Is New York's "Safety Net" A Success?

One of the many specialized publications here in New York is something called “Crain’s New York Business.” As its title suggests, Crain’s covers mostly the affairs of the business community, although from time to time it also dabbles in political and policy matters. Sometimes it even has some sensible things to say. And sometimes not.

This week’s issue of Crain’s is dominated by a cover story titled “The State of Inequality: A Program for Every Problem.” The article has the byline of Crain’s head editor Greg David (although I doubt he actually wrote it — it’s not his usual style at all). It purports to be a review of the state of the “safety net” and its many subsidiary programs here in New York, together with, to some degree, a comparison of same to similar programs in certain other states (Georgia, Texas, Washington).

This lengthy piece is a serious embarrassment to Crain’s. It could not be worse if they simply had published verbatim a pile of campaign propaganda fed to them by a Cuomo or a de Blasio — which may very well be what this actually is. I’ll first take you through what the article says, and then I’ll go over a few of the elephants standing around here that they have somehow missed.

The basic theme of the piece is that New York has the most extensive array of social safety net programs in the country, and THEY’RE WORKING !!!!!! And how do we know that THEY’RE WORKING !!!!! ? Because we have followed the basic journalistic technique of interviewing some of the beneficiaries of the programs, and some of the bureaucrats who run the programs. And, remarkably, those people are unanimous in declaring the great success of the programs that they benefit from and/or administer. QED! Now, has anyone thought to maybe go out and collect some data as to, for example, how New York compares to other jurisdictions in actually reducing poverty, or reducing income inequality, or (in the case of medical programs) extending life expectancy? Of course, you will not find any of that in this article. . . .

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The Cruel, Heartless Expansion Of Medicaid Under Obamacare

You have undoubtedly noticed that the official Democratic talking point about any and all efforts to repeal or even modify Obamacare is that this is "cruel."  OK, sometimes it's "heartless."  Or maybe "a human tragedy."  You are taking away "healthcare" from the people and leaving them to suffer in the streets!  People will die!!!!

Just to warm you up for this post, here is a small roundup:

  • Sen. Richard Blumenthal (D-CT), commenting on the Graham-Cassidy bill on September 20:  "We are on the precipice of one of the most cruel and outrageous legislative acts in recent history."
  • Washington Post, July 20, commenting on the then-current Republican "repeal only" plan:  "CBO again confirms the cruelty of GOP’s ‘repeal-only’ plan."
  • The New Republic, March 14, commenting on another earlier version of Obamacare repeal/replace known as the American Health Care Act:  "[T]he incredible cruelty of the Republican legislation didn’t become clear until Monday, when the Congressional Budget Office . . . estimated it would undo nearly all of the coverage gains we’ve seen under the Affordable Care Act, creating human tragedy on a scale far greater than even pessimistic analysts imagined.
  • New York Magazine, September 5:  "[Trump's position on immigration] contains the same mix of cruelty and desperate incompetence as his position on repealing Obamacare."

Etc., etc., etc., etc.  I mean, isn't it completely obvious that people who have "healthcare" are going to have superior health outcomes to those who don't?

Well, some things that seem like they obviously must be true turn out not to be true at all.  I have linked many times to the famous randomized study from Oregon published in the NEJM in 2013 that spectacularly failed to demonstrate any health gains from putting people on Medicaid.  Then in a post from March of this year, I went through the then-just-published neighborhood-by-neighborhood health data for New York City for 2015 to examine whether those neighborhoods with very high Medicaid participation rates had better or worse health outcomes than the other neighborhoods in the City.  Uniformly and without exception, the high-Medicaid-participation neighborhoods had worse health outcomes, and by large amounts, and on every metric considered.  

And finally, in a post in August of this year, I noted that the full implementation of Obamacare in 2015 and 2016, instead of being accompanied by an increase in life expectancy, had been accompanied by a decrease in life expectancy.  How could that have happened?  I asked:

Could it be because expanded Medicaid is paying for opioids for the vulnerable?  That's a very reasonable hypothesis, although there are not yet enough data to prove it.

