Wednesday, December 15, 2010

Opposing Healthcare: Rational or Irrational?

by Gaurav Singh

Predictably, the Healthcare law passed recently has come under legal challenge.  In this video, Sen. Bernie Sanders (I) made a cogent case for, as well as exposed the irrational argument against, spreading the risk (widening the pool) of the insured.

So, is the opposition to universally mandated (affordable) health insurance rational or irrational?  Well, it depends on who you are.

There is a dissonance between the value of health insurance for voters and politicians.  Furthermore, there is a dissonance within voters, as well as within politicians.  Why should that be so when universal health insurance is, as I shall show, a cost effective way of addressing this national crisis? 

In short, it depends upon incentives and self-interest and with what and whom these are aligned.

In that regard, opposition to the law recently passed (as well as, the fear of Universal Healthcare) may appear rational for some politicians.  It is simply not principled (I explain this below).

Mandated Universal Health Insurance is a mechanism that achieves the goal of minimizing risk by diversifying it across the populace.  Investors in the stock market routinely seek to minimize their risk while maximizing the upside, and they do it by diversifying their portfolio.  Diversifying a stock portfolio makes sense to most rational people.

While diversifying makes sense to rational investors, when related with the stock market, the same principle seems no longer sensible to many presently opposed to diversifying the pool of those insured for health.

Why such dissonance?  Did the math, and statistical probability underlying the risk analyses suddenly become inapplicable?  Of course not!  However, something did change.

To simply state that people are not always rational would miss the point.  At play here is an economic phenomenon.  The gains or benefit from investing in stocks are personal, while gains from healthcare are shared (they are spread over the population). Specifically, those who are a lower risk (healthy, young people) get a lower payoff than those who are a higher risk (generally older and disease-prone people).  Therefore, the payoff is higher for being rational in terms of personal investments (stock market). The payoff is not nearly as high for supporting universal healthcare.  The younger and healthier one is, the payoff from bearing the cost of health insurance actually decreases - that is, the personal value for health insurance decreases.

So, does that mean that mandated health insurance is not in our interest?  Far from it, the fact is that mandated health insurance is in our public interest, but it may appear that it is not in our own, pure self-interest.  More specifically, it is not in the pure self-interest of those individuals who are healthy and young, or wealthy and older.  Public interest and pure self-interest are not always the same.  However, a strong case can be made that, philosophically, they are intrinsically related and inseparable.  It depends upon the idea and magnitude of the self – how large is my idea of my self, but let's save that for another day.

We routinely restrain pure self-interest in service of the public good.  For instance, society has deemed it necessary to mandate minimum liability auto insurance.  Why?  Because if you feel the need not to have auto insurance and crash into me (or my property), then I should not have to endure a large financial cost because of your irresponsible decision.

Similarly, health outcomes have a cost that is shared by society. Only we do not see it everyday.  And it doesn’t hit us with jarring force, like an auto accident.  But every time we complain about our taxes, we are in some part complaining for having to pay for folks who go to the emergency room.

Why do they go to the emergency room, rather than to their primary care doctor?  They do so because they do not have health insurance!

Going without insurance to the doctor entails a high cost, as does visiting the emergency room at any local hospital.  Except, the doctor in private practice can refuse to see you if you are not insured, since they know you will not pay them.  But the emergency room cannot turn you away.  And guess who pays for it?  All of us, the taxpayers, bear that cost.  Many individuals and families who are made to bear responsibility for such costs find themselves financially ruined.

Think of how much cheaper it would be to visit the primary care physician for treatment or medical advice.  You make a copayment for all preventive care, in addition to your regular insurance payments.  Larger treatments may entail a coinsurance.  But that cost is considerably less than going to the emergency room for the same treatment.  Actually, the difference is in orders of magnitude.

Is it really that hard to understand that the more people there are in a group the overall risk, as well as the per person cost of a program, is reduced?  That is the basis upon which insurance operates.  Insurance is about managing risk.  In short, there is a larger shared benefit when risk is spread amongst a larger group of people.  The validity of my case is evident by comparing the cost of any private vs. group insurance.

Then, there is the issue of adverse selection.  If young, and potentially healthier, people stay out of the pool of the insured because they are healthy, then by default the pool of the insured will include those who are not as healthy, and result in a higher cost for all who are insured.

In such a marketplace of choice, who will seek insurance?  Overwhelmingly, it would be folks who think (or know) that they need to be insured, i.e. those who are likely to be unhealthy!

