Open letter to Representative Faso on health insurance

March 30, 2017

Dear Representative Faso,

A fellow constituent shared with me your letter to him on the subject of health insurance. It points to some serious misunderstandings on your part. I’ll get to the specifics of your letter, but I wanted to start with the general concept of “actuarial fairness.”

On the one hand, I don’t want to explain a concept you already know, and as someone who has dealt with public policy you may well be familiar with this one.

On the other hand, your earlier work as a lobbyist and a member of the state assembly may not have required you to learn about this particular term. And your support of the AHCA suggests you haven’t really thought through the implications of applying actuarial fairness in health insurance, so I’ll proceed with and explanation of that and then get to the particulars of your letter.

Actuarial fairness is the idea that people should be charged insurance premiums that are proportional to the costs they will probably impose on the system. If you’re selling 20-year life insurance, you have to charge more for an unhealthy 45-year-old than for a healthy 30-year-old. And you should charge slightly more for a healthy 45-year-old man than for an equally healthy 45-year-old woman. If you’re selling car insurance, you have to charge a higher premium for a 20-year-old man (some young men are excellent drivers, but the average person in that group is more reckless than others). And you have to charge more for people who have moving violations (their documented behavior shows them as individuals to be more reckless than the average driver).

In both of these forms of insurance, actuarial fairness isn’t a problem. We don’t require people to have life insurance, and it’s hard to see that there’s a social problem with people not having it, so we leave that to the market. We do require people to have car insurance if they’re going to drive, and driving is close to a necessity for many people. But it’s easy to separate out the part of someone’s high premium that’s due to who they are (charging more for a 20-year-old male) vs. the part that’s due to how they behave as an individual (a person with multiple moving violations). And that piece about “how you behave as an individual” is a large piece of the premium and useful to have in there as a deterrent to bad behavior, so we’re fine with actuarial fairness in car insurance as well.

In health insurance, however, it has very bad effects.

Which property matters

I finally picked up The half has never been told, by Edward E. Baptist, which I'd been meaning to read since it came out in 2014. The subtitle is, "Slavery and the making of American capitalism," and it's a strongly argued case that slavery was integral to the growth of the country's territory and economy.

That position is probably not a surprise to everyone, but as Baptist points out, there are ways in which we're still stuck in "the half that has ever been told" (p. xx, emphasis added), about how "American slavery was fundamentally different from the rest of the modern economy and separate from it. Stories about industrialization emphasize white immigrants and clever inventors, but they leave out cotton fields and slave labor." (p. xx)

I'm only barely into chapter 2, but the book is repeatedly thought provoking, including the economic and legal history around "the Yazoo."

Educating the future

Our college president asked my economics colleagues and me to weigh in on a LinkedIn article about big-picture economic trends and higher education.

Artificial intelligence is getting better and better at replacing humans in areas that we had viewed as out of the reach of computers. Wages since 2000 have been uncoupled from corporate profits, shrinking as a share of GDP while profits rose. And education will move from a cottage industry that's light on technology to a relatively small number of "education companies" utilizing technology to the max.

We're having a snow day (which might turn into two) so I had time to turn my hand to a response.

The article can be looked at as two parts. The first is a prognosis of what the economy will be like, and therefore what the job market will be like. The second is a discussion of the future of higher education within that context.

I think the "prognosis" part has pretty wide agreement among economists. The stagnation and decline in routine manual and routine cognitive employment are merely the next step in the Industrial Revolution. Mechanization mostly eliminated the importance of human (and animal) muscle power, moving humans over to "control" functions, whether manual (operating a machine that was powered by something other than your strength) or cognitive (including "routine" things like many office tasks 60 years ago). Now AI is reducing the importance of the human ability to control an object or to make a decision, as long as that control or decision-making can be routinized.

In the case of mechanization, there were shifts in the distribution of wealth, but there was also a huge increase in average wealth, and most people were able to move into work that required the control and decision-making abilities of the human mind, even if those applications were "routine."

With this next step of automating anything that can be routinized, it remains an open question how far the displaced workforce will be taken up into non-routine tasks, whether those are cognitive or manual.

Along the dystopian path, many of us turn out to be economically unnecessary and nothing is done about that, and so we end up with a hypertrophying of the 35-year process we've already experienced of economic stagnation for 90% of the population and rapidly increasing wealth for a small minority.

The enemy of my enemy etc.

A friend posted on Facebook a query about why some American leftists are defending Russia these days.

When I did a Russian-language semester in Moscow in 1988, there were some interesting reactions to observe among some of my classmates (I was in a group of 25 US students, from colleges around the country, hosted at a Soviet university).

I was raised by parents who objected deeply to some of the actions of our own government (e.g., they were war-tax resisters for a couple of years during Vietnam).

At the same time, they were not fans of the Soviet system, they watched the Soviets crush the East German workers in 1953, the Hungarian revolution of 1956, and the Prague Spring of 1968, and they watched the Polish government crush its own people's democratic movement in order to prevent a much bloodier invasion by the Soviets. They knew people who had fled the Soviet bloc.

I went off to college and learned more about what our government and the Soviet government had done and were doing, and continued to be critical of our government while seeing it as preferable to the Soviet one.