It's only been a little more than a month since that post, but some data are starting to trickle in.  And sure enough, those data strongly suggest that large numbers of new Obamacare Medicaid recipients are using their "healthcare" to obtain and use (or maybe sell) opioid painkillers, with very bad follow-on health effects.  An op-ed by Allysia Finley in Monday's Wall Street Journal, "Does Medicaid Spur Opioid Abuse?", collects some facts and figures, which were originally put together by CDC at the request of Senator Ron Johnson (who lost a nephew to a heroin overdose).  Some particularly dramatic examples:

Data from the Centers for Disease Control and Prevention show that overdose deaths per capita rose twice as much on average between 2013 and 2015 in states that expanded Medicaid than those that didn’t—for example, 205% in North Dakota, which expanded Medicaid, vs. 18% in South Dakota, which didn’t. . . .  Between 2010 and 2013, overdose deaths rose by 28% in Ohio and 36% in Wisconsin. Between 2013 and 2015, they climbed 39% in Ohio, which expanded Medicaid, but only 2% in Wisconsin, which did not.

I wouldn't call it definitive proof yet, but all data I have seen so far indicate that a big use of expanded Medicaid has been to obtain prescription painkillers.  Some -- indeed, many -- of those prescriptions will inevitably be abused.

Of course there has been some push back.  Here is an example from the AP, August 31, "Medicaid fueling opioid epidemic? New theory is challenged.":

[U]niversity researchers say Medicaid seems to be doing the opposite of what conservatives allege.  “Medicaid is doing its job” by increasing treatment for opioid addiction, said Temple University economist Catherine Maclean, who recently published a paper on Medicaid expansion and drug treatment. “As more time passes, we may see a decline in overdoses in expansion states relative to nonexpansion states.”

Seems like Ms. Maclean has no data to support her position, but speculates with great confidence that the government program will end up having a positive effect since, I guess, all government programs must inevitably have positive effects because their proponents are such great experts and such good people and so well-meaning.  Right!

Or there's the theory that people do much better in life striving to make it on their own than they do by accepting government handouts.  Anyway, if deaths keep going up more in the Medicaid expansion states than the others, then which one is "cruel" -- Medicaid expansion or not?


The Sad Cancer Of Third Party Pay Medical Care

As noted in my previous post a couple of days ago, almost all of the commentary about the recent defeat in Congress of the American Health Care Act proposal is about the immediate blow-by-blow of the ongoing political battle.  President Trump has suffered a huge defeat!  Paul Ryan is a loser and must be replaced immediately!  The Republicans can't govern!

Can we look at this with a little perspective?  Here's my perspective:  Third party pay for health care, whether it be government pay (Medicare, Medicaid), or near-universal insurance-company pay for ordinary and routine expenses, or a combination of both, cannot work for the long pull.  Unfortunately, like it or not, scarcity is the essential unavoidable condition of human existence.  No-questions-asked third party pay for healthcare ignores the fundamental grinding reality of scarcity.  We pretend that healthcare can be demanded and consumed in whatever infinite amounts somebody might want, without downside.  It's the usual illusion of socialism, seemingly confined to one small area of the economy; so, really, how much destruction can it wreak?  Unfortunately, the amount of destruction it can wreak is vast, and may only have begun.

Somehow it has become a shibboleth of the Left that third party pay for all or nearly all healthcare expenses is some kind of moral necessity of a decent society.  The official line is that without some form of universal "healthcare," some people will be stuck worrying about whether they can afford a treatment that may be important or even necessary; some people might lose most of their net worth or even be bankrupted by a health crisis; some people might forego necessary treatment.  Some people might even die!  (The part about excess deaths has proved remarkably difficult to demonstrate empirically.

But for these purposes, assume that all of these things are true, or at least somewhat true.  Meanwhile, in pursuit of the mirage of perfect cost-free healthcare for all, health spending has gone from about 7% of the economy in 1965 when Medicare and Medicaid were launched, to almost 18% today.  The incremental amount represents around $2 trillion per year to today's economy -- enough, for example, to cure all defined "poverty" about 6 times over.  The costs are buried all over the place -- some in insurance premiums paid by households, more in insurance premiums paid by employers that therefore never turn up in take-home pay, and still more in taxes at all different levels of government -- so that nobody can ever get a handle on how much they are paying and who gets the money.  And let's not kid ourselves that the "rich" do or can be made to pay all or even most of this mushrooming healthcare spending.  $2 trillion is more than the total income of the top 1% of taxpayers according to the most recent IRS data from the Tax Foundation!  There is no getting around the fact that medical spending has become a tremendous drag on the incomes of the middle class.  If you want to find the one main reason why middle class incomes do not go up, and why middle class families are angry at their inability to get ahead, this is it.

