Healthcare Reform: What About Free Riders?

One of the most potent objections to government-backed universal healthcare is the problem of free riders. John Smith said in 1608, “he that will not work shall not eat.” Getting something for nothing offends the American sense of fairness. But is this the right way to think about healthcare? Let’s look at free-rider claims and at counter-claims.

Here they are in outline:

1. The free rider problem in economics: Free riding pertains to public goods like highways and clean air, and to entitlements, for which the users themselves do not pay. Economists see this as leading to inefficiencies – underproduction of needed goods and services, or over-consumption, or both. Seen this way, the straightforward solution to free riding is outside (government) incentives applied as a corrective. For more discussion, click here.

2. The free rider problem in politics: Politics reframes the issue not just as efficiency but rather as fairness — the don’t-work-don’t-eat principle. This cuts to the central issue in political philosophy, namely, the relationship between the individual and the state. This blog has acknowledged that some Americans do subscribe to a laissez-faire, every-man-for-himself libertarianism. But this blog asserts that the Founders – and political philosophers like Locke who inspired them – subscribed to the social contract theory. The social contract means that every citizen contributes to the common good and lays claim to a fair (though not unlimited) share of it. For more discussion, click here.

3. But do some races and ethnicities free-ride disproportionately more than others? At first glance, it appears that Black and Hispanic subgroups utilize welfare disproportionately to their population. But on closer look, this blog presents data that Blacks and Hispanics do not use welfare out of proportion to their poverty rate. For more discussion, click here.

4. Even if free-riding is better explained by poverty than by race, aren’t the poor still to blame for their poverty? It is part of the American mythology that industry and talent can overcome the hindrances of humble birthrights. However, alongside the greatness and beauty of that mythology exists the historical truth of slavery, Jim Crow, and segregated housing policy (which impacts fully half of all national wealth). And alongside the Horatio Alger myth lies the statistical fact that social mobility has declined sharply since 1980. So, no — the poor are not to blame for their poverty. Poverty is in part a legacy of slavery, and affecting us down to the present day. For more discussion, click here.

5. Then, is the free-riding objection a code signal for racism? Given this analysis of the relationship between the free-rising issue, poverty, and race, the question of racism smacks each of us in the face. One hopes that the very asking of the question can help unmask racial attitudes and thereby neutralize their interference with civic discourse. If we are at least aware of our possible biases and presuppositions, we can have a more clear-headed discussion of the healthcare issue itself. For more discussion, click here.

6. Are the poor and racially harmed the only groups with a stake in the free-riding debate? Two other groups have issues. First is the near-poor. Those who miss being eligible for welfare benefits by just a few dollars are understandably resentful towards their neighbors who do qualify. Second is the super-privileged. They may feel threatened that the under-classes will “storm the gates” and ride away with everything. Or they may resent if they think that reducing healthcare to a lower common denominator that is publicly provided to all will somehow deprive them a their more privileged access to better services. For more discussion, click here.
Summary

Summary

Summary

The free-rider argument against universal healthcare is weak, at best. At worst, it is based on conscious or unconscious racist bias rather than practical analysis. On the contrary, there is a strong economic justice argument for universal healthcare (pathway out of poverty, improves worker productivity). There is also a strong social justice argument (promotes national solidarity and social order, acknowledges contribution of all members of society across economic strata, establishes national pride in fairness). Even libertarians might acknowledge the fairness of providing equal opportunity now (access to basic healthcare) to those whose liberty was usurped in the past.

For additional discussion on forging a political philosophical consensus of healthcare reform see the previous Fixing U.S. Healthcare post, “How Could Oregon-style Healthcare Reform Satisfy Liberals, Conservatives and Libertarians?”

Conclusion:

This blog has demonstrated that healthcare is an imperfect market. It does not obey the laws of supply and demand. Furthermore, this blog has shown that healthcare pricing has been rigged to be twice the cost in other advanced countries. This blog, therefore, claims that only a government-backed universal healthcare system will have the ability to

• Unrig the exorbitant pricing currently built into the system
• Ensure supply of basic, costworthy services to all citizens,
• Maintain safeguards against abuse of the system by anyone.

This blog has claimed that the most likely form of government backing would be government financing, leaving in place the current largely private delivery system.

