How Vermont could have made single payer work, part 2: Green Frankenstein Care

Image: Frankenstein was grafted together of different parts of different cadavers and reanimated into a sentient being. Since single payer is apparently a political nonstarter in the United States, let's do the social policy equivalent and find a way to stitch together the component pieces of single payer.




This is a follow-up to an earlier post written in response to Vermont's decision to abandon their efforts to create a state-wide single payer health care system, which would have been called Green Mountain Care. I argued that that single payer in the United States isn't dead, though a pure single payer health care system might not be possible in the unique political and legal environment of the United States. That's not a problem, however, because single payer advocates don't care about single payer per se; they are only interested in attaining the universal coverage and mammoth administrative savings offered by a single payer system. Fortunately, there are ways to reach these goals without single payer.

As Vermont's single payer advocates unfortunately found out, any health care reform proposal will end in failure if it doesn't camouflage its cost as well as the current system. Americans generally don't have a good conception of how atrociously expensive the American health care system is--because the cost is well concealed. Since the American system splits the costs of health care so many ways, it's not immediately obvious how much health care truly costs. For example, employer-sponsored insurance premiums are paid for in part by generous federal subsidies most Americans don't even realize exist, and by employer and employee contributions. Further masking cost, private insurance doesn't cover the elderly or long term care. And, private insurers deliberately design cost sharing (deductibles, copays, and coinsurance) to be be difficult to understand and therefore obscure the true out-of-pocket cost of health care.

Due to it's simplicity, Green Mountain Care couldn't provide this level of cost camouflage. The entire program was financed by simple, direct payroll and income taxes. Because the cost of the premiums weren't split up several ways and cost sharing was simple and transparent, the extraordinary cost of health care in America became unbearably obvious.

Thus, Vermont abandoned Green Mountain Care because it was too expensive--even though it was less expensive than the system it was supposed to replace. The irrationality of this decision is impossible to overstate.

Clearly, any attempt to achieve universal health insurance coverage will fail if it doesn't conceal its cost at least as well as the current system.

I suggested that single payer advocates could look for inspiration in the German and Japanese health care systems because--as in the United States--health insurance is heavily linked to employment. Yet with a few straightforward regulations, the German and Japanese systems attain universal coverage and all of the administrative savings of single payer. As I outlined in the previous post, these regulations are:

• Government regulations set prices of all types of office visits and procedures
• Only a single insurance plan can be sold
• All insurers must be not for profit
• Redistribution of medical loss imbalances to spread risk across insurers
• Employer mandate to provide all employees with health insurance (with employee contribution)
• Health insurance companies must continue to cover enrollees who lose their job or stop working for any reason 

Together, these regulations would allow our employer-based system to attain the cost savings and universal coverage of single payer.

It's worth noting that a single payer system isn't automatically better than other systems. Norway, for example, has a single payer health care system, yet per capita health care spending is far higher than Germany and Japan. Clearly, single payer is a great model for health care reform, but it isn't the only model, nor is it necessarily the best model, either.

Of course, this last post was fairly abstract, so here I intend to ground it by explaining how these reforms could be implemented--step by step--at a state (or possibly city/county) level.

Green Mountain Care would have been a pure single payer system. It would have been elegant and simple. This new system would work equally well, but only after boorishly stitching together seemingly unrelated reforms into a functioning--if ungraceful and confusing--whole. Such a system does not deserve the elegant name of Green Mountain Care. Instead, meet Green Frankenstein Care.

No, taxes and transfers do not explain differences in inequality between US and Sweden

(See update below)


At Vox, Dylan Matthews claims that "government is the only reason the US has more inequality than Sweden." He bases this claim on the fact that the United States has a pretax Gini coefficient equal to that of Sweden, Norway, and Denmark; Finland's pretax Gini coefficient is actually higher than that of the United States. But after government taxes and transfers are accounted for, the Gini coefficients of the social democracies drop precipitously, while the United States' decreases far less:

Matthews argues that these data prove that government taxes and transfers are the "only" reasons why Norway, Sweden, Denmark, and Finland have lower inequality than the United States. Nothing else explains why the pretax/pretransfer Gini coefficients would be equal and posttax/posttransfer Gini coefficients so different. Clearly, it's only government intervention that reduces inequality.

