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Tilting at Windmills

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September 27, 2007
By: Kevin Drum

MORAL HAZARD....Several people have already pointed out the weirdness of this passage from today's New York Times's story about the new labor contract between GM and the UAW:

Beyond the bookkeeping effect of VEBAs, the health care funds could create a kind of incentive for Detroit companies and the union to modify their behavior.

....U.A.W. members, assured of health care benefits that were the envy of the labor movement, had little incentive to take better care of their health, since their generous coverage would pay for most any ailment.

By contrast, Toyota, which pays premiums only for workers, not their families, has fitness centers at its factories and requires newly hired workers to exercise two hours a day during their training period.

But this goes way beyond weird. Toyota funds employee healthcare through a mandatory payroll tax that stays the same regardless of whether its employees are healthy. The funding system itself provides no incentives one way or the other to stay fit. Furthermore, Japanese payroll taxes heavily subsidize the healthcare system for nonworkers, which means that, in essence, Toyota is paying for healthcare for everyone, not just its workers.

Japan has universal healthcare. Everyone is covered no matter what, so Japanese workers and their families have every bit as much incentive to overuse the healthcare system as American autoworkers. There's nothing about this entire passage that makes any sense. What's it doing in the story?

Kevin Drum 2:00 PM Permalink | Trackbacks | Comments (48)

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Maybe they are refering to Toyota's American plants?

Posted by: jack fate on September 27, 2007 at 2:07 PM | PERMALINK

"Little incentive" to stay healthy?

People don't care if they get a heart attack or cancer, because insurance will pay for their chemotherapy? WTF?

I've never met a diabetic who said "Sure, amputate my feet, it's all paid for..."

Who wrote this piece? And what planet are they living on?

Posted by: Jeremy on September 27, 2007 at 2:07 PM | PERMALINK

Apparently dying young or suffering through painful illnesses is not enough incentive to take advantage of free health care that includes preventative benefits, rather than to abuse it by allowing yourself to become unhealthy because there might be a free or low cost treatment that will ameliorate some of the bad effects?

Bullsh*t.

I have excellent health care and I've never seen it as an opportunity to gunk up my arteries just because future bypasses would be subsidized.

I doubt many other people react any differently.

Posted by: anonymous on September 27, 2007 at 2:08 PM | PERMALINK

This is with regard to the American division of Toyota.

Posted by: JeffII on September 27, 2007 at 2:10 PM | PERMALINK

The term "moral hazard" is in vogue right now, so people write about it without understanding it.

It's also a right-wing talking point against ANY kind of risk-spreading or group funding. It goes hand-in-hand with "self-reliance" and condemnations of "welfare." And so, because we're talking about health care, it's likewise in vogue with the Noise Machine.

I'm sure George Will and David Brooks are even now practicing using the words in front of a mirror.

Posted by: bleh on September 27, 2007 at 2:15 PM | PERMALINK

There's nothing about this entire passage that makes any sense. What's it doing in the story?

It's conformal with The Narrative.

Posted by: Davis X. Machina on September 27, 2007 at 2:16 PM | PERMALINK

Also, Toyota doesn't cover the workers family, which gives the workers an incentive to stay healthy. Wait, how? Doesn't that give the workers an incentive to get sick while their wife and kids stay away from the doctor?

Posted by: M. Peachbush on September 27, 2007 at 2:20 PM | PERMALINK

What's happening is sloppy thinking, as well as some weird attempt to parrot GOP talking points -- one of which is "Basically, people are scabs."

They seem to think that if something is available, people won't just use it sensibly -- they'll use it to excess and unnecessarily.

As if most of us ENJOY invasive procedures! Oh, to be sure, there are the hypochondriacs who'd love to come up with reasons why they simply need to have a twice monthly MRI and full blood work-up.

Besides the fact that our doctors are perfectly capable of acting as gate-keepers, this is also no reason to deny medical care to those who actually need it.

Anyway, that's what's going on in the story. Some half-baked notion that people essentially are selfish children who scream gimme-gimme and need Big Daddy InsureCo to tell them 'no'. Only here, they've taken two examples that have absolutely no bearing on that argument and twisted them like a couple of Escher staircases to support their position.

