Posted on 02/17/2012 6:19:02 AM PST by SeekAndFind
Financial aid, whether it's a cheap loan, a work-study job at the campus library, or a grant, is supposed to make college more affordable and accessible for students. But what if, by handing money out to undergrads, the government is simply encouraging schools to spend more and jack up tuition?
Meet "the Bennett hypothesis," the dismal notion named for Reagan Education Secretary William Bennett, who suggested it in a 1987 New York Times op-ed diplomatically titled "Our Greedy Colleges." Generous student-aid policies had "enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase," he wrote at the time. "Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible."
Twenty five years of swelling tuition prices later, Bennett's critique seems to have received a stamp of bipartisan approval, courtesy of the Obama administration. It's the driving spirit behind a White House proposal that would condition a small amount of the federal financial aid that colleges distribute to students on their ability to keep a lid on costs. "We can't just keep on subsidizing skyrocketing tuition," Obama told a rally audience at the University of Michigan last month as he announced the idea.
True enough. Subsidizing skyrocketing tuition sounds like a supremely poor idea. If only it were clear what the link between student aid and college costs actually was.
PUTTING BENNETT TO THE TEST
Researchers have been examining the Bennett hypothesis for decades, trying to figure out whether it holds water. So far, we don't know the answer. Nobody has proved, once and for all, that it's right. But they've found pretty good signs that it might be.
(Excerpt) Read more at theatlantic.com ...
If health "insurance" was like auto insurance (with a deductible and maintenance items not covered) it would be quite affordable.
Anytime you create an artificial floor, you completely remove any downward pressure on price. If the seller of an item knows everyone that walks in their door is guaranteed to have X dollars available to them to spend at a minimum and that those dollars are guaranteed to be financed and not to be paid back for years (no payments nada) there is ZERO downward pressure to not charge at LEAST that much.
Look at Sec 8 as a perfect example, in a town where section 8 agrees to pay $500 for a 1 bedroom apartment, just try and find an apartment for less than $500 even if you aren’t on section 8...
To argue this hypothesis isn’t proven is nonsense.
The year I was born the median household income was ~25,000 dollars. a year of HARVARD was 2,500. Today the average median household income is about 45k and a year of harvard is 37,000 dollars.
The school I graduated from in 1994 cost about 5,000 a year, this year its over 15,000 per year. The degree I paid 20k for and got a 40k a year job with, now would cost 60,000 and get you a 50k a year job with.
Its the same school, the education isn’t any better...
Hasn’t been proven is nonsense. Basic economics proves it time and again, create an artificial floor and you have no downward pressure on price, and prices go up.
Simple solutions usually come from simple people and are notorious for not working. That never stops them from telling you how dumb you are for not seeing their "simple solutions"
In case the above statement doesn't make sense, I'm agreeing with you.
>> Since were not likely to enjoy a purely free market anytime soon, what is a realistic, incremental, more market-based approach? <<
You raise perfectly valid point. Thanks!
Milton Friedman, John Goodman, and others have written tens of thousands of excellent words on this matter. I can’t cover everything. But for starters, here are some points off the top of my head:
1. Privately purchased health insurance should get exactly the same tax treatment as insurance that might be purchased for you by an employer. The tax system should be neutral as between the two types of coverage. Health savings accounts can be a useful “transitional” tool in achieving this goal.
2. Cash outlays for health and medical expenses should get exactly the same tax treatment as expenses for insurance. Health savings accounts and high-deductible “catastrophic” coverage policies would have a big role here.
3. There should be no restriction on sales of health insurance in interstate commerce. Or even across international borders. If I want to buy my coverage from an Alaska company, even though I might live in Puerto Rico, let me do so!
4. There should be no government mandates on what health insurance must cover. If you want a high-deductible policy that doesn’t cover dental cleaning, botox, Viagra and abortion, then go for it!
5. Government expenditures on health matters should largely be restricted to basic research (lots of it, IMO) and to the provision of accurate information. VA hospitals should be given to state governments, with transitional block grants to cover operations for ten or fifteen years, or they should be sold to the private sector, with special “health vouchers” made directly to vets if necessary.
6. To the extent that the voting and tax-paying members of society want there to be a “safety net” for the very poor, federal efforts should be directed mainly to (a) tax incentives for private charity and (b) block grants to the states.
