Social Values and the Healthcare System (Webinar on Health Care, Health Economics, and Policy)

Uploaded 7/17/2020, approx. 20 minute read

Thank you very much. Does everyone see me and hear me?

Organizers, can you see me and hear me? I don't have a screen so I think someone is sharing a screen by mistake.

No, no, don't worry about it. No problem at all. Sharing is caring, it's always nice.

Okay, I will start now.

My name is Sam Vaknin, I'm a professor of psychology and neuroscience in Southern Federal University in Rostov-on-Don in Russia, and I'm a professor of finance and professor of psychology in the Outreach Program of SIAS-CIAPS, Centre for International Advanced and Professional Studies.

Today I want to discuss a very, very timely topic. COVID-19 has exposed the underbelly and the fault lines and the fracture lines in healthcare systems all around the world.

In the United States, for example, we see that members of minorities, racial minorities, Blacks, Native Americans and so on, are receiving sub-par healthcare treatments, different decision-making trees and processes applied to Black people than to white people. And many more Black people are dying than their share in the population, partly because of comorbidities, but in large part because of discrimination inbuilt racist implicit bias in the system.

And that is only the example from the United States, but it's largely the same case in the United Kingdom and in most other countries in the world where there are minorities.

The healthcare system should reflect the social values of society. It is an extension and a reification and a mirror image of society.

And if this is what the healthcare system does in a time of pandemic, then we are in serious social trouble.

It means that we do not possess cohesive and coherent societies anywhere in the world. It means that we live in antagonistic and adverse systems of conflict rather than cooperation and collaboration, even in the face of an existential threat such as the SARS-CoV-2.

So it would behoove us and it's very timely to review what are the implicit social values and assumptions that go into the design of healthcare systems.

Of course, there are as many health systems and there are as many models as there are countries. And this is because healthcare is a public good.

Because a public good, it reflects the social and cultural values and mores of the societies that had designed and adopted the healthcare systems.

We should distinguish, of course, social and cultural values from economic, functional and operational values.

Take, for example, efficiency. Efficiency is an economic operational value. It's not a social value, not a cultural value, not an ethical value.

But equity, equity, egalitarianism, equal treatment, though often considered an economic criterion, is actually not an economic criterion. It's a normative social, cultural, ethical value whose pursuit often comes at a steep economic price.

And very, very often when you pursue equity, you render the healthcare system actually inefficient. So we sacrifice efficiency to focus on equity.

So these are examples of inherent conflicts.

When we treat very old people who are 80 years old, 85 years old, when we treat members of the minorities who have many more comorbidities than members of the majority, we are making a non-economic decision. We are making a decision to sacrifice the optimal allocation of resources because had we acted only as robots, had we acted only efficiently, we would not have treated these people. We would have implemented triage and would have dedicated resources where they have maximum impact.

Health systems can be categorized according to which class of values they emphasize.

The American United States health system, for example, is geared to satisfy mostly economic operational requirements. The European health systems place premium on social, cultural values.

In this paper, I deal with three social, cultural constraints, solidarity, equity versus inequity, and progressivity versus regressivity, including the issue of redistribution.

There are many other social cultural values, of course. I can't cover all of them here or the conference would last another day.

There's fairness, there's dignity, there's choice, there are many others.

And finally, I provide a discussion of the concept of public good in current leadership.

Let's start with social solidarity.

Social solidarity is both vertical and horizontal. It is both contemporaneous and intergenerational.

Members of the same society ought to strive, they must try to share the burdens of the sick, the young, the poor, the pregnant, the weak, the disenfranchised. This is usually done by transferring economic resources, redistributing them among population groups and from the rich to the poor by promoting fairness and equity, equality.

At the same time, people should feel morally obliged to provide aid and support to their peers and to their relatives, to their neighbors and to their colleagues, to their compatriots and to their friends.

And this would encourage social cohesion and the sharing of responsibilities, for instance, within a nuclear or extended family, a neighborhood, community, etc.

Such attitudes cut also across generations, not only in the same generation but across generations, so that the current generation is held answerable to future generations for their well-being and the reasonable fulfillment of their needs.

The last few generations have failed miserably in this task. The last few generations have acted selfishly and egotistically. They have sacrificed the welfare of future generations by compromising the planet, by incurring enormous debt burdens. They neglected and abrogated and abandoned solidarity across time. And solidarity across time is the foundation of most modern pension systems, for example. It's inbuilt, it's hardwired into modern societies.

But we, I'm saying we because I'm 59, we have sacrificed the young. We have consumed their future.

