How the Economics of the Well-Off Can’t Help the Uninsured

Two of the most perceptive health policy analysts, Drs. Steffie Woolhandler and David U. Himmelstein, provide a good “reality check” for those who think a Massachusetts-style health plan can fully handle the problem of the uninsured. (Though it took me a long time to figure out their title, “I am not a Health Reform,” was a play on Nixon’s “I am not a Crook.”)

Woolhandler and Himmelstein observe that the past twenty years of failed state-based health care reform (and mandates) do not bode well for the plans now being discussed among presidential candidates:

In 1971, President Nixon sought to forestall single-payer national health insurance by proposing an alternative. He wanted to combine a mandate, which would require that employers cover their workers, with a Medicaid-like program for poor families, which all Americans would be able to join by paying sliding-scale premiums based on their income.

Nixon’s plan, though never passed, refuses to stay dead. Now Hillary Clinton, John Edwards and Barack Obama all propose Nixon-like reforms. Their plans resemble measures that were passed and then failed in several states over the past two decades.

W&H are particularly disappointed by the recent Massachusetts plan; “even under threat of fines, only 7 percent of the 244,000 uninsured people in the state who are required to buy unsubsidized coverage had signed up by Dec. 1. Few can afford the sky-high premiums.” W&H should also acknowledge that in some cases the uninsured themselves are responsible; according to one recent study, “twenty-five percent are eligible for public coverage.”

W&H suggest that mandates will not work, but do not have the space to fully explore why. I think they are right to emphasize lack of affordability in plans, but a recent book suggests some deeper issues. Charles Karelis’s The Persistence of Poverty: Why the Economics of the Well-Off Can’t Help the Poor argues that we cannot expect impoverished individuals to react to economic incentives the same way that middle- and upper-class people do.

Karelis asks a provocative question: “what if the choices that truly benefit typical human beings when they’re poor are working little and not saving?” He asks us to consider the following scenarios:

In the first, a poor worker with no car or bus fare must walk six miles to work. And let’s say this long walk results in six blisters, and six unwashed dishes in the sink at home, and workplace mistakes that bring six reprimands from the boss. Suppose too that getting a bus ride for part of the way would reduce the worker’s troubles proportionately, so that each mile she didn’t have to walk would mean one fewer blister, unwashed dish, and reprimand. What will the poor worker give up to get a one-mile ride, given that she still has five miles to walk? Probably not much. After all, the sixth blister, unwashed dish, and reprimand tends to be drowned out, like a shout in a riot, by the other five anyway.

But now imagine she has just been given a five-mile bus ride, free. She has only one mile left to walk. What will she give up to get a one-mile ride now? Probably much more than in the first scenario because the difference between the discomfort of one blister, unwashed dish, and reprimand and the discomfort of none is far greater than the difference in discomfort between six and five. If the effect of getting a one-mile bus ride in the first scenario is like that of quieting a shout in a riot, in this scenario the effect of the one-mile bus ride is like that of quieting a shout in an otherwise quiet street.

Karelis offers a number of other examples in a phenomenology of the poor that challenges conventional economic wisdom. If we think of health insurance payments as a form of (probabilistic) saving, we can better understand how many of the uninsured rationally choose to persist in vulnerability. Life is already pretty bad presently; why deny certain small pleasures (or necessities) now to improve an uncertain future?

Of course, we all grow up with Horatio Alger tales, and there are many inspiring microlending success stories out there. But capitalism’s chutes and ladders have a dark side, too. Perhaps it’s time policymakers stopped trying to scare the poor into certain patterns of behavior–fill out this form, pay this deductible, etc., or you don’t get health insurance!–and instead take this particular “blister” of insecurity off the table.

Karelis is a philosopher, and though some may challenge his introspective methods, I can say that coming from a family that often had little money, they often made a lot of sense to me. The more policymakers can meld the insights of a Karelis with empirical works like Sudhir Venkatesh’s Off the Books: The Underground Economy of the Poor, the better a chance we have at addressing the persistent disadvantages and insecurity generated by the great risk shift. Here are some closing thoughts from Karelis:

[W]e should reopen the welfare debate that preoccupied liberal and conservative poverty reformers during the 90s. Having agreed that giving poor people resources undermines their motivation for self-help, the liberal and conservative camps fell to wrangling over whether generosity or maintaining incentives ought to be the top priority. (The liberals lost.) But the choice between generosity and maintaining incentives is a false one if generosity actually enhances the motivation for work and investment — by increasing the relief that poor people stand to get from the next dollar. It’s time to take another look at no-strings welfare for the truly poor. . . .

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