Is health care a Ponzi scheme?

September 13, 2009 8:43 AM

Is health care a Ponzi scheme? I'm trying to work out my feelings about the health care debate, and our moral obligations to take care of each other. Will improved health care just lead to larger populations and longer life spans, and more and more expenses to take care of them all? Am I a bad person for thinking this? I smoke, so I'll probably check out early without consuming all your future resources on my elder care. Does this mitigate my xenocidal tendencies or make them worse?
posted by Area Control to health & fitness (25 comments total)

The easy answer to your question is that you need to read up on what, exactly, a Ponzi scheme is.

That should make all your other questions rather irrelevant.
posted by dfriedman at 8:46 AM on September 13 [6 favorites]

By definition a Ponzi scheme pays investments to initial investors at the expense of future investors. It is sort of unclear to me how you think that providing minimally adequate medical coverage for the less-fortunate will consume non-renewable or otherwise finite future resources.
posted by mr. remy at 8:47 AM on September 13

Improved health care will not actually enlarge the population very much; what it'll mostly do is make the existing population healthier, therefore better able to work, therefore better able to generate revenues to pay for increased health care costs.
posted by Tomorrowful at 8:55 AM on September 13 [1 favorite]

The simplest answer is to look at every other developed nation in the world that already has universal health care that is equal in quality to the U.S. at less than half the cost of what the U.S. is spending right now. This includes Canada, the UK, Germany, France, Italy, Japan, etc.
posted by JackFlash at 8:57 AM on September 13 [1 favorite]

Addendum: If you're worried about the notion of increased costs to yourself and others, try taking a look at First World countries other than America (I assume from your question you live in the US) - every single one of them has universal health care, and every single one of them spends less per capita on health care than we do.

Also, health care pretty much exclusively consumes resources that cannot be "used up" - it's not like we burn coal to fix heart conditions; it's pretty much all services, eg skills that can be trained. This isn't a zero-sum game where if I get my cancer treated it means somebody else necessarily goes untreated.
posted by Tomorrowful at 8:58 AM on September 13 [1 favorite]

I like Ezra Klein's formulation, which I'll paraphrase here: healthcare in the developed world is sufficiently expensive for those who need it that if people were only to pay for the healthcare they personally received, in full and at going market rates, it would wreck the economy pretty quickly. If you divide the total cost across the population, it becomes (just about) affordable. So if you can't get on board the moral charabang, the pragmatic tuk-tuk is waiting beside it.

The question of how best to care for an aging population is one that most developed nations are facing as the post-war Boomer generation reaches retirement. The generational gap is heightened in the US because Medicare is perceived as an all-you-can-eat healthcare buffet for people who've been on rations their entire working lives. That doesn't make it a Ponzi scheme.
posted by holgate at 9:01 AM on September 13 [4 favorites]

Two other angles to consider:

The profit motive encourages drug companies to develop and promote expensive drugs that may not provide the most benefit to the patient. There have been several very good case studies in the media in the last few years on this problem.

Second, the profit motive would make a private insurance company more likely to charge you more if you smoke, and then find a way to cancel your policy if you actually needed medical treatment.

Just to give you a sense of financial comparison: I threw out my back in Spain, and could not get out of bed. I had to call a doctor to visit my hotel, and he gave me a shot in the spine and five different medications for pain. The doctor's visit cost $90 and all five prescriptions totaled $25. Yeah.
posted by effluvia at 9:10 AM on September 13

Don't count on smoking to lower your medical bills. You might die young, but you also might get a stroke and end up a very high-maintenance vegetable.
posted by spasm at 9:15 AM on September 13 [3 favorites]

Ponzi schemes are where a party holding other people's money is secretly handing that money out as "investment return" to lure in more investors until they run away with the bank. If a healthcare system was a ponzi scheme, it would be promising that when you "sign off" the scheme, you get all of your contributions back. I'm not sure such a thing has ever existed.

Are you perhaps thinking of a pyramid scheme? Pyramid schemes are a system that can only function so long as it gathers new members at an ever-increasing rate - which seems more applicable to your question.

Assuming that is what you meant, the answer is "not really". Everyone pays into a fund, and everyone's needs are paid for from that fund. The people running the scheme balance the books so that more money does not go out than comes in. Pretty much like any continuous income-funded venture.

It can look a little pyramid-schemy when you consider pensioners, who continue to benefit from utilities even after they've stopped paying taxes. Taxpayers are always paying a fraction of their taxes to carry the elderly and when there's too many retired folks and not enough new taxpayers, either taxes have to go up or the utility budget has to go down. But (in theory) the elderly have already paid for their retirement with a fraction of the taxes they paid while they were working.

I think I'm rambling a bit now, but basically a pyramid scheme is fundamentally unstable - it requires more and more to be paid into it over time, until it collapses catastrophically. Government utility programs are designed to to be stable in the long-term. If population growth or shrinkage makes a program unsustainable, then costs are cut or taxes raised until the budget is balanced. In theory there's nobody standing at the top towards whom all the money flows (in practice, corruption).