This is analysis wrong, however, and makes little sense even at first glance. McDonald's workers in Norway and Denmark make almost three times their American counterparts. With a paucity of the minimum wage McJobs that dominate the American underclass, how can Scandinavian pretax/pretransfer inequality possibly be equivalent to the United States?

Our interpretation of these data matters greatly. If Matthews is correct, then taxes and transfers are the only useful weapons against inequality, and policies that take aim at pretax/pretransfer inequality--like full employment and laws to make unionization easier--are not worth pursuing.

But Matthews is wrong here, and the fault lies with the Gini coefficient.

Does social democracy / a large welfare state kill innovation?

Image: At The Next Web, Brad McCarty documents the history of the smartphone, including this 2001 state-of-the-art Nokia Communicator.



[Updated--see below]


As I often do with viewpoints I don't like, I find the most reputable expression of that idea so I can't be accused of choosing a poor representative for my critique. Enter Daron Acemoglu (MIT), James A. Robinson (Harvard), Thierry Verdier (Paris School of Economics), and their 2012 non-peer-reviewed paper Can't We All Be More Like Scandinavians? People with Big Ideas about welfare states eagerly point to this paper as proof that their evidence-free Big Ideas were right all along. Let's see what this paper really says.

The thrust of the paper is this: it's a well known fact that large welfare states stifle innovation, mostly due to limiting inequality and perhaps also by limiting economic insecurity. These are the "cuddly capitalists" (their term). In the "cutthroat capitalist" (their term) countries, inequality is much greater and economic security more tenuous, and--as a direct result--innovation is greater. Since the rewards are so great for success--and the consequences for failure so severe--incentives line up perfectly to maximize innovation.

So far, this isn't anything new. But Acemoglu, Robinson & Verdier take this logic one step further. Not only is there greater innovation in the cutthroat capitalist countries, they posit, but the innovation of the cutthroat capitalists makes cuddly capitalism possible. Were it not for the greater innovation and resulting economic growth which spills over from the cutthroat to cuddly capitalist countries, the large welfare states of the cuddly capitalist countries would not be possible.

But wait! There is a slight bump in the road to solemnly dismantling the welfare state in the name of innovation. It's always taken as fact that the United States, the most cutthroat of the capitalists of the developed world, handily beats the rest of the world in innovation and technology. But where is the evidence?

Fortunately, Acemoglu, Robinson & Verdier have marshalled the strongest evidence available to demonstrate the superior capacity for innovation in the United States compared to the social democracies:

The United States is also widely viewed as a more innovative economy, providing greater incentives to its entrepreneurs  and workers alike, who tend to respond to these by working longer hours, taking more risks and playing the leading role in many of the transformative technologies of the last several decades ranging from software and hardware to pharmaceuticals and biomedical innovations. Figure 1 shows annual average hours of work in the United States, Denmark, Finland, Norway and Sweden since 1980, and shows the significant gap between the United States and the rest.

Sure enough, in a graph with a y-axis that doesn't begin at zero, Figure 1 indeed shows that people in the United States work more hours than in Scandinavia, except for the weird part in the early 80's (and earlier) where the Finns worked longer, that I guess we're just ignoring:

Some problems should be immediately obvious.

First, Acemoglu, Robinson & Verdier use the United States to represent all of the cutthroat capitalists. Might their conclusions be stronger if they considered other countries with high inequality and a fragile social safety net? This issue will be taken up below, but it shouldn't be too hard to guess why they omitted other cutthroat capitalists, like New Zealand and Ireland, from their analysis.

Second, Acemoglu, Robinson & Verdier assume that more work hours at the aggregate level results in more innovation. It doesn't. Longer aggregate work hours are simply indicative of higher poverty rates. It's well established that people work longer hours in countries with higher poverty rates. Thus, since the United States has such a high poverty rate while the Scandinavian countries have such a low poverty rate, it's no surprise that the average number of hours worked is lower in the Scandinavian countries. Clearly, average hours worked each week isn't a proxy measure of innovation, but a proxy measure for a country's poverty rate.

Third, productivity research is unequivocal that working more hours results in less innovation, not more. For a striking example, productivity experts estimate that if the early Macintosh engineers had worked 40 hours per week instead of 90, the first Macintosh computer would have been ready for release a full year earlier. In short, all available research argues that long hours lead to less innovation--meaning that Acemoglu, Robinson & Verdier could scarcely have chosen a worse proxy measure for innovation.

