ELSIE is a woman who works three jobs, one at a law firm organizing documents, one at Coors Field taking tickets, and one at Sam’s club where she gives out more samples than any of the other employees. She’s got a loud southern voice with the slow, soft cadence of a natural storyteller. The last time she bought a lottery ticket was a month ago when the Power Ball reached a record high of 1.5 billion. She used to play once a week, but she was never up late enough to see the winning numbers on TV and so in the morning she would collect the paper from her porch and diligently ruffle through to see if she had won. She did win once, 40 dollars. And almost 200 another time, but her friend who she had sent to purchase the ticket with her lucky numbers never actually did. “If I had won the million, I could have killed him and no judge would condemn me,” she says dryly. “We laughed about it, that’s all.”
Buying a ticket has become a ritual of hope, like a prayer. “It’s nice to imagine,” she says. She thinks of who she would help if she got the money. She wouldn’t move, or change much about her own life. She plays because she likes to imagine giving it all away, all but a little for retirement. She would give some to her nieces and nephews, her co-workers, and she even said she would give some to me. Talking about it for a few minutes with me was enough to brighten her hopes, and she told me, as we were saying goodbye, “you know, I’m going to buy a ticket tomorrow.”
Lotteries in America were important tools in raising money to fund charters and sustain colonies. But in 1823 Washington DC sponsored a lottery in order to clean up trash and add trees along the city roads and parks. The people supported the lottery like we might purchase some lemonade from lemonade stands—as a sort of civic responsibility. This perception of the lottery is quite different from today’s, though some elements continue in fundraisers for churches and schools in the form of cakewalks and giveaways.
The 1923 lottery was contracted out to a private lottery firm who was responsible for selling the tickets, collecting the money, and paying out the prizes. The winning ticket was worth $100,000, over 2 million in today’s currency. As planned, the money was collected and the winners were selected, but the prizes were never paid. A man, whose name seems to be lost from history, took all the money and “absconded.” Yes, that’s right he “absconded.” That is the exact word everyone I can find (except Richard McGowan) uses to describe the theft. So we can assume they are all drawing from the same source. (This is perhaps an instance of scholarly insecurities, wherein plagiarism is not so bad as a limited vocabulary.)
The man slipped away, and we can only imagine where he absconded to. Perhaps he arrived in the North Carolina with a new name, built himself a home amidst the old oaks, or he made his way to Europe as a merchant, or he helped to settle the west in an era characterized by the Monroe doctrine. Whatever the story, the money was gone and the lottery was tarnished in the eyes of the public. Soon laws were erected forbidding lotteries in one state and then another.
More scandals came and went, until lotteries were shut down across the country. Of course underground lotteries flourished during the prohibition. That is until the great depression, when Congress approved Bingo in order to help churches and charities raise money. Since then, lotteries have come back, and today, the government has gained almost exclusive rights—partially to make money and partially to protect citizens from less honest lotteries.
INSURANCE has followed a similar path and shares more than a few similarities with the lottery. The two businesses hire from the same pool of actuaries and employ them to rig similar “games.” To survive, insurance requires the vast majority of people to lose most of the money they put into it. It’s a gamble that instead of asking people to imagine the possibility of a jackpot, asks them to imagine something quite the opposite. And that’s why insurance is much more successful than the lottery, causing US citizens to spend about a trillion dollars a year instead of the relatively modest 70 billion of the lottery. In the end, people hate losing things a lot more than they like getting things.
The economic term that describes this phenomena is called “loss aversion” which means that people are disproportionate in how they respond to gaining a hundred dollars vs losing a hundred dollars. If a phone company raises its monthly cost, more people leave than would join if they lower it instead. People just hate losing things once they have them. This is also why people tend to overvalue their own possessions—a similar phenomena titled the endowment effect. Ziv Carmon and Dan Ariely asked owners of NCAA final four tournament tickets to predict how much they could sell their tickets for. The predictions were on average 14 times higher than the average hypothetical buying price.
So while people are much more vulnerable to the rhetoric of insurance than the lottery, both succeed by convincing us to believe in a fundamental deception. In the lotteries case, people are willing to throw away a few dollars at a time so they can imagine the bliss of winning. And just what would it be like to win? Well, because the average lottery user’s day to day stresses and dissatisfactions are generally situated around money, they believe that obtaining a vast sum of money all at once would mean the amelioration of dissatisfaction and elimination of stress. But this does not seem to be the case.
Several studies have explored the surprising dissatisfaction in lottery winners. One study compared lottery winners with people who became quadriplegic around the same time and found that the lottery winners were no happier and took significantly less pleasure in simple beauties. A lot of people are buying tickets just for the chance to imagine a happiness that does not seem to actually exist. The lottery doesn’t succeed because people aren’t good at calculating probabilities; they know they have almost no shot at winning. It succeeds because it convinces us to believe in an inaccurate equation: lack of money causes stress, stress drains happiness, therefore more money will mean more happiness.