7. Although there certainly should be no federal “mandate” for everybody to purchase health insurance, everybody above a certain income level should be required every year on his or her federal tax return to swear/affirm that if they choose NOT to have a certain level of health insurance coverage, then they (a) will not ask for, they (b) will not accept, and that they (c)fully understand they will not get any kind of federally-subsidized assistance if they suffer illness or injury.
Theres an absolute limit on what the insurer is going to lay out if you total your car. Health issues could go on for years and years. I don’t think auto is all that comparable.
I like these ideas, but they don’t really address the elderly and chronic diseases. I’m sure that Medicare and Medicaid aren’t the best we can do.
>> so you’re pro insurance. <<
Wrong. If anything, I could be called “anti” insurance, since I think the current income tax regime gives incentives for there to be TOO MUCH insurance, at least when we’re talking about employees of (a) big companies and (b) other big organizations like governments (federal, state and local).
But really, what I want is a NEUTRAL system — one that allows intelligent consumers like you to buy whatever insurance suits you best. I’m confident that you and millions of other Americans will know better than some bureaucrat, and maybe even better than your company’s HR department, what kind and what amount of coverage is best for you.
So here’s option no. 1:
If your company can negotiate a group policy that you think is better for your needs than what you can find on your own, then that would be great. Go for it!
On the other hand, for option no. 2:
If you think you can take the money your employer would spend on your policy, plus your own contribution, and then use that same sum to buy a policy that better suits your family’s needs, then that also would be great. And if you could buy coverage for a little less than what would be spent via a company policy, then you should be allowed to keep the savings as a form of increased cash compensation.
The main problem now, however, is that option no. 2 is effectively foreclosed by the federal income tax system. Get rid of the tax favoritism for employer-provided insurance, and you go a long way toward a solution.
I did mention something to the effect of expanding demand and without insurance doctors and hospitals would be forced to charge less. I think we on Freep are all cognizant of how that works. The real issue with insurance is covering really major issues,the kind that would bankrupt a person.
Maybe that’s all insurance should cover. Categorize illnesses and have it cover those that will result in hospital stays. Stuff like that. I think it also must cover yearly check ups just to keep the cost of the bigger stuff down.
Infected fingernail? Pay as you go. A cold? Lots of stuff pay as you go. I think that would help lower costs on the lesser issues.
And one more thing. Government can’t sure stupid. Infect a fingernail and decide you don’t need to take care of it until its poisoning you then you’re not covered for all the extra! That is likely where the real left right war would be.
My “high-deductible” policy keeps getting more expensive, I’m sure partly because of the mandated coverages that bypass the deductible.
I want a policy where I decide how much I pay out-of-pocket per year (say, $5000) for EVERYTHING. (including checkups, mammograms, colonoscopy, etc) I bet my rates would go down.
A terrific analysis and a beautiful example. I have no idea how much is original to you, but congratulations! And your discussion certainly deserves much wider dissemination.
i cannot see any way that i will be able to or you for that matter negotiate down an insurer and get equal value. The companies have little to no incentive to give too much. Whatever you think you’re getting from them will have been a chip they were always wiling to lose.
Size matters! Much easier actuarial calculations for an insurer.
Also, one of the main contributing factors on the cost of health care premiums is the layout for routine office visits, tests and prescription drugs.
If the health insurance merely imposed a $1,000 per year deductible before the insurance carrier paid a dime, costs would plummet.
I believe many dental plans have a deductible. Those plans don’t cover a whole bunch regardless.
Maybe i’m jaded but i don’t think insurance companies will be looking to actually provide value. They will look to offer a percentage back of what they take in. More profits. Period. Its just where we are now.
THE PUBLIC DEMANDS THE VALUE. A profit making company aggressively seeks to PROVE THAT DESIRED VALUE.
But a bureaucracy hobbles all efforts to provide real value, and diminishes all desires. The bureaucracy IGNORES what the public considers valuable, and at first replaces those values to be sought with the values the elite of the time would seek. But in the long term, even those values are abandoned. What “values” does a established bureaucracy seek? Those that are the MOST disrespectful of reality.
>> i cannot see any way that i will be able to or you for that matter negotiate down an insurer and get equal value <<
Fine. You stick with your company’s policy. Won’t bother me a bit, and apparently you will be happy.
But please grant me the same consideration. Just let me and other self-employed or small-business folks pick our own coverages and our own deductibles, let us shop across state lines, and give us equal tax treatment to what your employer gets. Then let employees of government and big business also have these market-oriented options. The market can work wonders if only the government will get out of the way and let capitalism do its thing!
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