And they are right to be angry.  The moral necessity of universal third party pay healthcare is generally sold by presenting a small number of hardship cases to tug at the emotional heartstrings of the public.  OK, how much of the $2 trillion would actually be needed to take care of the bona fide sympathetic cases, and nothing for the bureaucrats and rent seekers?  5%?  Maybe 10%?  Unfortunately a socialist-model system has no ability to find the real need and spend only on that.  There is no known example of a socialist-model system not being taken over by the unproductive bureaucrats and rent seekers and run for their benefit.    

Among the dozens of articles during the last few days on this subject, I have managed to find just a couple that get past the immediate blow-by-blow and show a little perspective.  First, here is one from, titled "The Truth About Health Care."   It is definitely worth your time to read the whole thing, but I'm going to incorporate some significant quotes:

This is an iron law of economics. All goods and services are rationed. This is true for health care too. There are no exceptions to this law. Thus, the First Truth of Health Care: No health care plan or system can ever be taken seriously unless it addresses, up front, how it will say “No, you cannot have it” to people who want it. At some point, someone has to tell the patient they cannot have whatever it is they want or need. . . .  

Thus, the Second Truth of Health Care: The current insurance model is just a wealth transfer from the middle-class to the health care industry, in order to cover the cost of poor people and the metastasizing layer of people who live off the system. Th[is] is really just a tax. Most people use about 5% of their plan for themselves; the rest is used to pay for poor people and the army of people who work in the system. . . .  

Thus, the Third Truth of Health Care: Health services are a massive skimming operation. Today, the one area of the economy that “grows” is the health care industry. Every year, more and more people pile into that wagon, mostly in administrative roles. The number of nurses and doctors does not grow very much, but the number of bureaucrats grows like a weed.

Then you have the pill makers, machine makers, research people and lawyers. There are always lots and lots of lawyers. The health care industry is massive and government dependent. It’s why rub rooms are now called message therapy centers. They are angling to get it on the racket, by having their service declared an essential health care service. . . .  

Third party pay health care is why the price of lasik surgery for your eyes (not covered by insurance) drops like a stone, while newly approved drugs that come to market (covered by insurance) now get priced at $50,000 or $100,000 for a course of treatment.  Hey, how are the government or insurers going to say no to the price if the drug might save somebody's life?  The government and insurers have infinite deep pockets -- otherwise known as what could and would have been increasing middle class incomes, now diverted to the parasites by the genius of socialism.

Returning from court today on the subway, I came across this ad, representing the dead end into which our healthcare system is headed by the irresistible incentives of third party pay:

You too can now get in on the racket!

A second article today with some sense of perspective on the situation is from Myron Magnet of the Manhattan Institute, appearing in the LA Times, titled "The original mistake that distorted the health insurance system in America."  That original mistake was the establishment, during World War II, of first-dollar or near-first-dollar healthcare "insurance" as a pre-tax employee fringe benefit.  With that foundational error, consumer cost-consciousness was banished from the medical arena, and the cancerous tumor got its start.  Tumor growth has proceeded from there.  Medicare and Medicaid represented the metastatic phase.  We are now well into Stage IV of the terminal disease.

Is there any possible cure at this point?  The only one I can see is a massive return to the states of responsibility for the healthcare issue.  If this occurs, those states brave enough to return to consumers the individual responsibility for low dollar health expenses will see a clear competitive advantage over those states that indulge in the socialist illusion.  Barring such a reform, the (now multiple) tumors continue their growth.  CMS here projects that healthcare expenditures in the U.S. will reach about 20% of GDP in the early 2020s.  I suspect that the growth will be even faster.  Don't count on much real growth of middle class incomes until this issue is addressed.   You will not find any organ of progressive journalism ever discussing this trade-off.

