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Next week, I'm teaching egoism and the Prisoner's Dilemma. Egoism is the theory we should all do what's in our own best interests. Which isn't quite the same as acting selfishly; sometimes it's in our own best interest to have others owe us a favor or to uphold a social institution (like the idea of trust).

The Prisoner's Dilemma basically says that sometimes our best interests are served by doing what's in the common good. Take the following scene from A Beautiful Mind:

Here, Nash realizes that if he and his friends all go after the same woman (that they all fancy), none of them will get her. What's more, they won't even get their second-choice women (the blonde's friends), since "nobody likes being second choice." But if they coordinate their actions, then they'll all get a date for the night - not their first-choice woman, but definitely a better consequence than if they all went for the woman they all wanted. The trick is getting other people to go along, and trust that someone won't trick other people so he can take advantage. (Imagine Nash getting all the people to not go for the blonde, and then swooping in himself.)

Anyway, this has me thinking about healthcare and in particular the insurance mandate. Let me make a few hypothetical assumptions to make things interesting:
  • Assume I could guarantee you that your healthcare costs would be somewhere between $0 and $5,000.
  • Assume these costs are evenly distributed, so you have an equal chance of spending $117 and $4,803.
  • ... but, some years you are guaranteed to have a high health care costs and other years a low cost
  • Assume that the doctors will not treat you (or will provide only minimal care) unless you can pay the full cost of treatment when you get sick or injured.
  • Assume that the cost to you is truly random (i.e., this doesn't cover optional procedures or things related to personal behaviors like smoking).
I know this isn't how healthcare works, but I think it simplifies things to make an important point. Under a system like this, most people would set aside $5,000 at the beginning of the year, because whatever they would spend it on probably isn't worth the chance of needless suffering. Some people might set aside just enough to pick up the slack for whatever "give" they have in their paycheck (what they can afford to spend on an unexpected expense). That money represents lost opportunities, because no rational person is going to invest in a company or buy their kid that new computer at the very real risk of someone breaking an arm and you not being able to afford care for it. You might buy them at the end of the year, but quite often the opportunity would have slipped by or the purchase would be less valuable

Now, say a company comes along and says for $3,500 it will cover whatever healthcare costs you have that year. If you paid for your own health care over any length of time, it should average out at $2,500 but you'd have to set double that aside if you wanted to be sure you'd get coverage you need. Maybe you're not willing to fork over an extra $1,000 just to have control over that $2,500 you had to set aside on the chance you'd get sick. But I'm willing to bet there's some amount you'd be willing to pay this company if it meant having immediate access to that extra $2,500 you had to save but on average wouldn't end up using.

RL is more complicated than this because peoples' health care gets more expensive as they age. So let's say that younger people have a greater chance of spending at the low end of the spectrum, and older people at the high end. I'm imagining something like an equal distribution over a different range for each age: say, between $0 and $5,000 for a 0-10 year old, between $500 and $5,000 for a 11-20 year old, $1,000 and $5,000 for a 21-30 year old, and so on. Now, let's say the company somehow adjusts for this by setting its premium at 60% of the possible costs of health care for the enrollee's age-range. Those are scary words, but what I mean is it would cost $3,000 to enroll at birth but by the time you're my age (21-30) it would cost you $3,400, and by the time you're eighty-three (when your costs range between $4,000 and $5,000) it would cost you $4,600 join up. Also, assume that whatever price you join in at, that's your price your entire life. So if you enroll your three-year-old in with a $3,000/yr premium , he'll still only be paying a $3,000/yr premium when he's an octogenarian. The point here is that kid has been paying into the system throughout his life, subsidizing the older people who had a greater chance than he did of needing more care, and in his twilight years others would be subsidizing him.

Alternately, a much simpler proposal: require everyone to sign up at birth and everyone pays $3,000/yr. Or if you want to eliminate the profit motive, $2,500 (or whatever the midway point is, since you often have less elderly than young people) + whatever your share of the administrative costs is.

Everybody gets sick and we don't generally blame people for being ill or injured (I hope not!). But we do charge those people who are unlucky enough to be sick the cost of their treatment. That strikes me as an unjust way to handle things, personally, since I don't like penalizing people for things that aren't their fault; I'd rather share the costs between the lucky and unlucky alike. But on top of that, it's just not the best system for people to have to set aside more money than they need, year after year. This strikes me as just the kind of situation the Prisoner's Dilemma is made for. We do best by ourselves when we eliminate that waste.

