Despite promises that the emerging Senate health bill will moderate the health coverage cuts in the House-passed American Health Care Act (AHCA), the Senate not only is retaining the House bill's fundamental restructuring of the Medicaid program — a "per capita cap" on federal funding — but is deepening the cuts under the per capita cap beginning around 2025.[1] Because the per capita cap wouldn't take effect until 2020 and the Senate's further cuts wouldn't kick in until five years after that, some suggest that policymakers might later undo the per capita cap itself or indefinitely delay the deeper cuts under pressure from state leaders, the public, providers, and others. This confidence is unwarranted; it ignores both recent history and the legislative constraints that would make it difficult or impossible to undo the deep Medicaid cuts.
THOSE STRUCTURAL CHANGES WOULD CREATE A POLITICAL DYNAMIC THAT COULD LEAD TO EVEN LARGER CUTS IN THE FUTURE. Once Congress both changes Medicaid's basic structure and enacts large annual savings, those cuts are highly unlikely to be reversed. In fact, those structural changes would create a political dynamic that could lead to even larger cuts in the future:
History suggests that structural changes to Medicaid would be very difficult to reverse. The basic concept behind the per capita cap is to impose a cap on federal funding per beneficiary, replacing the existing commitment of the federal government to pay a fixed share of state Medicaid costs. Experience with other programs suggests that such radical structural changes won't be reversed. The conversion of the Aid to Families with Dependent Children (AFDC) entitlement program to the Temporary Assistance for Needy Families (TANF) block grant in 1996 is instructive: TANF's block grant structure has not only persisted but also led to a continuing erosion of the program's funding and effectiveness.[2]
Indeed, the history of block grants (the closest analogy to a per capita cap) is that this structure enables deep cuts over time. Since 2000, funding for the 13 major housing, health, and social services block grants has fallen by 27 percent, after adjusting for inflation (and 37 percent after adjusting for inflation and population growth).[3]
Experience shows that spending cuts are also difficult to undo – due to both legislative and political constraints. Commentators have analogized the future increase in the Medicaid cuts to expiring tax provisions or cuts to Medicare payments to physicians under the "sustainable growth rate" (SGR) formula — measures that threatened sudden and painful cuts or tax increases, which Congress repeatedly delayed and ultimately largely reversed due to their political unpopularity. But recent history suggests that planned spending cuts aren't easy to undo. Unlike expiring tax provisions, both congressional rules and Republican demands may require "pay-fors" to offset the cost of reversing planned spending cuts. To reverse the spending cuts without offsetting the cost would likely require support from congressional leadership in both houses, 60 votes in the Senate, and support from the President.
Indeed, while canceling the planned SGR cuts was highly popular and supported by a vocal and powerful interest group, for nearly 20 years — almost without exception — Congress either offset the cuts with other cuts (frequently other health cuts) or let them take effect. The automatic "sequestration" cuts passed in 2011 to force further deficit reduction are another example: a significant share of the cuts have taken effect, and sequestration relief has required substantial offsets.
Reversing Medicaid cuts would require both a political consensus that they shouldn't have been enacted and sufficient congressional support to either waive budget rules or find painful offsets to achieve them. To be sure, Medicaid has broad-based support and affects a wide range of seniors, people with disabilities, and families with children. But reversing these cuts would require mobilizing support not just for a low-income program but also for the revenue increases to pay for it.
Finally, it's worth noting that the Senate's changes illustrate another serious problem with a per capita cap: it gives policymakers an easy way to make deeper cuts to Medicaid whenever they need budget savings. Just as the Senate dialed down the growth rate of future Medicaid spending in order to meet the AHCA's overall deficit targets, future Congresses would have a strong incentive to make seemingly technical tweaks to the cap that generate large savings by further lowering the growth rate. Indeed, Congress may find it especially appealing to enact cuts that take effect several years down the line in order to offset more immediate costs, as the Senate is effectively doing with its changes.
Thus, while pundits may be right that the bill's Medicaid cuts will unfold differently over time than anticipated today, the cuts would likely end up bigger, not smaller, than those enacted now.
