Heads I Win, Tails You Lose

I live in a very conservative state. Most of the people I meet resent the Federal Government and strongly opposed the Troubled Asset Relief Program that they see as a bailout of overpaid Wall Street bankers who made bad bets on the housing market. The problem is they want to do the same thing themselves and hope that the Supreme Court will let them.

To illustrate, I’ll use a fictional person: Beauregard. Beau works for $13 an hour fixing tractors and other farm machinery in a small garage in a rural township. He’s 32 years old with a long-time girlfriend who has a small child. He drives a battered Ford pickup and lives in a rented house at the edge of town. Until a couple of years ago he never voted. But he was so incensed by the bailout of the Wall Street banks, insurance companies, and then the car companies that he began to help canvass his neighbors for an insurgent candidate for the House of Representatives. The people working on the campaign were “his kind a folk.” Just like him they resented paying taxes to a federal government that then handed the money to fat cat bankers because they had been stupid or greedy, or both. The banks and insurance companies had made bad investments in the housing market but instead of bearing responsibility for their errors and bearing the financial loss or losing their jobs (or both) they were made whole by the largesse of the federal government. Their exorbitant pay has continued and their bonuses increased. The same Wall Street types then fought hard and paid well to stop the government from increasing regulation designed to prevent them from bringing down the economy in the future through their stupidity and greed.

The financial meltdown in 2008 was not just the result of Wall Street gluttony and stupidity. Many players contributed from naïve home buyers, to greedy mortgage brokers, Fannie Mae executives, an ideologically tainted Chairman of the Federal Reserve, and a President and Congress that pushed for wider home ownership. This was a complex financial system that almost imploded because too few people took the trouble to think through the consequences of a rapid rise in the price of houses and household debt. In some measure this is to be expected. As the diversity of desires and interests among the agents increases, the system becomes ever more complex and less comprehensible to its participants even as they make it, and less manageable by governments.

Beau doesn’t understand the details of what caused the financial problems but he instinctively understands that it is wrong to get someone else to pay for your errors. When he screws up a repair job, he accepts his boss’s cuss words and fixes the problem. He wants to do good work and (usually) admits his mistakes. So he cannot understand how a CEO of an investment bank who was paid more than $300 million (numbers Beau can barely comprehend) over a decade can tell Congress that he does not understand why his bank failed and still not get jail time or even something worse. The pain and suffering throughout the economy that they have caused seems like a hanging offense to him. His two brothers lost their jobs in the recession caused by the Wall Street mess and old Mrs. Hubbard down the road lost her house. “That just ain’t right.” People should be responsible for themselves and should not need a government to tell them how to live their lives or fix the problems that they cause for themselves. The government should help people who are harmed by others but not if they screw themselves through their own faults.

But it was not just fat cat bankers that got Beau all riled up. He also hates what he calls “Obamacare” because it will force him to buy health insurance. His boss says he can’t afford to pay Beau’s health insurance and Beau can’t afford it himself. But he doesn’t really need insurance: he hasn’t missed a day’s work in years. And nobody should be telling him to buy something he doesn’t want.

There is a disconnect here. The individual mandate in the Affordable Care Act is designed to prevent the same “free-rider” problem of “too-big-to-fail. If people accept the risk of living without health insurance, they should bear the full, actual cost of health care when they get sick or injured. The individual mandate is designed to make sure that people take responsibility for the risk that they will need health care in the future.

To reject the individual mandate is to demand that we have the freedom to take essentially the same type of risk as the leaders of too-big-to-fail banks: I have more money if I stay healthy but I don’t have to pay for getting sick because someone else will pick up the tab. When an uninsured person (often one of the working poor like Beau) arrives sick or injured at the emergency room, the law requires that they have to be treated. The emergency room is Cadillac care intended for critically ill but everyone else pays when it treats the uninsured. A free-rider problem.

The only solution is to either require that everyone has insurance or deny the uninsured health care when they need it. That is the personal responsibility that Beau and others are demanding bankers should have. It is, therefore, strange that many of the same people who rant about government bailouts of banks and corporations oppose the individual mandate. Perhaps, they feel that if the big guys can live off others, they should be allowed to as well. If enough people think that way and behave accordingly, the system will change and the United States will become something it has not been before. Heads I win, tails you lose . . . and we all lose.