A similar miscalculation takes place with health insurance. The average person assumes that good health equals medical care, and medical care means access to care, which equals health insurance. Or in the other direction, health insurance means access to care which means good health because it mitigates the risk of disease and injury. But this also does not seem to be the case. People with health insurance are no more likely to be healthy than people without it. The vast majority of health is the result of personal lifestyle, genetics, and environment. Healthcare services account for less (possibly much less) than 10% of your actual health.
This means that access to healthcare has very little to do with what we think it does. The national debate about healthcare has focused around what Brent James calls “rescue care,” or the imperative we feel to save a life no matter the cost. This is the dramatic rush to the hospital and end-of-life care. But this sort of care has not actually increased life expectancy for several years. It is miraculous, it is wonderful, but it won’t make us live any longer or any more healthfully. But, as with the lottery, Americans continue pouring their money into a system that does not actually perform.
If, instead of focusing on a few rare cases, we spent our money improving our lifestyle—buy a better chair, changing unhealthy habits, or (as some studies suggest) even meditating—our overall life expectancy would dramatically increase. But instead we continue to believe a false equation.
IN 2014, the US lotteries raised over 70 billion dollars. This number is astounding because it suggests the average person spends 220 dollars a year on the lottery. But that’s assuming the price is evenly distributed across all people. We know children aren’t participating, and in certain states the lottery is still prohibited. So for those who play, the average is much higher. Several studies have also shown that poorer counties spend twice as much as wealthier counties. In NC the poorest counties paid 400 dollars per person per month. That’s 4,800 a year. If those same people invested that money in any number of ways, they could have over a million dollars by the time they retired—that’s winning the lottery. So just imagine what could be done with the much larger amount of money that is now being pre-allocated (before it’s needed) to a host of medical services.
Over time, lotteries have had the same basic story line and my fear is that health insurance will fit right in:
The state legislates a monopoly for itself; establishes a state agency or public corporation to run the lottery (as opposed to licensing a private firm in return for a share of the profits); begins operations with a modest number of relatively simple games; and, due to constant pressure for additional revenues, progressively expands the lottery in size and complexity, particularly in the form of adding new games.
(the national gambling impact study)
Insurance has followed a similar path—beginning as “friendly societies” and ending in nationalization—Obamacare. The nationalization is natural and even necessary. In England, early insurance agencies offered fire insurance, which meant the homes were monetarily protected as well as physically protected because the insurance agency also ran the fire department. But the insurance companies drew criticism when they refused to put out the fires of homes whose owners had not previously purchased the insurance. This is an example of market failure. If the insurance company did put out the fire, then no one will buy the insurance.
The way to make sure that all the fires are taken care of is to pay for a fire department through taxes. This way everyone pays into the insurance and every fire is extinguished. Today the same thing has happened with hospitals. A lot of people won’t pay for insurance if they can go to the emergency room and still get help, help that the hospital is required to give whether or not they’re paid for it. And so we turn healthcare, like the fire station, into a “tax” that stops people from getting a free ride.
There is certainly some utility here, and so insurance ought to exist, and it probably ought to be governmentally run, but the chance of you ending up ahead is about as likely as your house catching fire. A good health insurance system would be like a good fire-station. You call them when you need them, but most of the time you get your own cat out of the tree. That means low premiums and high deductibles. But that’s probably not what will happen. It remains to be seen, but if this progresses like any other lottery, we can expect it to just get bigger, advertising higher and higher “jackpots” (bigger, all-inclusive packages) because as the government gets involved in the business it will be under pressure to sell ever increasing and ever more inclusive healthcare packages. They’ll be tempted to insure more and more services, “to invent new games,” and “additional revenues.”
But if our goal is to encourage actual health improvements, we will need to devalue insurance, cut down traditional health care spending, and create policies that turn people away from doctors and towards things that have a much larger impact on health. We have to find ways to, as Dr. David Blumenthal says, “invest our health-care dollars in ways that will allow us to live longer while enjoying better health and greater productivity.” The biggest lie health insurance tells us is that it’s a way of mitigating risks. Bad habits, low exercise, poor hygiene, genetics—those are your largest risks and healthcare has proven to be very ineffective at dealing with those risks. If we want to encourage people to live longer, healthier, and happier lives the best thing to do is convince them to eat well, sleep enough, and go to the gym rather than pumping their money into a system that will only produce yet another ineffective doctor visit. But we want to believe that doctors can take care of us. It’s sure nice to imagine, and so we commit to buying another ticket, tomorrow.