September 29, 2009

The Ultimate Social Issue (Health Care), Wealth, and "Socialism"

Over the last few weeks, I've thought several times of how health care itself is the ultimate social issue.

Health care is one of the most profound ways we mutually cooperate to help individuals when great need strikes. Every insurance is a form of this mutual safety net, which we establish together. But health insurance has some of the most dramatic outcomes -- its effectiveness, or lack thereof, will often determine whether a family can live in its home (or be forced to sell or go bankrupt), whether a family can buy clothes for their kids, whether a parent or a child...lives or dies.

For a nation, the question of whether to include everyone in a health insurance system is, more than any single other issue that will ever arise, the ultimate social/political issue.


None of us should be surprised (or offended) that many people want to include everyone in their social group, and in their health insurance safety net.

None of us should be surprised that many people want to exclude a lot of people from their personal group and have their own exclusive association, and exclusive health insurance.

Both of these impulses, community inclusiveness and community exclusiveness, are human.

The nature of being a human being is that we want to join together in groups and cooperate, but learned prejudices make many of us feel we don't want to associate with just everyone. We usually prefer familiar faces. Fear of the unknown, of difference, can lead to exclusivity even when it violates our avowed ideals.

In the past, and still today, many would like to exclude those of a different economic status, and sometimes those of different ethnicity or of a different culture or lifestyle.

The degree of preferred inclusiveness varies by individual. While most agree with the ideal that there should be some way to allow everyone at least some health care at times, such as in the emergency room of hospitals, there are questions for many about just how inclusive we should be as a society with health care.


Generally, in America, you have the right to associate with whom you like, do not have the right to refuse to participate in the national community in several distinct ways.

As Americans, we don't currently have the right to choose whether or not the tax dollars that we individually pay can be used to conduct wars that we personally do not agree with.

It is a fact that some Christians believe, genuinely and fully, that Christ specifically commands them to love their enemies and not to try to kill them.

That is a fact.

But, in America, we do not allow a legal choice for these or any other pacifists to refuse to pay some part of their taxes that support wars they believe are wrong, even sinful. We allow them to refuse to fight, but we don't allow anyone to refuse to help pay for the fight.

Around the world, states compel citizens to participate in certain activities, such as paying for defense, for education, for police and courts, for roads. States compel citizens to purchase auto insurance.

While the state can compel you or me to pay for a war to kill its enemies, regardless of our beliefs and values, what if the nation might begin to compel us to buy health insurance?

This is the so-called "mandate" to purchase health insurance of a certain basic minimum level or better. The mandate follows as a logical necessity when the state requires insurers to accept everyone, to insure preexisting conditions, to price premiums independently of preexisting conditions, and not to drop anyone.

The logic is immutable. If preexisting conditions cannot be excluded and insurers are required to accept all applicants, then with no mandate the economically rational thing for healthy people to do would be to immediately drop their comprehensive health insurance.

If a serious illness arose, they could rely on quickly obtaining comprehensive health insurance without preexisting exclusions. Healthy people in large numbers would therefore choose to drop comprehensive insurance and have only cheap accident insurance (ER and hospitalization) for injuries. This would then leave mostly sick people on the comprehensive coverage, driving these insurance premiums into the sky, and this would induce the remaining healthy people to drop comprehensive coverage also.

It's similar to a situation where life insurance could be bought after a person is clearly dying.

Thus requiring insurers to cover any applicant and cover preexisting conditions requires an individual mandate, otherwise the health insurance system would simply collapse, nationwide.

Update 10/12: Here's a brief interlude. I just saw that CBS evening news does a decent job on covering the flap on Monday the 12th over insurance company projections in response to the much lower mandate "penalty" or "tax" now being proposed (in the Baucus version of reform):

Watch CBS News Videos Online

post continues....

It's understandable some feel they should not have to buy health insurance, or auto insurance, or pay taxes to help fund wars.

But...among the evils that the world imposes on people, the purchase of health insurance must surely be one of the lesser evils.

After all, if you have no health insurance and suffer a bad accident or serious illness and you are taken to the local Emergency Room, you will receive help, health care, by law. And if you are unable to pay, you will get that care at the expense of other people. You will receive care regardless, and since ER charges are often high, this type of care is significantly subsidized by taxpayers and by health insurance policy holders. This cost is about $1100/year per family policy or $400/year per individual policy. Those with insurance are paying for those without insurance.

This phenomena is referred to as the "free rider" cost, where an uninsured individual gets a form of expensive ER health care/insurance for nothing.