Some health systems are explicitly founded on social solidarity, others only implicitly so.

However, there are health systems which partly or all together is true.

Social solidarity is a defining principle and determinant.

They say, you know, who cares? We care only about money. Health systems of the first type are usually universal, uniform, comprehensive. They rely on tax revenue or a social insurance scheme on a social contract or a combination. Health systems of the second type, the health systems are only profit motivated, balance sheet motivated. These health systems depend on private insurance. They are not universal. They are more diverse in the types of medical coverage offered, but much more expensive. This diversity comes with increased transaction costs. And this is, of course, the health system in the United States, which Obama, President Obama, had tried to reverse with Obamacare, but it seems in vain. Introducing means testing, asking the rich to pay additional or higher user fees, higher coinsurance, higher deductibles, higher participation. This doesn't affect social solidarity. It's fair that the rich should pay more. On the contrary, taxing the rich to pay for the poor is the very essence of a solidarity of a solidary state. And similarly, taxing safety nets such as voucher systems or medical savings is a solidary act.

Whether such an approach is ideal from the economic point of view is outside the scope of this paper and honestly somewhat an illegitimate question.

Let's talk about equity.

There are three types of equity. Equity of financing, affordability.

The question here is, can the poor, the unemployed, the homeless, the old, the young, the weak, the pregnant, the chronically ill, the immune compromised, the disenfranchised, can they afford the health care offered?

Health care is always an offer, but can people afford it? Are the expenses they have to incur catastrophic when they drive them to poverty? Will they create debts that they will have to repay for decades? Do certain expenditures, for instance, user fees, participation in the course of medication, will these expenditures deter utilization? Some people will just not consume medicines because they're too expensive. They will not go to a doctor because the fee is too much.

Do the payments reflect one's income, reflect one's wealth? Are they fair?

This is the equity of financing.

Then there is the equity of utilization, which is also called accessibility, and this is comprised of two components, vertical equity. Can everyone access health care services and facilities? Can everyone make use of these facilities easily and equitably on the same terms, the same conditions, regardless of income?

For example, in Scandinavia, this is the case. This type of equity correlates with the progressivity of the health system, which I will discuss momentarily.

Then there is horizontal equity of utilization. It's the extent to which people with identical incomes are treated similarly.

This type of equity correlates with the redistributive aspects of the health system.

When we have poor people, we take from the rich and we give to the poor, so that both rich and poor have the same type of income, the same type of money, the same type of wealth, which theoretically guarantees them the same type of access.

Finally, there's equity of quality. It's the level of quality health care provided in all regions of the country, in rural parts, in urban parts, in cities, in villages. Is everyone getting the same quality of health care or just the rich, the rich in the cities and everyone else is neglected and left to die, in effect.

Many, many medical financing options are not fair. For example, medical savings accounts adversely affect equity because they skew economic incentives and the allocation of health care resources towards the rich and towards men. Women and the poor cannot save as much money as the rich and men. And women and the poor and members of the minorities, they have much greater health care needs and health care expenditures and yet they can save less or nothing.

So medical savings accounts look very nice, but they are a rich man's toy. They are not really a solution to anything.

User fees may actually increase equity under certain conditions.

That the income they generate is targeted at the poor and chronically ill. That the poor and chronically ill are exempted from paying user fees and that the level of funding from other sources, taxes, contributions is not reduced or compromised.

Consider another measure, devolution of health care services.

This actually may create inequity.

Rich municipalities, rich cities are able to spend more on health care than poorer cities and villages. The government should create an equalization fund. It should use a general tax revenue to transfer resources from wealthier to more destitute regions.

Pulling of funds among regional or competing funds guarantees more equity, not less so.

Regional health insurance funds increase in inequity. I repeat, regional health insurance funds, which are today touted as the great equalizer, they actually increase inequity because they are faced with the same problems that I described under devolution.

Poor regions cannot compete with richer regions on the purchasing and provision of health care. The rich drive the prices up, the poor are priced out.

Social health insurance, tax-based health care financing, they maintain the same level of equity of financing. Negative copayments, no claim bonuses, income caps or ceilings, non-contributions, the inclusion of dependence in the coverage at no additional cost, the extent of cost sharing, providing treatment to pre-existing conditions, all these determine how equitable and progressive the social insurance scheme is.

And the introduction of private health insurers, the introduction of voluntary health insurance to compete with the statutory health insurance fund or even merely to complement or supplement it, this would increase inequity as we see from the United States or United Kingdom. It increases inequity, especially with regards to women and to low-income groups.

Women are usually charged higher premiums, though their incomes are often lower than men's, for example. Minorities consume health care much more than the majority.