Here's What's "Cruel": Trapping The Poor In A Lifetime Of Dependency

Have you ever noticed that all Chinese menus are remarkably the same?  Moo shu pork.  General Tso's Chicken.  Beef with broccoli.  Sweet and sour pork.  In New York, everybody knows that it's because all the Chinese food is prepared in one massive central kitchen located beneath Times Square.  Of course it's all the same!

What hasn't been as widely recognized is that there is also one massive central newsroom, equally located just beneath Time Square (right next to the central Chinese kitchen), that prepares the progressive news talking points each day and distributes them to dozens of seemingly separate televisions networks, newspapers and websites.  How else to explain that you can go to literally any one of the so-called "mainstream" sites on any given day, and find not only the same stories, but generally also expressed in the exact same words?  Recently -- by which I mean, since January 20 -- the selected words always have been chosen to maximize the degree of evil attributed to the new President and Congress.

And thus, with the unveiling last week of the first proposal from the Republican Congress to start undoing Obamacare, we find the immediate emergence of the official progressive talking point clearly emanating from the central newsroom:  This is "cruel."  The CBO has estimated a likely increase in the number of people without healthcare "coverage."  Go literally anywhere, and you find this circumstance described with the same word -- "cruel" -- repeated, over and over. At the New Republic on March 14 it's "The Incredible Cruelty of Trumpcare" (subtitle "Republicans are willing to cause a humanitarian crisis just to give permanent tax cuts to millionaires").  At New York Magazine, it's "Trumpcare Is The Culmination of All the GOP's Healthcare Lies" ("they instead rushed out a plan that is shambolic and cruel").  At the Washington Post on March 8, it's "the ultra-conservative Freedom Caucus . . . is terribly distressed by the fact that the Ryan bill is insufficiently cruel to poor people."  Paul Krugman of the New York Times put it in a tweet on March 14: "The first and most important legislative initiative [of the new Congress] is stupid as well as cruel . . . ."  There are dozens of other examples.

You get the idea.  The little people are incapable of facing any downside risk of life on their own.  Any failure of the federal government to accept and provide for any and all downside risks of life, right down to a couple of aspirin to help with a headache, is "cruel."  It's "heartless."  It's "a humanitarian crisis."  Government's job is to make sure that all people have free or affordable "healthcare," so that any healthcare issue that arises in their lives can be promptly treated, at public expense.   

Of course, it is a given that government-provided health care is a moral imperative.  Without it, people who are poor and of low income will go without needed medical treatment.  They will suffer, and then die.  Right?  I mean, everybody knows that people who go without healthcare "coverage" have a higher death rate than people who are "covered."  Everybody knows that because, back in 2002, the Institute of Medicine estimated 18,000 excess deaths per year among the "uninsured," based on an assumption that uninsured people had a mortality rate higher than that of the insured.  In 2009, in the run-up to enactment of Obamacare, a Harvard "study" upped the estimate of annual excess deaths among the uninsured to some 45,000, again based upon an assumption that the "uncovered" must have higher mortality.

And yet.  First came that controlled study in Oregon where thousands of people were randomly assigned to Medicaid and non-Medicaid groups.  The results were reported in the New England Journal of Medicine in 2013:

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes . . . .    

But here is what is even more significant.  Look at reports of health data among high-Medicaid recipient populations of poor people.  What you will find is that their health outcomes are universally inferior to national or city norms on any measure you can think of.  As discussed here several days ago, last year New York City published health data for 2015 broken down by neighborhood.  Look up the data for the poor and majority-black neighborhoods, where Medicaid is pervasive, and you can see how well Medicaid is working -- or not.  After 50+ years of massive and ever-growing spending, has Medicaid succeeded in bringing health outcomes among the poor up to national norms, or are the poor stuck in a rut of persistently inferior health outcomes?  It's not even close.  Here is the report for Central Harlem; here's the one for Mott Haven/Melrose in the Bronx; here's the one for Bedford-Stuyvesant in Brooklyn; and here's the one for Ocean Hill-Brownsville in Brooklyn.

