NEJM’s Fundamentals of U.S. Health Policy, Part 2: How Broken the U.S. Healthcare System Is

Image credit: Karsten Schley

I only vaguely remember the great interest and surprise and bafflement I felt when first reading health policy articles that describe how broken the U.S. healthcare system is. But now, after having seen those sorts of summaries hundreds of times, I kind of just gloss over them. Having said that, I think Dr. Schneider does a great job covering the “our healthcare system is broken” lay of the land fairly succinctly in this article, which is the second in NEJM’s series on the fundamentals of U.S. health policy.

Not only does he cover each of the three main categories of issues (quality, spending, and access), but he makes mention of other important aspects to that that are sometimes forgotten, such as the fact that part of our higher spending relative to other countries is simply attributable to our wealth, the impacts of healthcare overspending on U.S. competitiveness, and that a big unmeasured component of the inconvenience of our healthcare system is how much time is wasted by patients trying to figure out insurance or navigate this system in other ways.

I won’t rehash everything he talks about here, but I did find one small section in this article particularly interesting. He is talking about how private organizations and private markets affect the healthcare system, and then he says, “Functioning private markets can reduce costs and innovate in ways that broaden service availability. But private markets may not restrain costs in health care as they do in other sectors. Patients frequently rely on professionals to decide what services are needed, and costs may not be a consideration for either patients or professionals.”

Translation: Markets don’t work in healthcare. And a couple reasons they don’t work are (1) information asymmetries and (2) costs are not considered.

I remember reading things like this as well from the very beginning. And my question was always, “Why?” Or, if reasons were given, “How does that mean markets don’t work in healthcare?” And there never seemed to be a good answer that contained spelled out causal details. The unsatisfactory answer was always, “Healthcare is different.” And then they’d reference the same landmark article by Kenneth Arrow, Uncertainty and the Welfare Economics of Medical Care. So I read that article carefully, and it is a great and important article, but it never seemed to address the challenges for which people were referencing it.

This is, in big part, what spawned this blog. And thousands of hours of researching and thinking and writing later, I feel like I have answers to those questions. Not every answer to every question, mind you, but the main answers to the most important questions. I’ve found that it’s not that markets don’t work in healthcare–it’s that markets aren’t working in healthcare. And the reasons why are explained in my Healthcare Incentives Framework, which I probably reference in at least 50% of my posts because it’s the foundation of how I have come to understand healthcare markets and our healthcare system specifically.

So, if you do any degree of reading about health policy topics, you are sure to come across similar statements about how markets don’t work in healthcare. Or, just as commonly, that they could work in healthcare but relying on them would cause even worse disparities. Don’t believe either of them.

There is a whole article about markets at the end of this NEJM series, so we will see whether it has worthwhile things to say on the topic!

A Real Life Example of Irrational Healthcare Spending

Photo by Karolina Grabowska on Pexels.com

This week at work, I had a patient in the hospital who had been through a pretty challenging illness, and he was going to have to be discharged to a skilled nursing facility (SNF) to rehab for a few weeks. Sadly, SNFs in my area don’t currently allow any visitors due to the pandemic. The patient is very close with his daughter, who lives out of state, and she was flying in the next day to visit him and lend support in his challenging time.

Unfortunately, he was ready for discharge to the SNF now, and upon hearing my plans for discharge, the family requested we keep him in the hospital until he could see his daughter. Because she would be arriving late afternoon the next day, it would be too late to send him to the SNF that day, so he would be stuck in the hospital an extra two days just so he could see his daughter for a few hours.

It’s a perfectly reasonable request, right? But what am I to do when I get a request like that? What’s the socially responsible thing to do? If I assume that every day spent in my hospital costs at least $2,000, I am left judging whether $4,000 of society’s money is worth spending on this brief visit from the patient’s daughter.

As all these things were going through my mind, I gave them my response: “Sure.”

Maybe that’s an irrational use of society’s resources, but it’s a rational response to the situation. I, as a physician, am often asked the be the incidental steward of society’s resources.