Instead of a pyramid, it's like a giant tower. The people living on each floor of the building pay for themselves and also the people on the floor above them. Some floors are larger or smaller than others. People living underneath a larger floor live a little better, and people living underneath a smaller floor have to live a little more frugally. But the tower goes on and on.

And that's true for all tax funded utilities that benefit everyone. Healthcare is not a special case.
posted by Lorc at 9:41 AM on September 13 [2 favorites]

Think of health insurance as a pool of shared risk. The benefit increases based on the number of people who are sharing the risk, not how old you are.
posted by cmcmcm at 9:53 AM on September 13

In the U.S., healthcare is a very profitable industry. Who needs a ponzi scheme when you're making boatloads of money "legitimately"?
posted by Zambrano at 9:55 AM on September 13

It's common for right-wingers (mostly) to confuse a ponzi or pyramid scheme and insurance so long as they don't actually need it. All insurance schemes pay out to claimants from a pool sustained by policy holders which means that, yes, you, the perfect driver are subsidizing bad drivers. The difference is that when you have an unforseen crash, they'll be subsidizing you.

I tend to think of all tax-funded social programs, so long as they're effective, as a kind of insurance against the degenration of society. I don't have kids but I pay into the anti-becoming-a-third-world-country insurance - otherwise known as public schools - because my life is better when everyone else' is.
posted by klanawa at 9:57 AM on September 13 [2 favorites]

Wow, thanks for all the passionate responses. I'm now better armed to argue about health care.

1) Ponzi scheme was the wrong analogy, and thanks for pointing that out, but I think the other questions are still legitimate.
2) I thought I was pretty clear how I wondered if increased health care would increase population growth. I wanted to know if minimizing the amount of health care available, especially to the most fortunate, would increase consumption of natural resources. People use lot of natural resources.
3) "Improved health care will not actually enlarge the population very much" Can someone point me at more I can read about this? I'm not talking about universal health care, which I support, but improved health care for everyone, which I hope universal health care can provide.
4) I understand that health care itself might not be too expensive, I was more worried about the healthy people themselves. If #3 is true, which it appears to be, then everything should be okay. How do I respond when the people I'm arguing with complain that immigrants will flood into our country for the free health care?
5) Yeah, a stroke would suck, but if I end up a vegetable, I suppose I won't care too much.
posted by Area Control at 9:57 AM on September 13

How do I respond when the people I'm arguing with complain that immigrants will flood into our country for the free health care?

Whatever comes out of health care reform in the US is neither going to be "free health care" nor competitively priced compared to wherever those immigrants might be "flooding" in from.

Health tourism is already a reality -- not just the classic examples of cross-border trips to Mexican and Canadian pharmacies, but surgery and dentistry and outpatient care. (Half a million Mexican immigrants in California already head south for treatment.) Why pay $20,000 for a standard procedure when you can fly to SE Asia or South America, get it done at full market rate in a reputable clinic supported by foreign patients, and spend the change on a holiday to recuperate?

Conversely, if you're coming to the US, chances are that you're looking for cutting-edge treatment from a relatively small number of facilities, and have either the support of an insurer back home or are paying in full, having remortgaged a home or cashed in your savings.
posted by holgate at 10:13 AM on September 13

Not sure why people are getting defensive about this question. The real answer: not necessarily, but usually. Lorc's answer is great. Looking at the actual numbers shows that healthcare is susceptible to this.

US Medicare has massive unfunded liabilities of US $35 trillion in USD over the next 75 years, a little more than double that for an infinite future. That means that either the current payout rate or the current income rate is benefiting the early investors. Other healthcare systems are also supposedly facing similar unfunded liability problems, though I haven't seen any clear accounting. Non-US healthcare systems are also facing costs growing at fantastic rates, so that is not unique either.

The defense against this is that the current accounting is too conservative, even though the unfunded liability estimate keeps rising. The other defense is simply to say that either taxes will rise or benefits will be reduced in the future, which is essentially admitting that current benefits are too high.

Like Lorc said, this is not unique to healthcare. It is extremely common in multi-generational benefit systems. Accounting rules for non-government run pensions are much more strict and so tend to avoid disaster, but are also susceptible.
posted by FuManchu at 10:20 AM on September 13 [2 favorites]

For #2,3, fertility rates are mostly affected by average income and little else. Fertility rates below replacements are becoming standard in develpoded countries meaning that the population structure that easily supported the multi-generation benefit system now needs to be managed much more carefully.

For #4, legal immigration actually help these systems. Immigrant families tend to pay much more into them than they benefit. Illegal immigration, of course, is a problem; the scale of the illegal immigration problem is miniscule compared to the population effects, however.
posted by FuManchu at 10:30 AM on September 13

and more and more expenses to take care of them all

You also need to analyze what exactly is being consumed in taking care of the elderly.

Drugs are cheap the manufacture, they're just massively marked up to cover marketing, administration, taxes, and profit.

Retirement homes are often built where land is cheap.

The physical buildings can be capitalized over 50 years or so.

The food is cheap.

The dominant expense is labor. 1 assistant per 10 people @ $25 per waking hour is ~ $15,000/yr per patient.

