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Thursday, 3 February 2005

Probability and private accounts

Toss a coin. You have no idea if it's going to come up heads or tails. If you toss that coin a hundred times though, you know you're going to get heads about half the time. Let's say you're saving up for retirement. You have no idea how long you're going to live. You might know the median for people who have similar traits, but you as one person are like a single coin toss. If you die young, you could have used some of that saved money for cruises around the Mediterranean. If you live a darn long time, you might run out of money (shortly) before you die and end up in poverty. It's the same for private health savings accounts. Most of my family is pretty long-lived and most of my family members don't get sick until the end of their lives. But say I get a dread disease and then survive it only to get sick again later. In the meantime, I've depleted my savings and am cast into poverty by the second illness. Or I might live happily and perfectly healthy until I reach 100 only to die instantly of a heart attack at my surprise birthday party. I could have used that money to buy the alphorn collection I always wanted.

It's very difficult to predict what will happen to an individual. However, with statistics, it's easy to predict what will happen to a large population. Somebody in one of Mother Theresa's hospitals got remissions of some horrible cancer. There was only a 1 in 1000 thousand chance this would happen! It was a miracle for that individual. But if you look at the thousand cases of that cancer those hospitals have treated, well, that person was the 1 in 1000.

If you took a group of a thousand people and pooled their money into a health savings account, you could use statistics to predict how much money participants should add to the account. Some people would add more than they got out of it, but nobody would run out of funds. Predictions are easier to make. Fewer people suffer.

the more people participate, the easier to predict. Hey, what if the whole country contributed to a system where they could put money in and get money out once they needed it, if they were sick, or retired? To make it a little bit more fair, the people who put more money into the joint retirement account could get more out of it at the end. Everyone who participated would know that they wouldn't die in poverty. Similarly, we could provide healthcare to all participants in a national healthcare fund. Because healthcare is a right, everybody would have equal access based on need. But maybe people could contribute to the healthcare fund according to their ability to contribute, as in a sliding scale. People with a lot of money would have to put in more. And people with no money wouldn't have to pay in at all. That way, everybody would know they would have healthcare regardless of their ability to pay. And then the national healthcare collective could negotiate with health providers to keep costs down, to keep the collective from having to spend too much.

This way, everyone would know that they wouldn't get cast into poverty if they got sick or if they live a really long time. they wouldn't have to guess about what their own needs might be because statistically, everyone's needs are pretty much known. Everyone knows they will be ok, including poor people and sick people. The system, then is compassionate and fair and reduces suffering. Wouldn't that be great?

With private accounts, there's a lot of guessing and a lot of waste. Also, it's kind of cruel to make things optional. If I need money to feed my family today, I'm not going to be able to put that money aside in case they get sick tomorrow. Even if it's pre-tax money. Immediate needs have to be met immediately. Privately funded optional accounts are great if you've already got money and are a savvy investor . . . and you happen to guess right about how sick you will get and how long you will live. In the real world though, a collective system is a lot more humane and makes a lot more sense.

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1 comment:

Marek said...

A free-markets type might respond that the private economy has a solution: There are plenty of life insurance companies out there willing to give you guaranteed monthly payments for life (an annuity) if you give them a lump sum now. You bet that you live long, they bet that you live short...and they spread that risk out over a large population. Sure they charge a fee for doing this, but they would argue that they're so much better at doing this than the government that you still come out ahead.