It's similar to serious auto accidents caused by uninsured drivers, where the large costs are born ultimately by all those who buy insurance.

The proposed health reform requires that those who choose not to buy health insurance will at least pay to offset a part of the value of the free-rider benefit they get by paying an "excise tax."


Yet, I think those who oppose health insurance reform are not only those who want to be free riders and plan to rely on subsidized ER care.

Nor are those opposing health insurance reform only individuals who wish to be in ethnically exclusive or culturally exclusive groups.

It is likely that many of those who oppose health insurance reform do indeed wish to be part of an exclusive economic group, where their own wealth is reserved as much as possible for themselves and their families alone. Part of the motivation for this is exactly that health insurance costs have risen so high that families feel they have less money left over for discretionary spending. A political perception has been manufactured that people with middle class incomes would begin subsidizing health care for lower-income people.

They already are. They have been doing so for years via the free rider cost.

So, for most people this political rhetoric has no basis in the facts. But the rhetoric against "higher taxes" for health care reform is actually true if you are in a group where the net health care costs and taxes would be higher, which in the House version of reform is for individuals making over $500,000/year, and in the Senate version would include those with unusually generous health care plans that have premiums more than about 50% higher than average. But even those relatively well-off people may feel they would like that the total health care plus tax cost of health care reform not in any way subsidize those that have lower incomes and therefore could not afford even basic health insurance without loopholes.

This opens an interesting moral question. In the case of Health Insurance and Care, should we be able to choose exclusive economic groups and avoid subsidizing others? ... (Note that this is partially about exclusivity, not only about cost. Currently those in high-cost policies do already pay subsidies to help pay for the care of non-group members. It's natural that most caregivers -- doctors in Emergency Rooms -- will choose to help lower-income patients suffering from such as a strep throat or dying from the lack of straightforward care when the Emergency Room facilities are not in full use already. Doctors have a certain natural tendency to want to actually heal. Current law requires treatment, but without law...there would still be treatment. Even without this law, there would still be an effective subsidy, a social cost sharing. In contrast, in a national universal insurance grouping the subsidy happens ahead of time, and these low-income individuals would be insured and would likely go to cheaper clinics instead of Emergency Rooms for many ailments, lowering the actual subsidy cost. So the opposition is not about cost alone.)

So this moral question arises.

Should we all help pay for the cost of insurance for everyone?

And it is an important question, because...part of the way anyone becomes wealthy in this nation is by virtue of the other people of the nation.

As people everywhere work and create more goods and services, the entire economy grows, and thus the potential for real wealth -- the ability to buy more with the proceeds of your own work and investment -- also grows. Individuals also gain extra wealth, typically (though not always) through offering greater value to their fellow citizens. Bill Gates worked hard to bring software to market that ultimately increased the productivity of hundreds of millions of software users. He was rewarded proportionately. But, of course, if there are more people that can buy his software -- if there are more workers -- then he makes more sales, more profit. It's hard (impossible) to get wealthy without other people!

The source of individual wealth is thus a mixture -- it comes both from the individual and also from the entire work force, including everyone who supports workers directly (such as homemakers) and indirectly (such as artists.) Wealth is not an Either/Or, but a Both/And.

Further, the real value of our wealth is enhanced by the work of others.

When a chip designer makes a better computer chip design, this eventually causes the dollars in your checking or savings account to have a greater real value in the quality of computer those dollars can purchase. This is one of a multitude of examples of how the efforts of other people increase your wealth.

If that same chip designer looses his job in a layoff due to a deep recession, but then gets a serious illness, his COBRA insurance will run out after 18 months, if he is even able to pay it that long. After COBRA expires...he is a person with a preexisting condition, and no means to pay for his needed health care unless he can find another job with good insurance.

In spite of the fact that he already contributed to the wealth of everyone in society.

Workers in lower wage jobs also contribute to building everyone's wealth. They help create goods and services, such as preparing the food which facilitates other workers' labor. Their work enables our dollars to buy more in real terms.

Therefore, the moral basis for refusing to help subsidize the cost of health insurance on principle is...questionable.

If someone gives you $100 as a gift, and later desperately needs $20 and you refuse to give it, well...that kind of ethics (or lack thereof) would lead to having few friends and a miserable life.


So the question of whether we should cooperate to mutually insure each other, everyone in the nation, is a profound social question.

It is the ultimate social question.

It should not surprise us that there is much strong feeling on this question.

