A Framework for Thinking About Welfare Policies

Image credit: texaswic.org

If you’ve read much of this blog, you already know that my brain makes sense of the world via exhaustive, mutually exclusive categorizations. And here is that applied to welfare.

Speaking specifically of financial situations, there are three categories of people . . .

  1. Self-sufficient: They currently don’t need external financial support
  2. Temporarily dependent: They need some degree of financial support now, but they have the potential to shift into the self-sufficient category
  3. Permanently dependent: They need some degree of financial support for life

I believe people want to be in the self-sufficient category. Being self-sufficient is fulfilling; it’s an achievement obtained through effort that leads to growth, and humans obtain fulfillment from personal growth.

But humans also want to get the most for the least amount of effort. If it’s unquestionably proven and everyone knows that you can get equally great-looking and strong abs with the Seven-Minute Abs workout or the Eight-Minute Abs workout, nobody would choose the latter unless they get some ancillary benefit from working out for an extra minute.

Welfare efforts, either private or public, need to take into account those two features of humans as they seek to achieve the goals of (1) helping people who are in the self-sufficient category to stay there, (2) financially supporting the people in the temporarily dependent category in a way that promotes their movement into the self-sufficient category, and (3) providing sufficiently for the permanently dependent in a way that preserves their dignity.

But this is only half of the discussion. Remember, there are two groups of people involved in welfare efforts: those to whom the wealth is being provided (the recipients) AND those from whom the wealth is coming (the benefactors). My simple framework above only deals with considerations about the recipients.

And what of the benefactors? Talking specifically about government welfare programs (forced giving “at the point of a gun,” as libertarians would put it), there are several impacts on them that should not be ignored. Forced giving takes away the increased societal cohesion and shared empathy that comes when a benefactor gives to a needy neighbour. Beneficiaries may give more of themselves when they do it voluntarily and when they have more control over how their donation is used (because they are giving in a way that they feel is most efficient and best for the recipients). And when high taxation is instituted for the sake of wealth redistribution (especially if it’s progressive), beneficiaries’ incentives change–their marginal willingness to work and create more jobs and wealth (which will probably end up being used by others rather than themselves if they are already wealthy) is diminished, although the macroeconomic impacts of that are unclear.

There are many other considerations and values that come into play when deciding how best to provide welfare in a society, and I will not try to go through them exhaustively. But I do have a couple other points to make on this topic.

First, it’s ok for people to have different values that lead to different decisions about how best to support those in need. I don’t feel like people generally come to their preferences about this topic based on bad motivations, of which probably the most common accusations are greed and selfishness–“liberals want free stuff from the rich,” and “conservatives don’t care about the poor.” On the contrary, they all seem to be trying to figure out what the right thing to do is, but there are multiple values at play, and it just depends on how you prioritize those values.

Second, people forget that there is a difference between inequality and poverty. The is especially relevant to my post last week about socialism. Is the goal to eliminate wealth disparities, or is it to eliminate poverty? There’s a huge difference. That same question, put a different way, might help clarify the distinction: Is a society morally objectionable if it has eliminated poverty but still allows for significant wealth inequality (assuming the society’s policies are such that it also supports people’s freedom of opportunity to move between classes)? Your answer depends on your core values and beliefs about the goals of a society.

And now you know a little more about why I said I’m torn about where I sit on the welfare spectrum.

What Is Socialism?

Image credit: Daria Kochetova

The term socialism has been a popular one this election season, but people are using it in many different ways. Some say most Democrats (including Joe Biden) are socialists. Others disagree and reserve that term for Bernie Sanders. And still others reserve the term for the policies more akin to Cuba and Venezuela. Then there’s the question of whether the Scandinavian countries are socialist, and even Canada gets thrown into the mix. (I have enjoyed reminding conservative friends lately that I grew up in a “socialist” country and that it was a great life!)

The difficulties people have in defining socialism arise, in large part, from not realizing that the they are entangling multiple distinct aspects of government into a single term. They need a framework to categorize the major aspects of government.

To elaborate on what I wrote in that linked post (which you should read first if you haven’t lately), socialism is strictly defined as a system where the “means of production” (i.e., the companies producing the goods and services) are owned socially. Social ownership could mean a few different things, but usually these days we interpret that to mean that the government owns them and runs them.