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3 Responses to Heads I Win, Tails You Lose

  1. Disaffected Youth says:

    The individual mandate solves the free rider problem? How? By making people pay their taxes? Even though over 50% of people don’t pay their income taxes?

    But I don’t understand your ‘disconnect.’ It doesn’t sound to me like Beau wants to live off of others at all, which is why he opposes ‘Obamacare.’

    I’m not an expert on hospital visits, but you’re telling me if you go to the emergency room and just claim you can’t pay the hospital eats your bill? I doubt they’d let those thousands of dollars go that easily.

    • The Emergency Medical Treatment and Active Labor Act of 1986 requires “participating hospitals” to treat anyone needing emergency medical treatment. Most hospitals are “participating” within the meaning of the Act. The government does not specifically reimburse hospitals for such treatment. They may pursue the patient for payment but rarely can collect. In addition, most hospitals will treat uninsured patients for chronic or non-emergent acute conditions.

      According to the Kaiser Family Foundation report on the “The Cost of Care for the Uninsured” uncompensated care in 2004 amounted to more than $40 billion a year which does not include private or public payments for patients covered by insurance plans for part of the year. The bill for this was primarily picked up by federal and state governments through various subsidies.

      But this is not the whole story. The uninsured are much less likely to seek health care. They receive less preventive care, are diagnosed later, and receive less beneficial care once diagnosed. Thus, they are less healthy (Kaiser comments that “a reduction in mortality of 5-15% could be expected if the uninsured were to gain continuous health coverage”), their health is less well monitored, and they are treated less effectively. Kaiser estimated in 2004 that providing insurance to the uninsured would increase costs by $48 billion a year.

      Kaiser concluded that: “A benefit of a comprehensive rather than an incremental approach to covering all of the uninsured is that some of the public money already being used to pay for care received by the uninsured could be reallocated towards the cost of insurance. However providers caring for the uninsured now, primarily hospitals that now receive the largest subsidies for uncompensated care, may be reluctant to relinquish their existing subsides unless assured that all people will have health insurance.”

      Curing the Free-Rider Problem

      A free-rider is able to take benefits but cannot be forced to pay the associated costs. The individual mandate cures this problem by requiring payment for all health costs through insurance. It does not require anyone to pay more taxes.

      An alternate solution to the free-rider problem would be to have a single payer plan as in Germany, separate insurance from employment and attach it to the individual. Health insurance would then be paid to insurance companies out of higher tax revenues.

      In the Beau scenario he may not want to live off others but he may have to. If he is uninsured and contracts cancer, he would be unable to pay the hundreds of thousands of dollars needed for treatment. At that point, if he were truly principled, he would refuse treatment and die, because he had not paid for insurance and could not pay for necessary health care.

      The point I was making is that when an individual refuses to carry health insurance they are taking a risk that they do not sick or injured. They should be allowed to suffer the consequences, even unto death, if they lose their bet with their health. The too-big-to-fail banks similarly took risks but were not forced to suffer the consequences of losing those bets.

      Alternately, we could, as a society, refuse treatment to anyone who did not have insurance or could not pay for treatment out of their personal wealth. Warren Buffet can probably afford all the medical treatment he may need for his prostate cancer. We have not taken that step nor would I expect any civilized nation to do that.

      • Disaffected Youth says:

        Thank you for the clarification.

        The individual mandate seems to solve a lot of problems.

        But is it a legitimate reason to supercede the choice of the individual, even if that choice is best for him?

        I mean we already do it with food and drug regulations, etc.

        But does the government have the right to mandate what goods and services you buy?
        —I guess the supreme court will decide that soon.

        It is very important, I think, to discuss this issue more in the way you have presented: Do we want mandated healthcare or do we want to turn people away who cannot pay?

        Personally I say let them die, healthcare is a luxury.

        Which, unfortunately, means that many will not be able to afford it.

        I just haven’t been convinced yet that healthcare is a “right” like so many are starting to claim.

        (and I will also never personally be without healthcare, even though it’s costing me a fortune)

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