Microeconomics Ch 18 - The Economics of the Welfare State

most recent Gini coefficient of US

0.41

how is the US different from other wealthy countries in regards to healthcare?

1) we rely more on private health insurance 2) we spend much more on health care per person 3) we remain the only wealthy country in which substantial numbers of people lack health insurance

in 2018, only ___% of health care consumption spending was "out of pocket"

12% (88% was paid by some kind of insurance, mainly Medicare and Medicaid)

top 5% of US population has ___% of income

23.1%

bottom quintile of US population has ___ % of income

3.1%

top quintile of US population has ___% of income

52%

in most wealthy countries, the government pays between ____ and ____% of all medical costs

70 and 80%

has the US poverty rate declined from 1967 to 2018?

NO

Britain's healthcare system

National Health Service (NHS) - operates hospitals and pays most doctors' salaries, provides free medical care

is it possible to predict who will have high medical costs?

Yes, to some extent. there are broad patterns to illness

benefits are determined by....

a formula that gives high earners more than low earners, but with a sliding scale that makes the program relatively more generous for low earners

who is more likely to be poor? a) female-headed families with no spouse present b) married households with both spouses present

a) female-headed families with no spouse present

what is the third largest racial group of those in poverty in the US?

african americans (23%)

alleviating economic insecurity

aiding the impact of unforeseen expensive circumstances on poor people - when bad things happen, such as a flood, or an illness, they almost always happen to a limited number of people

Switzerland's health care system

all citizens are required to purchase insurance from nonprofit insurance organizations, with lower-income individuals receiving government subsidies to help them afford the premiums

logic of the welfare state

alleviating income inequality, alleviating economic insecurity, reducing poverty and providing access to healthcare

why would most people like to be covered by health insurance?

anyone can suddenly need very expensive treatment, costing many thousands of dollars in a very short time

tradeoff between efficiency and equity

argument against the welfare state - a larger welfare state requires higher tax revenue and higher tax rates than a smaller welfare state, which restricts itself to mainly providing public goods such as national defense. so in making policy that affects the size of the welfare state, government must make a tradeoff between efficiency and equity

what is the fourth largest racial group of those in poverty in the US?

asians (5%)

who is more likely to be poor: a) non-hispanic whites b) african americans, hispanics, asians

b) african americans, hispanics, asians

alleviating income inequality

because a marginal dollar is worth more to a poor person than a rich one, modest transfers from the rich to the poor will do the rich little harm but benefit the poor a lot ("government plays Robin Hood")

means-tested programs

benefits are available only to families or individuals whose income or wealth falls below some minimum

in-kind benefits

benefits given in the form of goods or services rather than money

monetary transfers

benefits given in the form of money

1/3 of all people in poverty (and 1/6 of this demographic in the US) are...

children

the political "right" generally supports

conservative ideals

Supplementary Security Income is available to...

disabled americans unables to work and have no other source of income

private health insurance

each member of a large pool of individuals agrees to pay a fixed amount annually into a common fund that is managed by a private company, which then pays most of the medical expenses of the pool's members

indirect effect

effect of taxes and transfers shown by changes in behavior, etc.

direct effect

effects of taxes and transfers shown by statistics

how did the ACA control costs?

eliminated insurers' ablity to spend resources on weeding out applicants, taxes on extremely generous plans, copayments for preventative care, etc.

how do people get health insurance when private insurance markets perform so poorly?

employment-based health insurance, government health insurance, government intervention in the market through the Affordable Care Act

Affordable Care Act

enacted in 2014 when the US health system was severely struggling, aims to cover the uninsured and control costs

how did the ACA cover the uninsured?

expanded eligibility for medicaid, moved to make private insurance available to more Americans

premium

fixed annual price of health insurance

sudden loss of income

form of economic insecurity, usually happens when a family member loses a job ex. COVID-19 (unemployment rate rose from <5% to 15%)

in the US, the government pays roughly ____ of all health care costs and ______ ________ private health insurance through the federal tax code

half, indirectly subsidizes

benefits notch

having benefits might disincentivize marginal increases in income, because the loss in benefits might outweigh the increase in income

single-payer system

health care system in which the government acts as the principal payer of medical bills funded through taxes

what is the second largest racial group of those in poverty in the US?

hispanics (28%)

true degree of inequality is constantly shifting because...

household incomes vary from year to year, household incomes vary over the lifetime (you make more money when you're an adult than when you're a teenager)

government health insurance

includes Medicare, Medicaid, Affordable Care Act - allows many in poverty and retired to have health insurance

the average household income in 2018 in the US was $90,021. how are so many americans still living in poverty, then?

income is unequally distributed, with many households earning much less than the average and others earning much more

employment based health insurance

insurance sold directly to people's employers rather than individuals advantageous because employees enrolled are likely to be a mix of healthy and less healthy people (especially true in companies with more employees) also gets favorable tax treatment (is effectively subsidized by the US tax system) many working Americans don't receive employment based health insurance

consequences of poverty

lack of access to health care (health problems), affordable housing (frequent moving, disrupts school and work schedules), inability to finish education (high school, college - SELF PERPETUATING POVERTY)

poverty can be caused by....

lack of education, lack of proficiency in english, racial and gender discrimination, back luck, geographic regions (redlining), etc.

