As we watch President Trump tell the states they have to do more to find their own personal protective equipment for their health-care workers, governors lash back with demands for a national leader who will unlock the emergency powers of the federal government.

The response to the COVID-19 pandemic has exposed major weaknesses in the federalist system of public health governance, which divides powers among the federal, state and local governments, argues SHP’s Michelle Mello in this New England Journal of Medicine commentary.

The coronavirus, she writes, “is exactly the type of infectious disease for which federal public health powers and emergencies were conceived: it is highly transmissible, crosses borders efficiently, and threatens our national infrastructure and economy.”

“Strong, decisive national action is therefore imperative,” writes Mello, a professor of medicine and a professor of law, and Rebecca L. Haffajee, a policy researcher at the RAND Corporation. “Yet the federal response has been alarmingly slow to develop, fostering confusion about the nature of the virus and necessary steps to address it.”

The authors warn this “lack of interjurisdictional coordination has and will cost lives.”

Though states must respect constitutionally protected individual rights — such as due process, equal protection and freedom of travel and association — the Constitution puts primary responsibility for public health with the states, cities and counties. It gives them the right to exercise broad police powers to protect their citizens’ health during ordinary times.

In extraordinary times — like the one we’re experiencing now — states and the federal government can activate emergency powers to expand their abilities to act swiftly and protect human life and health. All 50 states and dozens of localities and the federal government have declared emergencies.

“The resulting executive powers are sweeping: they can range from halting business operations, to restricting freedom of movement, to limiting civil rights and liberties, to commandeering property,” Mello and Haffajee write in the NEJM Perspective.

This emergency legal framework has led to too few checks-and-balances on poor decisions—historically, in the direction of being overly aggressive, write the authors. They note a good example is when New Jersey’s governor ordered a nurse returning from Sierra Leone during the 2014 Ebola outbreak into quarantine, contrary to Centers for Disease Control and Prevention guidelines.

Too Little Too Late? 

“Today, we find ourselves in the opposite situation: the federal government has done too little,” the authors write. “Perhaps because of misleading early statements from federal officials about the gravity of the COVID-19 threat, public sentiment has weighed against taking steps that would impose hardships on families and businesses.”

The tumbling stock market and unprecedented 10 million unemployment claims last month also have created further pressure by the federal government to project a sense of calm.

“The resulting laconic federal response has meant that a precious opportunity to contain COVID-19 through swift, unified national action has been lost — a scenario that mirrors what occurred in Italy,” they write.

So the states had to pick up where the federal government fell short, the authors note. Many jurisdictions issued stay-at-home orders; others did not. As of March 31, more than a dozen governors had yet to issue statewide stay-at-home orders and eight had only ordered partial measures. Yet many jurisdictions turn a blind eye, they note, to noncompliance with social-distancing recommendations issued by the CDC, as evidenced by crowded beaches and children congregating in public parks.

“This is the dark side of federalism: it encourages a patchwork response to epidemics,” the authors write.

“A federal takeover of all public health orders would be out of step with our federalist structure,” the authors state, but there remain three good options:

• “The White House must reverse its current trajectory toward prematurely weakening existing federal measures and the resolve of governors who are enforcing stay-at-home orders and school closures.” Trump said last week he wanted the United States “opened up and raring to go by Easter.” A few days later, he heeded the call of medical experts and extended social-distancing guidelines until the end of April, but public health experts believe the crisis will likely be with us longer.
• Congress should “use its spending power to further encourage states to follow a uniform playbook for community mitigation that includes measures for effective enforcement of public health orders.” It could threaten to withhold some federal funds from states that do not comply.
• “Congress could leverage its interstate-commerce powers to regular economic activities that affect the interstate spread” of COVID-19, such as restricting large businesses from traveling and operating across state lines in ways that expose workers to risk.

The White House could also make further use of the Defense Production Act (DPA) to direct private companies to produce badly needed ventilators and personal protective equipment for health-care workers, the authors write. Trump has ordered General Motors to manufacture ventilators and the $2 trillion stimulus package includes $1 billion for DPA projects.                                                                     

“Learning is difficult in the midst of an emergency, but one lesson from the COVID-19 epidemic is already clear: when epidemiologists warn that a pathogen has pandemic potential, the time to fly the flag of local freedom is over,” the authors conclude. “Yet national leadership in epidemic response works only if it is evidence-based. It is critical that the U.S. response to COVID-19 going forward be not only national, but rational.”

This is the first installment in a series leading up to the publication of Fateful Decisions.

China has tremendous resources, both human and financial, but it may now be facing a perfect storm of challenges. Its future is neither inevitable nor immutable, and its further evolution will be highly contingent on the content and efficacy of complex policy choices.