And you can't privatize public goods, it's always a bad idea. Privatizing prisons, privatizing hospitals, privatizing health care, privatizing education is a disastrous idea, disastrous, because these are public goods subject to market failures and to income inequality.

Risk-rated premiums decrease equity as they discriminate against the already ill and may deter them from seeking care.

On the other hand, exemptions granted to specific population groups and not based on income also increase inequity. The sick and the old may gain better access to quality health care than other equally deserving beneficiaries.

We must be very – all the time we should ask ourselves, is this measure increasing inequality and inequity or decreasing it? Don't take anything for granted. Don't rely on your intuition. Think, think, think. Study, study, study. Analyze, analyze, analyze.

Risk-adjusted DRG, computation systems are considered to be major engines of inequity. They are considered to deprive the poor.

But actually, studies show that they enhance vertical equity counterintuitively in formal payments, bribes, corruption, dramatically decrease equity.

When you pay a doctor under the table, in black, when you enter the gray economy, this decreases equity because access is restricted to those who can afford to pay. Payment terms and levels are arbitrary, changeable. Certain services and goods are rendered unaffordable or unavailable.

Public, more equitable services suffer. Lack of regulation creates variable quality of health care, fiscal irresponsibility and lack of fairness.

What about progressivity and redistribution of income so that poor people can afford health care?

The progressivity and redistribution are often conflated with equity. They are often confused with equity.

These are two utterly separate issues.

We can imagine easily a progressive system of health funding which is actually not equitable and we can conceive of a regressive system of health funding that is highly equitable.

We say that health care funding is progressive when rich people pay more as a proportion of their income than poorer people. The system is proportional when both rich and poor use up the same proportion of their disposable income to defray health care costs. The system is regressive when poor people pay a higher portion of their income than they are fluent to consume health care goods and services.

So we have progressive, proportional and regressive.

Progressivity largely determines whether there is a redistribution of resources from the rich to the government, not necessarily to the poorer segments, but first to the government.

And then the government depends on the government. If the government is corrupt and inefficient, that's where the money stops in Swiss bank accounts. If the government is more or less subject to the rule of law and accountable, then some of the money reaches the poor.

How extensive and ubiquitous the redistribution from the government to the poor is depends on how involved the state is in the economy. In other words, it depends on the tax burden, the incidence of public spending, and on the absolute level of tax revenue and of course on corruption.

Tax funded health care is progressive, assuming that most of the tax revenue is generated from direct taxes, not from consumption or indirect taxes, which are always regressive. Tax funded health care is less progressive than social health insurance when indirect taxes constitute a major source of budget revenue.

And when the informal sector that does not pay taxes, the corrupt sector, the gray economy, is very, very large compared to the formal economy.

Earmarked taxes, what is called in the United States, SIM taxes or hypothecated taxes, for example, taxes on alcohol, taxes on tobacco, taxes on motor vehicles, on medicines, these are regressive. They look nice. They appear like, yeah, we should tax these, these vices, these wrong behaviors. We should tax them because they create later on a burden on the healthcare system.

But actually, they affect the poor disproportionately, they're regressive. Their recivity is intentional, as they're intended to deter consumption, but it's still regressive.

Social health insurance is generally less progressive than a tax based system. So Obamacare is less progressive than the system in Germany, Sweden and other places. The system that used to exist in Israel before 1977 was much more progressive than the system today.

Social insurance is less progressive than tax based healthcare, because it does not tax income from interest, from rent, from capital gains and from long wage types of income, which are typical of the rich. This is especially true when there is an income ceiling above which contributions are not levied, when there are no exemptions for low income groups. And when the rates are uniform, regardless of the size of the wages, they are limited. Still, social health insurance is better than nothing. It's more redistributive than private insurance.

Private insurance is by far the worst, by far the worst. In the United States, it left out 42 million people, even today, when private insurance is amalgamated with the social insurance scheme under Obamacare, 27 million Americans don't have insurance. It's a disaster. Private insurance is anathema, should be banned, absolutely.

Social health insurance is more redistributed because it charges uniform or community rates. It ensures dependence at no extra cost. The length and extent of healthcare goods and services provided is not related to previous or cumulative contributions, and it caters to the needs of the old intergenerational redistribution and pre-existing conditions.

And still, social health insurance as a redistributive mechanism, no go, doesn't work, because it has negative economic effects.


Yes, I can hear you.

Yes, I'm about to conclude.

So this redistribution is negative economic effects.

The introduction of private health insurance to compete with the statutory health insurance fund is neutral as far as progressivity.