And I face experiences like this every week at work. Actually, I would contend that there are thousands of these illogical spending decisions happening every single day across the healthcare system.

The issue at play here is this: The people making decisions about healthcare purchases are not the people directly paying for it.

But what if Medicare patients were required to pay even just a portion of the $2,000/day cost of staying in a hospital? Of course, not all patients could afford it, so there would have to be a policy to account for that, but let’s focus on the people who could afford it. Suddenly, the conversation with that family changes quite a bit.

“Can you keep him in the hospital two extra days so he can see his daughter for a few hours?”

“Sure, I’m happy to do that. Medicare requires patients to pay 50% of the cost of each hospital day though, which means it’s costing him $1,000/day to keep him here, so you need to decide if it’s worth paying $2,000 extra for him to see her for a few hours.”

Then the people making the purchase are directly bearing a portion of the cost of that purchase, and the utilization of resources becomes more rational.

In my Healthcare Incentives Framework, I focus so much on removing the barriers to people bearing at least part of the cost of their healthcare purchases for this very reason. And the way to get there starts with changing insurance plan designs and enabling patients to obtain price information up front.

NEJM’s Fundamentals of U.S. Health Policy, Part 1: What Is Health Policy?

The New England Journal of Medicine (NEJM) is one of the most prestigious medical journals in the world, and it has a new series of articles I find particularly interesting called Fundamentals of U.S. Health Policy. I’ll be reading through the articles of that series and giving some thoughts in response.

The first article in the series, written by Eric Schneider, Debra Malina, and Stephen Morrissey, introduces and defines the field of health policy, and then it defines the goal for the series: “To offer a foundation for a common understanding of where we stand and where we need to go.”

When I tell people I’m an internal medicine physician but that my real passion is health policy, they often respond by saying, “Oh, so you want to get into administration, eh?” And then I have the opportunity to introduce them to this amazing field of health policy.

Sometimes I’ll tell them my oversimplified analogy to NCAA basketball, with the clinicians being the players, the administrators being the coaches, and the policy makers being the NCAA. Sometimes I’ll tell them I want to set the rules for the system, to align incentives properly. Sometimes I’ll simply just say my goal is to fix the healthcare system (so far, everyone agrees–it needs fixing).

This is how Schneider et al. define it: “the choices made by the people who govern, manage, deliver, and pay for health care.” They also describe it as shaping (1) how clinicians deliver care and (2) how patients seek care, obtain care, pay for care, and adhere to care.

There are many other definitions you can find online with a quick “what is health policy?” search. But they all seem kind of vague and textbook-y and obscure the captivating challenge and monumental opportunity that health policy offers.

My working definition of health policy is different. I would say that health policy is the field of work that deals with making the rules for our healthcare system; it takes on the ultimate challenge of figuring out how to properly align all the industry participants’ incentives in a way that motivates them to maximize value for patients. And then I’d add some rhetoric about how healthcare is the most complex and high-stakes industry there is, that it’s like the ultimate puzzle, and I’d tell them about how success can mean solving many people’s greatest heartaches, solving the nation’s fiscal crisis, and saving the world.

I look forward to evaluating the rest of the articles in this series!

Sneaky Hospital Tactics to Force Higher Prices

Image credit: Rich Pedroncelli/Associated Press

There was a recent 60 Minutes episode with a segment that talked about why healthcare prices are so high, and I learned a couple new things.

The segment focused on Sutter Health, which is a large healthcare system in Northern California. Sutter Health was the bad guy in this episode, but the American Hospital Association dutifully provided a counter-argument to the story here.

For context, remember that the price negotiations between hospitals and insurers are not based on costs but rather bargaining power. The more bargaining power the hospital has over the insurer, the higher the prices they win.

Here is Sutter Health’s strategy to win more bargaining power, according to the 60 Minutes segment:

First, buy up other hospitals to become a monopoly in as many markets as possible. If you cannot be a complete monopoly somewhere, find a way to become a monopoly over a key service line, such as maternity care. Next, require two things in every contract you make with an insurer–a gag clause (so nobody can divulge the prices agreed upon) and an all-or-nothing clause (so the insurer has to have all the system’s hospitals and services in network or none of them).