The claims in this blog post put to rest the free-rider problem in all its forms for a government-backed universal healthcare system.

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What is the problem of free riders?

What is the problem of free riders?

What is the problem of free riders?

In economics, the problem of free riders exists when persons can access goods or services without paying for them. This can pertain to public goods, like the food stores at Jamestown, clean air, paved highways, and efficient government. And it can also pertain to entitlements, like food, housing, or, in this case, healthcare that are subsidized, paid, or provided by government.

From the economic standpoint, free riding can lead to market inefficiency. The good or service could be under-provided, even though needed, due to payments not covering the production cost. Or the good or service could be over-consumed due to consumer demand that is artificially inflated by the low price.

Wikipedia has informative overviews of the free rider problem,  public goods, and the common good.  It also has an entry on the tragedy of the commons, the situation that arises when individuals acting in their own self-interest without regard for the common good can over time degrade open-access natural resources.

This blog has concluded that the U.S. healthcare system has a growth rate that is unsustainable. It has concluded that this growth is leading to a “tragedy,” but not of despoiling natural resources (“the commons”). Rather, the tragedy is over-production of some non-valuable (and overpriced) healthcare services and resultant under-consumption of valuable goods and services like defense, education and infrastructure (opportunity costs), and ultimately our national vitality.

Thus, currently U.S. healthcare does not have a free-rider problem, in fact, in many ways quite the opposite. Americans do not over over-consume nor under-produce healthcare services, the economic symptoms of free-riding. The 2018 JAMA study showed that “utilization” (that is, production and consumption) is roughly equivalent to that of other developed countries.

Moreover, free riding could exist only when there is no way to exclude non-paying consumers from accessing the goods or services. The 27.4 million uninsured Americans who are excluded from basic care would take issue that they are free riding. Without healthcare insurance they are not riding at all. And they die younger, have poorer health status, and are often bankrupted by severe illness.

But what happens if the U.S. does begin moving toward universal government-financed healthcare?

First of all, it is doubtful that free riding would be a problem in the economic sense of underproduction or overconsumption. Healthcare is a different type commodity than automobiles, diamond rings, or food. Namely, demand is “inelastic.” This means that when you need healthcare, you need it, no matter whether you want it or not, and no matter what the price. For example, free riders would not have any demand for a second colonoscopy just because it’s “free.” (See “Why Is U.S. Healthcare So Expensive?” for more detail.) Similarly, a patient in the throes of an acute heart attack is in no position to haggle over the price charged by the nearest CCU.

Thus, I claim that the economic question for universal healthcare is not free riding. On the contrary, it would be overcoming resistance to health services that persists even after removing financial barriers. To illustrate with the colonoscopy example, 1 out of 5 Americans over age 50 – even those with insurance coverage — have had never had colon cancer screening.

But to the extent that free riding would emerge as a problem, economists say that a straightforward solution would be outside intervention. Such intervention – typically by government — could apply external incentives to ensure proper supply of services and to prevent inappropriate over-consumption. How to do so fairly is covered in “Applying our Values & Philosophy to Healthcare Reform”.

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What are the politics of free riding?

What are the politics of free riding?

What are the politics of free riding?

It is one thing to dismiss the economic problem of free riders as yielding easily to remedial incentives and regulations applied to an otherwise relatively free healthcare market. But this does not address the political philosophical issue of whether it is fair to provide healthcare for all citizens, including for free riders.

This goes to the heart of the issue in political philosophy of the relation between the individual and the state. In turn, this issue can be viewed from two perspectives on individual: first as economic actor and second, as social-cultural actor.

The political-economic issue has been settled de facto in this country, as a practical matter. The United States is a “public-private hybrid.” The U.S. is by no means socialist, since 98% of capital is privately owned, according to economist Thomas Piketty (Capital, 2014, p. 154). But it is not purely a free-market, since the U.S. economy is regulated by at least 257 agencies (and by one count up to 430).  Federal government services account for 20% of GDP with state and local governments each contributing approximately 10%.  The percent of GDP produced by government totals 40%, not as much as in European social democracies, but substantial nonetheless.

The political-economic situation is discussed in more detail in a previous blog post.

