Brett Romero

Data Inspired Insights

Tag: debt

Should the Wealthy be able to pay for Better Healthcare?

Commenting on an article on reddit.com, I recently got into an argument[1] with someone about healthcare and more specifically the role of private healthcare. The article was this NY times piece that talks about how US hospitals provide a range of benefits for wealthier ‘clients’ (at significant additional cost of course). These benefits can be anything from nicer rooms to gourmet food and access to business centers.

My first reaction to the piece was, what I expect, the desired response – indignation. In a country like the US where there are countless healthcare horror stories (the story of a carpenter having to choose which fingers to reattach as covered in Sicko is particularly famous), this seems outrageous. How can some people not afford access to healthcare at all, and yet others are paying huge sums to stay in private rooms and eat soft cheeses?

I believe in my case, this sense of indignation was particularly strong because I come from one of the many non-US developed countries in the world with a basic but functioning universal healthcare system. No one avoids going to hospital for fear of being bankrupted by the cost. No one has to make horrible decisions about which appendages to reattach. The only major drawback in most universal healthcare systems is procedures that are non-life threatening can have significant wait times.

A good example of this is getting surgery to repair an ACL. You can get it done through the public health system (Medicare in Australia), free of charge – or close to free. However, because you are not going to die from a ruptured ACL, you are likely to have to wait for 1-2 years to get that surgery done through Medicare. If, on the other hand, you have something like $5,000-$10,000 you can have it done next week[2].

As you may have observed from this example though, this sounds very close to what I was getting all indignant about in the first place – wealthy people buying access to better healthcare. In fact, in most universal healthcare systems, including Australia’s, the wealthy do have the option to pay more to receive access to better care and/or skip to the front of the queue. In reality, the NY Times article could easily have been talking about Australian hospitals. What is more, the ability of richer patients to pay for better service is often viewed as necessary for the system in Australia – the extra money paid by wealthy patients helps to fund the system for others. So why does it feel different?

After several days of mentally dissecting this issue I think I have come to a conclusion as to why the NY Times story got such a reaction out of me and yet I had a generally positive impression of the private health system in Australia. The key difference (at least in my mind) is the extent of the privatization of the healthcare system. In the US, healthcare has been privatized to such an extent that some people have been priced out of the market completely. When this is contrasted with the opposite end of the spectrum – private rooms, nicer robes, lobster stuffed with tacos – it highlights that the problem with the system is not an overall lack of resources, but that those resources are being allocated in such a way that some people do not get access.

Contrast this to the existence of private health systems in countries with universal healthcare. Even though some patients are able to access better facilities (and potentially doctors), everyone has access to a (generally) good level of healthcare, regardless of wealth or insurance policy. Because of this, the fact that some people can pay extra for nicer rooms seems much less important. The system has enough resources for everyone – so it is not perceived as resources being taken from poorer patients.

However, it is worth asking the question of whether this is right or simply a convenient piece of logic.

To assess the morality of the wealthy having the ability to purchase better healthcare services, we have to recognize the two main constraints on a healthcare system. The first constraint is the supply of personnel, equipment and medical supplies. The second constraint is the supply of money. These constraints are not unrelated. An endless supply of money will not help if there is a shortage in equipment/personnel at a given point in time. But money can help to increase the supply of these things in the future.

If we accept the premise that wealthy patients benefit healthcare systems by adding additional money into the system, going back to the constraints above, we can see that essentially this is a short term sacrifice for a longer term gain. Assuming that the demand for healthcare will always exceed supply, wealthy patients skipping to the front of the queue will take resources away from poorer patients in the present. They occupy beds, take time away from doctors and require access to equipment just like any other patient. However, they also pay money into the system that allows future patients to access treatment they might not otherwise have had access to.

Here is where it gets a bit murkier. If we are saying that payments from wealthy patients are needed for the system to function in the future, are we not then implying that the system is underfunded? Why can that money not come from other sources such as higher tax rates or lower spending in other areas of the budget? The problem with that line of thinking is that in any realistic government budget, there will always be room for additional healthcare funding. No government is ever likely to fund a healthcare system to the point that everyone gets the best possible treatment instantaneously[3]. So even in a much better funded public health system than currently exists in most countries, additional funds provided by wealthy patients will still allow for better treatment of other patients in the future.

All this does not mean we have to like the US model of healthcare where money plays far too big a role for the comfort of many. Denying patient access to healthcare (or bankrupting them for emergency care) in a modern developed country is a deplorable situation. But my overall conclusion is that it is best to focus your indignation on the real issues with the system – the excessive insurance premiums, the tying of affordable insurance to employment, the huge markups charged by many hospitals and the unnecessary expensive treatments added to patients bills.

As outrageous as it seems to picture wealthy patients receiving lavish treatment in private rooms while others are avoiding necessary treatment for fear of the cost, it is not the real issue. In fact it is probably providing a net benefit in a deeply flawed system.

 

[1] Those that know me will find this very unsurprising

[2] This cost, it should be noted, is still a fraction of the $55,000+ my health insurance company paid for that procedure in the US.

[3] If that was the case, you would also have idle resources for much of the year

Eurozone Perceptions

It has long been a perception held by many in the western world that the people of southern Europe (Spain, Portugal, Italy and Greece for the purposes of this article) have a particularly easy-going approach to work, life and financial responsibility. Whether this is a good or bad thing depends on who you ask and even what time of year you ask them as Ed Vulliamy describes.