  A sample of some of the results:  

  • U.S. life expectancy in 2016 was 78.8 years.  But in Harlem it was 75.1 years; in Mott Haven/Melrose 76.1 years; in Bed-Stuy 75.1 years.  And in the ultimate public housing, Medicaid, and food stamp dependency utopia of Ocean Hill-Brownsville, life expectancy was just 74.1 years, almost five full years less than the national norm.  
  • Obesity and diabetes rates are far higher in these neighborhoods than elsewhere in New York City.  In the four cited neighborhoods, obesity rates range from 28% of the population in Central Harlem to 33% in Bed-Stuy, against a city norm of 24%.  Diabetes rates are 50% above the city-wide norm of 10% of the population in all of Mott Haven/Melrose, Bed-Stuy, and Brownsville, and 30% above in Harlem.
  • These neighborhoods far exceed city norms for drug and alcohol-related hospitalizations.  Brownsville is again the "leader," with 2,285 alcohol-related hospitalizations per 100,000 population in 2015, and 2682 drug-related hospitalizations per 100,000, as against city-wide norms of 1019 and 907 per 100,000 respectively.  The best of the four is Bed-Stuy, with "only" 1713 alcohol-related hospitalizations per 100,000, and 1830 drug-related.
  • Medicaid beneficiaries supposedly have infinite free pre-natal care and obstetrical services.  Yet somehow, infant mortality is far higher in all of these neighborhoods than city-wide norms.  The city-wide norm for infant mortality per 1000 births is 4.7.  But the rate is 8.1 in Central Harlem, 8.0 in Brownsville, and 6.6 in Mott Haven/Melrose.  Only Bed-Stuy, at 5.0 is near the city norm.
  • In the category of "premature mortality," where the city-wide rate is 198.4 per 100,000, Brownsville leads the city with a rate of 367.1.  Bed-Stuy ranks third at 309.2, and Mott Haven/Melrose fourth at 305.7.  Central Harlem is closest to the city norm -- not very close -- at 293.1.

Do you maybe get the idea that something is not working here?  While no association of Medicaid "coverage" with better health outcomes can be demonstrated, it is glaringly obvious that what can be demonstrated is an association between widespread dependency on government programs for the poor (of which Medicaid is the largest and most widely available) and worse health outcomes.  Much worse health outcomes.

I don't know why high dependency on government programs in general, and Medicaid in particular, is so closely associated with much higher rates of drug and alcohol abuse, higher death rates and shorter life spans.  But the best hypothesis is that no-questions-asked handouts take away human independence and act as a "subtle destroyer of the human spirit."  (The phrase comes from the 1935 Address to Congress of Franklin Roosevelt.)  If you can't improve your life by working hard, why not just take drugs? 

Anyway, if we are to take it as established that subjecting the poor to worse health outcomes is "cruel," then the path forward is obvious.  The thing to do is to lower rates of dependency.  Get as many people as possible off of Medicaid, and for that matter food stamps and subsidized housing.  Bring back some striving to the lives of the poor!  Anything else is "cruel"!

Somehow, I don't think that anyone has yet written this story in the central newsroom beneath Times Square.   


What Is The Federal Government's Most Disastrous Program?

I know you are thinking that the question is impossible to answer because there are just too many to choose from.  So I'll give you some criteria:  to be considered as the "most disastrous program," a program must (1) cost a staggering amount of money, (2) accomplish next to nothing, and (3) be permeated by vast amounts of fraud.  On these criteria, the winner by thousands of miles has to be Medicaid.  Of course, given that the socialist/progressive response to failure is always to double down, we are in the midst of a huge expansion of Medicaid as part of Obamacare.

The staggering cost of Medicaid is undeniable.  Final 2016 spending numbers are not yet in, but the federal Medicaid budget for 2016 was about $345 billion.   Throw in a couple of hundred bil  for the state share of Medicaid spending, and you get to around $550 billion total.  That's enough to notice!  And spending on this program continues to explode, as it has exploded more or less continuously since inception in 1965.  As recently as 2014, total spending on Medicaid (federal + state) was only $476 billion, per the Kaiser Family Foundation.   First year expenditures in 1965 were about $1 billion.  OK, in inflation-adjusted dollars that would be more like $8 billion.  It's still more than six doublings of spending over 49 years, for a compound annual growth rate in constant dollars of around 9%.  Whew!

