The Biden administration is moving in a new direction. It is trying to help low-income Americans by pushing for direct cash assistance in addition to expanding health insurance.
Each is a laudable goal. But doing both at once may not be feasible, as lawmakers raise concerns about the total price tag of Biden’s plans.
If the administration has to make hard choices, it can do more to help the poor by prioritizing cash transfers over expanded health insurance. That’s because cash helps recipients directly, while health insurance would pay mainly for care that many uninsured people were already receiving at low or no cost.
For over a decade, health insurance expansions have dominated the budget and politics of legislation directed toward the poor. In 2019, the government spent more than $600 billion on Medicaid — the major health insurance program for low-income Americans. This was more than 10 times the amount spent on the largest cash transfer program, the earned-income tax credit.
legislation enacted in March brought a welcome shift in focus toward cash benefits. Among its temporary provisions were about $100 billion in increased payments to low-income families with children and $15 billion in stepped-up wage subsidies for low-income workers, overshadowing the approximately $35 billion in new spending for health insurance.
The evidence indicates that for the low-income recipients of these programs, cash transfers will provide a greater bang for the government’s buck. Two separate studies that my collaborators and I conducted found that, on average, low-income adults would benefit more from a dollar in cash than a dollar of government spending on health insurance.
These kinds of comparisons are inherently difficult. One approach we took to measuring the value of health insurance to recipients was to see how much they were willing to pay for it. Another was to estimate the effects of such insurance on their lives, like improved health and increased economic security. Neither approach is airtight.
But they gave very similar answers: The benefit of Medicaid coverage received by a newly insured adult is less than half what that coverage costs taxpayers, which is about $5,500 a year.
The reason is simple: The uninsured already receive a substantial amount of health care, but pay for only a very small portion of it, especially when their medical bills are high.
estimated that 60 percent of government spending to expand Medicaid to new recipients ends up paying for care that the nominally uninsured already receive, courtesy of taxpayer dollars and hospital resources. In other words, from the recipient’s perspective the alternatives are $5,500 in cash or only about 40 percent of that — $2,200 — in health insurance benefits, on top of the care they were already receiving.
The United States has a longstanding tradition of providing free medical services to the indigent. Hospitals emerged in the 18th century largely to care for those with no other sources of help. In modern times, federal and state governments have enacted a grab bag of policies to help defray some of the costs incurred by hospitals and clinics in providing humanitarian care.
The result is today’s health care safety net for the uninsured. It is grossly inadequate and inefficient. It needs a radical overhaul.
But in the meantime, the direct benefits from expanding insurance to the low-income uninsured are, paradoxically, limited by the imperfect patches currently in place. Hospitals are major beneficiaries of health insurance expansions, which reduce their financial burdens and increase their profit margins.
Health insurance has always been an important financial tool for hospitals. During the Great Depression, they pioneered the first widespread health insurance in the United States to help ensure payment for provided care.
More recently, in 2006, when Senator Mitt Romney was the Republican governor of Massachusetts, he embraced the state’s health insurance expansion — which became the blueprint for Obamacare — as a way to reduce the costs that uninsured patients imposed on hospitals and taxpayers. Hospitals later used similar logic in lobbying for Medicaid expansions under Obamacare and against their repeal.
Of course, the newly insured have also benefited greatly from health insurance expansions. On this point, the evidence from Obamacare is in, and the research results are clear: Medicaid coverage is better than the safety-net care available to the uninsured.
saved lives. They also increased access to medical care and reduced medical debt, which can impose substantial financial and emotional pain on patients and their families, even though most of it is never repaid. Covering some of the remaining 30 million Americans who are still uninsured would most likely produce similar benefits.
But people in need also benefit greatly from cash. And there is evidence that cash transfers can also save lives.
In addition, a large body of work shows that wage subsidies to low-income workers with children help lift their families out of poverty, increase economic self-sufficiency, and improve their health and well-being. A recent experiment found that wage subsidies very similar to the ones that were temporarily expanded in March also increase employment and earnings for low-income adults without dependent children. Likewise, direct cash transfers provide important benefits to families and their children, whose academic achievement and physical and mental health can improve as a result.
