Health care debate in the USA

Here's an interesting video posted on the Huffington Post regarding the debate on health care reform in the USA. As a European I have no first hand experience of what's going on at this time there, and as such these are just some thoughts on what someone leaning over the Atlantic ocean sees from this side. This post is divided in three parts. The first describes what I find interesting about the present shape and content of the health care debate in the USA. In the second part I try to come up with some explanations for this. The last part concludes with a couple of comments on what I'd do if I'd be expected to lead the debate and was able to see things as clearly as I am now that I don't have to lead anything at all. Most these comments are based on chapter 4 of "The Welfare State as a Piggy Bank". A more technical treatment of this topic can also be found in "The Economics of the Welfare State". More information about healthcare in Europe can be found at the European Observatory for Health Care systems, which has a country information index.

I-Present shape and content of health care debate in USA 1) First of all, there seems to be no informed debate what-so-ever on the trade-offs implied by public and private options. In a time when media is accused of transforming complex issues into soundbites, this debate has gone further and turned an amazingly complex issue into 5 words: "good", "evil", "selfish", "communist" and "nazi". In my opinion, "uninformed" or "misinformed" are more appropriate. 2) Secondly, there seems to be no framework of analysis. It's not that people don't structure their opinions in a nice "1500 words essay" format, proposing a range of different opinions. But there should be some structure. I don't expect a unified framework of analysis either. Nor do I expect to see a fully informed debate, with complete information. However there should be some awareness of the multitude of issues involved such as, the consequences of private and public financing in terms of quantity and quality of health care services consumed by medical patients and the price of health care services paid to industry suppliers. 3) As a person who's studied social sciences and is used to the highly stylised methods of theoretical analysis, it is interesting to note how the real world is different from the one studied through the lenses of rational choice theory, even allowing for incomplete and asymmetric information. These models would predict that some form of debate should be taking place, with individuals contributing their personal experiences, specialists contributing their expertise and politicians taking from both sides to understand the issues and explain and implement policy. Instead, what I observe from this side of the ocean is that people who attend these townhall meetings have engaged in a series of collective monologues (not even... monologues at least have an argument, and tend to last a bit longer), dividing themselves in two self reinforcing camps, who seem to find no legitimacy or respect in each other's positions. Moreover the specialists seem to have fled the stage and politicians are doing their best not to be booed off stage. 4) The media is doing a pretty bad job at keeping track of this and at calling it a misrepresentation of facts (whether it be honest or not). The media which is supposed to inform is not.

II - Why is this happening? 1) and 3)Bad or incomplete information is normal in such a complex issue. In our efforts to understand things we simplify them. However, it's interesting that, what seem to be, concerned citizens don't take advantage of the opportunity presented by townhall meetings to destroy myths and clarify their opinion. I can come up with 3 inconveniently impossible to test reasons for this: First, there's intrinsic human nature. Once we make up our minds, we don't easily change it. We are generally stubborn and therefore are not good at being contradicted, much less at constructively engaging those who contradict us. Secondly, there's a group think type of behaviour, which implies that individuals of a certain group tend to interact much more with each other and through those interactions reinforce each other's feelings. In my understanding of the application of the Lipset and Rokkan cleavage model to the USA, the political cleavage seems to be reinforced by a polarising electoral system which favours the interaction of hardcore republicans and democrats with others of their group, possibly supporting this belligerant outcome. Finally, there's the argument from Mancur Olson, that minorities will always be more cohesive and easily organised and thus more efficient at voicing their opinion and lobbying for their position than an unorganised majority. This is a well tested explanation and makes sense, given only a limited number of people in the audience were making a fuss. However, given that there was no evidence of organised strategies, it is difficult to really posit that this is the case. However these protests continue to take place in most townhall meetings and its possible that they are supported by each party. Without any more information I would just go for the first explanation that those Americans which have made up their minds are unwilling to change it and just spoil the party for everyone else. Regarding the specialists I think that it's a non-quantifiable issue of skill and courage. Technical specialists tend to live in a world of their own, where their opinions are questioned in an orderly fashion, everybody being given their time to speak. This does not work here. These people aren't coming to these meetings to get informed, but to boo the guys that they think are responsible for the messy change around them. Politicians in america who like to count votes, might feel uneasy with two crowds making a mess leaving it without any safe position to take (a problem easily solved by the self-selection inherent of political ralies). 2) The issue of the incomplete and inaccurate information could be helped by a more honest debate. Obama won the election by showing people that life is not black or white but rather grey. This is a grey issue, if there ever was one, and should aggressively be treated accordingly. A debate about health care reform should is one which is concerned with a trade-off between equality and efficiency. From an analytical point of view it should be divided in two parts. One considering forms of financing and another analysing different arrangements for physical provision. In each of these, there's a choice between a purely public, a purely private or a mixed system. Each has advantages and disadvantages: choice involves a tradeoff. The discussion of financing can be divided in 2 issues. The first issue focuses on the specificities of individual consumers of health care insurance within the framework of medical insurance, and the incentives that this mechanism creates in terms of insurance provision by private companies. Insurance premiums (the money that must be paid by consumers to their insurance company periodically) are calculated according to the following formula:

This implies extremely bad news for the poor who cannot afford it and for people suffering from chronic (untreatable) diseases. Because for them p is 100%, this implies that if they would insure against that loss, it would be more expensive (because of administrative costs and profit margins of insurance companies) to insure than to pay for it themselves. Moreover, if its a chronic disease, it's likely that the cummulated cost of treatments will be quite expensive. The handicapt, those suffering from diabetes and the elderly will not be covered by health insurance, because they represent too high a risk. That why Americans have medicaid for the elderly. Moreover, anyone living in poor conditions or in a dangerous neighbourhood will also represent a high risk (though not a 100%) and will either not be offered plans or will have too pay overly expensive plans. The state on the other hand detaches health care contributions from risk. Either by making it a flat rate or by tapping or incorporating it into the income tax, it implies that if you are a risky individual you will get access to the same public funded scheme as the non risky. This is good because it increases coverage.

However more greys ensue from these observations. Having to be a low or average risk implies that there are some incentives for strict private insurance. I once ran into this American retired gentleman who told me that in order to get insurance his insurance provider required him to loose weight in order to bring his collesterol levels down. This is annoying, but not a bad thing. On the other hand, if one can get insurance despite one's lifestyle, then there's no need to loose weight like that gentleman did. It's like when we go to a "all you can eat restaurant". The tendency is to eat more than normally, because its cheaper. The interesting observation at this stage is that Americans are more obese than "socialised" Europeans are. Therefore the incentives are either not all that good, or they are not stronger than psychologic and biological dependencies on sugar that low self estime and over exposure to fast foods may create. A final consideration about private insurance companies has to do with their impact on investment. Insurance companies accumulate money a bit like a bank. Instead of depositing money in exchange for being able to withdraw it later, the deposit is made in exchange for a promise that under some circumstances we can tap into an entitlement that the company will pay for our health care expenses (car repair expenses, for car insurance). In the mean time, the insurance company takes the money, invests it and collects the interest of this investment. This means that insurance companies are good for the economy (assuming that they invest well and that this investment is good for economic growth in general and not just for the firm). Therefore a balance is probably to be struck between the need to maximise coverage, maximise productive investment potential and minimise bad incentives (moral Hazard and adverse selection), through an appropriate mix of private and public financing. The second issue of demand and supply, is nicely understood through the tools of microeconomic product market analysis. This looks at the aggregate or collective analysis, and crams everyone together as similar in risk, but different in terms of incomes and can be very technical. However, a simple explanation ought to give a fair and accessible understanding of the issue. The difference between publicly and the privately financed options is a matter of quantity consumed/provided and costs of consumption. The public option works as a subsidy. The state comes in, buys the stuff for a high price and sells it back to medical patients at a lower price (figure1).

The difference between the high price paid and the low price of consumption is paid for by government revenues and debt. If health care is provided for free, then it's completely paid for by the government, which would imply higher taxes and/or debt (area A+B in figure 2).

What this means is that medical companies will not make more or less profits because of a private or public scheme. On this issue the difference is only in the level of taxes or debt and in the number of people who get health care services.

A mixed system like the one France has mixes the best of both worlds. Everybody is covered by the national public healthcare plan. Only people above a certain level of income contribute and people above another, higher, level of income have to purchase insurance from a limited number of highly regulated insurance companies. This creates a situation where richer individuals pay for their own insurance (though they are able to use the public programme) which gives them easier access to private hospitals, thus bypassing some of the cues caused by the public scheme. This on the other hand decreases the cues of the public scheme. One the other hand, everybody can get treated at a private hospital. 4) The issue of the role of the media is completely distinct. My opinion is that we only have our own very voyeuristic nature to blame. Fights are more exciting than their absence and thus get more attention for the same reason that I would be more interested in the people talking outside of my class in secondary school than in what my teachers were saying. I don’t know many people who’d bother to read this entire post. And those who would probably don’t have the time to do so. A sober thorough news channel would be forced to hire extremely well versed specialists to discuss at length issues which few people would watch. This would decrease their ratings, make them loose advertising revenues, decrease the value of their publicly traded shares and ultimately lead to a more or less hostile takeover from some competing conglomerate.