2014 Detroit is a better candidate for social democracy than 1930's Finland

Image: An MRI machine allows doctors to examine tissues throughout the body from the outside. The technology available today would have seemed like science fiction decades ago. (source)



This short post concludes a series on racist assumptions underlying many debates about social policy. The scope of this series has been very wide, and this post will tie together some of these disparate ideas.

In part 1, focused on the violent, impoverished, and oppressed history of Finland. Finland's blood-soaked history--both in the years immediately preceding their transition to social democracy, as well as hundreds of years prior--demonstrates that a prosperous and harmonious society is in no way a prerequisite for social democracy. Such views are a smokescreen for underlying racism. Part 2 addressed the incredibly racist view that social democracy can only succeed in a racially, culturally or ethnically homogeneous society by focusing on the experiences of Kerala, India, and Sweden. Both places have extremely large minority groups; by most measures, Sweden is more diverse than France, the UK, Germany, and most other European countries. Part 3 took the superior societies vs. superior policies argument head on by looking in detail at the implementation of the first social democratic program in Finland, maternal health care. The superior societies argument holds that any policy will succeed in a superior society; the superior policies argument holds that superior policies can succeed in any society. That Finnish society is inherently superior to the rest of the world is absurd given Finnish society's initial resistance to the maternal health program. Widespread resistance to this policy cost the lives of thousands of infants and mothers.


Part 3 contains the most important argument in the entire series. When we assume that social democratic policies can only work in a society that is already prosperous and harmonious, we rule out the most effective solutions for improving quality of life in the places that most desperately need those policies. In particular, if 1930's Finland were a country today, their infant mortality rate would be the eleventh worst of any country in the entire world.

To conclude this series, part 4 will run with this idea by comparing the current quality of life indicators and resources of Detroit, the American city with the highest poverty rate, to those of Finland on the eve of the election of the first social democratic prime minister in 1927.

If you had nothing else except for data on the resources and quality of life indicators of Finland in 1927 and Detroit in 2014, which place would you expect to eventually lead the world in quality of life indicators? As we shall see--though quality of life indicators are appalling in Detroit--they are actually in a better position than Finland was decades ago. If Finland could transform itself a country with the best quality of life indicators in the entire world, Detroit can make a similar transition. Granted, it took extraordinary efforts over several decades for Finland to achieve these successes, and Detroit can expect a similarly long, difficult struggle. But it can be done.

Comparing 2014 Detroit and 1920's Finland
Detroit's infant mortality rate is a 15 per 1000 live births. That's a national disgrace. But Finland's infant mortality rate peaked at a whopping 90 per 1000 live births in the 1930's, a rate six times higher than Detroit. None of this is to say that an infant mortality rate of 15 per 1000 live births is anything but a catastrophe. Nevertheless, the situation in Finland in the first half of the 1900's was far worse than the situation currently facing Detroit.

The neoliberal model on discrimination is wrong

Image: A patient's husband relaxes outside the beautiful Monroe Community Hospital in Rochester, New York. Now a long term care facility, Monroe Community Hospital was designed in 1930 by Thomas Boyde, Jr.. Boyde's architectural firm only interviewed him by mistake, believing he was white until he arrived for his interview. Though impressed with Boyde, the head of the firm only hired Boyde after polling the rest of the firm to see if they would object to working with an African-American architect. (source)



I feel compelled to start posts like this with a disclaimer:  People are more than economic units. People do not exist to serve the economy. The economy should exist to serve people, and not the other way around. This post is about workplace discrimination, and workplace discrimination should be combated simply because discrimination is wrong.

But in a neoliberal world, you have to speak the language of neoliberalism--so the rest of this page is written in neoliberal.

Even economy-first neoliberals should take interest in fighting workplace discrimination. For example, the productivity lost to workplace gender discrimination has been particularly well studied. Obviously, systematic discrimination against half of the workforce is not without consequences. Sexism in the labor market means that huge numbers of women don't return to work after giving birth or are passed over for supervisory roles, and that takes talent and productivity away from the economy. Gwynn Guilford summarizes research attempting to estimate the phenomenal economic growth that would result if the talents and hard work of women were not underutilized:

...seven-tenths of Japanese women drop out of the workforce after having their first child. Getting them back to work could boost Japan’s GDP by as much as 15 percent...If American women worked at the same rates men did, U.S. GDP could grow 9 percent, say economists; France’s would pop by more than 11 percent; and Italy’s would see a whopping 23 percent boost, according to OECD calculations. The average across the OECD would total 12 percent.