In this particular situation I found a set-up that didn't require everyone enroll. The Thing is, real life isn't nearly this neat. Over the last few years I've heard a lot of people say it isn't fair to require young people who don't need health insurance to buy a service they won't use. The thing is, everyone uses healthcare (to varying degrees, and at varying times), and we have no way of knowing how much until we actually need it - so the more people who wait until they get sick to buy insurance, the more it costs and the less benefit there is to it.

It's not exactly the Prisoner's Dilemma, but it has the same basic point, I think: sometimes, the best way to do what's best for you is to set up a system that benefits everyone. I know, this is a rather dry, logical post with lots of numbers and not the emotional appeals you usually get with health care reform. But it's a point worth thinking about, I think.

(Btw: I'm a mathematician, not an economist or accountant. Or a health care provider. Those numbers may not reflect reality as much as I'd like. But my guess is, even if the math isn't so neat, there's still an advantage to only paying the average [or near the average] cost of health care rather than setting aside the maximum you think you'd possibly need.)    

(Btw #2: This in no way props up the existing insurance mandate. It may infringe on freedom or just be a badly structured law. My point is philosophical: it's in a healthy young person's best self-interest to have everyone paying into a health-insurance system of some kind he'll come to rely on more and more, rather than only joining in when he needs it.)


( 8 comments — Leave a comment )
Jul. 6th, 2012 02:02 am (UTC)
I would absolutely love to take one of your classes. I get inspired after reading these posts. I only took one philosophy class in college for my Russian major. It was a Russian philosophers survey course. I remember I loved it, but I do not remember much more. I'd take a philosophy course for fun (I get a free class every semester), but hubby took one and was depressed for months. That kind of scared me a bit. I'm pretty impressionable. :-)

What is your dissertation on? (If you don't mind saying on line--feel free to tell me its none of my business). :-)
Jul. 6th, 2012 04:22 pm (UTC)
You know, I'd love to have you sit in on one of mine. I'd find it very interesting. I love introducing the uninitiated to philosophy - but it can be a mixed bag, depending on the instructor. Your hubbie's not wrong; philosophy can be ruthless and depressing but also exhilarating, depending on what is being examined (and how). It's always intense.

Ye olde dissertation is on a medieval philosopher named Anselm. It's actually on the ontological argument, a famous argument for why God has to exist. (The basic gist is if you can use the word God for something that doesn't exist, you're not really talking about what Anselm means by God.) It's still shaping up a bit, but I'm hoping it will be about the limits of language and to what extent human language can be used to describe something that is by definition beyond human understanding. Fascinating, but complicated, stuff. (It's actually connected to the ethics material because Anselm thinks knowing God has a moral component: the better humans we become, the closer we can pull to God and the better we can understand His nature.)
Jul. 6th, 2012 02:17 am (UTC)
Ah, Marta - You have just reinvented insurance. That's *exactly* how it's supposed to work, by spreading the risk over a lot of people both healthy and not-so-healthy.

The "maximum you'd need" without insurance that you refer to could be a whole lot more than anyone could reasonably save. (quick google...)

Wanna have a baby - plan on $10,000 for a normal, uncomplicated birth. Plus another $1,500 for the baby's care.

Have a heart attack - better save up at least $50,000, just for the initial care and more for the continuing costs for staying healthy.

Have diabetes - plan on $6,000 *a year* to stay controlled and healthy.

Break a leg - Without health insurance, surgical treatment of a broken leg typically costs $17,000 to $35,000 or more.

My family's health insurance costs me at least $5,000 a year and is *cheap* if we ever really needed it.

Anyone who thinks they don't need insurance is crazy!

Jul. 6th, 2012 04:39 pm (UTC)
Ah, Marta - You have just reinvented insurance. That's *exactly* how it's supposed to work, by spreading the risk over a lot of people both healthy and not-so-healthy.