But surely, Medicaid accomplishes something -- doesn't it?  That depends what you are measuring, and how you measure.  I would suggest that there are two appropriate criteria to consider as to whether Medicaid accomplishes anything:  improvement in numbers of people in poverty, and improvement in health outcomes.  On those criteria, Medicaid is a spectacular disaster.

Consider the effect of Medicaid on numbers of people in poverty.  That is a highly appropriate criterion to consider, because Medicaid is billed as an "anti-poverty" program.  Indeed, Medicaid is far and away the largest "anti-poverty" program, consuming about half, or a little more, of the $1+ trillion of total federal + state + local anti-poverty spending in the U.S. each year.  It would be rather ridiculous, wouldn't it, to have a massive trillion-dollar annual budget for alleviating poverty, and spend fully half of it on a program that doesn't reduce poverty at all?  Yes, it would be completely ridiculous.  And of course, that's exactly what we do.  In the official measurement of "poverty," in-kind spending like Medicaid does not count.  The Census number crunchers measure "poverty" only based on what they call "cash income," and nothing about Medicaid counts as cash income.  Thus, Medicaid does not reduce the number of people in official "poverty" by a single soul.

If you think that's ridiculous, I have something even more so.  Recognizing the vulnerability of Medicaid to the criticism made here, some defenders of the program a few years ago felt a need to do a study to show that Medicaid actually does reduce poverty.  So in 2013, researchers named Sommers and Oellerich did a big study published in the Journal of Health Economics purporting to apply a sophisticated new methodology to evaluate whether Medicaid actually reduced poverty.  Of course the first thing their new methodology had to do was to avoid use of the regular Census methodology for measuring poverty, because it's a given that Medicaid does not and cannot reduce poverty under that definition.  (Instead they used the "new Coke" Supplemental Poverty measurement that Census had just come up with.  This is the definition of "poverty" now used by all good progressive advocates whenever the traditional measure gives the wrong answer.)  I won't go through all of Sommers & Oellerich's methodology (you can find a more detailed description at the link), but I'll cut to the breathless answer:  "Medicaid kept at least 2.6 million Americans out of poverty in 2010."  Exciting!  The result gets cited repeatedly in the progressive world, for example here by the Center for Budget and Policy Priorities in 2015.  

Really???  $400 billion (approximate 2010 spending level) to keep 2.6 million people out of poverty?  That's around $160,000 of spending per person relieved from poverty!  And this in a world where the official "poverty level" is under $12,000 for an individual, and around $6000 per person in larger families.  If the goal here, or any part of it, is to reduce poverty, it would be literally impossible to design a less cost-effective method even if you set out intentionally to do just that.  Medicaid is the perfect illustration of progressives treating the federal government as the infinite source of free money, without any concept of real costs or trade-offs.

But at least Medicaid must improve health outcomes, right?  Don't bet on it.  For decades literally everybody just assumed that having healthcare "coverage" must somehow improve health outcomes.  Then came the randomized study out of Oregon, published in the New England Journal of Medicine in 2013.  Result:

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first 2 years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.   

After this, the best the defenders of Medicaid could say was basically, two years of data are not enough.  (But if heart attacks, or strokes, or diabetes, or other such things were actually going untreated among the uninsured, why wouldn't that turn up as at least somewhat increased mortality within two years?) Anyway, Oren Cass, in an article for the Manhattan Institute in June, points out that now longer term data are available, and the results haven't changed:

Critics of the [Oregon] study claim that two years isn't long enough for positive effects to materialize. But a longer-term statistical analysis published earlier this year found no significant correlation between health-care access and life expectancy for low-income households across different geographies.