To be sure, some libertarians and Reaganite enthusiasts rail against Big Government, especially against large social programs like Social Security and Medicare. But who would dismantle the Federal Reserve Bank, the Federal Aviation Administration, or the Food and Drug Administration? Who would tear down the interstate highway system? As a practical matter, as America’s population has grown, as its new industries have arisen, as the service economy has emerged, and as its economy and society have become more complex, Americans – and their government – have adapted.

Some “Constitutional purists” bemoan that the U.S. has strayed well beyond the limits of “enumerated powers.” (And who could argue against reforming, winnowing down, and scrutinizing those 430 regulatory agencies?)

But this narrow view ignores two social-political truths. First, from the beginning the Framers understood that the Constitution was a sparse scaffolding. Yes, it set out constraints against tyrannical concentration of power and government overreach. But the Framers also recognized “implied powers” needed fulfill broad governmental functions outlined in the document. Except for two revisions (abolition of slavery and women’s suffrage) the scaffolding has not changed. But Americans have built a robust edifice upon that scaffolding.

The other truth is that the Framers grounded themselves in the political philosophies of the Enlightenment. These philosophies, such as those of John Locke (1632-1704), laid out the social contract theory as the basis for the relationship between the individual and the state. His theory was enshrined by Jefferson in the Declaration of Independence affirming “life, liberty, and the pursuit of happiness” as the goal. This was a “freedom to” self-actualize in community, not just a “freedom from” government, to be left alone. In particular, a close reading of Locke’s Second Treatise on Government — ordinarily interpreted as a strong defense of individual property rights — shows that property for Locke is not an end-in-itself but rather a means to human enjoyment, and by implication the common good of society.

Locke and the Founders believed that human fulfillment and true freedom was best expressed in a harmonious society that would “establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” This was a far cry from every-man-for-himself libertarianism.

Seen from this perspective, free riders are not riding for free at all. First of all, they spend money in the economy. Second, they pay their fair share of taxes (which in some cases is no taxes). Third, they constitute part of the work force, all of whose parts are interdependent. Fourth, free riders maintain solidarity politically and socially with the nation, and they actively or passively assent to national projects and priorities.

Even though neither I nor supposed free riders directly contributed to the Marshall Plan that rebuilt Europe after World War II or to the Apollo mission to the moon, free riders and I alike can take personal pride in these and other American accomplishments. Rightly so, since we indirectly supported them.

From this perspective, free riders are not riding free. They are an integral part of the economic and socio-political fabric, and do contribute their fair share. Accordingly, they have a strong claim on “pursuit of happiness” and “general welfare” promised in the American social contract.

At the same time, there are limits to what free riders – or any citizen, for that matter – can claim. This blog has examined the Oregon Health Plan of 1994 (OHP). In short, the Plan extended universal Medicaid access to all income-eligible persons (free riders). However, in order to do so, OHP covered services only to the most cost-beneficial treatments and only up to limit that the budget would allow. This blog has examined the ethical justification for this kind of approach to “setting limits fairly.” Doing this balances the interests of individuals (basic costworthy healthcare) against the common good (a finite budget). Isn’t this the kind of practical political trade-off that John Locke and the Founders contemplated?

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Is free riding (welfare) done disproportionately by certain racial and ethnic subgroups?

Is free riding (welfare) done disproportionately by certain racial and ethnic subgroups?

Is free riding (welfare) done disproportionately by certain racial and ethnic subgroups?

The common misconception is that welfare recipients are primarily Black or Hispanic. The pejorative stereotype is that welfare is due to laziness, and laziness is due to “inferior” race or ethnicity. The modicum of truth behind the stereotype is that the percent (ratio) of welfare (Medicaid) participation is indeed higher for Blacks and Hispanics than for non-Hispanic whites. However, as shown in this table, that by the numbers, the majority of Medicaid recipients are white. And the proportional rate of Medicaid enrollment is associated more closely with poverty than with race or ethnicity.