This is a simple, yet pertinent, reasoning that is lost on those who rail against the virtues of universal healthcare.  By having a choice the healthy stay out of the insurance pool yet, when needed, they go to the emergency care.  They do so because the benefits are personal and the costs are shared.   Conversely, by mandating health insurance society ensures that the benefit and cost both are shared.  What we need is to be made painfully aware of the actual cost of having a broken healthcare system – what we actually pay (through our taxes) to sustain the system at this time and the actual savings via a mandated health insurance.

So, why are many politicians forwarding an irrational argument?  Simply put, it is a matter of incentives and interest – both public and self.

Actually, one needs to parse the meaning of public interest. Public interest comprises collective good.  The collective is made up of individuals, but transcends pure self-interest.  When we act in the public interest or for the public good, our choices help more than just ourselves, although we do accrue a smaller benefit.

It is pure self-interest to which opportunistic politicians speak, when they bring to light that Universal Healthcare is not in people's self-interest.  But, they conflate it with the public good which is clearly not the case.  These politicians are highlighting selective parts that actually distort the bigger picture.

Now, we generally give up pure self-interest everyday in order to serve the public good.  For example, parks and infrastructure such as roads and bridges are public goods and serve the public interest, paid for by all of us.  We just do not take money out of our pocket to keep these running.  It is included in our taxes.  Health insurance is paid weekly or monthly, so it hurts.

But why do politicians make a case to undermine the public interest?  The primary functional goal of a politician is to get re-elected.  That may sound cynical, but it is true.  Assuming all politicians are honest and enter politics to serve the public good, they would need to stay in office for them to continue to serve the public.  Therefore, politicians are functionally interested in re-election and after all is said and done they hope to do more good than harm.  Again, it sounds like a cynical qualification, but is it?

All honest politicians want to do what is “good” in their view, the problem is that other politicians disagree, and are committed to their own view of the “good”.  And in our system of government bifurcates the power into three branches  - legislative (Congress), judicial (Courts) and the executive (President) - and two branches (House and Senate) within the legislative branch – the lawmaking body.  It is a painful process to get a bill to become law.  I highly encourage all to watch this short video below to appreciate that process.

Repealing a law takes a whole new dimension when the law actually serves the public good.  It is a problem, in my view, that President Obama did not make the case for Universal Healthcare - a campaign promise, in favor of an easier product - a compromised and flawed bill, which is nevertheless an improvement over the status quo. 

House members have to seek re-election every two years.  Therefore, these elected representatives want to fashion legislation to serve the public good, while constantly concerned with raising money for re-election and having to compromise with other politicians serving the interests ("good") of their constituents.

But who are their constituents?  That is more complicated.  For politicians, constituents include voters, but also include interest groups that lobby to have their preferences considered.  These interest groups include experts who advise (wink, wink!) elected representatives on the merits and demerits of certain provisions of any particular legislation.  In fact, these “experts” pretty much write the law that is to essentially govern them.  So, politicians are more vested to interest groups that support them, like health insurance companies, than individual voters who may express their preferences thru emails, letters or phone calls.  Only coordinated action by a sizable number of voters can sway legislators.

The above is not to justify in any way the actions of politicians.  I do not.  It is only to shed light upon the process.

So, from the politicians’ vantage point they are taking rational positions that support their chances of re-election.  The problem is that their interest is not always aligned with the interest of their constituents (I mean you and me).  Citizens, you and me, can have wildly different interests than elected representatives, as should be clear by now.

To many politicians who oppose universal healthcare, then, it would appear they are acting rationally.  That is because they are serving their main objective, which is to stay elected and to do, on average, more good than harm through the complex system of checks and balances of our system of government that constrains their choices.

However, these politicians are not being honest when they say that they are being principled.  They are not.

Since, mandating universal health insurance is a public good, in that it serves the public interest, it would be a principled position for every politician to support this measure.  Unless it is their intention to work solely for self-interest.  But if they were to make that revelation, then they simply would not be re-elected.  So, the real question is whether Health insurance for all Americans is in the public interest, since politicians are universally and rhetorically committed to serving it. I hope the reasoning above makes clear that mandated health insurance for all Americans is obviously and provably in the public interest.

Finally, the reasoning that government cannot manage healthcare and that private sector can do it better is ridiculous.  We already know that the private system of health insurance is broken and based upon choice, which clearly does not work.  We also know that the government manages Medicare, Medicaid, Social Security, Defense, Law & Order, Mail, and Education, etc.

Effectively, the healthcare problem could have been addressed by including everyone within Medicare.  However, leave it to the Democrats to botch this rational sell to the American people.  Just kidding.  It is not easy to make the case for mandated health insurance in one line.  It is certainly easier to use fear-mongering tactics and confuse the voters.

Still, persistent and cogent reasoning can win this debate.  And that is a fight President Obama should gear up for.

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