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One of these challenges — how China must soon achieve economic growth as it grapples with the realities of a rapidly aging population and a shrinking workforce — is the subject of a chapter authored by Karen Eggleston, the deputy director of APARC and director of the Center’s Asia Health Policy Program. In the following interview, Eggleston shares perspectives from her chapter, “Demographic Challenges.”

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Q: What are some of the fateful decisions China is facing regarding the responsibilities of caring for a large, aging population?

A: China has achieved impressive improvements in health and longevity. It has implemented universal health coverage and is experimenting with financial support for long-term care for older adults. Yet significant gaps between the most- and least-privileged Chinese citizens persist, and in some cases are growing. As I have written elsewhere, it is not surprising that there are wide disparities in health and healthcare between different population subgroups in a country as populous, expansive, and diverse as China. How effectively and efficiently China meets these and other health- and aging-related issues will have a major impact on its ability to manage other social and economic challenges.

In the chapter I contributed to the volume Fateful Decisions, I note that China’s current population and demographic trends — including relatively rapid aging — reflect the success of earlier investments in infectious disease control, public health measures, and other contributors to mortality reduction. The lingering effects of family planning policies, historic preferences for sons, and rapid economic development are also major considerations. Together, these factors have produced a shrinking working-age population, a growing number of elderly, a gender imbalance, and hurdles for inclusive urbanization. An urgent question for China’s future is to what extent policies will ameliorate disparities in health, healthcare use, and the burden of medical spending.

The unfolding COVID-2019 outbreak is a powerful illustration of just how fateful decisions about health systems can be. Compared to the SARS outbreak almost two decades ago, China has been better prepared for this situation. SARS raised health system reform to the top of the political agenda and, many argue, played a direct role in China’s achieving universal health coverage and vastly strengthening the public health system.

But as China has become a middle-income global economic powerhouse in the years since SARS and the ensuing wave of health policy reforms, the expectations of its citizens about their health system have also risen. Has the health system, including public health and medical care, been strengthened to the same degree as other parts of the economy and public services? The impact of and lasting response to COVID-2019 may prove a litmus test.

Q: Why do these decisions about health carry such importance for China’s future development?

Through the last four decades, China has benefitted from a demographic dividend caused by the large bulge in the working-age population. But to achieve future economic growth and productivity, investments in human capital — particularly in health and education —need to be made. This higher productivity will, in turn, be the means by which a smaller workforce can support China’s large and growing cohort of retirees.

As we’ve already seen, health expenditures have increased rapidly as China has developed its system of universal health coverage. Double-digit health spending growth surpassed the rate of economic growth, and as a result, health spending absorbs an increasingly larger share of the total economy. China needs to make sure additional spending on health and elderly care is efficient and effective, while also addressing the nonmedical determinants of health and promoting healthy aging. The health system needs to be reengineered to emphasize prevention, provide coordinated health care for people with multiple chronic diseases, assure equitable access to rapidly changing medical technologies, and ensure long-term care for frail elderly, all without unsustainable increases in opportunity costs for China’s future generations.

Q: What is the Chinese government doing to improve healthcare quality and delivery, and what more could it do to affect meaningful change in its systems?

China’s current policies seek to balance individual responsibility, community support, and taxpayer redistribution through safety-net coverage funded by central and local governments. Like many countries, China would benefit from improved coordination across multiple agencies and structure incentives to avoid or mitigate unintended consequences that undermine the goals of its health system. Recent governance reforms, such as the creation of the National Healthcare Security Administration, aim to address these challenges.

China’s achievements and remaining challenges can be illustrated with the Healthcare Access and Quality Index (HAQ), which measures premature mortality from causes that should not occur if the individual had access to high-quality healthcare: among 195 countries and territories, China achieved the highest absolute increase in the HAQ Index from 2000 to 2016. However, the 43-point regional disparity in HAQ within China is the equivalent of the difference between Iceland (the highest HAQ in the world) and North Korea.

Q: The subject of your chapter, China’s demographic challenges, is one of the issues you investigate in your upcoming book, Healthy Aging in Asia. As you show in this volume, challenges at the intersection of aging, economics, demographic transition, and healthcare policy are not unique to China. How are other countries in Asia responding to them and what lessons could benefit China?

 As I note in the introduction of Healthy Aging in Asia, the demographic transition from high to low fertility and mortality has been more rapid in much of Asia than in Europe and North America. That means social institutions, such as retirement, living arrangements, and intergenerational support, have to adapt quickly. For example, extending work-lives (as is happening in Japan) will be necessary but feasible only if the added years are healthy ones and equitable only if the least advantaged also benefit from healthy aging. The blessings of longevity dim when clouded by pain, disability, and loss of dignity.

 Investment strategies in insurance and managing chronic conditions are also important considerations. Japan and Korea have adopted insurance systems for financing long-term care for frail elderly, while places like Hong Kong have good empirical research on chronic condition management.

