19 March 2018

Killing through complexity: the US healthcare system

The Economist looks at healthcare in the US: 
Every year America spends about $5,000 more per person on health care than other rich countries do. Yet its people are not any healthier. Which firms profit most from America’s health-care system, 'The Economist', 17 March
... In crude terms, the health-care labyrinth comprises six layers, each involving the state, mutual organisations and private firms. People and employers pay insurance companies, which pay opaque aggregators known as pharmacy-benefit managers and preferred provider organisers. They in turn pay doctors, hospitals and pharmacies, which in turn pay wholesalers, who pay the manufacturers of equipment and drugs. Some conglomerates span several layers. 
Understanding the US healthcare system is possible, but it might be conceptually simpler to solve the problem rather than explain it in detail. With the proliferation of Social Impact Bonds (about which I have reservations) there has been a welcome shift in public policy toward focussing on outcomes.

I think that health policy, by targeting improved outcomes could go a long way toward making healthcare systems the world over more efficient. The outcomes I'd target would be ones that are meaningful to ordinary people. That is, they would not be about funding arrangements, institutional composition or structure, or irrelevant micro-targets. Instead we'd target measures of health such as: Quality Adjusted Life Years, longevity, infant mortality.

We'd also reward people for achieving these outcomes, rather than for carrying out activities that may or may not be helpful, or that might even conflict with our health goals.

The Social Policy Bond principle applied to health could be the answer. Health Bonds would target meaningful outcomes, and they would reward their achievement. Being tradeable (unlike SIBs), investors would have incentives to carry out steps leading to long-term goals: goals that extend beyond any individual investor's time horizons. Bondholders could use the information generated by the market for the bonds to allocate funds to those initiatives that will bring about the biggest improvements in health per dollar spent. Such initiatives might well fall outside the traditional, antiquated purview of those currently responsible for health policy. One example: the most cost-effective way of saving young lives might be to lay on taxis for people leaving nightclubs in certain areas. Maybe. Maybe not. But under the current system there's no way of knowing, and nobody with any incentive to see how such a project stacks up against others.

The second para, above, excerpted from the Economist does help our understanding. They US healthcare system is ridden with so many vested interests, that any change in any direction will be seen as a threat and opposed. As in other sectors, it is precisely the profits these bodies gain from uncompetitive and manipulative practices that allow them to fund lobbyists to oppose any reform that might diminish them. I don't think the complexity of the system is an accident either. Indeed, policymaking itself is so complex that only powerful vested interests, or their paid agents, can follow and hope to influence it.

In this, again, US healthcare is quite typical. As the Economist article concludes:
Wherever products are too complex for customers to understand, and where subsidies and complex regulation add to the muddle, huge profits can opaquely be made. Remember mortgage-backed securities?

11 March 2018

Subsidising the rich

Writing some years ago about the United States Government's perceived need to 'reframe pretexts not only for [military] intervention but also for militarized state capitalism at home', Noam Chomsky writes:
It is sometimes argued that concealing the development of high tech industry under the cover of "defense" has been a valuable contribution to society. Those who do not share that contempt for democracy might ask what decisions the population would have made if they had been informed of the real options and allowed to choose among them. Perhaps they might have prefered more social spending for health, education, decent housing, a sustainable environment for future generations...as polls regularly show. Failed States (page 127)
Quite. If people want to subsidise at vast expense high technology, non-stick saucepans, or the replacement of wildlife by oil-burning heavy machinery let us at least make those decisions for ourselves. Given the sums involved and the destruction and conflict such subsidies can create, they are hardly trivial. Any half-sensible outcome-based policymaking system would give a high priority to the polls to which Professor Chomsky refers, rather than the short-term interests of corporate or 'defence' lobbyists. And of course, it's not only the weapons manufacturers who benefit from this sort of effective voter disenfranchisement.

One of the benefits of an outcome-based regime would be transparency. People should have a rough idea of what their tax payments are supposed to achieve. Expressing policy goals in terms of outcomes would be a good start. Instead, policy is almost always a convoluted, arcane, protracted and therefore opaque process, followed closely only by those who can best manipulate it, their paid agents or those who are paid to formulate or comment on it. It's a corrupt process - not necessarily legally, but certainly ethically. The losers are ordinary people.

A Social Policy Bond regime would aim to achieve specified, agreed goals, and would inextricably link taxpayer funds to the achievement of those goals. Under a bond regime UK citizens for instance could still vote to subsidise wealthy landowners including the richest people in the country, but they would know exactly what they were doing and making a conscious choice to do so. The current policymaking system is so removed from the concerns of ordinary people that it is not fit for purpose. The gap between people's goals, and those of government and its big business pals is becoming ominously large.

02 March 2018

Feeling good about ourselves

Much of the opposition to Social Policy Bonds comes from people who regard any sort of explicitly money-making activity as distasteful. It's understandable. Market forces have been undermined, corrupted and abused. They've been manipulated in ways that have led to staggering inequality and, worse, the entrenchment of that inequality.

But the opposition to the parody of market forces that pervades society misses the point. Competitive markets are still the most efficient way yet devised of allocating scarce resources. They are not a complete solution, and they create problems that government, and sometimes only government, has to solve by, most importantly, looking after the poor and disadvantaged, and the environment. But in theory and in practice the alternatives, when applied at an aggregated level, have proven to be worse. If market forces could be directed into achieving society's goals, rather than those of the already wealthy who have no shame in using their influence to stifle competition, then those goals could be achieved more readily than ever. Social Policy Bonds are intended to do this.

Unfortunately, people who otherwise do have a social conscience treat money-making in general, and markets in particular, with disdain. They look down on the Social Policy Bond idea because it generates wealth in the form of capital gains, via the increased value of people's bondholdings. And it's a fact that people have made enormous capital gains through activities that have zero or even negative social value. I think Social Policy Bonds are different, in that they inextricably link the capital gains from bondholding to the achievement of society's social and environmental goals. If people become wealthy through owning Social Policy Bonds, they would do so only because society's goals are being achieved.

Two further points. Most of us, when we see terms like 'profit' and 'capital gain', forget the time element: holdings of assets take time to appreciate. We also focus on the final amount of profit, and forget the risk involved in holding an asset.

Second: at a school morning assembly years ago, we were told that it's better to raise £1 million from 5000 people for charitable purposes than £5 million from 1000 people. Sounds lovely doesn't it? Who could deny that the more people who raise funds for the social good, the better? But I had my doubts then and now. We raise funds for the benefit of people who need them, not for ourselves. There are many desperate, impoverished people in all societies. Let's take the example given by my usually impressive schoolmaster: if £1000 would be a significant help to people in need, then £1 million will help one thousand people, while the £5 million would help five thousand. So how about we ask the four thousand people deprived of help under my old schoolmaster's preferred scenario which option they'd prefer?

What I conclude from all this is simple. There is a clear difference between projects like Social Policy Bonds and those who hold them in disdain, bordering on contempt. A Social Policy Bonds regime has as its over-arching objective the solution of society's social problems. Those opposed, who also view business and capitalism in general with distaste, have as their prime goal that of feeling good about themselves.