The combination of all that leads to the hospital having much greater bargaining power.

How?

The insurers are kind of forced to have Sutter Health in their networks to avoid having important gaps in coverage (either a regional gap if the one hospital in that county isn’t in network, or a service-specific gap if Sutter Health is the only provider of that service in an area). They leverage that foot in the door with the all-or-nothing clause, so now basically every insurer is compelled to include every Sutter Health hospital, so Sutter Health can demand very high prices and get away with it. And, for Sutter Health’s protection against the bad PR they would get by charging such high prices, they have the gag clauses in place.

Pretty clever I’d say. Unfortunately for them, the government tends to notice when a hospital system becomes a monopoly in multiple ways, and they also notice when a hospital system is making a lot more money than others around it. So they get investigated, reporters dig up the juicy story, and the government slaps a few wrists with lawsuits and new regulations.

Is there a better, long-term solution to these tactics? I have a few thoughts on the matter. First, there’s nothing like monopoly rents to draw competition to a market, so allowing healthcare entrepreneurs to enter those monopolized markets/service lines would be a great start. And if Sutter Health’s competitor hospitals start doing some thorough cost accounting, they could know how much their different services cost and be able to start setting competitive “out-of-network prices.” When those competitors start winning market share, Sutter Health will have to respond with lower prices and more price transparency to become competitive again themselves.

So many market failures are solved by price transparency.

Back to Basics: What Is a Health Insurance Death Spiral?

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This is one of those topics that comes up in healthcare reform discussions regularly, but we don’t often take the time to explain it. It’s not currently a trending topic, but it’s a perennial one, so it will come up again sooner or later.

Let’s start with an assumption: All people want health insurance.

But people’s willingness to pay for health insurance varies greatly. If it’s free, few would refuse. If it costs $200 per month, many more would refuse. If it costs $2,000 per month, most would refuse.

What determines whether someone thinks the premium is worth it?

A few things. The two biggest factors are (1) how much healthcare that person expects to need that year and (2) how much money they have. If a person expects to be hospitalized multiple times that year, a $2,000/month premium is probably going to be a lot less (even with the deductible and copays) than going without insurance. If a person is fairly wealthy and has the foresight to recognize that unpredictable healthcare expenses could be financially catastrophic, they would probably also be willing to pay the $2,000 deductible. But healthy people and poor people (and especially poor healthy people) are much less willing to spend much on premiums.

Ok, that was most of the background information, and here’s one more thing. If an insurance company is allowed to charge whatever they want for a premium, you know what they would do? They would collect a bunch of data on every insurance applicant and use some smart actuaries to calculate each applicant’s average expected annual healthcare spending, and then they would use that number (plus a percentage) for the person’s premium that year.

As you would expect, this would work fine for the young and healthy who will have low premiums. But for most others, it can be pretty expensive to the point that many would rather choose to forego insurance.

Now we can talk about how to cause a death spiral.

To solve that problem of premiums being too expensive for the people who probably need insurance the most and ending up uninsured, the government can make a simple policy that requires insurance companies to charge everyone the same premium. (For simplicity, I’m saying they will only have a single premium, although in reality they usually say something like, “You can only charge the sickest person 3x what you charge the healthiest person, and you can only use these few variables to decide who is sick and who is healthy.”)

What happens? The sick people get a great deal, and the healthy people end up subsidizing the sick people’s premiums.

This enables the sick people to get insurance, although now that the healthy people’s premiums are so expensive relative to what they’re getting out of it (many of them probably don’t even end up using their insurance most years), they say, “Forget that. Buying insurance isn’t worth it anymore.” And they drop out of the insurance pool in favor of going uninsured.

What happens then? All the healthiest people are no longer in the insurance pool, so the average expected healthcare spending per person will be much higher the next year. Therefore, the insurer is forced to raise premiums accordingly.

