Environmental Valuation & Cost-Benefit News

Now that the Democrats control Congress, Americans will see more emphasis on social programs. But voters' reluctance to expand such programs, coupled with a budget deficit, will force legislators to do more with less. Fortunately, better targeting of resources could yield huge benefits. The question is: How?

Society rightly wants to improve the chances of people who have drawn a bad ticket in life's lottery ("bad draws"), yet the government often spends substantial resources on the wrong people. We need to avoid "bad bets" and remove the "bad apples," so our dollars go further and better serve those who will benefit the most.

Bad bets are people who will not benefit as much from outside help as would others in equally bad or worse situations.

Pneumonia, once regarded as the "Old Man's Friend," offered the very frail a dignified death. Now we spend millions of dollars per year offering Alzheimer's patients an abysmal existence by keeping them alive on dialysis. Opinion leaders and litigation exacerbate the problem: A leading medical journal recently attacked one of our poorest states for proposing to give extra coverage to its Medicaid patients who join weight-loss or antismoking programs -- a cost-effective way to improve health and extend life.

Bad apples are people in a program whose irresponsible, illegal, or immoral conduct harms the far more numerous good apples in the same program. Bad apples also harm the good ones by stigmatizing the group, making voters less willing to support programs to benefit it. The classic bad apple is the chronic disrupter in public housing or schools. Parochial schools, which remove bad apples more readily, outperform public schools in educating equally disadvantaged students at much lower cost. Misguided laws make it harder than it should be for public schools to transfer these students. Homeless shelters and public housing authorities face worse difficulties. Only after years of litigation can they hope to evict even chronic rule-breakers.

Why do we keep spending on bad bets and bad apples? Healthcare is the most wasteful area for bad bets. Although Americans accept the need for triage medicine on the battlefield, we bridle at rationing healthcare, particularly where a patient is a bad bet through no fault of her own -- say, because she suffers from a debilitating, treatment-resistant condition. Advocates for those who suffer from specific diseases fight hard to keep payers from cutting off resources. Critical features of our healthcare system -- insurance coverage, professional ethics, doctors' "can-do" spirit, free-rider problems, special-interest groups -- push government to place big chips on bad bets.
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These obstacles can be surmounted. Better information can often defeat fuzzy analysis and parochial interests. The Clinton-era welfare-reform law, which imposed work requirements and time limits for benefits, dealt with bad bets and bad apples among recipients. The public now has a much more favorable view of those still receiving assistance. Also, Medicare now bases certain payments to providers on a patient's condition, not on the amount of treatment the patient receives. This change has significantly reduced hospital use in the last 90 days of life. In-hospital deaths have dropped sharply, while less costly home-care and other non-hospital treatments have risen, thus saving resources and providing a more humane process of death.

Political courage also helps. The New York City Housing Authority, for example, recently amended eviction procedures to remove disruptive tenants more quickly without sacrificing due process.

by Peter H. Schuck of Yale Law School and Richard J. Zeckhauser of Harvard's Kennedy School of Government, authors of "Targeting in Social Programs: Avoiding Bad Bets, Removing Bad Apples."
This article appeared in The Boston Globe on March 26, 2007.

FOR FULL STORY GO TO:
http://www.aei.brookings.org/policy/page.php?id=286
AEI-Brookings Joint Center www.aei.brookings.org
Policy Matters 07-14; April 2007.