Jomo Kwame Sundaram
International recognition of East Asia's rapid economic growth, structural change and industrialization grew from the 1980s. In Western media and academia, this was seen as a regional phenomenon, associated with some commonality, real or imagined, such as a supposed "yen bloc."
Others had a more mythic element, such as "flying geese," or ostensible bushido and Confucian ethics. Every purported miracle claims a mythic element, invariably fit for purpose. After all, miracles are typically attributed to supernatural forces, and hence, cannot be emulated by mere mortals. Hence, to better learn from ostensible miracles, it is necessary to demystify them.
The World Bank's 1993 East Asian Miracle (EAM) volume is the most influential document on the subject. It identified eight high-performing Asian economies: Japan, Hong Kong, three first-generation newly industrialized economies, namely South Korea, Taiwan, and Singapore, and three second-generation South East Asian newly industrializing countries, viz, Malaysia, Thailand, and Indonesia. Despite a title implying geo-spatial commonality, the study denied the significance of geography and culture, and specifically excluded China, the elephant in the region.
Strategic interventions?
The book identified six state interventions as important, approving of four "functional" interventions, but skeptical of two "strategic" interventions. Functional interventions supposedly compensated for market failures, while strategic interventions were deemed more market-distortive.
These two "strategic" interventions are in the areas of finance, specifically what it calls directed (targeted) and subsidized credit, and international trade, particularly what is often referred to as "industrial policy," or more rarely as "investment and technology policy."
Careful consideration of the accelerated East Asian growth and transformation experiences underscore that such interventions were mainly responsible for the superior performance of the Northeast Asian HPAEs compared to their Southeast Asian counterparts.
Industrial investments
Debates over Northeast Asian industrialization continue, but the pioneering work of American political economists Chalmers Johnson and Alice Amsden was undoubtedly seminal. Both showed that Japanese, Korean and Taiwanese government measures were quite different from typical World Bank development policy advice.
Successful finance ministry and central bank efforts to keep interest rates positive, but low, were crucial for accelerating industrial investments. From the mid-1970s, more orthodox Western economists began to characterize this as constituting "financial repression," for depressing interest rates, the incentive to save and funds available for investment.
Only later did other Western economists explain this Korean anomaly in terms of "financial restraint" to overcome financial market failures. But few have noted that savings rates actually follow, rather than determine investment rates. Meanwhile, cultural explanations have also been invoked to explain East Asia's high savings and investment rates.
Ownership matters
Subsidized and directed (or targeted) credit also promoted desired investments. Fiscal and other policies also encouraged reinvestment of profits, rather than maximizing "shareholder value," while other incentives encouraged desired investments. Where private investments were not forthcoming, the governments themselves made needed investments despite active discouragement by international development banks.
Strict controls on capital outflows, especially when foreign exchange resources were still scarce, also served to discourage capital flight. Northeast Asian economies were also careful to distinguish between long-term foreign direct investment (FDI) and short-term portfolio investment, or "hot money."
Perhaps owing to Bank preference for FDI, ostensibly to close both the "savings-investment" and "foreign exchange" gaps, the EAM also favoured FDI and did not consider ownership important. However, during the early decades of high growth before the 1990s, Northeast Asian governments encouraged national ownership of industrial enterprises.
This policy served to promote vertically and horizontally integrated industrial conglomerates in the case of Korean chaebol and Japanese keiretsu. (Zaibatsu were suppressed after the Second World War as they were held responsible for the pre-war Japanese military industrial complex.) Instead of FDI, South Korea encouraged licensing and, if necessary, joint-ventures to promote technology transfer.
Singapore and Malaysia in Southeast Asia have especially sought to attract FDI, initially for political reasons. Singapore desired strong Western support after establishing a new state in 1965. Since then, FDI has been attracted as part of a pro-active technology policy complemented by government policies, including investments. Attracting FDI to accelerate technology development is quite different from capital account liberalization enabling short-term financial inflows.
Trade policies
The Japanese, Korean and Taiwanese governments pursued import substituting industrialization policies from the 1950s, but later encouraged export orientation as well. Infant industries were provided with effective protection conditional on export promotion, effectively requiring firms to quickly become internationally competitive.
