Wednesday, April 17, 2013

Comparing Public & Private Spending in Health Care & Child Care

Since our household is about to grow in size by fifty percent, my wife and I have had an awful lot of interaction with both the health care and child care sectors of the American economy. Which provides a nice news peg for another piece of Dylan Matthews' interview with Jonathan Cohn. It's this bit here about public versus private spending:
I talked to some experts about what a true universal child-care program would cost. Nobody felt comfortable giving me a solid estimate. But you can extrapolate from the Center for American Progress proposal on universal pre-kindergarten, which they expected would be about $100 billion over the first 10 years. The assumption is that states would match that (ed. note -- given this spending structure, the total increase in government spending on child care would be $20B/year, which is roughly 20% of the cost of Obamacare, or about 40% of current child care spending-NB). That gets you a big chunk of the way there, but there’d be another big chunk to go. So I guess – and let me stress the word “guess” here – we’re talking hundreds of billions of dollars, across all levels of government, if it’s mostly financed by the public. But, as always, remember that a lot of that would displace existing private spending.
One thing worth considering when trying to figure out how the private sector would respond to a new, massive government expenditure on child care is the difference in consumer psychology when it comes to spending money on child care versus the other large piece of the welfare state, health care.

For those with insurance, health care spending is primarily after the fact. By the time you're spending money, you've already received the service, so there's no anticipation of things getting better. The amount you're billed is either what you expected, and you pay it; or it's in error in some way and you have to argue with your insurer and your provider. Errors are way more common than anyone wants -- we're up to five errors or ambiguities in eight visits, each requiring at least two phone calls to resolve the situation, if we can resolve it at all -- and it's incredibly frustrating. I'd much rather the government raise my damn taxes, figure out what to pay to providers, and just let me get on with living my life.

Dr. Hodgins may be panicking about being a dad, but
he has a better chance at picking a good child care
provider than he does a good doctor for Michael Vincent.
Spending money on child care is a little different. You get your choice of providers, which most people don't get with health insurers. Second, there are no unexpected bills to argue about*. Third, it's much easier for a lay person to understand the tradeoffs between high-quality, high-price care and low-quality, low-price care in the daycare market. Yes, the observable signals of quality in daycare are imperfect -- adult-to-child ratios, staff tenure & education levels can help, but they still only tell you so much. But these markers are much less imperfect than the observable signals of "quality" in health care. Proton therapy is expensive and sounds awesome, but there's very little evidence that it's doing any good. Last but not least, while the monthly tuition payment for child care is large enough that no one feels good about paying it, there's a real sense in which parents can say to themselves that they're doing what's best for their children. There's no such emotional reward for after-the-fact medical bills for semi-routine health care (though perhaps there is a reward for care that's truly life- or limb-saving).

I'm all for an expansion of child care and direct financial support to stay-at-home parents. But the  straightforward case for more government spending on child care isn't that it would displace private spending, but that it would supplement it. It seems likely that the result of new spending would be that poor and middle-class families would have access to higher quality child care options, while the upper-middle class would continue to pour money into extremely high-cost private daycare, bilingual nannies, etc.

*In fact, the largest after-the-fact hidden "fee" in child care isn't money but time. Lots of daycare facilities (and schools!) now expect parents to commit to a certain amount of volunteer effort per month or quarter, just to keep the place moving. This is something new parents should remember to ask about when they go on daycare tours.
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