In an ideal world, everyone would have health insurance and sufficient income. But in the real world, budgetary and political constraints often force wrenching trade-offs.
There are powerful moral imperatives for making sure that everyone has adequate medical care, as well as sufficient income for their nonmedical needs. It’s hard for economists to weigh competing moral imperatives.
But we can, at least, stack dollars on scales. And the good done by cash transfers tips the scale in their favor.
The Biden administration is now trying to make permanent its temporary expansions of both cash subsidies and health insurance. If forced to prioritize how best to help those who are struggling economically — either because of the coronavirus pandemic or from longer-term, structural obstacles — it’s time to recognize that cash is more effective than insurance.
Amy Finkelstein is the John and Jennie S. MacDonald professor of economics at the Massachusetts Institute of Technology.
In the late 1990s, Boston expanded its public pre-K program, but it did not have nearly enough spots for every 4-year-old in the city. So it used a lottery to help determine which children could enroll.
That lottery created an opportunity for academic researchers. It meant that thousands of otherwise similar children would have different life experiences based on random chance. And random chance is a powerful way for social scientists to study cause and effect. It may be the closest thing to a laboratory experiment in the real world.
Pre-K was a particularly good subject to study, because there has been a long-running debate about how much it matters. In the 1960s and ’70s, studies of two small preschool programs — known as the Perry and Abecedarian programs — showed major benefits for the children who attended them. But some experts pointed out the two programs were of a higher quality than most pre-K programs. For that reason, a community that enacted universal pre-K could not expect to replicate the benefits of Perry and Abecedarian.
The evidence about larger pre-K programs — like the federal Head Start program — was more mixed. Graduates of Head Start seemed to do better on math and reading tests during the early years of elementary school. As they got older, though, the positive effects often faded, leaving the value of universal pre-K unclear.
calling for the federal government to subsidize state pre-K programs. About two-thirds of 4-year-olds and half of 3-year-olds now attend such programs. Biden wants to make them universally available, at an additional cost of about $20 billion a year (or less than 1/30th of what the federal government spends on Medicare). He would pay for it by raising taxes on the wealthy.
In today’s newsletter, I want to tell you about the results from the Boston pre-K study. They are being released this morning by three economists, from the University of Chicago, the Massachusetts Institute of Technology and the University of California, Berkeley.
mixed evidence on Head Start.
But test scores are mostly a means, not an end. More important than the scores are concrete measures of a student’s well-being. And by those measures, the students who won the lottery fared substantially better than those who lost it.
also found that early education had a bigger effect on long-term outcomes than short-term metrics.
How could pre-K have these positive effects without lifting test scores? It seems to improve children’s social and emotional skills and help them mature more than it helps in a narrow academic sense, the researchers told me.
The findings are a reminder of how complex a process schooling is. We can’t simply give up on test scores. Measurement and accountability are vital parts of education, just as they are with most human endeavors. Without them, society ends up tolerating a lot of mediocrity and failure. But measurement often needs to be nuanced to be accurate.
“An important implication of our study,” Walters, a Berkeley economist, said, “is that modern large-scale public preschool programs can improve educational attainment.”
For more: How child care became a top issue in Biden’s Washington, by The Times’s Emily Peck; and why Republicans are abandoning their past support for universal child care, by Elliot Haspel, in The Washington Post.
recipe that lets time do most of the work, no kneading necessary.
The technique led to an explosion in amateur baking and changed professional baking as well, the chef J. Kenji López-Alt writes. It changed his life, too. “Learning how time can do the work for you turned me from someone who baked perhaps one or two loaves a year into someone who throws together dough on a whim before bedtime several times a month,” he writes.
updated recipe for no-knead bread.
PLAY, WATCH, EAT
What to Cook
HONG KONG — The U.S. Embassy in Beijing had good news to share: Student visa applications for Chinese nationals were resuming after a yearlong hiatus.
“Spring has come and the flowers are in bloom,” the embassy wrote in a Chinese-language social media post on Wednesday that included a video of a dog trying to jump over a fence. “Are you like this doggy who can’t wait to go out and play?”