So, on what measures is it even possible to try to defend the staggering expenditures on Medicaid?  Well, here's an article from the Huffington Post from July 27, written by Edwin Park of CBPP.  Park gives 10 reasons why Medicaid, supposedly, "works."  Not one of them has anything to do with either reducing poverty or improving health outcomes!  So what the hell are they?  Number one is "provid[ing] quality health coverage."  Number two is "cut[ting] dramatically the number of Americans without health insurance."  (Aren't those two the same thing?)  Number three is "Medicaid participation is high."  (Same thing again!)  Number four is "Medicaid has improved access to care . . . ."  (Same thing yet again!)  And so forth.  You get the idea:  "coverage" is the Holy Grail, even if it costs a bloody fortune without achieving any measurable improvements in either poverty or health outcomes.  Maybe this would make a little sense if the cost was $10 billion per year, or even $50 billion, or maybe even $100 billion.  But $550 billion per year???  

Oh, and let's not forget about the fraud.  Kevin Williamson has a post up on this subject at National Review Online, titled "The Facts about Medicaid Fraud."  I'm not sure he's got his facts perfect, but here is the key quote:

In September, the Department of Health and Human Services sent out a warning that improper payments under Medicaid have become so common that they will account this year for almost 12 percent of total Medicaid spending — just shy of $140 billion.

The $140 billion would be more like 25% of Medicaid spending than 12%, so I'm assuming that he must  be including Medicare as well.  Whatever.  Even at half the $140 billion level, the number is breathtaking.  And this is what the government admits to.  You could not go wrong betting that the real number is far higher than what they admit.

Medicaid is just the classic case of designing a program by feel-gooderism without any consideration of cost-effectiveness.  Once in place, it grows on auto-pilot, without anybody looking at it or considering whether the tens of billions of dollars of added spending every year are accomplishing anything meaningful.  Entrenched interests grow rich, while alternative uses of the money -- whether alternative government spending or returning the money to the private sector through tax cuts -- get pushed off the agenda.  

Have you noticed any mention by either side of the presidential campaign of the need to look at Medicaid for cost-effectiveness?  Neither have I.   

Why Government Cannot Work To Increase Prosperity

Private enterprises are forever engaged in the maelstrom of creative destruction, where businesses and jobs that are insufficiently productive are destroyed by powerful economic forces and replaced with higher-productivity undertakings.  And thus we have Manhattan, at the center of the world's best natural port, having not one remaining active freight pier or longshoreman's job.  The space became too valuable for that.  Instead we have burgeoning digital media, tech firms, investment banks, and, at the very top of the food chain, hedge funds.  The Port Authority's massive former freight-transfer building is now the New York headquarters of Google.   All this is located in a place where most employees must cross a mile-wide estuary every morning to get to work and again in the evening to get home.  Would any central planner ever have come up with this?

In Obamacare they think they have an alternative model where the cost of healthcare can be reduced (that's a form of increased productivity) through study and direction from the all-knowing experts in the federal bureaucracy.   For example, now that you have finished reading the first 3,021 sections of the Affordable Care Act and have made it to Section 3022, you know that the ACA establishes so-called "Accountable Care Organizations."  Here is a law firm web site with a good description of how this is supposed to work, and a further link to the statutory text.  (You can try reading the statutory text if you want, but believe me it is incomprehensible.) 

To summarize, the basic concept is that healthcare providers like doctors and hospitals can sign up with HHS to become an ACO.  In the first instance, the providers must submit reams of data.  Then the geniuses at HHS analyze the data for ways to save money.  If ways are found, the government mandates use of the new cheaper methods through Medicare/Medicaid reimbursement and the ACO providers receive payments for the "shared savings."

And then there is the new Innovation Center of the Centers for Medicare and Medicaid Services, funded to the tune of $10 billion under the ACA to (according to Gina Kolata of the New York Times) "discover how to most effectively deliver health care."   How could we not have realized before that the millions of people already in the healthcare industry could not figure out "how to most effectively deliver health care," and that it could only be done by bureaucrats funded with $10 billion of federal money?  Anyway, now we know.  Take that, capitalism!

Well, these things are barely under way, and already some are starting to realize not only that they can't work, but in the grand tradition of government they will be designed and implemented to declare success and keep the funding going even as they are failing spectacularly.  Megan McArdle at Bloomberg has a report covering developments on both initiatives.  Perhaps most interesting about her report is that she cites articles from both the New York Times and the Washington Post.  If those two can spot the problem, it must be pretty glaring.

