Has Medicaid succeeded? By Scott Sumner

Fifty years ago America spent about 8% of GDP on “national defense” and 0% of GDP on Medicaid. By 2015 spending on both programs is forecast to be about 3% of GDP (roughly $540 billion–including the state portion of the program.) That’s a big change in priorities. On the whole I’d say it’s a welcome change, but mostly because we were spending much too much on national defense. (That does not include other big government health programs; Medicare, the VA, public employees, etc.)

Now dial back the clock to 1964 and ask yourself what sort of outcome people expected from the Medicaid program. What would have been viewed as a success? Recall that 1964 was “the liberal hour,” a time of boundless optimism about the ability of government programs to solve problems. Suppose you told people that by 2015 Medicaid would be spending as much as the military. They would obviously have thought you were insane. But suppose you convinced them otherwise, what would they have expected for that money? It seems clear that there were two goals:

1. Helping low income people pay for healthcare.

2. Better health outcomes for low income Americans.

We’ve done a pretty good job on the first goal, and ObamaCare will fill some of the remaining gaps. And that may well be a huge success. But I can’t help thinking the second goal would also have been viewed as being very, very important.

Morgan Warstler directed me to an interesting discussion of Thomas Piketty’s book by Larry Summers and Balaji Srinivasan. Both made some excellent points. But I was particularly struck by how Larry Summers responded to Srinivasan’s claim that consumption inequality is becoming less of a problem. Summers pointed out that while this is true for many consumer goods, the gap in life expectancy between those in the bottom and top 10% of income has widened by 3 or 4 years since the 1970s, comparable to a doubling of cancer mortality. Indeed he seemed to view this as the great failure of American society in terms of equality. Perhaps it is.

He did not mention Medicaid, but I couldn’t help thinking of the program. Here are two questions:

1. Has Medicaid improved the health care for the poor relative to the rich?

2. Has the US healthcare regime improved health outcomes by more than European healthcare regimes have improved health outcomes?

It seems to me that the answer to both questions is probably “no.” I concede that in theory there are counterfactuals that make these two claims less than ironclad. Yes, we live shorter lives than Western Europeans, but without our policy of spending almost 18% of GDP on healthcare the gap might be even wider. And yes, the health outcomes of the poor relative to the affluent have deteriorated dramatically since the enactment of Medicaid, but the deterioration might have been even worse without Medicaid.

I’m skeptical of both claims.

Here’s my question. Do American liberals believe the answer to the first question is yes, and the answer to the second question is no? If so, what evidence do they have for holding those two beliefs?

My hunch is that the increasing gap between the longevity of the poor and rich reflects lifestyle. When I was very young the stereotypical rich man was a fat banker who smoked a cigar, ate lots of steaks and drank martinis. The stereotypical low-income person ate much less, and got lots of exercise picking crops, or working in mining or manufacturing. Obviously things have changed. And yet low-income people in the Great Plains states still live pretty long. So it’s not just income.

If (as Robin Hanson would say) healthcare isn’t about health, maybe we don’t need to spend 3% of GDP of Medicaid. Morgan Warstler suggested providing a low cost single-payer option for the poor—similar to the Cuban system that Michael Moore likes so much. Instead of thinking about how to pay for CAT scans and MRIs for the poor, perhaps we should think about whether poor actually need CAT scans or MRIs. Singapore’s government spends 1.2% of GDP on healthcare (vs. close to 8% in the US) and has universal coverage. Obviously we could not hope to achieve those efficiencies in a country of 320 million, but then that raises the question of whether these ought to be federal programs, or whether (as in Scandinavia) healthcare might be more effectively managed at the local level, with local taxes.