We have agreed to defend each other, everyone, against foreign invasion. We have agreed to work together as a nation and as cities and states to defend against petty thieves and robbery and fraud and other violations of property and person. Not everyone, not 100% of the citizens of the United States would like to have our current style of mutual defense -- a multi-hundreds-of-billions-of-dollar Defense Department -- even though defense is one of the most basic responsibilities of government. Some libertarians, for instance, even advocate private armies, an idea that leads at times to serious problems in the real world where it is in effect.

We agree as a nation to require everyone with income participate in paying for mutual defense.

We agree that everyone driving a car should buy insurance to pay for the damage they may very well cause in an accident some day.

We agree, as a group, a nation, on many things that not all individuals agree to.

The Constitution specifically limits the imposition on the rights of in the individual, but it does not in an unlimited way grant the individual rights at the expense of the rest of the nation.

Wealth created under the umbrella of protections of our laws, courts, police and national defense is compelled to help pay for those same public services that enabled its accumulation.

While some would like to dissolve the state, areas of the world in which the state does not function, such as Somalia, suggest the quality of life without a functioning state is quite low, quite dangerous, in spite of private defense forces under private control (aka warlords).


We have heard the word "socialism" used to refer to mutual health insurance of a nationally inclusive character (with subsidies for lower income people), even when it would still include a great deal of choice such as levels of coverage, choice of insurer, and networks.

At first, the use of the word "socialism" for this subsidy seems rather overblown, like calling a cat an elephant, or even calling an individual cat a vast ecological area like The Serengeti Plain.

But there is a "socialism," in a vague sense, at issue. (Forgive me for acceding to this new usage for this old word, which has previously always meant the wholesale nationalization of most of an economy or most of its main industries. But the politically-driven redefinition of "socialism" away from the longtime meaning of the word is already an accomplished fact, unfortunately.)

On one hand, there is the "socialism" of being bound together in a group with the whole nation, even when you don't want to participate.

While I can point out this kind of "socialism" has always been with us -- consider national defense, where everyone gets protected, but the cost is borne according to income -- there is a more abstract definition of "socialism" I think it will be enlightening to consider.


Let me illustrate by bringing in the gist of another post I've been working on about a new insight on "What is Health Insurance" I mentioned in Coming Topics. I'll just incorporate that post into this one.

Consider this system:

A) From each according to their risk-class-grouping and their chosen value to protect, to each according to their defined payout in time of need.

now...consider this system (some will recognize the phrasing):

B) From each according to their ability, to each according to their need.


Many will recognize A as insurance, and B as one definition of socialism. But, putting them near each other, an interesting quality jumps out at us.

That's right, insurance itself, fundamentally, is a voluntary form of contractual socialism.

It's a pooling together, as a group, of resources from everyone, in order to help any member of the group in time of need, according to need.

Some of those who are more ideological may wish to try to separate A and B more sharply, and make them seem very dissimilar.

Consider these ways one might try to make A seem unlike B:

1) In system A, individuals pay according to their chosen protection conditions, and according to their personal risk grouping, and also choose their payout levels, and thus influence their own costs.

2) Membership in system A is voluntary, whereas membership in system B in other nations in the world many times has been coerced.

Point #2 is answered though by the fact that a mandate (required coverage) is necessary if preexisting conditions are covered, and insurance issue guaranteed. In other words, for health insurance, A is like B in regards to choice about participation. If preexisting conditions can be excluded, then you cannot even have the needed health insurance unless you've already locked it in from earlier by joining and paying. It's an all-or-nothing thing, by nature. You don't have a choice about whether to participate, either way, whether preexisting conditions are excluded or not. Lack of broad, universal coverage leads to a downhill slope effect on insurance that in turn endangers everyone eventually. We currently see far less of this consequence than we would see without the powerful reality of Medicare. Medicare is of course a universal insurance that does not exclude preexisting conditions, and...we all pay for it....see? Without a universal coverage, you yourself, no matter how good your current insurance or even if you have considerable savings, would be only a layoff and/or a preexisting condition away from non-insurance and eventual health costs bankruptcy. Only Medicare saves millions of older Americans from exactly that inevitable, logical outcome.

Point #1 seems more substantial, and seems to separate A and B fundamentally.

But does it?


In health insurance, the chosen payout level isn't so arbitrary as in most types of insurance.

While you could live with a significant dent in your car, forgo "comprehensive" auto insurance, and think nothing of it, each and every person would find it difficult, impossible really, to live with a significant spreading infection or aggressive cancer.

