19 April 2011

Bad Luck

Marginal Revolution | Tyler Cowen | Medicare and adverse selection

Brad DeLong attempts a Theory of Mind task:
Tyler Cowan [Cowen] would probably say: tough. If you were born with a tendency toward high cholesterol you ought to have known that by age 20 and been busily saving all your life in order to pay the extra expected costs of treating your heart diseases. But I don’t think the rest of us are willing to say that a bad dice roll in the genetic lottery plus an absence of foresight should doom you to an early, untreated death.
Since I believe none of that, I will offer no grade. Nor do I believe in privatizing Medicare, as another part of Brad’s post (“In Tyler Cowen’s world, those who want to buy Medicare almost surely cannot. The market to sell and buy medical risk is unlikely to exist.”) seems to suggest and it was only last week that I distinguished my view from this, endorsing the Yglesias-Krugman argument that privatized vouchers bring higher costs.

I do believe in a core set of Medicare services, topped off with the ability to choose how much of your extra benefit comes in the form of either Medicare or Social Security benefits (cash). It is nonetheless an interesting question whether that system would encounter adverse selection as a major financial problem. A few points:

1. When it comes to the elderly, adverse selection as a problem is overstated. [...]

6. The general approach of “give everyone some basic benefits for free, and then allow everyone to top off at some opportunity cost” applies to food (food stamps), education (free K-12), housing, and now, with ACA, to health coverage for the non-elderly, among other areas. And yet many people think the approach is morally outrageous. The correct way to proceed is not to lash out, but to start by admitting in which spheres the approach makes sense, and then seeing how far outwards those arguments can radiate.
Trying to build an observation around a Brad DeLong post like building four castles on a swamp, but here we go nevertheless.

(1) What portion of health resources are expended making up for bad genetic luck? It is not a priori obvious to me that this is significantly bigger portion than the resources expended making up for poor lifestyle choices.

Requiring people to deal with the consequences of genetic predisposition for high cholesterol is a harder sell than requiring people to deal with the consequences of smoking, riding motorcycles, or eating fast food daily. Differentiating between these two categories is difficult, but that is no reason to act as if everything is the result of fate.

(2) What DeLong calls "absence of foresight" others might as accurately call "irresponsibility." No matter what we call it people must sooner or later be responsible for decisions of that type.  We can have a debate about how paternalistic we should be to shield people from their own absence of foresight/irresponsibility, but let's be honest that that is what we are trying to do.

(I did not see many people during the HCR debate making what I believe is an honest and consistent argument for the expansion which happened, which is "The American people are too feckless to provide for their own healthcare, so they we must take their money and do it for them." That is something I do not agree with but I respect, and with which I can engage.)

(3) Regardless of #1 & #2 I concede that genetic bad luck leading to higher lifetime healthcare resource consumption is something society may want to share the burden of alleviating. What I want to know, and have wanted to know for years without hearing a satisfying answer — or even an unsatisfying attempt at an answer — is why do we have an imperative to shield people specifically from bad luck relating to health but not other forms of bad luck?

That's why I include Cowen's sixth and final point. We don't feel a societal imperative exists to protect people from bad luck when it comes to, for instance, depression, or dyslexia, or tornadoes, or shortness (which negatively affects lifetime outcomes for men at least), or neglectful (but not criminally so) parents, or infertility, or a failed attempt at entrepreneurship, or any number of other things which can drag down lifetime outcomes?

Why do we feel a need to make sure that old people feel no financial consequences of bad luck when that bad luck takes the form "genetically susceptible to higher cholesterol" or "slipped, fell and broke hip" but not when it takes the form of "house struck by lightening resulting in loss of all personal property"?

I would feel more comfortable with a guaranteed minimum income — potentially with some of it paternalistically earmarked for housing, health, food, etc. — and leave it at that then I would with our mishmash of current jerry-rigged programs where we protect you from...

  • certain health risks (but only if you meat certain age or income thresholds and where your preferences align with the universal ones set out by the cost-benefit analyses of various advisory boards or committees)
  • natural disasters (but only certain types and in certain places like floods of the Mississippi but not other rivers, fires in the South West but not elsewhere)
  • accidents and attacks that Ken Feinberg has had a hand in distributing victim compensation for but not other disasters with less media attention
  • falling housing prices but imperfectly and exclusively when your legislature is pitching a fit about housing
  • rising rents in some jurisdictions, but only if you're lucky enough to win the pseudo-lottery for the limited housing stock
  • job loss some of the time, especially if you are part of a concentrated, highly-visible set of people who lost their jobs all together (even better if it was a blue collar job and the loss can be blamed on foreigners) but not at all if you are self-employed or part-time
  • &c.

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