What the American Dream Isn’t

by Dave Schuler on January 15, 2013

You might want to take a look at Ramesh Ponnuru’s colum at Bloomberg, pointing out what should be obvious but, sadly, isn’t—that any discussion of wage stagnation that doesn’t include the change in total compensation as a result of rising healthcare costs into account is seriously flawed.

The column has one very good sentence in it: “The American dream isn’t to pay ever-higher health premiums.” As my pathologist buddy reminded me many years ago, for some people it is.

There’s another point that I think should be made that. It might be too subtle but paying more for healthcare insurance is different than other kinds of consumption. When you eat one more cookie or drink one more glass of wine or watch TV on a better set, you feel better. In economic jargon utility increases. When you pay an extra $1, $100, or $1,000 for healthcare insurance, you don’t feel better. You’re betting that you’ll get sick.

{ 14 comments… read them below or add one }

Drew January 15, 2013 at 11:02 am

“You’re betting that you’ll get sick.”

That’s true for all insurance. I’m betting I’ll have a car accident, or a tornado will hit the house…..but I digress.

The thrust of the post is what I’ve been driving at – perhaps clumsily – for years. We have a system almost completely endorsed by the left that needlessly subsizizes health care consumption at the expense of money compensation, all because its health maintenance and not insurance………and that ridiculous notion that health care is “free” or “my employer pays.” Only in an alternative universe.

jan January 15, 2013 at 12:11 pm

We’ve always paid for our health care insurance. While it’s not been ‘cheap,’ we chose the most economic policy, in the menu of options, which boiled down to a catastrophic policy with a high deductible. Also, we don’t include any of the peripherals of eye, dental or prescriptions in our insurance coverage. In our situation, knowing that there is more that can be done than just going to a doctor to address one’s health, our health plan works as a comprehensive one — having a major medical plan for serious health problems, paying out-of-pocket for other services, while being cognizant and accountable to avoid as many triggers of disease as possible.

Each person/family has their own issues and variables to consider. However, when you blindly accept health benefits through your employment, you also fall into the rituals of seeking medical help, with low co-pays, without much effort or pre-thought given to avoid such visits in the first place. Even in the article linked it suggests that:

If health insurance were cheaper, or the marketplace were structured so that most people bought health coverage for themselves rather than getting it with their jobs, people would be paid more and raises would be higher.

With almost any circumstance when people become more actively involved in problem-solving it usually results in a better outcome for them. If this were applied to the healthcare system, people researching, customizing and paying for their own health plans, you would see downward revisions in medical costs, with higher wages filling in the exclusion of that benefit from their overall employment earnings. For those unable to do, this is where the social safety net of health care should be applied.

Steve Verdon January 15, 2013 at 1:06 pm

There’s another point that I think should be made that. It might be too subtle but paying more for healthcare insurance is different than other kinds of consumption. When you eat one more cookie or drink one more glass of wine or watch TV on a better set, you feel better. In economic jargon utility increases. When you pay an extra $1, $100, or $1,000 for healthcare insurance, you don’t feel better. You’re betting that you’ll get sick.

Welllll….yes and no. Yes in a classic insurance situation, yes the above is true. But we aren’t in a classic insurance situation. If we go from having something that isn’t covered (and shouldn’t be because it is neither rare and not that costly–e.g. glasses, or it is a desired out come–e.g. child birth) then yeah you might actually “feel better” in that your consumption of those goods is subsidized and improve your situation.

You always have to keep in mind that health insurance really isn’t insurance anymore. It is almost like…barter in some cases. You give me work, I’ll have all my other employees pay for your baby’s birth.

Dave Schuler January 15, 2013 at 1:36 pm

But we aren’t in a classic insurance situation.

I think my analogy holds even in our pre-paid healthcare maintenance plan system or however you’d like to describe our present system. For most people an increase in the cost of healthcare insurance does increase their total compensation but it doesn’t make them better off. They don’t feel better off. They’re just better off than they might be if something goes wrong. I’m not sure how one would go about quantifying that but I think it’s pretty darned small.

Add that we’re not really prepaying for our own healthcare but for somebody else’s healthcare while hoping that the system will hold up for us if we get in trouble. Basically, all I’m saying is that I think it’s obvious that in terms of utility there’s diminishing returns on increasing the cost of healthcare insurance compared to other forms of consumption.

Dave Schuler January 15, 2013 at 1:49 pm

Let me put it another way. Different people have different utility functions.

PD Shaw January 15, 2013 at 2:24 pm

Not to be picayune, but the “betting” analogy doesn’t work for me. It suggests that one has a strong incentive to be get sick or have their house burn down, etc.

What works better for me is the notion of insurance as security. Its like buying a gun (solely) for purposes of home security or hedging a stock purchase. If the gun becomes too expensive to afford a home, or the cost of hedging eliminates the value of the stock purchase, then its no longer serving the purpose of security. If the cost of health insurance becomes too high to buy a cookie or have some free time from work, then health insurance is no longer security either.

