This Week:

Quote of the Week

Tales From The Cancer Front, Installment IV

Choice and Insurance

Social Security for Beginners

Greetings,

I've written extensively about Social Security over the years, and this week I am at it again. For the Free Marketeers who seem to be running the country at the moment, Social Security is one of the Three Big Targets which they have slated for destruction (the other two being "welfare" and the income tax system). All of these programs are greatly hated by the "Free Market" set because they are programmatic examples of cooperation and social responsibility, the two values that most directly challenge their preferred values of individualism and competition. The opposition to these programs can better be understood if you understand a little bit about the Ayn Rand, "Objectivist" school of thought, which I hope to get around to discussing one of these days.

Since Social Security is a form of social insurance, I preface the series with a brief comment on the idea of insurance itself, as it relates to "choice." This week's Social Security essay is the first of who-knows-how-many essays intended to take a close look at Social Security, which should be very interesting and illuminating for those of you who like to understand how politics works in this country. And some of you may read my words and be moved to take action to actually strengthen Social Security. That is my hope.

‘Til next week,

Nygaard

"Quote" of the Week:

"There is always concern that rich people will have more and better health care. Many people have noted that we already have unequal systems in place. There is no way to stop this reality now or in the future."

-- Economist Jeanne Boeh, quoted in the Star Tribune (Newspaper of the Twin Cities!) of August 6th, in a article entitled "A New Medicare Model."

Tales From The Cancer Front, Installment IV: The World of Private Insurance

For every doctor my partner sees, we receive at least four pieces of mail. First we get a piece of paper from the doctor/hospital that gives the account number, the "Dates of Service," and the "BALANCE DUE." Then it says, in bold letters, "THIS IS NOT A BILL." (They do tell you that "an itemization of your billed charges is available seven days a week through our automated services." When I called the automated service, it was out of order. When I called to ask the hospital what to do, they suggested that I call the automated service. Hello?)

Next we get a bill from the doctor, which shows the same "Balance Due" as the non-bill did. This is, in fact, a bill, but we have been told by many people not to pay this one. Which turned out to be good advice, since we soon learned that we have to wait for an "Explanation of Health Care Benefits" from the insurance company. This repeats the number on the bill (and the non-bill), then proceeds to tell you that the insurance company only authorizes you to pay some fraction of the bill/non-bill.

A couple of examples of these "provider reductions" would be: The anesthesiologist charged us $612.60. Blue Cross said we only had to pay $344.16, or 56 percent. The surgeon charged $3,249.00 for a double mastectomy. Blue Cross says to pay $1,501.15, or 46 percent. And so forth. But we are not supposed to pay these amounts yet (we found out.) Still to come is another bill from the doctor, this time charging us the discounted amount.

Are you still with me?

This would normally be the point at which we would pay the doctor—when their bill finally matches the insurance company statement. However, the first half-dozen statements from the insurance company were incorrect, which I learned by actually reading the policy and getting out a hand calculator. So I called them up and told them about the errors. Then they sent us a corrected statement, then the doctor sent us another, amended, bill. Then we started paying.

Choice and Insurance

Last week I suggested that more is not always better when it comes to choice. I said that having more choice can be a good thing when there is a wide divergence in preferences among those making the choice, or when the choosers are sufficiently well-informed to force substantive competition upon the providers of the goods or service in question.

Choice may not be desirable when people are inadequately prepared to make good choices, or when the time needed to make a choice is too great, or when people experience great stress associated with making difficult choices, or when numerous individual choices have a negative effect on the society. These I called error costs, time costs, psychic costs, and social costs.

When looking for an example of where less choice might be desirable, the first thing that comes to mind is insurance. Insurance, in principle, is the socialization of risk. That is, everybody chips in something (the "socialization" part) to cover the cost of things that would be too much for any individual (the "risk" part).

In the U.S., we have a complicated system of, for the most part, private insurance. We have thousands of private insurance companies that control trillions of dollars of assets ($2.6 trillion as of 1995). Insurance companies are basically not regulated on the federal level at all; each state has responsibility for monitoring the insurance industry, even though the majority of insurance sales are interstate.

Three Facts About Insurance in America

1. While no one can predict with certainty when (or if) bad things will happen to an individual, we are much more capable of predicting the incidence of misfortune for the society as a whole. In other words, while we pretty much know how many Americans will die or suffer other major misfortunes this year or this decade, we don't really know which ones.

2. Many people do not insure themselves, or else they "underinsure" themselves. You can argue that this is not how it should be, but that is how it actually is. It is this way for a variety of reasons, among which are: ignorance: a belief that "it won't happen to me"; a true inability to pay; and a lack of availability of insurance.