By protecting firms temporarily, depending on the product to be promoted, and by requiring certain output shares be exported within pre-specified periods, discipline was imposed on firms in return for the support provided. Such policies forced firms to achieve greater economies of scale and accelerate learning to reduce production costs quickly.
Requiring exports has also meant producers have had to achieve international consumer quality standards quickly, which accelerated progress in product and process technology. This "carrot and stick" approach induced many firms to rapidly become internationally competitive.
Thus, the very industrial, trade and financial policies rejected by the Bank were in fact necessary for East Asia's achievements. Some policies were inappropriately and prematurely undermined or terminated, e.g., with Japan's financial "big bang," with disastrous consequences.
Originally published by Inter Press Service.
Triple Crisis welcomes your comments. Please share your thoughts below.
A few links to check out, both over at WaPo.
First, no one knows when the next recession will hit though it's closer now than when I started writing this sentence. But I've got two recessionary concerns: one, fiscal policy, both discretionary and automatic will be thoroughly insufficient due to the toxic mix of Congressional dysfunction and austerity; two, financial deregulation will raise the likelihood of another bubble.
Second, the Senate health care plan is worse than the House plan. Specifically, it's pretty much the House plan but with much deeper Medicaid cuts over the long term.
Finally, I'm outta here, headed for the far-east for a few weeks, and I'm gonna do my best not to cast my gaze westward. You know what that means, right? It means that you, OTE'ers, have to keep the forces of economic darkness from gaining any ground in my absence. Be assured, I'll hold you personally responsible if the sh__ goes south while I go east.
Best,
JB
These are dark times for free marketeers. Voters are only lukewarm about the virtues of capitalism; the Grenfell disaster is widely regarded as showing the case for greater regulation; and, as Sam Bowman says, even the Tories "have totally failed to make a broad-brush case for free markets."
I share some of their disquiet. Flawed as they are, markets have virtues as selection and information-aggregation mechanisms.
What, then, can be done to strengthen the case for markets?
There's one thing that's crucial – equality of power. For free markets to have public acceptance, the worst-off must have bargaining power. Without this, "free" markets merely become a device for exploitation.
Imagine, for example, that we had overfull employment and/or high out-of-work benefits. Workers would then be able to reject low wages and bad working conditions. Market forces would then deliver higher wages and good, safer, conditions simply because employers that didn't offer these wouldn't have any workers. Equally – though it's harder to imagine – if we had an abundance of housing, landlords who offered shoddy or dangerous accommodation would either have to refurbish their property to acceptable standards or suffer a lack of tenants.
We wouldn't, therefore need "red tape." The market would raise working and living standards.
We don't need thought experiments to see this. We have empirical evidence too.
Philippe Aghion and colleagues have shown that there's a negative correlation across countries between unions density and minimum wage laws. Countries with strong unions have less stringent minimum wage laws – because greater bargaining power reduces the need for such laws. Remember that the UK adopted minimum wages in the 1990s, when unions had been emasculated. In the 60s and 70s, when unions were strong, the market raised wages.
Also, there is a negative correlation across developed countries between inequality (as measured, imperfectly, by Gini coefficients) and business freedom. Egalitarian Denmark and Sweden, for example, score better on the Heritage Foundation's index of freedom than the unequal US. There's a simple reason for this. Working people want what they regard as a fair deal. If they can't get it through bargaining in free markets, they'll seek it through politics and regulation.
The inference here is, for me, obvious. If you are serious about wanting free markets you must put in place the conditions which are necessary for them – namely, greater bargaining power for tenants, customers and workers. This requires not just strong anti-monopoly policies but also policies such as a high citizens income, full employment and mass housebuilding.
In short, free markets require egalitarian policies. Free marketeers who don't support these are not the friends of freedom at all, but are merely shills for exploiters.
The House-passed health bill to repeal the Affordable Care Act (ACA) — the American Health Care Act (AHCA) — would slash programs that help people get health coverage and use most of the savings to pay for tax cuts for high-income households and corporations. The Congressional Budget Office (CBO) estimates that the bill would increase the number of uninsured by 23 million people and make coverage worse or less affordable for millions more.