Explanation: This table shows the actual numbers for total population, total Medicaid enrollees, and total poverty population (below federal poverty income level). It shows the percent (ratio) of each group receiving Medicaid. I draw attention to the ratio of Medicaid recipients to poor in each group. I note that the Medicaid/poor ratio clusters between 1.5 and 2.3 (except 2.7 for the Other group, which includes mostly Native Americans and Alaskan Natives, who have unique socio-economic circumstances). This means that about twice as many persons in each racial group receive Medicaid as fall below federal poverty level (FPL). (That this ratio is above 1 reflects that many state set Medicaid eligibility at up to 200% of FPL.)

The standard deviation, normalized over mean, (σ/M) is lower for poverty than for race. This means that Medicaid enrollment correlates more closely with poverty than with race. If the contrary were true — that African-Americans enrolled in Medicaid principally because of race rather than poverty — we would expect a disproportionate enrollment of more non-poor Black persons.

However, these data show that Medicaid enrollment rate is proportionately similar to the poverty rate, no matter what the race. These data are exactly what we should expect, since Medicaid is supposed to be targeted for the poor. Medicaid has safeguards against any racial or other subgroup over-utilizing the program inappropriately for its own advantage.

Here are some other more nuanced facts:

• Temporary Assistance for Needy Families is provided for short-term income assistance for families with children. Of the 2.7 million recipients in 2016, 27.6 percent white, and 29.1 percent black, 36.9 percent were Hispanic, that is roughly similar absolute numbers.
• Of Medicaid recipients, 77% are in families with at least one employed (full- or part-time) adult.
• The vast majority of Americans receiving one of the six major forms of government assistance (Medicaid/CHIP, TANF, food stamps, housing assistance, general assistance) are children below the age of 18. Nearly half of all children in the U.S.—46.7 percent—received some form of government assistance at some point during 2012, while about 2 in 5 American children on average received assistance in a given month during the same year. Meanwhile, less than 17 percent of adults under the age of 64 on average received assistance during a given month in 2012.

So, as Nicki Lisa Cole PhD put it (www.thoughtco.com “Who Really Receives Welfare”): “So when one imagines a welfare recipient, that person should not be an adult sitting on a couch before a television. That person should be a child in need.”

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Even if free-riding is better explained by poverty than by race, aren’t the poor still to blame for their poverty?

Even if free-riding is better explained by poverty than by race, aren’t the poor still to blame for their poverty?

Even if free-riding is better explained by poverty than by race, aren’t the poor still to blame for their poverty?

The hard-nosed answer is: “If you can’t make a dime, you’re not worth a dime.” And behind this answer is the expectation that humans have a duty to work for the benefit of themselves, their families, and their communities. For example, the Bible itself reflects this duty (see, for example, Psalm 128:2, Matthew 25:23, and 2 Thessalonians 3:10, which in turn was quoted by John Smith at Jamestown). Duty to work is prominent also in the Muslim, Buddhist, and Hindu traditions. The Creator Himself is portrayed as having a 6-day work-week.

The supposition is that wealth is the reward of labor and ingenuity, and poverty is the desert for sloth or, worse, inferiority. But the presupposition for this inference is equal opportunity and fair play.

And there are reasons to question those presuppositions in America. First, alongside the nobility and beauty of the American Dream — based on boundless opportunity, free of the strictures of Old World aristocratic society — was Black slavery and its after effects. Time Magazine essayist Viet Tranh Nguyen wrote that America’s freedoms and equality “have all been nurtured by the blood of genocide, slavery… and forever war. All of that is America, our beautiful and brutal America.” The Black history movement has been shining a light on the aftermath of slavery, not only legalized discrimination but also the disruption of Black family life and community, referred to as “lost social and cultural capital.”

An especially insidious vestige was the federal policy of race-based housing segregation, spelled out in the notorious 1935 FHA Underwriting Manual and reversed only by the passage of the 1968 Fair Housing Act.  Since private housing constitutes half of the national wealth, denying Black citizens desirable real estate effectively deprived them of a fair share of wealth and opportunity. This disparity shows no sign of “natural” reversal, even 50 years later.

Second, conscious and unconscious bias is still embedded in our national culture (promotions, penal system, college admissions, Hollywood casting, etc, etc.). Daily overt acts and more subtle “microaggressions” take their toll in the workplace and wider society.