And, predictably, when those new higher premiums come out, again the healthiest in the insurance pool will say, “Last year it was just barely worth it for me, but this year with this crazy increased premium, it’s not worth it.” And they drop out of the insurance pool. This is about the time when the insurance companies get labeled as greedy, too.

The next year, premiums rise again, and more people forego insurance.

Do you see the pattern? That’s a death spiral. And, again, it’s caused by requiring insurance companies to restrict the degree to which they can charge different people different premiums.

There is a way to prevent this, though. If, at the same time as restricting premiums, the government also creates some sort of incentive for healthy people to stay in the insurance pool, it can prevent them from leaving.

That’s what the individual mandate was for. It was the government saying, “Hey, we need you healthy people to be in the insurance pool subsidizing the sicker people’s premiums, so we’re going to persuade you to do that by making you pay a fee (tax) if you don’t buy health insurance.”

It didn’t work very well. Many people didn’t know about it, and those who did figured they’d rather pay a relatively small tax than a relatively large insurance premium. That’s why premiums in the private market rose so quickly after the Affordable Care Act was passed. Not enough healthy people joined the insurance pool, and more dropped out each year. It wasn’t exactly a precipitous death spiral, but that is the direction it was trending.

Socialism Leads to Totalitarianism?

Friedrich A. Hayek
Image credit: Mises Institute

If you haven’t noticed already, I have a strong interest in political philosophy. Isn’t thinking about the different ways government could be designed exciting? This is primarily a health policy blog, but political philosophy topics are closely enough related to what happens in healthcare that I write about them here as well.

I recently read (listened to) The Road to Serfdom by Friedrich Hayek. The interesting thing is that he seemed to be using my framework for categorizing governments. So I’d like to restate his main points in the context of my framework.

The book was written during WWII and published in 1944. At that time, he was living in the U.K., and he was seeing a movement there toward central planning, so he wrote this book to explain to the people involved in that movement how central planning starts a country down a road that leads to totalitarianism. He used Germany’s then-recent political history as the main case study to show how that process goes.

Let’s say the U.K.’s government looked something like this at that time:

And the “planners,” as Hayek calls them, wanted to do this:

There were different motivations for this. One was that, at the time, technology was seen as necessarily pushing industries toward monopolies, so they felt that government ownership would limit the tyrannies of monopolies. Another motivation that developed is a change in how freedom was conceptualized. “Before man could be truly free,” they said, “the despotism of physical want has to be broken.”

Notice that these are not totalitarian desires; they are desires for efficiency and an increase in freedom and opportunity for the poor. So how does Hayek say they lead to big leftward shifts on the other three spectra?

He doesn’t exactly provide a super explicit stepwise process, but here are some of his major checkpoints along that road:

  • Planning a society will involve areas with great agreement, but there will also be areas with great disagreement. In those areas of disagreement, people lose the freedom to conserve their preferences.
  • If a state owns half the economy, it necessarily controls most of the other half indirectly due to the interactions between industries, such as through shared inputs to those industries (like labor and resources). This means there is no part of society where people are completely free of government direction.
  • After a democracy votes in a planning government, they find that the democratic process is ill equipped to handle the plan’s requirement for rapid and unified-purpose decision making, so different parts are working at odds with the overall plan or are slow to change to fit better. For this reason, the laws they pass increasingly delegate decision-making power to unelected experts. Eventually, their legislative power becomes limited to making decisions about the plan’s overall goals, although in this area as well they find themselves inadequate because frequent shifts in goals (due to differences in factions’ priorities and politician turnover with each election cycle) undermine progress toward any ideal. Thus, they begin to concentrate the power to direct the overall goals (and coordinate the efforts of those many boards of experts) into a single individual who is not fettered by democratic and legislative processes.
  • This new powerful leader is occasionally confirmed via the democratic process, but the leader has the power to ensure, one way or another, that the votes go in his direction so he can continue working toward the ideal society.
  • A planned economy becomes the rule of man because so many of the decisions about people’s lives become arbitrary (whose interests to prioritize over whose). For example, do you increase wages of the working poor who are struggling to get by or do you decrease unemployment?
  • A planning government only sets out to control and improve the economic aspect of people’s lives, but by controlling the economic aspect they are indirectly controlling nearly every other aspect, such as where people live (you can’t move somewhere else if the government hasn’t decided there will be jobs available in that area) and what you do for fun (which luxury items and entertainment options are available and how they are priced).
  • People are dissatisfied when they are made to go along with another’s set of priorities and values, so the government creates indoctrination tools that will reduce the number of people resisting their goal for an ideal society.
  • The whole apparatus of information, including schools and print and audio and visual media, will be used not only in supporting the ends but also the means to achieve the ideal society, and speaking out against it becomes not just an opinion but treachery.
  • The leaders who tend to arise in such a system are those who are the strongest and most motivated to get things done, which means they are the most likely to be willing to ignore negative impacts on other people in pursuit of their singular focus (the means justify the ends).