3. We do not usually leave uninsured victims of misfortune completely on their own. In the United States we have all sorts of public programs that attempt to catch people who are not supported by insurance. Sometimes they work, sometimes they don't.

What We All Want

It can be argued that Americans have a lot of "choice" when it comes to insurance, and that is largely true, especially for Americans with higher incomes. But what does this "choice" give us? If one's house burns down, would we not all want fire insurance that replaces the value of the loss? If a household's primary breadwinner becomes unable to win the bread, would not everyone want life or disability insurance that would replace a substantial amount of those lost wages? If one comes down with a serious illness, would not everyone want the best medical care possible?

If you answered yes to any of these questions, then I encourage you to ask yourself why we should value a system that offers us "choice" of insurance, when all of us pretty much want the same thing.

If we were to have a national, universal insurance program—health, life, disability, unemployment, property—we could provide a reasonable level of insurance to every American by taking away their "choice" to be un- or under-insured. Some individuals would pay higher taxes, but overall we would most likely spend less as a society, because we would eliminate all of the costs associated with irrelevant "choice," such as the money spent "selling" people on Company A versus Company B.

This idea of socializing multiple risks among the entire population in order to protect each individual against devastating things that happen rarely may sound radical, but it is actually well-established and functioning at various levels in many countries around the world even as you read these words. It's called "Social Security."

Social Security for Beginners

‘Way back in October of 1998 I said in these pages that the current national debate about Social Security "could be the organizing opportunity of a lifetime." I said this because we were, and are, "in the middle of a debate about the future of a program that touches the lives of every American, and no progressive alternatives are on the table." If you like, you can read the entire article on the Nygaard Notes website (Nygaard Notes #9 and #11), or you could read the edited version that was published in Z Magazine of April 1999.

There still aren't any progressive alternatives for Social Security (SS) on the table, and the issue still has the potential to be a great organizing opportunity. What has changed since I wrote those words in 1998 is that the most dangerous proposal—that of breaking up Social Security into "individually controlled, voluntary personal retirement accounts"—has acquired, in the year 2001, the momentum of a runaway locomotive. This poses a very real threat to myself and millions of other Americans, so I will spend some time in the next few weeks talking about Social Security.

What IS Social Security?

One of the problems with defending Social Security from attack is that a lot of people take it for granted. Many people don't even know what it really is.

The basic Social Security program was set up in the mid-1930s as a social insurance program to "make a decent retirement attainable for millions of Americans who would otherwise become wholly dependent on their families or on public assistance when they grew too old to work or could no longer find employment." Today almost all wage-earners are taxed to provide benefits not only to retirees, but also to widows, widowers, and children of deceased workers, and to people whose earning capacity is limited by disability.

Currently, nearly 44 million Americans receive benefits under the Old-Age and Survivors Insurance and Disability Insurance (OASDI) programs that make up Social Security. This group includes some 30 million elderly retirees and their dependents, 6 million disabled workers and their dependents, and more than 7 million survivors of deceased workers. Over 3 million of those receiving OASDI benefits are children.

Even though few people understand exactly how the program works, it is nonetheless an extremely popular program, because it makes a real difference in many people's lives. Most people either do not know, or else take for granted, the following:

• Without Social Security, approximately half the elderly in America would fall below the poverty line. (Before Social Security, we had something called "The Poorhouse")
• The disability and life insurance protection of Social Security is provided to everyone, without regard to the health of the individual. Payments are just sufficient to allow recipients to remain somewhere near the poverty level.
• The retirement benefits are portable, following workers from job to job, and cost-of-living adjustments (COLAs) protect their benefits from erosion caused by inflation.
• Due to Social Security, working- and middle-class parents no longer need to move in with their children after they retire (of course, they can if they want to!)
• Women who have spent their lives working in the home, without pay, receive cash Social Security benefits if they live longer than their husbands.
• Social Security benefits continue until you die.

Social Security: Tuning Out, Tuning In

I am passionately interested in the issue of Social Security and the attacks on it, since I have every reason to believe that it will be a large part of my income at some point in my life. But I fully understand why most people immediately tune out when they hear others start talking about Social Security: most of the public discussion is either focused on confusing numbers, loaded with unbelievable claims, populated by the world's dullest people, or all of the above.

Nevertheless, it is important that "average" people have a real voice in this debate, as there is still a chance to beat back the looming threat of "marketization" of the system. The argument is not about facts, so you don't have to be an expert to do it. It's about values and principles, which everyone has and anyone can understand.

As I have said before in these pages, it is an old and effective tactic to intentionally weaken a program and then use the discontent thus created to further erode support for that program. Eventually you will get to the point where you can destroy the program without getting too much heat for it. This is exactly what is happening right now with Social Security, and I will get into some of the details of how this is working starting next week.