As an aside, this is where the term “socialized healthcare” comes from–the government owns and runs the health insurance industry, plus or minus the provider organizations as well. I guess if it only owns the health insurance side (e.g., Medicare for All), it can only be considered half-socialized healthcare. And if the government owns the provider organizations as well (like in the U.K.), then it’s fully socialized healthcare.

Anyway, based on that strict definition of socialism, the term only encompasses a single spectrum out of the five–the economic spectrum. It says that the locus of decision making about the use and distribution of resources/goods/services is closer to the centralized end of the spectrum.

But people don’t commonly use that strict definition, and that’s where things get messy.

When I studied socialism in social studies class in my Canadian public high school, the term was used a little bit more broadly to include government ownership of the means of production AND a great degree of wealth redistribution to ensure a relatively high minimum standard of living for all citizens. In other words, the term encompassed two spectra–the economic spectrum and the welfare spectrum.

Using that definition, we appropriately didn’t see Canada as a truly socialistic country: The Canadian and provincial governments only own a few industries’ means of production, and they provide generous but not expansive (socialism-level) welfare programs. That’s why we studied other countries’ governments to learn about socialism.

And now, with this talk of Cuba and Venezuela, people seem to be adding in a third spectrum to their definition: the liberty spectrum. This definition of socialism, then, includes government ownership of the means of production, extensive welfare programs, AND severely limited liberties (i.e., totalitarianism).

There’s no sense in arguing over which definition is correct. People are allowed to use whatever definition they want (thanks, First Amendment!), so debates over definitions of terms get us nowhere. Instead, people need to clarify the definitions of ambiguous terms they are using so the focus can remain on the substance of the conversation rather than the words being used to convey that substance.

So, is President-Elect Joe Biden a socialist?

Well, if your definition of a socialist is someone who will push our government toward more centralized economic decision making (via a mixture of policies that (1) regulate the free market and (2) increase government ownership over some aspects of the economy) and toward more wealth redistribution, then, YES, he is a socialist.

But if your definition of a socialist is someone who will enact extensive central planning, near-total wealth redistribution, and maybe some totalitarianism as well, then he’s nowhere near a socialist. Or, if you think his true policy preferences fit that description and that his policies are calculated to get us to that point, I guess you could say he’s a closet socialist, or maybe a progressive socialist.

Either way, define your terminology and then let’s move on to substantive discussions about the merits and limitations of his policies and alternatives to them.

My Biases, Disclosed

First, congratulations to President-Elect Joe Biden. He’ll have the House on his side, but it’s starting to look like the Senate may be his barrier to moving any of his major healthcare plans forward. Now that he’s been elected, my recent evaluation of his healthcare plan takes on new relevance.

In every election season, people want to know what everyone’s political preferences are. This is a precarious topic especially for me, as someone interested in helping leaders fix healthcare, because any expressed preference risks closing doors. But so does remaining completely ambiguous.

I think readers can guess some of my preferences based on my writings, but I fear there are incorrect assumptions made as well. So let me answer the question as directly as nuance allows.

First, as usual, I will frame this discussion. I believe that all opinions about government can be divided into five major categories, which I explained a year ago in my post describing my framework for categorizing governments. I won’t re-explain the categories or their respective spectra here–go read the explanatory post. It’s super short.

The three spectra most relevant to opinions about how to fix healthcare are the economic spectrum, the welfare spectrum, and the liberty spectrum.

Economic spectrum. I believe in a decentralized locus of decision making. The economic rationale for this is incredibly persuasive to me–the aggregate information conveyed by self-optimizing decisions made by millions of people every day adds up to way more market insight than a central deliberate overseer could ever have. That doesn’t mean I believe there are no benefits to the occasional centralized decision, nor does it mean the end result of the aggregation of all the individual decisions is always optimal, but I do believe that long-term success in a market is far superior when we rely on that information. This assumes people have the information requisite to make self-optimizing decisions, which has mostly not been the case in healthcare. In a case like that, my preferred solution is not to centralize the locus of decision making; rather, it would be to get people the information they need. A major implication of this for our healthcare system is that I do not believe the government should set fixed prices. You will notice that even a U.K.-style system or a single-payer system can be implemented in a way that adheres to this.

Welfare spectrum. This is the one I have the hardest time with. I have been in dozens of homes and seen first hand the depravities of entitled attitudes and multi-generational government dependence. But I have worked as a physician in community hospitals and seen the tragic consequences of being uninsured. I have served in religious capacities and seen the dignity that comes from achieving self-sufficiency. But I have experienced the burden lifted by food stamps and Medicaid. In short, I am pulled in different directions, and where I place myself on this spectrum depends less on the amount of wealth redistribution involved and more on the principles upon which those programs are based. I’ll write more about this next week.