The human body is not like an auto in certain crucial ways. There are many "downhill slope" conditions for the human body, where lack of treatment usually means death. A car might smoke for years, being driven occasionally. A human body must be inhabited, and a progressive condition cannot lead to the option to simply buy a new model.

We cannot live with many medical conditions, and those tend to be precisely things that cost a great deal to treat, and thus require health insurance to treat.

So what health insurance covers, or not, is not so arbitrary -- many coverage benefits are not a matter of individually different tastes, unlike the benefits choices in other types of insurance, but instead are necessities where the choice is to treat the condition or die.

Therefore the "payout levels" in system A also are not truly arbitrary. Instead, they amount to a list of "essential" benefits, on top of which some optional benefits can be added. But a significant list of essential benefits are not optional if the health insurance is to be effective.

So the "chosen value to protect" is in fact, most often, life itself. Not a very mutable value. Not flexible in regard to covered benefits.

Let's fully reflect this reality in system A in the case of Health Insurance:

A) From each according to their risk-class-grouping, to each according to their needs (essential benefits) when needed.

Already, system A, for the case of Health Insurance, is looking much closer to system B.

Next, consider the "risk class grouping." This is the "risk pool" for insurance. Just as risky drivers typically pay more for auto insurance, people with health risks typically pay more for private health insurance.

Some health risks are avoidable of course, and some are not. Some risks are hard to assign to these categories of avoidable or unavoidable, such as living in a city with pollution. Pollutants impose health costs such as asthma, some cancers, and more.

Ideally, the total health costs caused by pollutants in the air and water would be paid by those causing the pollution. That is, we would fully end pollution free-rider costs by assigning those costs back to the pollution emitters in full.

In general, it is a good idea to connect the costs to those that cause the costs. We could as a society require as many individuals and companies as possible who impose health costs upon others to pay the full costs they create. That's fair and right. Activities such as manufacturing that emits toxins that impose health costs then would become re-priced in their markets to reflect their true full costs, instead of being subsidized by everyone else through taxes and undifferentiated insurance.

Many health costs are caused by individuals through their personal choices, such as smoking.

I think these costs, to the extent they can be identified, should indeed be fully repatriated. In practice, cigarette taxes are a good method of doing this for second-hand smoke effects, and insurance premiums are a good method for first-hand smoke effects. But since insurance premiums for lower-income individuals will likely be subsidized, it makes sense for cigarette taxes to include that amount needed to pay the share of health subsidy costs created by smoking for lower-income individuals (if that tax doesn't already). In this way most of the costs due to smoking would be paid for by smokers. That's fair.

As you can see, I am recommending people pay their own way to the full extent possible. is not possible for some to pay 100% of the cost of American-quality health insurance, even if they work full time. Insurance costs for even the minimum set of essential benefits will be unaffordable for some people.

So, should an older, low-income person who has higher health costs on average due to age have their health insurance costs subsidized?

In the proposed health insurance reform, class grouping by age is maintained at least partially (for instance, in the Senate Finance Committee the current proposal (9/23) allows premium costs to be up to 5 times higher for older policy holders versus the young).

Since age-groupings are maintained, with premiums increasing with age, then system A (newly reformed health insurance) would not perfectly equal B (socialism) in the proposed health insurance reform.

But one effect of proposed reforms would nevertheless be that within a class-grouping (by age) there would effectively be subsidies from those that can afford to pay more to those that can't afford the minimal level of health insurance.

One of the most obvious points then is that if there is to be a subsidy, that it not pay for non-essential benefits. The proposed health care reform follows this principle, and focuses on essential benefits.

So, finally we are left with the question: should those who are most able to pay more help to subsidize the cost of health insurance within their class-groupings for those not able to meet these minimum policy costs for essential (life-saving) benefits?

I say yes. Why? Because of the fact that the greater wealth and income some have is made possible by and is increased in both quantity and real value exactly by the efforts of all working people, including those unable to pay the full cost of insurance without help.


This leaves only the practical, pragmatic questions of health care cost itself, and of health care inflation.

Those are questions on which this blog has focused extensively (click here).

-- Hal Horvath


  1. I googled 'after cobra' insurance and came across this article. Still not sure what was said. Way too long and confusing. Try editing a little as you have some 'talking points'. Just too long.
    best regards, mike j.

  2. Thanks, Mike. I am working on a shorter version of this post.

    After COBRA expires is when people are {currently} left to the mercy of the "individual market" for health insurance, where most of the horror stories you see in the news arise. Health reform should help this situation considerably.