So this is where the U.K. could have ended up if the planners had gotten their way, and remember this would all come from the planners’ initial desires to have the government help out with inefficient industries and to reduce the despotism of poverty:

There are so many other points made in the book that flesh out these ideas more fully, but I will forbear. Suffice it to say that end point of the the road is not just totalitarianism, but serfdom, which is due to the increasingly impossible task of a government trying to control an entire economy and, in the process, distorting every single worker’s incentives away from efficiency and innovation and redirecting resources away from their most profitable uses.

Reading this was quite an interesting experience because, with every point Hayek made, I could visualize which spectrum he was talking about and interpret his explanations in terms of which direction (and how far) a country would slide along that spectrum.

And the question it left me with is this: If Democrats’ policies tend to push toward more wealth redistribution and more government control over industries (e.g., Medicare for All), does this mean electing Democrats puts us on the road to serfdom?

My thought is that it doesn’t. Pushing for Medicare for All is not the same as endorsing a planned economy. One could argue that it’s one step closer to getting us on that road, but we have seen “social democracies” in Scandinavia not progress toward totalitarianism, so maybe that slope isn’t as slippery as Hayek makes it out to be. Exactly which factors would also need to be at play for us to truly get onto the road to serfdom? I don’t know. Any thoughts or ideas are welcome.

Healthcare Experts Often Support Good Healthcare Reforms for the Wrong Reasons

This week’s post is a little later than usual, but next week will be back on track with a Tuesday post about Hayek’s book about socialism, The Road to Serfdom, and how it fits into my framework for categorizing governments.

Something I have noticed for many years now is that many good and important healthcare reforms are touted by experts for the wrong reasons. Supporting a good reform for the wrong reason may seem harmless, but without a clear understanding of the principles behind why the reform is important, the implementation may undermine much of the benefit of the reform, or it may not be evaluated based on the right expected impact (and, therefore, cause the reform to be incorrectly judged as a failure). Either one of these mistakes could ruin the reform.

Example 1 – Quality metrics reporting: This refers to making providers track and report a variety of quality metrics, which are then usually used to give quality-contingent bonuses. These quality metrics are also often reported publicly with hopes that it will add some accountability to providers and motivate the lower-quality ones to improve.

What many experts don’t realize is that quality-contingent bonuses are not going to make a big dent in our healthcare problems. They also don’t realize that the main purpose for quality metrics should be to help people make value-sensitive decisions, which means the tracked and reported metrics need to enable people to do this. Commonly used metrics these days, such as aggregate mortality numbers and overall patient satisfaction scores, aren’t super useful at achieving this goal.

Example 2 – High deductibles: Some experts say that if people have high deductibles, they’ve got some “skin in the game” and will therefore stop being such spendthrifts, which will decrease overutilization and total healthcare spending.

It’s true that a high deductible will reduce healthcare spending;, although, unfortunately, people tend to decrease unnecessary AND necessary care. That’s what the classic Rand Health Insurance Experiment demonstrated. But lowering spending is not the main purpose of high deductibles. The primary benefit of them is that they make people actually consider price when they are choosing where they will get care, which allows people to start preferentially choosing higher-value providers (i.e., make value-sensitive decisions). Of course, this only applies to services that cost less than the deductible.