Steve Verdon January 15, 2013 at 2:53 pm

Let me put it another way. Different people have different utility functions.

I could see how a gay male would be rather annoyed with the current structure of things.

Jimbino January 15, 2013 at 3:52 pm

Insurance is a religion or superstition. It pays out between 2 cents (title insurance) and 80 cents (Obamacare) on the premium dollar. And, as has been noted, paying insurance premiums or getting less take-home pay because of the “benefit” is no fun. Fun would be to forgo insurance altogether and put your monthly premium dollars on the spin of a roulette wheel. That might be fun, and the payout is much higher—in the range of 95%.

Its the dumbest thing in the world to pay insurance premiums for eyeglasses or a toothache, but have it totally unavailable if you decide to climb Everest. Insurance is for idiotic, religious wimps.

steve January 15, 2013 at 4:57 pm

It may not be the American Dream, but there has been little to no push from the private sector to alter the rapid rise in health care spending. Drew wants to make this a left wing plot, but it looks to me like this transcends parties. What stops these golden geese, I mean job creators, I mean businessmen from doing something about this? Where is the push to change? Why doesnt it come from workers? This has been covered enough that I suspect most people understand this by now. We get whining, but little else.

Steve

TastyBits January 15, 2013 at 5:47 pm

@steve

The problem is with 15-25% of the people, and they are mostly older. This was not the problem the PPACA was to solve. @Drew, conservatives, right-wingers, Republicans, and non-PPACA supporters were addressing that problem – ER, free riders, etc.

If the PPACA was a used car and President Obama was the salesman, this would be termed bait-and-switch.

Drew January 15, 2013 at 7:18 pm

Its not a “plot” as I think you mean it, steve. Its stupid behavioral economics. The left just believes religiously and rightiously in a free lunch – “free” health care on the nickel of employers (and to be sure, Republicans troll for stupid voters too) – and then is dumbfounded that employers make compensatory adjustment to money wages. Its mind numbingly misinformed and as we are experiencing, economically self destructive, but not a plot. Why renters intrinsically understand that their rent includes property and casualty insurance, and owners pay it explicitly, but it is not “free” and the same issue for health care is one of the great mysteries on earth.

Jimbino – I hope that was tongue in cheek.

PD – “betting” was slang. No one wants to get sick or have their house hit by a hurricane. They are trading avoidance of catastrophic economic loss for managable, and hopefully rare or never experienced, but economically manageble, loss through risk pooling. Its called, well, insurance. Or perhaps responsible financial management.

Andy January 15, 2013 at 7:43 pm

All the more reason to get employers out of the health care business.

jan January 15, 2013 at 8:29 pm

When I was a little girl my dad worked as an insurance agent. He hated the job, as he really didn’t believe in insurance all that much — especially life insurance. Ironically, as adults, my husband and I are loaded with insurance expenses — health, fire, flood, earthquake, personal liability, homeowner, umbrella policies, vehicle etc. — no life insurance, though.

Maybe it was because of my dad’s influence, but I have never been an insurance groupie. The hundreds of thousands of dollars spent on adverting financial loss, in case of some future doom and gloom, has always seemed like flushing money down the drain, in the here and now. Here in CA, for instance, the earthquake deductibles are horrendously high, making any monetary compensation you might receive almost laughable, as you would have to almost go bankrupt first in providing the initial dollars up front for repairs. I think some of the Sandy homeowners are encountering that, especially with All State claims.

The lopsidedness in health insurance premiums is the same, as we have paid far more into them for years than we’ve ever received back — and are grateful, because it means we are at least sustaining a healthy existence. A good friend of ours with a family of four, fairly wealthy, in contrast never bought any health insurance and was able to beat the odds, by not needing major medical services and saving all that money. He used to laugh at us, in his Zen kind of way, for conforming and falling into step with the system.

Just an anecdotal ramble regarding my own conflicted POV on insurance.

michael reynolds January 15, 2013 at 10:54 pm

The left just believes religiously and rightiously in a free lunch – “free” health care on the nickel of employers (and to be sure, Republicans troll for stupid voters too) – and then is dumbfounded that employers make compensatory adjustment to money wages.

So, lefty unions that have regularly negotiated trade-offs between insurance and wages are cluelessly imagining there’s no connection? Strange.

How are we the ones who believe in a free lunch? Was the Laffer Curve on us? Was “trickle down” our idea? Are we the ones who suggested that two wars would be self-financing, or that we should cut taxes for the first time ever while fighting two wars? No. We think we should pay for programs we want. Which is why we believe in Social Security and Medicare and progressive taxation and on-budget wars, while your side believes in fairy dust and magic unicorns who will shit money from the sky if only we give more tax breaks to billionaires.

By the way, do we have the Republican list of government cuts yet? No? Golly, surprising. Maybe the dog ate it.

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