Obamacare is just another lottery

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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.       

 

 

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4 thoughts on “Obamacare is just another lottery

  1. Hey Josh (and Matt),
    First I want to make sure I understand you point. I think these are your points (at least the ones about healthcare):
    1. A good healthcare 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.
    2. 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.

    I have to say that I disagree with these points (and I’m pretty sure Dr. David Blumenthal would as well). Here’s my soapbox rant:

    First, you suggest that the purpose of insurance is to mitigate risk. This is true. However, I think you have an incorrect understanding of the meaning of “mitigate risk”. Also, your definition of healthcare is too narrow. All of the things you mentioned (Bad habits, low exercise, poor hygiene, genetics) are things that *good* health systems are very concerned about when they try to decrease the risk of disease. In addition, clinicians seek to mitigate risks by referring patients to nutritionists, diabetes educators, lifestyle coaches, etc. If there comes a time when we find better ways to help people get good lifestyles, then I’m sure doctors will refer their patients to that. Effective insurance systems also seek to help patients do these things by covering preventive medicine services. I think the best way to mitigate risk is not to turn people away from doctors, but to increase access to multidisciplinary care teams (which include doctors, nurses, educators, etc.). This is in contrast to your fire-station analogy.

    Second, the Forbes article you cite failed to acknowledge that the Oregon study found benefits for the Medicaid group. In the studies words “Medicaid coverage decreased the probability of a positive screening for depression (−9.15 percentage points; 95% confidence interval, −16.70 to −1.60; P=0.02), increased the use of many preventive services, and nearly eliminated catastrophic out-of-pocket medical expenditures.” Also, the study has only been going on for 2 years. It is probable that many of the effects of chronic disease may not have played out in that time (especially since the medicaid population is under 65, so these are young patients). I expect to see more differences between the groups 20 years down the road.

    Third, you said that we should “create policies that turn people away from doctors and towards things that actually improve health.” However, turning people with chronic health issues (diabetes, high blood pressure, obesity, etc.) away from health care seems like a really bad idea. For example, in the case of diabetes, poor glycemic control can lead to various health issues including cardiovascular disease, cataracts, diabetic retinopathy, peripheral vascular disease, neuropathy, etc. Benefits of access to healthcare for these patients include regular monitoring of HbA1C to customize treatments, screen and preventative services related to the above mentioned morbidities, increased access to education services, etc. Of course, improved diet and exercise are also important and if you find a magic bullet to make people do those things then you will be every family practitioner’s hero. Diabetes also disproportionately impacts poor people. Without insurance, as you state, these patients tend to go to the ER, leading to astronomical healthcare costs and inadequate patient follow-up. Expanding coverage (i.e. insurance) to low-income individuals can reduce the economic burden on society and improve quality of care. For an example, here’s a link to a study that shows that medicare coverage decreases disparities related to access to care for patients with diabetes: http://annals.org/article.aspx?articleid=744442.

    In conclusion, your assumption that clinicians and pubic health leaders are not trying to encourage exercise, healthy eating, etc. is also incorrect. Also, your assumption that the ideal healthcare system is one that only reacts to emergencies (i.e. fire-station) is incorrect. I instead assert that an ideal healthcare system should be more like an all-inclusive spa for all of your healthcare needs. To make this a reality, patients will need adequate coverage such that economic barriers will not prevent access to services. Those are my two cents.

    1. Thanks for your response. I don’t think we actually disagree on most of this. I think our biggest problem is that I may have been a bit ambiguous because you understood me to be critiquing the healthcare system, which is only tangentially related to what I was talking about. I was critiquing what will likely happen as government gets increasingly involved in insurance. So when I say we should “get our own cat out of the tree” that doesn’t mean be our own doctor. I am a big fan of doctors, and health care particularly as you describe it (even though I admit to having mostly negative experiences with it). What it means is pay for our own health care (whether that’s a doctors visit or the gym), rather than pre-paying for everything through insurance (high deductible, low premium is a better situation). And a house burning down would be the equivalent of (stereotypically) getting cancer (and maybe even chronic issues)–where treatment is not affordable.

      Of course I didn’t do much to suggest how to motivate people to save money for their own health care, that wasn’t the purpose of the article. But it would be an interesting thing to explore. I was only showing some of the false assumptions we have about insurance and the lottery. As far as insurance goes, that is that it doesn’t mitigate much of the risk we think it does.

      When I say it doesn’t mitigate risk, I do take the liberty of exaggeration. It does mitigate some risk, but not as much as we imagine–again I’m talking about insurance, not health care. Insurance only mitigates risks covered by the health care we can’t afford, not the health care we can afford. The biggest problem I see is that people believe they can’t afford health care without insurance (though I understand that is a complicated situation). And as I said, I do believe we should have insurance but I fear it will continue to grow and become increasingly inclusive (which means we’re entering more and more lotteries).

      I hope that clarified my position. And I appreciate your contribution for broadening the scope of health care, that is something I think is very important as we have talked about on past occasions. Good times. Also I appreciate your critique of the article, I admit to being much less of an expert on these issues than you must be. And I am always glad when people are able to questions statistics as they are often not as conclusive as people imagine. Please feel free to question, improve, or refute my claims. I appreciate constructive critique.

      Thanks again,
      josh

      PS I would also add that I think the “sunk cost” nature of insurance also causes people to be less committed to following through with their health programs. It’s a much larger incentive if you have to fork out another thousand dollars for continued treatment.

      1. Thanks for the response. I agree, discussion is good, and I hope I didn’t come off as upset. I think you pose an interesting question: Are people more likely to utilize healthcare if they pay out-of-pocket or if they have insurance? My guess (based on living in my own head) is that, since insurance is a sunk cost, people would be more likely to think of healthcare as a free commodity. Since people view healthcare as free, they are more likely to use it. Also, welfare insurance like medicaid comes at no cost to the individual. I’ve personally witnessed many patients who started seeing a doctor only after medicaid expansion. This expansion of coverage brought these patients in contact with tons of resources for them (health screenings, drug counseling/education, reproductive health services) and their family members (food vouchers for children, free psychiatric consultations, etc.). If insurance increases the probability that people will access these resources, then it seems like insurance may be like a club where membership dues allow access to club resources, rather than a lottery. Maybe insurance has characteristics of both.

      2. I definitely agree it had elements of both. And i think it should exist. But how large should it grow. And are there other ways to encourage people to use preventive care besides the “lottery.” I hope i didn’t over simplify too much. I don’t think there are simple answers. But I do wish i had more control over my healthcare. And I wish I was a bigger part of the process. I would love to hear more of your ideas. And if you ever want to write an essay for the blog, let us know! Thanks again.

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