However, with the onset of the European debt crisis, these perceptions have taken on a new prominence as they are now used to justify the harsh austerity being forced on Southern European nations, with special scorn and head shaking reserved for Greece in particular. At the deepest level, the enforcement of austerity is being spun as a moral tale – the people of Southern Europe are suffering for their laziness and financial irresponsibility. The financial irresponsibility aspect of this is a topic for another article, but here we will look at the evidence supporting the proposition that people in Southern European nations are ‘lazier’ than their northern European neighbors.

The first step in analyzing this proposition is defining how we measure ‘laziness’. In general, laziness refers to a lack of willingness to work or expend energy. Given we have no quantitative way of comparing how much energy people are expending, or their willingness to perform work (what a different world it would be if we could!), a good proxy to determine relative energy expenditure, and therefore laziness, is the number of hours worked. Conveniently, the OECD produces statistics on average hours worked per person per a year for most OECD nations, which includes most of the European nations we are interested in.

An argument can be made about the productivity of the respective workers but productivity has its own larger distortions due to the impact of differing levels of capital investment. A German working in a car manufacturing plant controlling a high tech automated assembly line will be much more productive (in terms of the value of his output) than an Italian waiting tables in a coffee shop – but this tells us nothing about the level of effort (or lack thereof) being expended, and also nothing about the time being spent at work.

So looking at the OECD statistics on hours worked, what do we see for the countries we are talking about?

Table 1

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What we see is actually the opposite of the commonly assumed situation. The famously hardworking Germans are averaging less than 1,400 hours a year of work or under 27 hours a week averaged over 52 weeks. This is actually the 2nd lowest of all countries in the OECD in 2012. Meanwhile, the Greeks, often held up as the epitome of laziness (at least in Europe) actually work some of the longest hours in the OECD – the third longest in fact, behind only the Koreans and the Mexicans. In 2012 the average Greek clocked up 2,034 hours of work, or the hours of almost 1.5 Germans. So how do we explain this? How can the perception be so different to what we are seeing here?

When we look at the data, some trends begin to emerge that explain some of the differences in hours worked. The first and most obvious trend that emerges when we expand our dataset to the full OECD and for all years covered is a negative correlation between hours worked and GDP (PPP) per capita (a rough proxy for wealth – see Chart 1). The trend is clear, both across countries and across time, and intuitively this makes sense – as people get wealthier, they feel less need to work long hours.

Chart 1 – GDP per capita (PPP) Vs. Average hours worked per person per year – OECD Countries, 2000-2012

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Asides from the negative correlation between GDP (PPP) per capita and average hours worked, there are a few other observations we can make looking at this chart. The first observation is that the minimum hours that people work seems to bottom out at around 1400 hours a year – more or less where Germany and the Netherlands sit currently. Again this conclusion checks out logically. Subject to the social expectations and the demands of a given job, people aim to reach a comfortable balance between work and leisure time. Once this is achieved, they generally let any further increases in income accrue to their wealth rather than further reduce their working hours.

The second observation is that at any given level of GDP (PPP) per capita, there is a still a high level of variability between countries as to how many hours the average person will work. More than anything, this shows there is a range of factors that create variances in hours worked between countries. Labor force restrictions, minimum wage, unemployment benefits, education levels, inequality and the general structure of the economy will all affect the hours worked at a given level of GDP (PPP) per capita.

What else can we determine looking at this information? If we believe wealth to be a major factor in how many hours a person will work, what would it look like if we could remove the impact of wealth? In fact we can remove the wealth effect from this data by building a simple linear model that estimates the average amount of hours a person would work given a certain level of GDP per capita. From there we can then see where countries lie relative to the model prediction, effectively telling us which countries are working more hours than we would expect for their relative level of wealth, and which countries are working less. The 2012 data, with a linear model applied is shown in Chart 2.

Chart 2 – Average hours worked per person per year Vs. GDP per Capita (PPP) – OECD Countries, 2012

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What this model tells us is that for every extra $1,000 of GDP (PPP) per capita, the average person will work 16.4 hours less per year. When we use this model to predict the number of hours the average person will work per year based on the GDP (PPP) per capita of their country, we come up with an estimated hours worked per person per year for each country, which we can then compare to the actual value for each country. The results of this comparison are shown in Chart 3.

Chart 3 – Average hours per person per year – Actual vs. Forecast, 2012

prod_chart_3

What we see is that even if we remove the differences in wealth from average hours worked per person per year, the average citizen in many northern European countries (particularly Germany and Denmark) are still working less hours than we would expect. The verdict for Southern European nations is more mixed. People in Portugal and Spain are also working fewer hours than we would expect, the Italians are more or less in line with expectations, while the Greeks are again well ahead of what would be expected.

So what is the bottom line here? What conclusions can we take away from this? The answer is surprisingly little. There are a huge range of incentives and disincentives that are unique to each country that we are completely ignoring in this analysis. We also have no way of identifying how effective or productive different people are while they are at work, which as I’m sure anyone who has worked with another human being can testify, can vary pretty dramatically. So, despite the above evidence, no one should be prepared to believe the people of Germany or Denmark are ‘lazier’ than people in Mexico, the US or Korea. What we can say though is what evidence is missing from the above analysis – and what is clearly missing is any evidence that the people of southern European nations are ‘lazier’ than their northern European counterparts.

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