The Washington Post article, from Jenny Gold on January 31, deals with the government's first reported results from the ACOs, and is headlined "Medicare won't give a straight answer on Obamacare cost savings."   Seems that CMMS put out a big announcement on January 30 claiming that the ACOs had "saved a total of $380 million in the first year."  But OK, compared to what?  They say that the savings came from 54 of the 114 ACOs that had lower spending than projected.  So what about the other 60?  From Gold of the Post:

It’s . . . unclear whether the savings figures factored in any losses from some of the ACOs that did not do well. And the agency did not release information about which ACOs saved money and which did not.

McArdle accuses CMMS of engaging in the famous "Texas sharpshooter fallacy," where the sharpshooter first shoots at the side of a barn and only then draws the target and bullseye where the bulk of his shots had hit.  Well, fallacy is one possibility, and intentional deception of the public is another.  I'm not so quick as Megan to give the benefit of the doubt.

And how about that Innovation Center?  Kolata of the Times reports:

[N]ow that the center has gotten started, many researchers and economists are disturbed that it is not using randomized clinical trials, the rigorous method that is widely considered the gold standard in medical and social science research. Such trials have long been required to prove the efficacy of medicines, and similarly designed studies have guided efforts to reform welfare-to-work, education and criminal justice programs.  But they have rarely been used to guide health care policy — and experts say the center is now squandering a crucial opportunity to develop the evidence needed to retool the nation’s troubled health care system in a period of rapid and fundamental change.

I have a quibble with Kolata, which is that "randomized clinical trials" are only the "gold standard" in the world of bureaucratic government evaluations; in the real world, the gold standard is the definitive up or down delivered by a marketplace of people spending their own money.  But put that quibble aside, because Kolata at least has a point that randomized trials might deliver some real information.   Yet instead we have a series of so-called "demonstration projects" where nobody needs to face a competitor and everybody gets to declare success. 

Question:  When they've run through the initial $10 billion, will they be back for another $10 billion?  You can task them to find and implement better and cheaper ways to do things, but in actual practice they will just set up a useless bureaucracy and then fight to the death every year to maintain and increase the funding.

Shall we take up an Exhibit B for today?  That would be President Obama's designation last week of VP Joe Biden to lead an "across-the board reform" of federal job training programs to get rid of those that are ineffective or redundant.  HAHAHAHAHAHAHAHA.

There just can't be a better illustration than job training programs of federal spending that is ridiculously ineffective and redundant and yet somehow can never be cut.  The Wall Street Journal had an editorial on this on Monday following Obama's announcement last week.  The WSJ cites the most recent (2011) big GAO study as identifying 47 (!) federal job training programs with total spending of $18 billion in 2009.

It seems that GAO previously did, or tried to do, a big study on the effectiveness of the various job training programs back in 2003.  I say "tried to" because the report is full of statements like "Little Is Known about What the Program Achieves," and "No nationwide data exist on whether the Food Stamp E&T Program is effective in helping participants get and keep employment," and "While there are no nationwide data on the characteristics of Food Stamp E&T participants, state and local officials we spoke with in all 15 states said their Food Stamp E&T participants have multiple characteristics that make them hard to employ," and "We were unable to obtain unduplicated data for fiscal year 2001 from Florida," (and same for numerous other states), and so forth.  Wow!  You'd think this is about as bad as it could possibly get for federal programs.  Well, guess what?  By the time of the 2011 study eight years later, the number of federal job training programs had increased by three, from 44 to 47. 

Here's my prediction for Biden's effort:  there will be a big announcement of some consolidation and rationalization.  The number of programs will be reduced somewhat, maybe by half or so.  But the number of federal employees working on this and the level of funding will remain at least the same or grow.  Nobody will get fired.  And the bureaucrats will continue to make 100 percent sure that there are no data collected sufficient to show the complete ineffectiveness of their efforts.

You just have to understand the bureaucracy's version of the Brezhnev Doctrine:  Once a government program is in place, it must never be eliminated, or its funding reduced by even a dollar.  All collection of data must be done in a way to support continuation and increase of all programs.  That's the way it works.  And despite the fancy-sounding names and statutory mandates of the new ACA programs, that's how it will work for Obamacare.