Social Security

largest welfare program in the US, non-means-tested, guarantees retirement income to qualifying older Americans, provides benefits to workers who become disabled and 'survivor benefits' to family members of workers who die

the political "left" generally supports

liberal ideals

private health insurance is subject to....

market failure

____ houshold income is skewed by higher incomes

mean

mean vs median household income

mean - total income of all us households divided by the number of households median - the income of a household in the exact middle of the income distribution

Affordable Care Act is an example of...

means-tested in-kind benefits

Medicaid is an example of...

means-tested in-kind benefits

food stamps (SNAP) is an example of...

means-tested in-kind benefits

Supplementary Security Income is an example of...

means-tested monetary transfer

TANF (temporary assistance for needy families) is an example of...

means-tested monetary transfer

Gini coefficient

measure of income inequality based on the income distribution data ranges from 0 (perfectly equal distribution of income) to 1 (most unequal distribution of income - all income goes to one person)

poverty threshold

minimum annual income that is considered adequate to purchase the necessities of life families whose incomes fall below the poverty threshold are considered poor

in the past 40 years, America has become ___ polarized

more

Earned Income Tax Credit (EITC) is an example of...

negative income tax

medicare is an example of...

non means tested in-kind benefits (for elderly people)

unemployment insurance is an example of...

non means tested monetary transfers

Social Security is an example of...

non means tested monetary transfers (for elderly people)

what is the largest racial group of those in poverty in the US?

non-hispanic whites (41%)

can economic analysis help to resolve political conflict?

only up to a point

government transfers

payments by the government to individuals and families

ability-to-pay principle

people with low incomes, for whom an additional dollar makes a big difference to economic wellbeing, should pay a smaller fraction of their income in taxes than people with higher incomes, for whom an additional dollar makes much less difference

poverty rate

percentage of (U.S.) population living below the poverty threshold

supplemental poverty measure

percentage of US population living below the poverty threshold taking into account income from government aid considered to be more accurate

effects of the ACA

percentage of uninsured people began dropping

TANF is available to....

poor families with children for a limited period of time

social benefits of poverty reduction and access to healthcare

poverty disproportionately affects children, especially in the long term (more likely to be under/unemployed, engage in crime, suffer chronic health problems) programs that help to alleviate poverty and provide access to healthcare generate external benefits to society

private health insurance market death spiral

private insurance company collapses, unable to charge high enough premiums to cover its medical cost outlays, when premiums go up too much as healthy people forgo insurance

negative income tax

program that supplements the earnings of low income working families

poverty programs

programs designed to aid the poor

social insurance programs

programs designed to provide protection against unpredictable financial distress

non-means-tested programs

provide benefits to everyone

unemployment insurance

provides workers who lose their jobes with about 35% of their previous salary until they find a new job or until 26 weeks have passed

methods to counteract death spiral

refuse insurance to those with preexisting medical condition, dropping coverage of those who developed illness while insured, refusing to cover some procedures (ex. childbirth)

why is some level of income inequality desirable?

represents economics reward to skill, effort, innovation, and education (incentives to bolster the economy)

the average person who purchases a private health insurance policy is...

sicker and has higher medical expenses than the average person who does not, resulting in HIGHER PREMIUMS

relatively healthy people might stop buying insurance because...

sicker people make premiums go up (when healthy people stop buying insurance, premiums continue to go up, resulting in negative feedback loop)

Canada's health care system

single-payer system

a ____ population of the population faces _____ medical bills, with ____% of the population typically accounting for almost 2/3 of medical costs

small; huge; 10%

which is higher: the poverty rate or supplemental poverty rate

supplemental poverty rate

why does the US spend so much more on health care than other wealthy countries?

the US system suffers from serious inefficiencies that other countries manage to avoid (reliance on private health insurance, high operating costs, etc)

welfare state

the collection of government programs that are designed to alleviate economic hardship

why do some political theorists believe that redistributing income is not a legitimate role of government?

they believe that the government's role should be limited to maintaining the rule of law, providing public goods, and managing externalities

one way to reduce the cost of the welfare state is...

to means-test benefits

working poor

workers whose incomes fall at or below the poverty threshold

has the supplemental poverty rate decreased from 1967 to 2018?

yes