commission on Medicaid and the Uninsured; the five highest-spending states (Rhode Island, New York, the District of Columbia, Alaska, and New Jersey) spent $8,161.

And so one might assume that the Medicaid program in Mississippi would have relatively little fat to cut. Alex Brill of AEI, which tends to see things differently from CBPP as regular readers know, suggests otherwise:

Governor Haley Barbour of Mississippi and Governor Deval Patrick of Massachusetts recently testified before Congress on Medicaid and state healthcare reform. Governor Barbour detailed how, in just two years, Mississippi’s Medicaid program brought drug costs down from nearly $700 million to $279 million. He testified that Mississippi achieved these gains in part by limiting adult beneficiaries to two brand-drug prescriptions per month and the total number of prescriptions to five per month.

Brill then reports findings that may have implications for the Medicaid debate:

Overspending on Multi-Source Drugs in Medicaid” tracks state utilization of brand and generic versions of 20 top multi-source products in Medicaid in 2009. The report estimates that Medicaid spent over $300 million extra that year by paying for brand drugs when lower-cost generics with the identical active ingredient were available. In terms of waste per Medicaid enrollee, the worst offenders were Vermont ($31/enrollee), Iowa ($31/enrollee), Maine ($18/enrollee), New Hampshire ($17/enrollee), and Georgia ($15/enrollee).

In Mississippi, overspending on brand versions of multi-source drugs is estimated at just less than $1 per enrollee. In Massachusetts, overspending averages only $1.23 per enrollee. If every state were as efficient as these two states, total spending could have been reduced by hundreds of millions of dollars.

Hundreds of millions, alas, is a drop in the bucket. The medical insurer UnitedHealth’s Center for Health Reform and Modernization has identified $366 billion in potential Medicaid savings, focusing on improving care for beneficiaries with long-term needs and modernizing administration. Expanded use of capitation might also yield significant savings. It is silly pretend that it will be easy to retool the Medicaid program, which has been a mess with misaligned incentives for decades.

Yet it’s also clear, as John Hood argued in National Affairs, that the growth of Medicaid spending is unsustainable, due in no small part to the misalignment of incentives. We have to fix these incentives, whether through the strategy Hood outlines or something like Ryan’s approach. To paraphrase Felix, allowing the program to continue on its current spending trajectory, and concentrating on inputs as the measure of how much we care rather than outputs, will only serve to encourage ever more inefficiency and even fraud in state Medicaid programs.

Let me make it clear that I seriously doubt Felix would share my conclusion. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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