How can such inefficiency persist in a free market? Neoliberals believe that inefficiencies are rapidly corrected by the free market, so how can such extraordinary inefficiency possibly persist?

Gender inequality and social democratic policy

Image: A seahorse couple. Seahorses are very unusual in that males, not females, carry offspring through pregnancy and give birth. Thus, much of the following analysis will not apply to seahorses. (source)



For decades, the Scandinavian social democracies have led the world in limiting gender inequality. Currently, the World Economic Forum's Global Gender Gap report--which looks at several areas of women's status, including labor market indicators and the number of female representatives in government--ranks the Scandinavian social democracies very high. Four of the five Scandinavian social democracies take the top four spots; Denmark, the laggard, still finishes in the top ten at #8. Clearly, social democratic policy is effective in helping to limit gender inequality, and this post will broadly outline some social democratic strategies--universal child care and paid parental leave--and the evidence behind them.

This is a social policy blog, so I'm narrowly focusing on the policy basis of gender inequality. But it's important to note that sexism and discrimination have many causes and social policy can only be one medicine that cures a sick society. Confronting the economic roots of discrimination can only go so far. For example, women are disproportionate victims of violence. American men work about 10 hours more per week in paid employment, but women do so much housework that they have on average 5 fewer hours of leisure each week. Addressing the societal perpetuation of sexism in the workplace and beyond cannot simply be the sole responsibility of social policy. Aggressive enforcement of anti-discrimination laws and challenging everyday discrimination is also necessary. Social policy can only take us so far.

The economic case for sexism
In a fascinating article, Gwynn Guilford presents a very clear case about the economic incentives for sexist hiring and promotion practices, and the role of social democratic policy in fighting gender inequality. First, she addresses employers' economic incentives to pay women less than men, and to favor men for promotions:

For the vast majority of women who don’t return to work after giving birth, this is because the costs of returning—both financial and psychological—outweigh the benefits.

Here are the factors they’re likely weighing. Since it’s assumed the mother will take a long leave after giving birth, businesses systematically underpay women and skip them for promotions in favor of their male colleagues. Their husbands, therefore, likely have a much higher salary and aren’t eligible to take much more than a few weeks, at most, of paid childcare leave.

So women have little choice but to take many months off work to care for their newborn. Even in countries with robust maternal employment protections, low-skilled women in particular still face pressure to quit their jobs. Many who consider returning to work once their child is old enough for daycare struggle to find a job that pays well enough to cover childcare—or, with their skills now outdated, to find a job at all. Highly educated women, meanwhile, often find that taking a lengthy leave jolts them off the management track. And since this group tends to have wealthier husbands, without the professional motivation, there’s no point in returning.

Much evidence supports this argument. Danielle Kurtzleben summarizes research showing that American employers really do penalize women but not men for having children.

Guilford misses another reason women often drop out of the labor force: most human societies expect women, not men, to care for elderly or disabled relatives who are not able to care for themselves. This contributes to the gender pay gap for similar reasons. Another key issue (which she takes up outside this block quote) is that many women only work part-time after they have a child.

Putting this all together, we're really interested in three statistics--the gender pay gap, or the ratio of men's to women's wages; a comparison of the female and male labor force participation rate (the number of employed people as a percentage of working age adults); and a comparison of percentage of employed women and men working part time.

It's particularly important to keep track of all three because none can fully capture women's opportunities in the labor market. Two examples will make this clear. First, an increase in the gender pay gap can actually mean that the labor market is becoming less discriminatory towards women. Though counterintuitive, this can occur because these three measures are not independent. For example, the Scandinavian social democracies actually have a larger gender pay gap than countries with much more sexist labor markets, like Italy. The gender pay gap in Italy is so low because the Italian female labor force participation rate is very, very low. This low female labor force participation rate occurs because it's so difficult for Italian women to find employment that only the most highly skilled Italian female workers are reliably employed. In other words, most Italian jobs are low skill, but most women who have jobs in Italy are physicians, lawyers, or in other high skill fields where pay is high; there aren't many low skill female workers with jobs because they are unable to find work. Hence, high wage workers are grossly overrepresented in the female labor force, thus artificially decreasing the gender pay gap.