Liberty spectrum. This one also pulls me in a couple different ways. I have strong moral beliefs that I would love for everyone else to espouse, but I also believe we can show an equal amount of love and consideration for those whose beliefs are opposite of ours. I also believe in allowing people their own agency to live their lives how they feel is best, which makes me hesitate to support government policies that enforce or subsidize one set of beliefs over another. But I do have a strong preference for overall minimalism and simplicity. Each additional law and regulation that results in additional complexity in our already overly complex modern lives pains me, and I believe the cumulative burden of complexity on us and on businesses is ignored when discussions of individual policies are undertaken. Therefore, the threshold benefit for me to be willing to support yet another complexity-increasing regulation is incredibly high, and I am predisposed to support changes that lead to overall simplification.

I’m not sure that will adequately sate anyone’s curiosity about my voting record, but those are some of the major principles upon which I rely to make my decisions.

Two last thoughts about my biases. First, I make a point to suspend judgment on any issue until I feel I have thoroughly grasped the arguments–and especially the values that undergird those arguments–from all sides. Second, when one gains additional understanding about an issue, I believe it’s ok for them to change their opinion without it undermining their credibility; a well-reasoned change in opinion should be seen as the mark of an imperfect being who has the intellectual integrity to admit ignorance and continue to strive for a more complete knowledge.

Cost vs Price vs Charge, Explained

I’ve written a lot of long blog posts lately, and partly that’s because I don’t want to split certain things up. But I, as much as anyone, love when I see an article is really short. It feels like less of a commitment. So, I am committing to deliver short posts more often. That means covering less ground with each post, but I think discussing a specific single principle in a blog post can be very effective. So, now that I’ve gone on so long about short blog posts, here’s this week’s dose of health policy . . .

Let’s talk about terminology.

When I started medical school, I didn’t understand why there were so many doctor words. It seemed to interfere with physicians communicating clearly with patients because they so often slip into using those jargon-y words.

I have since learned that to be clear with your communication, you need words with precise meanings. This avoids so many problem-causing ambiguities. For example, I could tell another doctor a patient has an owie on his back and it hurts, and it would communicate almost nothing. But if I said the patient has a unilateral eruption of erythematous papules and vesicles along the T6 dermatome with associated burning pain and paresthesias, the other doctor would be able to visualize exactly what I’m describing (Herpes zoster, AKA shingles).

Here are two terms that are used ambiguously in health policy discussions all the time: cost and price.

Cost is the amount of money that goes into producing a product or delivering a service. Calculating cost is often challenging. For example, if you admit a patient for a heart failure exacerbation, you can fairly easily allocate physician and nursing time to the cost of their stay, and it’s not too difficult to calculate many other things like the cost of the medicine you administered and the cost of cleaning their room after they’re discharged, but what about the cost of actually staying in that room for 4 days? You start getting into the depreciation of capital expenditures. And how do you allocate a percentage of administrative employees’ salaries to the cost of that patient’s hospital stay? Maybe this is why so many hospitals don’t even bother calculating costs for specific services delivered!

Price is the total amount of money that is paid to the hospital for delivering a service. Sometimes the patient pays part of the price (known, confusingly, as the patient’s “out-of-pocket cost”), and the insurer pays the rest.

The difference between the price and the cost is the profit the hospital made on delivering that service. Think about how impossible it would be to safely set prices when nobody is accurately calculating costs in a hospital. This is going to become a huge issue when patients start shopping for prices and hospitals are required to start pricing competitively. They’ll have no idea if the price they’re setting will make them a profit or not.

And let’s add a bonus term, one that is special to healthcare. The “charge.” This is completely separate from price. I think it’d be clearer if it were known as the “fictitious price.” It’s basically a made-up number that hospitals use as an anchor for the starting point of price negotiations with insurers. Nobody actually is meant to pay these fictitious prices, although it’s the default thing that will be printed on a bill sent to someone who doesn’t have insurance. And some hospitals jerkily expect people to pay that amount, but usually what happens is they put the patient in contact with their finance people and work out a cash-pay price for them instead. Although, how can they set a reasonable cash-pay price if they have no idea what the cost was of delivering that service to the patient?

Let’s use these terms properly so our discussions can be focused around substance rather than arguing over the definitions of terms!