 No country or system has a “magic pill” to address these challenges, but the empirical evidence and rich policy experience documented in Healthy Aging from health systems as diverse as those in the cities of Singapore and Hong Kong to large economies such as Japan, India, and China can certainly be instructive.

When it comes to rooting out wasteful spending in federal entitlement programs, attention has long focused on preventing beneficiaries from gaming the system.

A new Stanford study identifies a fresh cause for concern: the for-profit companies that the U.S. government increasingly tasks with providing benefits to Americans who are often poor, elderly or both.

In a new working paper, Maria Polyakova, an assistant professor of medicine, finds that outsourcing public assistance services to third parties can lead to unanticipated effects on prices as well as on which beneficiaries gain the most from public dollars.

That’s because companies are in the business of making money. And when they know which of their consumers are likely to get certain levels of public support, they will try to use this information to maximize their profits, according to the research published this week by the National Bureau of Economic Research.

Polyakova shows that when companies act in their self-interest, unforeseen inequities and inefficiencies can arise that may hurt some consumers while helping others. At a time when governments in the United States and around the world are increasingly turning to the private sector to provide public benefits — namely in health care and in education — Polyakova says policymakers need to better understand how these intermediaries are affecting welfare programs.

“Policymakers have to be more careful about introducing intermediaries into public services,” says Polyakova, who is a faculty fellow at the Stanford Institute for Economic Policy Research (SIEPR), and teaches at the Stanford School of Medicine. She is also a core faculty member of Stanford Health Policy. “They may want to revisit how they think about outsourcing when research is showing that there are unintended consequences that may be positive or negative.”

Health Insurance Pricing under the Microscope

Intermediaries are central to a number of public services where the U.S. government provides subsidies to consumers, often based on income, age or employment status. Prominent examples include privately-managed Medicare Advantage Plans, drug benefits under Medicare Plan D, and charter schools in secondary education.

According to Polyakova, most research into wasteful spending within government subsidies has focused on consumers and how they try to trick the system by, for example, hiding income to qualify for a tax credit or cash assistance. Governments, though imperfect, have long been seen as benign players.

The increasing involvement of for-profit companies, she says, shows there’s a need to closely examine what’s happening on the supply side of public welfare.

To do that, Polyakova found an ideal setting: the federal health insurance marketplace created by the Affordable Care Act of 2010. Most consumers who shop for coverage through www.healthcare.gov receive a subsidy in the form of a tax credit that covers all or part of their insurance premium. The amount of their tax credit is tied to their household income.

The dollars at stake are significant. The Congressional Budget Office estimates that in 2019 the federal government will pay $560 billion in subsidies for privately-provided health insurance, including the spending on the Affordable Care Act marketplaces as well as other similarly designed programs. That figure is expected to hit $1.2 trillion over the next decade.

The Neighborhood Effect

Polyakova and her co-author — Stephen Ryan of Washington University’s Olin Business School — analyzed data from 2017 covering more than 9 million enrollees across some 2,570 counties around the country. They find that the presence of an intermediary significantly impacts insurance prices and key measures economists use to calculate the effects of a policy beyond a given benefit’s face value.

Specifically, they show that health insurance companies will have an incentive to raise premiums in markets where more consumers receive the higher tax credit because their incomes are low and the government is required to subsidize them.

On the flip side, insurers will charge lower prices in places where such subsidized consumers are less willing to buy coverage if they think it costs too much.

To illustrate the unintended consequences of the insurers’ actions, the researchers point out that, in the first instance where prices increase, consumers with incomes that are slightly higher than other community members will end up paying more for the same coverage. Under the second scenario, consumers who don’t qualify for the tax credit because their incomes are too high benefit from the lower premiums aimed at nearby residents.

“The price you pay for insurance will depend on who your neighbors are,” says Polyakova. “If you live near people who are poorer than you, you will be affected differently than if you live near people who are richer than you.”

Change the subsidy, change the calculation

Like with financial aid, tax credits for insurance coverage are calculated based on consumer income. But there is another type of subsidy that policymakers could use — flat vouchers, in which all members of a market receive the same benefit regardless of income, age or some other characteristic. For their research, Polyakova and Ryan also analyze how flat vouchers that only vary by age, but not by income, would hypothetically alter private health insurance prices in the federal Affordable Care Act marketplace.

Here, too, the scholars find different impacts on different types of consumers whether the subsidy is based on income or delivered as a flat voucher.

The analyses, says Polyakova, drive home the point that policymakers need to understand that there are trade-offs to relying on for-profit companies to provide government services and that the type of subsidy offered can alter how they calculate prices in disparate ways.

“There’s nothing wrong with companies trying to maximize their profits,” says Polyakova. “But sophisticated policymakers need to understand what happens when private markets get involved.”