The medical program for low-income mothers.

The major public health intervention for low-income populations in the United States is the Medicaid program. Medicaid is federal and state program funded by general tax revenues that provide health care for poor families, elderly, and disabled. This program serves two types of groups: low-income women and children and low-income disabled and elderly.

How Medicaid Works

Medicaid, like unemployment insurance (UI), is a program that is federally mandated but administered by the states. It is financed on a shared basis between the states and the federal government out of general revenues rather than a payroll tax. The rate at which the federal government shares in Medicaid spending is an inverse function of state income, with the federal government paying half the costs of the program in high-income states, and more than three-quarters in low-income states. The federal government mandates some minimal levels of eligibility and service coverage, and states are free to increase generosity beyond these mandates. Individuals qualify for Medicaid on the basis of their income and family structure. If eligible, individuals may then enroll in the Medicaid program. Medicaid insurance coverage is similar to private insurance, reimbursing providers for the services they provide to enrollees, although there is little or no patient coinsurance.

 

Who Is Eligible for Medicaid?

Medicaid was introduced in the late 1960s as a health insurance component for state cash welfare programs that targeted low-income, single-parent families. Beginning in the mid-1980s, the Medicaid program was slowly separated from cash welfare programs, first by extending benefits to low-income children in two-parent families and then by raising the income eligibility thresholds for two groups—children and pregnant women (who were covered only for the costs associated with pregnancy, not for other health costs). In 1997, the Medicaid program for children was augmented by the Children’s Health Insurance Program (CHIP).The goal of CHIP was to expand the eligibility of children for public health insurance beyond the existing limits of the Medicaid program. This program provides $4 billion per year (on average) through 2007 for states to expand their health insurance coverage beyond Medicaid levels, using either expansions of the Medicaid program or a new program that more closely mimics private health insurance. This program was recently reauthorized for roughly $8 billion per year through 2013. To provide incentives for states to expand their low-income health care coverage using CHIP funds, the federal government pays a higher share of each state’s CHIP costs than it pays of the state’s Medicaid costs. In the remainder of this chapter, we will typically refer to both Medicaid and CHIP coverage as Medicaid.

What Health Services Does Medicaid Cover?

Besides eligibility, states have leeway along two other dimensions. The first is service coverage. While federal Medicaid rules require states to cover major services, such as physician and hospital care, they do not require states to pay for optional services, such as prescription drugs or dental care. Even so, all states have chosen to cover the most expensive optional benefits; all states cover prescription drugs and optometrist services, for example, and all but one cover dental services. For the traditional Medicaid population, these services are provided with little or no copayment required. (In states that have CHIP, copayments are allowed to be somewhat higher for those above 150% of the poverty line.) This package of services is much more generous than that of virtually any private insurance plan. Thus, Medicaid is really the best insurance money can’t buy!

 

3.2. Suppose the federal government is considering raising the minimum wage to $10 per hour. An economist testifies to Congress that this plan is inefficient and causes deadweight loss.

a) Show graphically the deadweight loss caused by the minimum wage law.

 

b) Suppose that you are a member of Congress and you believe in the utilitarian social welfare function. How would you determine whether to vote for or against the policy?

In order to determine to vote for or against we should consider that the only acceptable way for buyer’s and seller’s surplus is the optimal balance between the labour supply and labour demand. In our case here occurs a deadweight loss, so as a Member of Congress I vote against this policy.

 

c) Explain why this policy choice demonstrates a trade-off between equity and efficiency.

'Equity-Efficiency Tradeoff’ appears as an economic situation in which there is a perceived tradeoff between the equity and efficiency of a given economy. This tradeoff is commonly viewed within the context of the production possibility frontier, where any additional gains in production efficiency must be offset by a reduction in the economy's equity. Within this equity and efficiency tradeoff, equity refers to the economy's financial capital, while efficiency refers to the future efficiency in the production of goods and services. This theory asserts that, in order for a nation to become wealthier, it must save its equity. However, these additional savings will hurt the development of more efficient production in the future.

 

d) Explain the Earned Income Tax Credit. Explain why the EITC may provide equity with small losses in efficiency.

The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient’s income and number of children. For a person or couple to claim one or more persons as their qualifying child, requirements such as relationship, age, and shared residency must be met.

The EITC exacerbates the marriage penalty by combining both spouses’ incomes to determine eligibility for the credit. Two fairly low incomes can combine to equal a total family income high enough to place the family in the phase-out portion of the EITC. In that situation, adding a second income to the first puts the second income in the range of a very high marginal tax rate. This effect could result in a labor supply reduction for secondary earners in these families. To counter this effect, the EITC could be amended so that the average of the two spouses’ salaries determined the family income, it could provide for a much longer plateau before phase-out for two-earner families, or it could be applied to individual incomes, regardless of marital status, rather than to family income.

VARIANT 24

Most arguments for government funding of medical care rest on equity concerns. Explain how medical care can be a public good. If medical care is a public good, explain how this would lead to a market failure in that individuals would receive less medical care than is efficient.

Well, from my point of view medical care is a public good (which should be financed using a regulated public utility model) due to the following characteristics.

A “public good” is a product or service which benefits everyone in the community. Public goods are characterized by: (1) value that has benefit to the community as a whole beyond any purchase price paid, (2) often requiring large initial investment costs that are generally too expensive for any individual or private corporation to afford and earn a reasonable return, (3) requiring a higher level of administration than any individual or company can arrange and (4) having value that accrues over time and is difficult to price properly. Public goods have “externalities,” that is, value that accrues to people who benefit by other’s consumption of them without paying for it themselves. So, this is the one of the characteristics which stands for medical care and is proved. Government plays an important role in the various medical markets and either directly or indirectly influences the health of the population in a number of ways. For example, regulatory and taxing policies affect the production or consumption of certain products (such as prescription drugs, narcotics, alcohol, and tobacco) and thereby beneficially or adversely affect the population's health.

Market failure: there are a variety of failures in health care and insurance markets such as asymmetric information, market power, and principal agent problems. These can be solved by the private sector in some cases, but in others government intervention is required. But even if the private sector or the government can solve the market failure problems adequately, there's no guarantee that the resulting distribution of health care services will be equitable.

Equity considerations may prompt the government to intervene and bring about a different distribution of health care services than would occur with an efficient market. Both reasons, equity and efficiency, can justify government intervention into health care markets. I think equity is of paramount importance when it comes to health care, so for me that is enough to justify government intervention, and the existence of market failure simply adds to the case that government intervention is needed.

 

1.2.Explain the Crowd -Out Problem in Education. How would this "solve" with the Educational Vouchers? How vouchers will lead to excessive school specialization or to Segregation?

Crowd-out problem: As the government provides more of a public good, the private sector will provide less.

Education is a public good that is provided to some extent by the private sector. As such, an important problem with the system of public education provision is that it may crowd out private education provision. Indeed, it is possible that providing a fixed amount of public education can actually lower educational attainment in society through inducing choice of lower quality public schools over higher-quality private schools

Vouchers might increase segregation by student skill level or motivation. As the motivated and high-skilled students flee poor-quality public schools for higher-quality private schools, the students left behind will be in groups that are of lower motivation and skill. That is, school choice is likely to reduce segregation along some dimensions but increase it along others.

Vouchers might solve this crowd-out problem by allowing people to choose the optimal level of education for themselves, as well as interjecting competition into the education market.

At the same time, vouchers may lead to increased educational stratification, and the education market may face difficulties in implementing competition.Existing evidence suggests that private school choice through vouchers can move students to better schools, but a much richer evaluation of the total social effects of vouchers is needed before policy conclusions can be drawn.