Lastly, to make matters worse, social mobility has declined sharply since 1980. After World War II, intergenerational elasticity (IGE) ranged around 0.33, indicating that only 1/3 of persons’ adult income was passed on from their parents. Since 1980, IGE has risen to 0.57 – more than half of Americans’ income is tethered to that of their parents. Social immobility is especially pronounced among poor children. A Brookings report observes “a child born to parents with income in the lowest quintile is more than ten times more likely to end up in the lowest quintile than the highest as an adult (43 percent versus 4 percent).

The few Horatio Alger exceptions among poor minority groups do not negate the rule.

So, no — the poor are not entirely to blame for their poverty, especially African-Americans. Their poverty is in part a legacy of slavery, bequeathed by our forefathers, perpetuated by our fathers, and unconsciously abetted by us to the present day.

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Does this mean that the free-riding objection is nothing more than a code signal for racism?

Does this mean that the free-riding objection is nothing more than a code signal for racism?

Does this mean that the free-riding objection is nothing more than a code signal for racism?

Given this blog’s analysis of the relationship between the free-riding issue, poverty, and race, the question of racism smacks each of us in the face. The hope is that the very asking of the question can help bring our racial attitudes forward into consciousness and civic discourse. If we monitor these attitudes and talk about them, it will keep them from interfering with thoughtful reflection.

All people need to probe deeply into their own mindsets to recognize their own cognitive and psychological biases, which stereotype others negatively or positively. Many social psychologists hypothesize that humans are “wired” to recognize our own tribes and to trust them more than outsiders (J Haidt, The Righteous Mind, 2012, p. 210). Such biases may have had survival value for primitive tribes. But they can surely be maladaptive in modern complex societies, including solving the problem of healthcare reform.

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Are there groups that have a special objection to free riding?

Are there groups that have a special objection to free riding?

Are there groups that have a special objection to free riding?

The first group is the near-poor. Law professor and social activist Joan C. Williams has identified the near-poor as the white working class. In her 2017 book by that title describes the white working class as falling within the 30th and 80th income percentile with no college degree. Not only are they hard-working, but they embrace values that make them the “backbone of America.” In a book chapter entitled “Why does the working class resent the poor?” she writes:

Remember when President Obama sold Obamacare by constantly stressing that it delivered health care to 20 million people? To man in the working class, this made it sound like just another program that taxed the middle class to help the poor. And in some cases that’s proved true: the poor got health insurance, while some Americans just a tiny bit better off saw their premiums rise.
Progressives have lavished attention on the poor for over a century, devising social programs targeting them. Because America is particularly testy about the kinds of taxes that many European countries take for granted, these programs are not universal. Instead, they are limited to those below a certain income level, which means they exclude those just a notch above. This is a recipe for class conflict. (p. 13)

Seen from the vantage of the white working class – especially those at the lower range of income – the free-rider objection is not an argument against providing healthcare to the poor. Rather, it is an argument for making it universal, extending it for the near-poor as well.

The second group is the elites – wealthy professional-managerial class in the top income rank. This group values “concierge medicine” that provides prestige services at their beck and call. They might fear that free riders will outlaw their privilege by majority vote, or that a public system will level down the services. This group could be mollified by the fact that even in countries like the United Kingdom with a government-run healthcare delivery system, there is a thriving parallel private system that caters to the wealthy. The elites could likely be further mollified by the likelihood in the United States that any government backing would take the form of financing, leaving the private delivery system in place. It would be free to provide premium services to those who could afford them. (But caveat the problem of diminishing marginal benefit!)

Back to Summary and Conclusion.

 

Image Credit:

Title:  “Badge struck in commemoration of the New York Day celebration, Jamestown Exposition, Norfolk, Virginia, April 26 to December 1, 1907:  CAPTAYNE JOHN SMITH From the old engraving executed by Simon Paseus.  JAMESTOWN SETTLEMENT OUTLINE OF THE COLONIZATION WHICH TOOK PLACE N VIRGINIA BY THE ENGLISH IN 1607″

Attribution: Internet Archive Book Images [No restrictions], via Wikimedia Commons

URL: https://commons.wikimedia.org/wiki/File:New_York_at_the_Jamestown_Exposition,_Norfolk,_Virginia,_April_26_to_December_1,_1907_(1909)_(14780176584).jpg