It backfired, big time.
The post on Weibo, a Twitter-like platform in China, could be read as a ham-handed attempt to be cute. But at a moment of heightened nationalism on the Chinese internet, it set off criticism — and accusations of racism — that were amplified by the ruling Communist Party’s formidable propaganda machine.
The embassy quickly removed the post and apologized, but the damage was done. The spat is the latest thorn in a diplomatic relationship that is prickly at the best of times and has lately been at its most delicate point in decades.
aggregating criticism of the post and criticizing former President Donald J. Trump’s visa policies.
Fang Kecheng, a professor of journalism and communication at the Chinese University of Hong Kong, said the response was a typical example of how nationalistic news outlets and social media users in China wage “public opinion warfare.”
“They pay close attention to what the U.S. government and media say, and amplify any inappropriate expressions to discredit them,” he said.
Professor Fang said that such campaigns sometimes drew attention to statements that he said deserved to be criticized, such as Mr. Trump’s use of the term “China virus” to describe the coronavirus. That phrase has been widely criticized in the United States and beyond as racist and anti-Chinese.
“In this case, it’s amplifying a misstep,” he added, referring to the embassy’s social media post.
Early last year, Mr. Trump imposed restrictions on travelers from China, including students, prompting criticism from Beijing. The Weibo post on Wednesday by the U.S. Embassy’s consular section announced that student applications had resumed under President Biden’s administration.
technology Cold War, among other issues. Travel between the two counties has largely been frozen by strict visa controls, a result of both Covid-19 protocols and souring relations. Even attempts to restore diplomatic normalcy have been fraught.
There are potential financial implications for the U.S. education sector, too.
About a million international students enroll in American universities every year. More than a third were from China in the 2019-2020 academic year, according to data compiled by the Institute of International Education.
But experts say that universities in the United States and other English-speaking countries could lose billions of dollars in the coming years because of travel restrictions and anger among Chinese students and parents about what they see as a permissive attitude toward public health during the pandemic.
abandoned a plan to strip international college students of their visas if they did not attend at least some classes in person. Harvard, the Massachusetts Institute of Technology and attorneys general of 20 states had sued over the proposed policy, saying it was reckless, cruel and senseless.
Paul Mozur contributed reporting and Lin Qiqing contributed research.
The question is whether the new technology is going to make the yuan an attractive alternative to other currencies. Chinese central bankers say it is not an effort to supplant the dollar, and Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, said digitization won’t fix issues that make the yuan unattractive as a reserve currency in the first place — like capital controls, which mean you can’t exchange it easily at all times.
Is Bitcoin coming for the dollar?
Others worry that private-sector innovations like Bitcoin or “stablecoins,” which are backed by a bundle of assets or currencies, could become an attractive alternative to government-created cash if central banks don’t keep up.
Mr. Powell has argued that Bitcoin is more like gold than the dollar. It has value because it’s rare and people want to hold it, so it can even at times be traded for other goods and services, but it is not government-guaranteed money.
But global regulators did slow down Facebook’s stablecoin project, originally known as Libra and now called Diem, because they worried about the potential for money laundering and financial system disruption.
Mr. Powell said in testimony last year that Libra was “a bit of wake up call that this is coming fast and could come in a way that is quite widespread and systemically important fairly quickly,” highlighting the “importance of making quick progress.”
If tech companies come to dominate the payment system, that could create privacy and stability issues. In fact, China’s digital yuan was pursued partly in reaction to the rise and dominance of private-sector digital payment platforms like Alipay and WeChat Pay.
A faster or instant payments system, like the FedNow instant payment technology that America’s central bank is now developing, could keep the Fed up-to-date without changing the system as much as a digital currency would. But digital dollar fans say the point is to prepare for the future — and the future might be central bank digital currency.
“Digital cash, if built in the right way, could be really groundbreaking,” said Neha Narula, who is the director of the Digital Currency Initiative at the Massachusetts Institute of Technology and is working with the Boston Fed on its project.