Heh. Yeah, I was aware! I've just been running into several people my age and younger (some students, some just friends) who think of insurance as something that's only for people who are really sick. I wanted to play around with why everyone needed it. It's actually something you hear in politics a lot, too, and it always strikes me as selfish that someone who can a) afford it to any degree and b) plans on relying on health insurance later in life wouldn't see it as kind of a moral duty to help paying for it now. I know some people my age make next to no money and really can't afford it (thinking of my brother here who's been a waiter for years and now is in training to become a fireman), but many of us can.

And you're absolutely right on the figures! To give one example, I broke my big toe while in Cleveland (I was wearing sandles and got it caught in one of those metal brackets they bolt newspaper stands to the sidewalk with), while I was still on my parents' (NC-based) work plan. Even with it being out-of-network rather than uninsured, that was more expensive than I could afford at the moment; I eventually had to get family to help me pay for it. I was trying to keep things simple but you're absolutely right on all this.
Jul. 6th, 2012 02:58 am (UTC)
sometimes, the best way to do what's best for you is to set up a system that benefits everyone.

In theory, yes, that's exactly what insurance is supposed to do. It's basically risk arbitrage, right? If the system actually did work this way, it would make no sense for anyone to go without health insurance. You spread the potential risk over a large pool of individuals, averaging the costs and effectively providing some benefit to everyone.

The problem is that insurance companies have to turn a profit too, and even with the new healthcare legislation, their focus is likely to be on risk management rather than price competition. Over time, the cost per person actually goes up, despite no significant change in the amount or quality of the care received.
Jul. 6th, 2012 04:56 pm (UTC)
Is this an argument, then, against for-profit insurance companies and for a single-payer, nationalized system? Or are you arguing that it's still better to have no insurance, pay for everything routine as you go along, and rely on other-people's-insurance-premiums to pay for your catastrophic care when you go over what, if anything, you've put aside for medical care?

I am confused. What plan do you advocate?
Jul. 6th, 2012 05:02 pm (UTC)
Not sure I'm advocating anything, actually. I think I'm more of a fence-sitter on the issue, lol.

I think my point was more that, in the long term, a plan where everyone has insurance isn't necessarily better than a plan where not everyone has insurance, as long as for-profit insurance is still the norm.

I'm not sure single-payer is the answer, however. What I'd like to see is to have insurance companies turn more to quality of care questions and away from a purely risk-based model. One thing that might help is to have fewer lock-ins within the insurance model, allowing for a bit more consumer freedom, i.e. basically allowing the consumer to shop around based on quality of care or extent of coverage rather than just on cost.
Jul. 6th, 2012 05:49 pm (UTC)
I think you're on to something here. There's definitely a problem with the way insurance companies work. I'm not too keen on our current insurance model and think it definitely needs fixing. I don't know enough about medicine or economics to be the one to fix it and don't pretend to. What I was reacting to was a claim I've heard a lot of people make who are my age or younger: that since young people are less likely than others to get sick, they should only have catastrophic insurance, and save the insurance to cover actual normal illness and injury for when they're older.

This is where the Prisoner Dilemma gets interesting. It would be in my best interest to have everyone else pay into an insurance pool (or however you want to organize it; so everyone is paying for the care of people who happen to need care at any given time), that I would only join in when I was likely to need its service. That got me thinking about three possible options:

  1. Everyone but me pays into an insurance pool their whole life; I join in when I actually start getting sick.

  2. Everyone including me pays into a shared insurance pool, both when we're sick and when we're healthy.

  3. There's no insurance pool and everyone pays their own bills or doesn't receive treatment.

Obviously #1 is in my best interests, but it's just not feasible because everyone would want that. And some kind of cost-sharing pool doesn't work if only sick people are participating. Which leaves #2 and #3. I think #2 is better for everyone involved (including me individually) than #3 - so even if I'm not needing healthcare right now, it's still in my best interest to have people sharing the costs.

That's a completely separate issue from whether our insurance system does a good job of managing this. I'm actually not a big fan of the insurance mandate (I much would prefer something like British or Canadian medicine, where doctors are paid through government taxation; but I know most Americans don't like that. I don't know what the solution is. But I think this idea that young people don't need a functioning cost-sharing pool is wrong. That's what I was trying to explain.

But that pool's only really possible if we have healthy and sick people alike paying in to it, and so if that pool's not there when I need it, that's not good for me.
( 8 comments — Leave a comment )



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