The Impact of Incarceration

The U.S. has the highest rate of incarceration in the world. Incarceration patterns are particularly skewed toward African Americans, as evidenced in the graph below from the Prison Policy Initiative.



Lots of experts and commentators focus on either the necessity or injustice of US penal policy, but relatively few look at its repercussions outside of moral issues of racial imbalance and the skyrocketing costs of incarceration. Though some of us no doubt intuit the potential negative effects of incarcerating a huge chunk of certain communities, there's not that much (though there is some) work done on figuring out the 'trickle down' impact of incarceration.

That being said, I stumbled across a study from the University of Wisconsin which really gets one thinking about how criminal justice policies feeds into the web of socioeconomic issues. Specifically, the authors asked what impact black incarceration had on black families, and even more specifically, on child poverty. Here's what they found:

• It appears that the main effects of imprisonment on child poverty occur not through removing men from communities, but from returning them to communities with diminished earning capacity.
• The effects of imprisonment vary with class. High imprisonment rates have less impact on children with college-educated mothers, and appear to be associated with higher rates of marriage for college-educated mothers.
• The effect of imprisonment on child poverty is always positive, although it is not necessarily large enough to be significant for all educational groups.
• High rates of Black male imprisonment are associated – after several years' lag – with reduced family income, especially in less educated families with men in them.

Like much research, there are many qualifications and as-of-yet unanswered questions to consider. This piece in particular makes it clear that there is such a dense clustering of variables and relationships (for example, does incarceration cause these single-mother households or not? What are the living situations before incarceration?) that causality is a tough thing to prove.

Still, you have to admire the effort. The closer we get to unraveling the concentration of difficulties that hampers low-income families, the better off we'll be.

Health Savings Accounts: Thoughts & Problems

Two weeks ago, President Bush has declared his opposition to expanding the Children's Health Insurance Program (CHIP). Bush's opposition to the plan, according to White House spokesman Tony Fratto, is at least in part due to the fact that the reauthorization of CHIP does not incorporate health savings accounts (HSAs) into its provision.

So what's the deal with HSAs? According to a Treasury Department information sheet, HSAs are accounts that "you can put money into to save for future medical expenses." There are, of course, more to them than just that.

First up, HSAs are supposedly tax friendly, providing "triple tax savings" by giving account holders tax deductions when they contribute to their accounts, allowing for tax-free investments with HSA funds, and tax-free withdrawals for qualified medical expenses. Second, they are portable in the sense that, like a 401k, you can take an HSA with you from job-to-job, state-to-state, etc.

HSAs are only available for people who participate in a High Deductible Health Plan (HDHP). An HDHP is a plan with low premiums (i.e. you don't pay a lot for health coverage) and high deductibles (i.e. you pay a lot out-of-pocket, up front, for medical services).

A lot of folks, particularly conservatives, like HDHP's because, as the Commonwealth Fund succicntly notes, they allegedly (a) lower health care costs by causing patients to be more cost-conscious, and (b) make insurance premiums more affordable for the uninsured. You can why, in theory, this might make sense: if you have to pay more out-of-pocket you will be more wary of spending money on health matters, and if the basic 'membership fee' (i.e. the premium, i.e. what you need to pay to get basic coverage) is low, then more people can afford it.

The problem with the logic behind HDHPs, of course, is that if you don't have the cash on hand to pay deductibles, you have trouble getting access to care. In theory, HSAs are supposed to help you with this, by helping you save for health care when you need it. But studies (from places like the Kaiser Foundation to Families USA) have cast some doubt on this potentiality, particularly for low-income families.

First off, low-income families will not benefit from the tax breaks built into HSAs, because the tax deductions come from income taxes. Income tax is progressive: the more money you make, the bigger the tax rate. Thus, the tax breaks of HSAs associated with income--like tax-free investment and tax deductions for money put in the account--will greatly benefit the rich, and not so much the poor.

