Analysis the Effect of Hip Program Using Public Economics Theory

To: NPR audience

From: Jingyi Wang, editor

Subject: Analysis the effect of HIP program using public economics theory

Date: March 20, 2017

The purpose of this memo is to discuss the potential benefits and unintended consequences of implementing the Healthy Incentive Pilot. The discussion is based on a series of public economics theory including externalities, social welfare, valuation of in-kind or cash transfer and effect on labor markets. Three sections will be included in this memo: introduction, potential benefits/unintended consequence of HIP and a conclusion evaluation.

INTRODUCTION TO THE POLICY.

The Healthy Incentives Pilot (HIP) is a partnership between Department of Transitional Assistance and the United States Department of Agriculture Food Nutrition Service, and is the only one of its kind in the country. The primary goal of HIP is to test whether providing a financial incentive to SNAP households will encourage them to purchase more healthy fruits and vegetables. The pilot launched on November 1, 2011 and ended on December 31, 2012. HIP households received the benefit for 12 months. The Healthy Incentives Pilot tested a way of making fruits and vegetables more affordable for participants in the Supplemental Nutrition Assistance Program (SNAP). HIP target foods are fresh, frozen, dried and canned fruits and vegetables without added sugar, salt, fats or oils with some exceptions. For every dollar of SNAP benefits they spent on targeted fruits and vegetables (TFVs) at participating retailers, SNAP households received a 30-cent incentive on their SNAP Electronic Benefit Transfer (EBT) card. The incentive could be spent on any SNAP-eligible foods and beverages.

POTENTIAL BENEFITS/ UNINTENDED CONSEQUENCES OF HIP：USING ECONOMIC THEORY

① Positive externality

The SNAP program has a positive externality by generating an implicit marginal benefit of improving citizens’ well-being. The consumption of organic fruits and vegetables reduces risk of heart disease, stroke, and several cancers hence save healthcare expenditures. Although the effect of a healthy diet on healthcare cost saving is hard to measure, it is a logical assumption that there is indeed an association. Besides, the evaluation report of USDA reveals that HIP participants consumed almost a quarter of a cup more targeted fruits and vegetables than non-HIP participants. There is another environmental externality: demand for vegetables increase so farmers tend to produce more fruits and vegetables instead of breeding livestock. Raising cattle and pigs emits more carbon dioxide and other greenhouse gases, while produce TFVs greens the environment by generating oxygen and absorb carbon dioxide.

② Valuation of In-kind Transfer

Since the 30% reimbursement can only be used to buy SNAP foods, so it is an in-kind transfer, not cash transfer. Suppose a household has