Financing Arms Races, Health Edition
posted by Frank Pasquale
As the subprime mortgage meltdown continues, we’re seeing the ugly side of credit expansion. Consider how Countrywide approached its customers:
[T]he company’s commission structure rewarded sales representatives for making risky, high-cost loans. For example, according to another mortgage sales representative affiliated with Countrywide, adding a three-year prepayment penalty to a loan would generate an extra 1 percent of the loan’s value in a commission. While mortgage brokers’ commissions would vary on loans that reset after a short period with a low teaser rate, the higher the rate at reset, the greater the commission earned, these people said.
Though many celebrated ever-rising home prices, more discerning commentators (like Schiller, Frank, and Warren) saw the run-up in paper wealth in a darker light. Buyers may be getting a bit more house for their money, but they were also fiercely competing in an auction for space and position. The gap between housing haves and have-nots widened, giving the latter ever more worry about their chance of owning a piece of the American dream.
Now we might be seeing a similar dynamic in cosmetic health interventions. As patients turn to no-interest loans for health care, we can expect ever more demand for “$3,500 laser eye surgery, $6,000 ceramic tooth implants or other procedures not typically covered by insurance.” Just as the leverage behind a 30-year mortgage accelerates a bidding war for houses, this new frontier of financing will increase the social pressure to conform–to ditch those glasses, get rid of even minor dental imperfections, etc. As the article notes, “consumer debt experts warn that as more people try to bridge widening gaps in their health insurance, paying for medical care on credit could plunge the unwary into a financial crisis.” But as more begin to do so, the phenomenon becomes self-reinforcing: physical imperfection starts to signal financial distress and thus becomes ever more stigmatic.
Though the loans described in the article are small, I have a sense they are part of a larger trend in the marketization of health care. Presently, US health expenditures are much higher than other countries’ due to (inter alia) extraordinary administrative costs, doctors’ political power to limit their supply, and a third-party payment system that obscures costs for patients. If “consumer-directed” health care manages to shift those costs directly to patients, health providers may well turn to financing options to “spread the pain” of a big bill over five, ten, or even thirty years.
Moreover, libertarians who want to get rid of Medicare might see the financing plans as an ideal way of moving responsibility for health care finance from the state to individual families. As parents enter retirement, they could set up a reverse mortgage on their house to pay for health care. If those assets run out, I assume libertarians would want to see the parents turn to their children for help–say, asking each to take out a $300,000 health care mortgage for their parents’ care. Perhaps big finance can perfect the libertarian dream of complete personal/familial responsibility for health care.
August 30, 2007 at 8:25 am
Posted in: Culture, Economic Analysis of Law, Health Law, Intellectual Property, Sociology of Law
Print This Post
Responses (8)
joe - August 30, 2007 at 9:12 am
Do you really think laser eye surgery is equivalent to a costly auction for space and position?
james Grimmelmann - August 30, 2007 at 9:32 am
What’s the data on the “gap between housing haves and have-nots?” I’ll buy that the disparity in wealth is rising, and I’ll buy that Americans have been shifting to larger and more expensive homes, but what are the stats on the distribution of housing?
Frank - August 30, 2007 at 9:45 am
Joe–my view would be that a) many of these interventions don’t have significant objective benefits and b) the subjective benefits are simultaneously so slippery and so compelling that they can cause a “cascade” of expenditure.
For example, the “eyelid surgery” in South Korean has become extraordinarily widespread. Consider this story:
“South Korea is even more competitive than it is conservative. And with so many young people having themselves remade, parents are afraid their children will fall behind, not just academically but aesthetically. “Parents make their kids get plastic surgery,” says Dr. Shim Hyung Bo, a plastic surgeon practicing in Seoul, “just like they make them study. They realize looks are important for success.” Which means that in today’s Korea, getting your eyes done can be easier than getting the keys to dad’s car. ”
from:
http://www.time.com/time/asia/covers/1101020805/plastics.html
I have a sense that glasses could easily become as disadvantageous as many of these parents apparently believe non-surgically-altered eyes are. The easier we make such surgery, the easier it becomes for a “suspect norm” to become widespread.
As Dan W. Brock says in Parens’s Enhancing Human Traits (62), “When some individuals use enhancement technologies to gain competitive advantages for themselves, they put coercive pressure on others to use them as well so as to avoid becoming worse off than they were intitially. One of the most familiar examples is the use of steroids in high school and college athletics.”