For a second example, the United States has traditionally had a surprisingly high female labor force participation rate. This is certainly due to a much higher poverty rate. Thus, for the United States, the labor force participation and part time work rates alone are likely to be misleading. Clearly, we need to consider all three measures to get an accurate picture.

In any case, in every country on earth, these measures are heavily weighted against women. Guilford summarizes research that suggest that unprecedented rates of economic growth could occur if the female labor force participation rate rose to that of men--there's simply so much bottled up talent and productivity in the world's women that can't be put to use because of sexism.

Using social policy to address economic roots of sexism
It should be very obvious that social policy can address each of the three root incentives for gender discrimination in hiring, pay, and promotions. Parental leave policies can be structured to encourage fathers to take parental leave, diminishing employers' incentives to pay women less. Universal child care services make it easier for women to return to work when babies become toddlers. Universal long term care services ensure that elderly relatives who are no longer able to care for themselves receive competent care even if their adult daughter or daughter-in-law returns to work. This isn't a new idea. Since the 1970's, the social democracies have implemented these policies with the stated intention of maximizing female labor force participation.

But do these policies actually work? Have countries that have implemented these policies actually seen an improvement in our three indicators of workplace discrimination? Let's take a look:

The interests of high skill workers do not align with capital

Image: Meg Whitman, former CEO of eBay (source)



It is frequently assumed that high skill workers don't need labor protections because they can protect themselves. It's only those defective low skill workers who need help from minimum wage laws and unions. This flawed assumption is based on the idea that what is good for employers is also good for high skill workers. According to this logic, employers may indeed benefit from squeezing every last penny of profit out of low skill workers with low pay and zero benefits, but for knowledge-based information work, employers benefit from happy, productive, and well-compensated high skill workers. And anyway, high skill workers can negotiate high wages for themselves due to their skill set. They made all the right choices in life; with the human capital they have accumulated, they now benefit from a better bargaining position with their employer.

This misconception is as wrong as it is toxic to workers generally, both high skill and low skill. Employers use the same tactics to squeeze high skill and low skill workers, though these tactics are indeed more effective with low skill workers. Nevertheless, when high skill workers fail to acknowledge that employers have an incentive to exploit them, they don't realize that the policies that help low skill workers usually help them, too. By assuming that the interests of high skill workers align with their employers, high skill workers often support policies that actually hurt them.

A perfect example of this misconception can be found in Michael Teitelbaum's recent article arguing there is no shortage of college students studying science, technology, engineering, and math (STEM). Though well-researched and articulated, he fails to realize the broader context in which this debate takes place.

Teitelbaum begins by assembling an impressive array of research to argue that there is no STEM shortage (emphasis added):

A compelling body of research is now available, from many leading academic researchers and from respected research organizations such as the National Bureau of Economic Research, the RAND Corporation, and the Urban Institute. No one has been able to find any evidence indicating current widespread labor market shortages or hiring difficulties in science and engineering occupations that require bachelors degrees or higher...All have concluded that U.S. higher education produces far more science and engineering graduates annually than there are S&E job openings—the only disagreement is whether it is 100 percent or 200 percent more...

It is true that high-skilled professional occupations almost always experience unemployment rates far lower than those for the rest of the U.S. workforce, but unemployment among scientists and engineers is higher than in other professions such as physicians, dentists, lawyers, and registered nurses, and surprisingly high unemployment rates prevail for recent graduates even in fields with alleged serious “shortages” such as engineering (7.0 percent), computer science (7.8 percent) and information systems (11.7 percent). 

He actually missed a good one: A 2011 American Chemical Society survey found that 9% of recent graduates of chemistry and chemical engineering PhD programs were unemployed, and a whopping 18% recent graduates of masters chemistry and chemical engineering programs were unemployed. That survey did find that average pay had risen, but this was likely due to the elimination of lower paying positions, not actual pay rises. The survey also found the lowest number of students pursuing advanced chemistry/chemical engineering degrees. Underemployment was an enormous problem: Just 38% of recent chemistry PhD graduates were able to find full time work; just over a third of recent bachelors degree graduates found full time work--and not all of these chemists were actually working as chemists.