Now, the Senate is working on its version of the AHCA. Despite initial claims that the Senate would start over and develop its own legislation, Senate leaders have said, "the practical matter is that 80 percent of what the House did we're likely to do." This page tracks reports of how the Senate may change the House bill and analyzes whether the reported tweaks would meaningfully alter the House bill's effects. So far, the reported changes easily fit within Senate leadership's 80 percent framework: they would result in a Senate bill with virtually the same overall harmful impacts as the House bill.
| Major Provisions | What the House Bill Does | Reported Senate Changes | Long-Run Impact of Reported Changes |
|---|---|---|---|
| Medicaid expansion | Effectively ends expansion, which extended coverage to 11 million low-income adults | Ends expansion a little more slowly: ACA expansion funding may phase out over several years, versus ending in 2020 | None |
| Medicaid per capita cap | Caps and cuts Medicaid for seniors, people with disabilities, and families with children | No major changes reported; some senators continue to push for even deeper cuts, or other harmful changes | None or minimal — or potentially deeper cuts |
| Individual market changes | Slashes marketplace premium tax credits and eliminates cost-sharing assistance while raising premiums by eliminating the individual mandate | Unknown, but past discussions have focused on restoring less than one-third of House bill's subsidy cuts | At best small improvements: coverage would still be unaffordable for people who are older, lower-income, and live in high-cost states |
| State grants | Provides $138 billion over ten years that's supposed to solve problems ranging from individual market premium increases to Medicaid cuts | May add modest additional funding for opioid treatment | Minimal: even with modest funding increases, grants would still offset only a small fraction of bill's $1.1 trillion total coverage cuts and wouldn't get people treatment they need |
| Consumer protections | Lets states waive the ACA's standards for what services plans have to cover and its prohibition on charging people with pre-existing conditions higher premiums | May "only" let states waive benefit standards, which CBO found could lead plans in half the country to drop coverage for mental health, substance use, maternity care and other benefits | Minimal: people with pre-existing conditions still wouldn't have access to the services they need |
| Tax cuts | Cuts taxes by more than $600 billion, with most benefits going to high-income households and corporations | May delay certain tax cuts — but no discussion of dropping major tax cuts in order to restore coverage | None |
What the House bill does: The House bill effectively ends the ACA's Medicaid expansion, which has allowed 31 states and the District of Columbia to extend coverage to 11 million low-income adults. Starting in 2020, states would have to pay three to five times as much as they do now to cover new expansion enrollees, forcing most or all states to end their expansions. That would reverse gains in coverage, access to care, health, and financial security; sharply increase uncompensated care costs for states and hospitals; and set back state efforts to combat the opioid epidemic.
What the Senate is reportedly considering: The Senate bill will reportedly phase down federal funding for expansion over several years, starting in 2020 — but it would still effectively eliminate the Medicaid expansion in the long run, leaving millions of low-income adults uninsured. As we've explained, expansion states won't be able to absorb a $35 billion hit to their budgets, no matter when it occurs. And poor and near-poor people losing Medicaid coverage won't be able to afford individual market premiums that would often exceed a quarter, half, or even their entire incomes, even after taking tax credits into account.
The reported Senate "compromise" wouldn't even have much effect in the short run. At least eight Medicaid expansion states — Arkansas, Illinois, Michigan, Montana, New Hampshire, New Mexico, and Washington — have expansion "trigger laws" under which their Medicaid expansions automatically end if the federal matching rate for expansion enrollees falls at all. Under the reported Senate proposal to phase down expansion funding, these state triggers would still go off in 2020 — just like under the House bill. Moreover, even non-trigger states would see their costs for new expansion enrollees rise significantly starting in 2020. Few state legislatures will choose to come up with extra funding to keep their expansions going when the federal funding cuts, and required state funding increases, will keep rising each year. Thus, even non-trigger states would likely freeze enrollment in their expansions starting in 2020 — just like under the House bill.