Only when private insurance has supplanted social insurance as the main source of funding did regressivity increase markedly.

Risk-related premiums, however, are regressive. Medical savings accounts have no regressive or progressive effect, as they do not redistribute income.

All types of savings are neutral as far as progressivity or regressivity goes. User fees are highly regressive regardless of any supplementary policy measures, such as exemptions.

Only the introduction of means testing can reduce regressivity. Informal payments are highly regressive as the poor are asked to pay a higher proportion of their income or assets, even when they are charged less than richer patients.

Tax deductibility of healthcare expenses is highly regressive. People with higher income tax rates receive a higher deduction.

We must redesign our healthcare systems to take care of the poor, to take care of the disenfranchised, to take care of women, to take care of minorities.

These systems, at the time when they were started by Bismarck in Germany, catered to the rich, to the wage earners, to the emerging middle class. They never took care of the poor, they didn't care about minorities, and women were not in the workforce. And yet these systems have not been revamped or changed.

Since 1870, COVID-19 has exposed the shortcomings of all the healthcare systems we have in use today.

Thank you for your patience and time.

Thank you, Doctor. I have a good speech that was a good speech. Do anyone have any questions regarding the speech?

No question.

Yes, please.

Yeah, you spoke about equity efficiency and solidarity. So how do we marry the trade?

Well, what I know is efficiency and solidarity, in terms of number 10, are not actually internal. They should only be kind of triggered between these three concepts.

And then another question is, you spoke about the fact that private institutions might be stopped.

Now, and then we are also referring to efficiency over here. What we know is participation of private insurance in the insurance system actually help to ensure efficiency regarding the insurance system.

So when you talk about stopping private insurance, how do you ensure efficiency in them?

Thank you.

It is, can you hear me?


Yes. Thank you for asking. It is a common misconception that equity and efficiency are enemies.

The least equitable system of healthcare in the universe is the United States. And it also happens to be the least efficient system in the industrialized world. Out of 37 nations, the United States is in number 37, the least efficient.

It seems that equitable systems are actually much more efficient.

Consider, for example, the price of medication, medications. Even with Medicare and Medicaid, the price of medications is determined via negotiations with private providers, private suppliers. Essentially, it's privatized.

Consider, for example, non-Medicare and Medicaid, healthcare, HMOs, health management organizations, etc.

We have discovered in studies after studies, conclusively and indisputably, that the more privatized the system, the less efficient it is. For example, the more costly it is, no one spends per capita more money than the United States on healthcare. Expenditure of healthcare per capita in the United States is the highest in the world, and yet it is the least efficient system.


Because it's about 60 to 70 percent privatized. Private insurance, private medications, private schemes. Most of Americans are insured through the workplace, through their jobs, and all these are negotiated privately with private providers.

Go, for example, to Sweden or to Germany and so on, where you have, in essence, single provider universal schemes, and the efficiency is much higher. Prices of medications in Canada are anywhere between 20 to 40 percent as much as the United States. In other words, 60 percent cheaper.

Go to Europe. Everyone is insured without exception. All the providers are non-privatized in many respects. It's a state.

These are state schemes, and you see that the cost per capita there is much, much lower, but life expectancy is higher than the United States.

I'm sorry to say, our intuition misleads us badly when we say that private is efficient.

We know from other fields. I, in my other head, I'm economic advisor to governments. I deal mainly with the IMF and the World Bank.

We know in other fields, not related to healthcare, for example, electricity provision, utilities. We know the minute you privatize, efficiency collapses.

This is precisely why many countries re-nationalize electricity gridworks. There is a concept in economics known as public good, and there is a whole field of study of public goods, and we have discovered that public goods, which includes, we include education, healthcare, prison, electricity and utility provision, and so on.

Public goods are immediately subject to market failures when they're privatized, because by definition, public goods must include inefficiencies.

For example, if you want to provide internet to a village in a remote area, this, under most circumstances, can be efficient or cost effective, but it generates economic value added, which far outweighs the investment in extending the line up to there.

So, public goods must remain public to actually, in the long term, be efficient. The minute they're privatized, they become highly inefficient.

It's exactly the opposite with private goods.

Private goods, when they're in the hands of the state, are highly inefficient. The minute you privatize them, they become highly efficient.

Not everything is the same. Not like the Chicago School of Economics and Merton Friedman and the like. These economists that say that everything can be translated to dollars and cents have never lived a single day in the real world.

I used to be a businessman for decades. Let me tell you, the real world has very little to do with the theories of economics and their high-faluted economics, mathematics.

Thank you.

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