Example 3 – Bundled payments: These are seen as a way to get providers to integrate more and, through that integration, “trim the fat” (what’s with all the flesh metaphors?). Usually the reduction in total episode costs comes from providers becoming less likely to discharge people to skilled nursing facilities.

Bundled payments do get providers to send fewer patients to nursing facilities and to find other superficial ways to decrease total episode costs, but the primary benefit is that they allow people to compare, apples to apples, the total cost of a care episode. Again, it’s all about removing barriers to value-sensitive decisions. This will lead to complete care process transformations as providers become motivated to improve value relative to competitors and are assured they will win greater profit as a result. So implementing bundled payments with a single provider in a region will likely result in only very modest benefits, which will come from those superficial low-hanging-fruit types of changes.

That’s enough examples for this week! Merry Christmas, and may everyone do good things for the right reasons.

The One Thing Healthcare Lacks that Makes It So Dysfunctional

People making value-sensitive decisions and thereby driving value-improving competition in the book industry! Photo by @thiszun on Pexels.com.

If I had to pin down one thing that healthcare lacks that makes it such a dysfunctional industry, this is what it would be: value-sensitive decisions. I throw the term around here and there, but it deserves a little more explanation.

You’ve heard of someone being price sensitive, right? It means price is an important consideration when they are choosing between multiple options.

How about quality sensitive? That means quality is an important consideration when choosing between multiple options.

Everybody is quality sensitive; they don’t want to acquire something that doesn’t fulfill their need.

And people are usually price sensitive. The exception would be when the difference in price between their multiple options is such a tiny percentage of their wealth that it’s deemed insignificant. For example, a wealthy person buying a book on eBay would probably choose the $25.00 “Like New” book rather than the $24.99 “Acceptable” book. The poor college student, on the other hand, may very well get the cheaper one!

Remember, Value = Quality / Price. Therefore, when someone is both quality sensitive and price sensitive, it’s called being value sensitive.

In a normal industry, value-sensitive people buy the option that they deem to have the best mix of quality and price, which is slightly different for every person depending on what aspects of quality are most important to them and how much money they are willing to spend on the thing. These value-sensitive decisions are the engine of competition.

You see, when value-sensitive decisions are taking place in an industry, every company in that industry is trying to deliver the best mix of quality and price because they know that if they succeed at doing that, consumers will choose their product over their competitors’ products, which will enable the company that accomplishes that to reap the biggest share of the profit pie.

Of course, there are different consumer segments with different wants and different amounts of money to spend, but companies are trying to achieve that perfect mix of quality and price for each consumer segment that they’re targeting.

This is the core aspect of a properly functioning market. Without value-sensitive decisions, everything gets distorted. Companies will still fight for the greatest share of the profit pie, but the focus of competition is no longer on overall quality and total price to achieve that. Instead, competition shifts to focus on the aspects of a product that consumers are basing their choices on.

So, bringing this back to healthcare, if a patient has no idea about the relative quality of Hospital A versus Hospital B, they use quality surrogates, such as convenience of parking or how beautiful the lobby is. And if they will only pay a flat copay regardless of the total cost of their hospitalization, they stop caring about relative total price completely.

Think of a scenario where a patient has a flat copay for any in-network hospital. If they have to pay $10 to park at Hospital A, but parking is free at Hospital B, the cost of parking has now become the salient feature upon which they will be basing their assessment of price. And assuming they think both hospitals are of equivalent quality, that parking fee just made Hospital A’s value lower compared to Hospital B, so the patient will choose to go to Hospital B.

Basing a multi-thousand dollar purchase decision that could literally be life or death on a $10 parking fee seems pretty ridiculous, doesn’t it? But this is what our healthcare purchase decisions are relegated to when we do not have the information and incentives necessary to make proper value-sensitive decisions.

Given the sorry state of value-sensitive decisions in our healthcare system, I would argue that it is delivering exactly the overall low value that we should expect. And this is why I focus so much on explaining how we can eliminate our healthcare system’s barriers to value-sensitive decisions.

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.