Second, as I've made mention in other blog posts, low-income households only have a limited amount of funds to spend outside of current expenditures. A reliance on high-deductible plans essentially presupposes that HSAs will allow everyone to be rich enough to cut-back on readily available funds for cost-of-living expenditures. This is no guarantee by any means, particularly given disparities in start-off wealth among socioeconomic groups and the skewed distribution of financial literacy. HSAs could end up preserving--if not exacerbating--existing inequalities.

Third, the goal of cost-consciousness is a risky one. If low-income families have to pay a bigger percentage of their entire pool of funds for out-of-pocket expenses, they might be less inclined to get health are for any reason, no matter how serious. Traditional insurance schemes pool the healthy and the unhealthy together, in order to dilute the cost of care. But with HSAs, the unhealthy may become too expensive to be effectively ensured.

This is problematic: health is positively correlated with socioeconomic status. A number of social factors, such as wealth and education, are strongly associated with health. This is also true for older Americans. Thus in a broad sense, the people who would benefit the least from HSAs need them the most.

Ultimately, HSAs--at least in their current form--just don't cut it.

The Road to the Promised Land: Universal Health Care at an Affordable Cost

A Response to “Cheese Headcases,” Wall Street Journal Page A-14, July 23 2007

When the Wisconsin State Senate proposed provisions for a universal health care plan in their budget, many progressive groups applauded their effort and pointed to this legislation as the first step toward providing quality health insurance for all Americans. However, as your newspaper points out (“Cheese Headcases,” July 23), the Wisconsin State Senate’s plan includes tax increases that could easily drive skilled workers and profitable business from the state of Wisconsin. Skepticism in the government’s ability to lower costs of healthcare by centralizing administrative costs is understandable—both the federal and state governments have shown an inability to control costs, find the best price and the lowest bidder, and directly stimulate market growth. But we cannot dismiss the idea of universal healthcare because of the Wisconsin state legislature’s lawmaking.

On May 1st of this year, students from the Wisconsin chapter of the Roosevelt Institution, a student-run think-tank with 7,000 members around the country, presented viable healthcare legislation to the Wisconsin Assembly’s Committee on Aging and Long Term Care. Our plan aimed to provide care to every Wisconsin citizen while lowering insurance costs with as little government intervention as possible. We made our presentation while the Wisconsin State Legislature was developing their budget, and although they found a healthcare plan in the Democrats’ work, it wasn’t quite what we had in mind.

The policy concept was born out of pragmatism and efficiency, not ideology, and it kept the insurance industry structure intact. Using market-based solutions to address some of the issues that currently plague Wisconsin’s system, we outlined a three-pronged approach.

The first goal was to lower the enormous healthcare costs faced by senior citizens. We proposed creating Health Savings Accounts (HSA) to which both individuals and businesses could contribute tax-free funds. Their HSAs are similar to the common 401(k), but if the income generated from the growth of an HSA is exclusively used to finance medical expenses, then it is tax-free as well.

The second goal was to lower the number of uninsured citizens in Wisconsin. The original plan avoided the inclusion of any provision mandating that every resident of the State of Wisconsin be insured, it quickly became obvious that this provision was necessary. While the poor and uninsured may not get adequate preventive care, the current Wisconsin system makes sure that they get medical attention when they truly needed it. But, according to estimates in a 2003 Kiser Foundation study, when an uninsured individual receives medical attention, American taxpayers pick up almost three-fifths of the tab. Mandating that everyone obtain health insurance not only improves the well-being of many citizens, but it also saves a significant amount of government money.

The final goal was to subsidize care through vouchers for private insurance. Many people are too rich to qualify for current government programs, but too poor to afford coverage themselves, and current legislation does nothing to address this grievous error. Targeted subsidies both keep the bill from becoming a new burden to the States already stressed budget, while helping those who truly cannot afford coverage. The State Senators' plan does quite the opposite, by creating a pricy program that reverts some of the progress made by Wisconsin’s innovative welfare reform of the late 1990s. Our plan for subsidy provides affordable coverage for every Wisconsin citizen. (not everyone!)

Our proposal also reduced bureaucracy in healthcare. Their market-orientated approach was far more effective—both in terms of cost and quality of care.