Comparing news casters with Walter Conkrite does very little to help this debate. Walter Conkrite was a bigger anomaly in terms of providing good information as the British political system is good at providing good governance. First of all there were no 24 hour news networks, who needed to entertain audiences all day long. Secondly, he had very little competition, as at the time there were very few syndicated TV channels broadcasting across the USA. Finally it was good luck. Walter Conkrite and Edward Murrow were two giants in a small pool of normal journalists. They could as easily have been very bad reporters. Obviously the great ones were remembered as they operated in an environment that allowed them to shine. Newspapers seem to not be doing to bad a business at discussing some of these issues, but who bothers to actively read a newspaper, when one can passively be bombarded by the news as a couch potatoe? The system is built in such a way that it makes it much more difficult for anyone to shine.

III – What would help?

I think that 2 things could be done very easily that would help the general tone of the townhall meetings. I also propose 2 more widespread ideas for reforms that would help healthcare reform, its debate and the debate of other issues.

First, before the speaker comes to the stage, have a member of security read the rules of the talk. Ensure that anyone speaking without having been given authorization or otherwise disturbing the session will be politely removed from the premises. Might look bad on camera, but that’s just tough. Looks worst for the guy getting kicked out and it looks worse for the speaker if he stays as he is made to look like he cannot control his audience. If he does indeed say anything that is dauntingly stupid, don’t worry if it is that offensive people will rebel en masse and no amount of available (and reasonable for such an event) security will stop them from kicking him out. Finally if he does say anything stupid the camera is there to capture it. My hunch us that nothing bad will happen. Bush did that for 8 years and nothing bad happened.

Secondly, hand out panflets at the beginning of each session. Small, key word panflets briefly explaining the pros and cons of the public the private and the mixed scheme. They should be 2 pages (1 paper both sides) long and as a rule of thumb it would be smart to not let there be more than two panflets. These should be drafted by a non partisan group such as the CBO (Congressional Budget office) and endorsed by both of the major parties. This should enlighten the audience and improve the debate.

More complex proposals intend to change the rules of the game. Specifically regarding healthcare, regulate the restauration business with particular emphasis on fast food joints. Governments are there to provide good incentives. Meals that cost less than a certain price and provide calories above a certain threshold of healthiness should be taxed. Foodstuffs that comply with the health and safety concerns and targets endorsed by specialists and the government agencies should be given subsidies or tax cuts. Incentivise eating to optimise it, rather than maximise it.

Secondly, pass a law forbidding people from carrying guns. No one needs to carry automatic riffles. Why not carry a bazoola? It’s threatening and not appropriate for a debate. I don’t care what they say, this is the 21^st century, not the far west. There’s law enforcement. That is a fairly tricky thing to do in the USA just on its own… Thirdly, there should be regulation of the 24 Hours news networks. As any (social ) scientist will tell you, more information is not necessarily good. Whu not force them to follow a pattern of coverage which requires that 24 hours news networks must report on geographical areas by time zone? So say when its 9o’clock in a certain place, one obtains the news from that place. Then every so periodically, one gets a roundup of news from a collection of places, so that the news is news worthy!

Finally, pass the god damn legislation relatively fast. Yes liberal democracy is great and there should open debate about these issues. However debate must end at some point. There’s just so much that can be said about anything for so long. If you have the majority, and if it delivers you the votes, than pass the legislation that seems the most plausible, while you can, particularly when public debate becomes this silly. If the electorate does not like it, they can dismiss you at the next election and the next guy will either keep or reform the system. That’s the real beauty of liberal democracy.

PS: Oh by the way, there are some pretty well informed specialists (Krugman, Stiglitz, Mankiw, Roubini,etc) who are skillfully active in the debate. Some politicians (McCain, Barney Frank, and who else?) have demonstrated a very solid moral backbone in the debate. It's not ideal, but while it is imperfect, it is far from helpless.