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