The Wisconsin Democrats’ plan is one of outrageously high tax increases and more bureaucracy. Our plan was one of efficiency and efficacy.

We must remember that government bureaucracy and inefficiency is no reason to malign a policy idea like universal healthcare outright. Sound and efficient ideas to help Americans, ideas like the one proposed by these students, should always be considered in their purest forms. Just because a budget that proposes universal healthcare has damaging effects doesn’t mean that universal healthcare is a bad idea.

Our proposal to fix a flawed healthcare system on a localized level is exactly the type of pragmatic solution that should not be adulterated by partisan ideology. Failed legislation in this capacity is nothing less than a destructive force in the social welfare of American citizens.

Spending, Saving, and Social Policy

The question of whether or not we can reasonably ask poor people to save is a good one. I've addressed it in part already, but I think it warrants further discussion, or more appropriately I guess, additional monological rambling on my part.

















For the poorest Americans, expenditures exceed income. Check out this graph to the left I slapped together form the Consumer Expenditure Survey (CES). You'll note that it's not until you get into the middle quintile of income earners that income exceeds expenditures. For the bottom 40 percent of America, spendings outstrip income.

On its face, this suggests that poor Americans really don't have room to save. But, as I've noted, these expenditure measures include everything from shelter to cigarettes, meaning that there is some wiggle room to work with. Here I want to address the relationship between this wiggle room (i.e. non-essential expenditures that can be cut back to induce saving) and the graph above.

Let's take a collection of categories from the CES as our 'expendables': alcohol, smoking/tobacco, entertainment, and personal care products. We'll treat alcohol and smoking/tobacco as completely expendable, and the other two as only partially so (no one can reasonably go without entertainment or personal care). So let's say the average household in the bottom two quintiles cuts its spending in these areas by half. Over one year, eliminating booze/smokes and 50 percent of entertainment/personal care would save the lowest quintile $1,006; the second lowest would save $1,441.50 with the same cutbacks.

Of course, there are some significant caveats that dilute this scheme. Firstly, at least some of the households in CES were families (the average number of people in households for the bottom two quintiles hovered around two), meaning that expenditure cutbacks aren't always so easy, particularly with regards to personal care and entertainment (i.e. stuff kids need/want). Second, the $1,006 and $1,441.50 in savings do not make up the difference between income and expenditures represented in the graph above for the average household in these income brackets.

But before we close the book we need to look at two variables: the Earned Income Tax Credit (EITC) and Individual Development Accounts (IDAs). A qualified head of household with one qualifying child who brought in the reported CES income of the lowest quintile ($9,626) would be $2,740 in 2006. For the second quintile ($25,546) it would be $1,030. If this same individual had two kids, (s)he would bring in $3,870 (lowest income quintile) or $2,270 (second lowest quintile) from the EITC.

So as it stands, a head of household who cuts spending in the ways discussed here and qualifies for the EITC already has somewhere between $3,746 and $4,876 (if in lowest quintile) or $2,471.50 and $3,276 (if in second lowest). Now, what if this earner was to put this amount of savings in an IDA?

The usual match rates for IDAs are 2:1, meaning that for every dollar deposited by the account-holder, 2 are deposited by the matching bodies. Most IDA programs are built to last from 1 to 3 years, and some often are only matched up to a certain amount (e.g. $500). If we play it safe and take a 1 year IDA program with a 2:1 match rate and a max matching scheme of $500, this means that over the course of a year, we can in essence tack on an extra $1,000.

So now we have between $4,746 and $5,876 (if in lowest quintile) or $3,471.50 and $4,276 (if in second lowest) in saved funds. These amounts don't help the poorest quintile break even, but they do in fact make it possible for the second quintile to bridge the gap between income and expenditures in the graph above.

The message should be clear: helping working families is a patchwork pursuit that needs to be fought on multiple fronts. There's an important role for individual decision-making and personal responsibility as well as for creative social policies that feed into one another and help 'snowball' assets and well-being. The more we view poverty as a one-dimensional social condition, the more we tie our hands; the more we focus on viewing low-income individuals as active participants in their own life--in addition to being a policy-relevant population--the more we might see some progess.