Frank - August 30, 2007 at 9:47 am
James,
I do not have the class figures, but I do have some race figures:
“Three-fourths of white households owned their homes in 2005, compared with 46 percent of black households and 48 percent of Hispanic households. Home ownership is near an all-time high in the United States, but racial gaps have increased in the past 25 years.”
from
http://www.nctimes.com/articles/2006/11/14/news/top_stories/1_04_2111_13_06.txt
I will try to figure out how the 30% of households in the US that do not own their homes fit into the overall income distribution.
Patrick S. O'Donnell - August 30, 2007 at 10:09 am
Your point about the medical version of the Frankian arms races is well-taken. I want to briefly address the libertarian rhetoric that continues to enchant so many sectors of our society, including those who continue to suffer most from its effects when it serves as the economic backdrop of, if not primary ideological motivation for, public policy.
“The correlation of health and longevity with social position–occupational and social status, educational level, and other indices of hierarchy–has been recognised for many decades, as least by social scientists. In recent years, this relation of health to socio-economic stratification has moved to the centre of public health concerns. Up and down the socio-economic ladder, the better off one is economically and socially, the better one’s health and the longer one’s life. Death rates from 80 per cent of the eighty most common causes of death are higher for blue-collar workers than for white-collar workers; the differences in many cases are several-fold. Inequalities among social groups, also including racial groups, are as great in the United States and some other wealthy countries as are the differences between wealthy countries and much poorer ones.”
The dogmatic libertarian obsession with market solutions and the ritualized rhetoric of personal responsiblity cannot be countered in the first instance with neo-classical economic arguments, for we “need a moral account, a compelling argument that health inequalities represent or constitute an injustice that places a claim on society’s resources. Unless the inequalities associated with social position are unjust, interventions aimed at narrowing them would have to compete with other public health measures on the basis of ordinary standards used in setting priorities.” In a country in which many people believe others have the kinds of lives they’ve earned (or deserve), in which the dreams of wealth are mesmerizing and motivating, we have a way to go before we can create a different kind of socio-cultural ethos that cherishes a more egalitarian vision of justice, one that makes it clear how individual liberties are markedly enhanced by concrete gains in socio-economic equality. A rhetoric of personal responsibility does not allow us to place the inequalities in health among social groups within the rubric of “injustice.” Placing the locus of blame on individuals amounts to an exculpation of social structures and effectively denies the social sciences a role in providing us with knowledge relevant to the politics and policies of the common good. This does not amount to a denial of *any* role for personal responsiblity for health, if only because the “notion that people should bear resonsibility for the consequences of their personal choices makes up part of the bedrock of our moral and political culture,” and it remains the case that “whether a person adopts healthy living habits” is an important variable in achieving a “population free of avoidable infirmity and premature mortality.” But there are not a few public health reasons for according personal responsibility “a peripheral role in health policy.” See Daniel Wikler’s essay, “Personal and Social Responsibility for Health” in Sudhir Anand, Fabienne Peter, and Amartya Sen, eds., Public Health, Ethics, and Equity. (new York: Oxford University Press, 2004), 109-134.
As Daniel Goldberg of the Medical Humanities Blog would remind us, there are a plethora of related titles (e.g., The Social Medicine Reader, works by Kawachi and Berkman, Hofrichter, Marmot, etc.).
marianne - August 30, 2007 at 10:23 am
It is obvious that the subprime home financing market is run amok. However, I think that a case can be made for the subprime/stated income commercial lending market. There are family owned financial institutions like Ocean Capital in Rhode Island that take a close personal look at their loan properties before lending. Sometimes, first time small businesses need help with gas stations financing, hotel and motel acquisition financing or auto shops financing. Oftentimes these folks do not meet the capital requirements to get started unless dealing with a non-traditional lender.
Joe - August 30, 2007 at 10:51 am
Frank — I thought the “laser eye surgery” you were referring to was lasik surgery, which may very well be a positive net present value investment for current contact wearers. That hardly seems to be the type of procedure you would be concerned about. But I agree that other eye procedures may be a different story.
Daniel Goldberg - August 30, 2007 at 11:30 am
I co-sign Patrick’s excellent comment (and he cited me, so I’d better!), and I’d also add that the sin-suffering link is at least as old as the Book of Job. Connecting the notion of illness with ideas of merit and desert preserves a kind of order regarding illness. The alternative, that there is no rhyme or reason why the innocent sicken and die, is, as Nietzsche reminds, far worse than ordering illness experiences by stigmatizing the ill as responsible for their own suffering.
Leave a Reply