But IMO the whole point of the economy is to improve life.
posted by Palamedes at 10:48 AM on September 13

The other defense is simply to say that either taxes will rise or benefits will be reduced in the future

The other other defense is that there is too much expectation of economic rent embedded in the present system.
posted by Palamedes at 10:51 AM on September 13

The other other defense is that there is too much expectation of economic rent embedded in the present system.

It's not, though. That's not a defense when other countries with universal healthcare are doing as poorly as the US. "Unfunded pension liabilities now average some 285% of GDP" across Europe (in 2003). You're fooling yourself if you think many European healthcare systems won't have their own reckonings in the next few decades. You would be arguing against "economic rents" that no country has successfully controlled.

There are many healthcare systems to choose from. I am not arguing against universal helathcare; I am simply trying to show that they, too have their own costs. I am arguing against the sneaky government accounting practices which enable a pyramid scheme-like distribution to happen. Government systems are capable of hiding these unfunded liabilities, private insurance is not.
posted by FuManchu at 11:22 AM on September 13

4) I understand that health care itself might not be too expensive, I was more worried about the healthy people themselves.

Perfectly legit concern. Look up the cost of private health insurance in, say, Little Rock versus Boston. When health insurance "reform" effectively puts everyone into a high risk pool and mandates that everyone must have coverage, yes, young and/or healthy people get screwed and insurance companies make very tidy profits.

As far as illegals go: it won't matter. Right now, if they need medical care they show up at a doctor's office or emergency room. They may pay in cash, if they see a local doc he or she may just treat them and wave them out of the office, or they may give an address to send a bill to, which will never be paid. They won't pay under any universal care scheme either, and the system will absorb it just like it does now.
posted by txvtchick at 1:15 PM on September 13

How do I respond when the people I'm arguing with complain that immigrants will flood into our country for the free health care?

If the immigrants are legal, then they will have jobs and pay taxes and likely be young a healthy themselves. Probabaly a net benefit, all things considered.

If the immigrants are illegal, that's a different story. The current plan under consideration is not a single payer system where anyone can walk in to a health care provider, pay some small co-pay, and not worry about the full cost as that's taken out of taxes. The current plan madates that everyone buy insurance, gives poor and middle-class people a kickback to help them afford to buy coverage, and tries to bully the insurance companies a bit to make it so they can't deny coverage and don't charge too much for it. The illegal immigrant would run into a problem in that they wouldn't be getting any kickback and could face a fine for not having coverage. In reality I suspect it'd be the same as it is now, with most illegal immigrants not going to doctors except for emergency care and then not being able to pay for it.
posted by Diablevert at 4:18 PM on September 13

Now Social Security, that's often called a pyramid scheme.
posted by smackfu at 5:08 PM on September 13

It becomes a pyramid scheme if the system is set up to not be "self-funding". Lorc is correct, as well as smackfu. The Social Security system has been, and I think currently is, collecting more money than it sends out. That seems like a good thing, but its not. They invest the extra money in government securities. The end result is that the government spends the extra money now, and will have to pay it back when the time comes. Even if the "trust fund" only ever gets to break even status, the government will have to increase revenue somehow to make up for that missing cash flow source.

So, back to healthcare. If whatever the public option turns into isn't funded with increased revenue somehow, and instead depends on increased borrowing to fund itself, it will be a pyramid scheme. At some point, increasing debt will become unmanagable and something will have to give. Taxes will have to go up or coverage will have to go down. If the public option collects enough premiums to cover the payouts, then it isn't.

(Another thing to watch out for is any reform plan that encourages reinsurance (insurance companies buy insurance from other companies if they have to pay out too much). The same thing that happened with the credit default swaps probably will end up happening in healthcare. As the population ages, costs will go up and they will start trying to collect on that insurance. Except that all the other companies will be in the same situation and there will be no actual money to pay the bills.)
posted by gjc at 6:47 PM on September 13

How do I respond when the people I'm arguing with complain that immigrants will flood into our country for the free health care?

On the list of things that would make me cross a desert to get into a country illegally, free x-rays isn't near the top.

Anyway, nothing changes. We still have legal and ethical rules that say we have to treat anyone who shows up with an emergency, so it's just a matter of who gets stuck with the bill. If illegals aren't covered, the hospitals will still have to write it off. If they are, the tax payers pay for it. The only solution is to either spend billions building more walls and trying to keep people out, or spend that money figuring out how to legitimize people who want to come here and work so they can pay taxes and health insurance premiums. The problem disappears if there is no benefit to employers hiring illegals and/or if there is no such thing as being illegal. (Of course, if everyone is on an equal playing field, people will have to actually compete for jobs and do them well, and this worries a lot of people/groups.)
posted by gjc at 6:56 PM on September 13

Check out the statistics of other countries---take your pick, as every industrialized country but the US has universal health care. The Scandinavian systems perhaps work the best. I have many Canadian friends who are extremely happy with their health care. Britain's, France's, and Germany's also serve their populations well.

We are already paying, through increased medical costs, for uninsured non-citizens, so the "immigrants will flood into our country" argument is moot.
posted by ragtimepiano at 9:52 PM on September 13