Review: The Poverty Industry

One of my clients recently recommended that I read Professor Daniel Hatcher‘s The Poverty Industry. So I did. Now I understand why my client was so adamant that I read the book, and with the same urgency, I recommend that you do the same.

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Hatcher addresses the “poverty industry,” akin to the military industrial complex of which President Eisenhower warned. But it’s worse than that:

In 2011, the defense industry spent in excess of $134 million on government lobbying efforts. Impressive. But the healthcare industry spent almost four times that amount – more than half a billion dollars, including a significant focus on lobbying related to government healthcare problems for the poor. The defense industry also spent almost $24 million in 2011 on campaign contributions, but the healthcare industry multiplied that amount by almost eleven. In fact, campaign contributions made only on behalf of hospitals and nursing homes were about equal to all the campaign contributions made on behalf of the entire defense industry.

Not many Americans are aware of the extent to which private interests are intimately involved in healthcare aspects of what Hatcher refers to as “fiscal federalism.” Most of us believe that the federal government provides money to states, and permits states to deliver those funds to vulnerable populations in a manner most meaningful to the particular circumstances of those populations. But private contractors are interjected into this relationship, creating the iron triangle and the worrisome statistics noted above.

Contractors like MAXIMUS and PCG (the Public Consulting Group) operate internationally, helping governments’ take advantage of financial opportunities. What opportunities that we talking about? Taking Social Security benefits from children in the foster care system.  Taking Medicaid payments for nursing home care, and applying them to state general fund coffers or other projects that have absolutely no linkage to care of the elderly. (By the way, such contractors are often also hired by the federal government for audit activities, creating a scenario in which they are responsible for checking off on their own behavior.)

One of the examples Hatcher shares in the book hits close to home. The Marion County Health & Hospital Corporation in Indianapolis began buying for-profit nursing homes throughout Indiana. It then contracted with American Senior Communities to manage them. Owning the nursing homes permitted the claiming of more federal dollars, which would presumably be used to increase the quality of care nursing home residents were receiving. (Note that Indiana rates abysmally in regard to the quality of care experienced by nursing home residents.) In fact, the Indiana General Assembly passed a bill that would require any additional federal dollars to be spent on nursing homes. However, Governor Frank O’Bannon vetoed the bill, allowing the federal dollars to be routed elsewhere. Ultimately, they were used to fund Eskenazi Hospital. Quality of care in Indiana’s nursing homes is still deplorable.

The Poverty Industry describes numerous other examples of private companies – often with shareholders to keep in mind – working with the government to take advantage of those to whom the money was intended. It is a great eye-opener, and is likely to disturb you like no other non-fiction book on the market. I strongly recommend that everyone read this and then look into how their own state manages public benefits coming from the federal government.

Review: In Our Hands

You might’ve heard about political scientist and professor Charles Murray recently. He was the subject of a recent campus protest, and is also (in)famous for writing The Bell Curve. I picked up the most recent draft of his call for the creation of a universal basic income (“UBI”), In Our Hands: A Plan for Replacing the Welfare State.  As a person who relies on government welfare programs (e.g., Medicaid), I’m skeptical of most libertarian plans for reform. However, Murray and his book surprised me in a very positive way!

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Unsurprisingly, Murray calls for the elimination of most wealth transfer programs, including Social Security, Medicare, Medicaid, and additional programs that may not initially come to mind when one thinks about welfare (e.g., farming subsidies). However, people – citizens, at least – will not be left completely without government support. Wealth transfer programs will be replaced by UBI. The figure Murray gives is $13,000 per year for each individual aged 21 and older (the amount can be proportionally reduced by up to $6,500, depending upon how much income a given citizen receives each year). Lest you think this is going to cost taxpayers even more than current welfare programs, Murray’s proposal is actually less costly than the status quo!

Unlike current programs that place in enormous restrictions on how each form of wealth transfer may be used, Murray’s UBI has at least $3,000 each year must be used to purchase catastrophic health insurance. This should please Democrats, in that all Americans would have healthcare. It should also please Republicans, in that catastrophic care truly is health insurance. Believe it or not, I am also impressed by Murray’s proposal because he states that long-term care would be included in the mandatory health insurance packages. People with severe disabilities in need of personal care assistance have been looking for a Medicaid alternative for years – could Murray’s UBI be it?

There is much more to discuss in this short book, and perhaps this blog will revisit some of the other benefits of UBI at a later time. I’m intrigued with the idea, and have been mulling over Murray’s proposal all week. Needless to say, this is definitely a book I recommend to anyone interested in government reform.  AEI-affiliated ideas strike again!