Posted by: Becca Morn on September 27, 2007 at 2:23 PM | PERMALINK

What Jeremy said, in aces. The type of "hazard" that is usually spoken of in this case is ingrained cultural, ethnic, whole-family behavior.

Growing up in industrial Ohio, I knew many Polish, Hungarian and other families (like mine) whose first generation American parents smoked, ate pork (before it was the other white meat), and piled on the sour cream. My father died quickly of a massive heart attack in his prime.

Education and experience can change these behaviors more than the cost of health care policies.

Posted by: Keith G on September 27, 2007 at 2:23 PM | PERMALINK

That NYT story displays deep insight into economics, medicine, and human nature. It wasn't until I had to pay for my own health care that I stopped trying to destroy my health.

Nowadays, you won't see me hitting myself over the head with a hammer, gorging on green meat, or sharing needles with other junkies.

They get paid to figure these things out and then explain them to us, right?

Posted by: Boolaboola on September 27, 2007 at 2:24 PM | PERMALINK

If we defunded the police department, wouldn't we save on taxes and give citizens an incentive to wear tevlar?

Posted by: duh on September 27, 2007 at 2:26 PM | PERMALINK

The only reason this horseshit has even the slightest whiff of plausibility is that most of the chattering class has taken Econ 101, while never having made it on to Econ 102.

Complete economic illiteracy is more economically sophisticated than economic semi-literacy. Which may be why college grads tend Republican, and high school folk and advanced degrees tend Democratic.

Posted by: Joe S. on September 27, 2007 at 2:26 PM | PERMALINK

They seem to think that if something is available, people won't just use it sensibly -- they'll use it to excess and unnecessarily.

Sure, but they're just projecting their own traits of immoderation, competitive acquisitiveness and constant worry that someone somewhere may have something they don't have.

Posted by: shortstop on September 27, 2007 at 2:40 PM | PERMALINK

OK, so shifting the "economic incentives" a bit will suddenly make me less likely to want to die prematurely or suffer some painful chronic disease? Oh, and I was so looking forward to an early, painful demise. Those damned economists just take the fun out of everything, don't they?

Posted by: idlemind on September 27, 2007 at 2:41 PM | PERMALINK

There's nothing about this entire passage that makes any sense. What's it doing in the story?

Taking potshots at union workers, what else?

I hope your question is rhetorical.

And aren't you the guy who said that 35k/yr was a great deal of NYC subway workers?

Remember that the media's outlook is essentially management.

Posted by: Horatio Parker on September 27, 2007 at 2:42 PM | PERMALINK

Agreed, Jeremy and anonymous. It's crazy to suppose that good insurance benefits act as an incentive to ignore one's health. At the same time, I'm put off by insurance programs that, like in the Toyota case, require members to exercise, quit smoking, lose weight, etc., etc.
I'll be shouted down here on my second point but all of this concern over the cost of illness to society caused by specific groups seems to me to be based on somewhat mythical evidence. Everyone will sooner or later be a drag on health care expense unless they are lucky enough to die in their sleep of old age. Genetics plays a very important part in the equation. Also, spending an inordinate amount of time and energy worrying about illness and one's mortality, accompanied by increased stress, seems to me to be ounterintuitive.

Posted by: nepeta on September 27, 2007 at 2:43 PM | PERMALINK

....U.A.W. members, assured of health care benefits that were the envy of the labor movement, had little incentive to take better care of their health, since their generous coverage would pay for most any ailment

i have to agree with the comments above that this truly bizarre. sure, i'll smoke three packs a day. hell, if i get lung cancer, i might have only months to live, go through painful, invasive and possibly disfiguring treatment but i'm covered! like employer-sponsored life insurance is an incentive to die.

on the other hand, the new set up might provide some incentive for companies to offer programs that help employees take better care of themselves (stop smoking, lose weight, improve cardio, early detection, etc.) and make them attractive enough that employees actually take advantage of them.

Posted by: mudwall jackson on September 27, 2007 at 2:46 PM | PERMALINK

There's nothing about this entire passage that makes any sense. What's it doing in the story?

Liberal media?

Posted by: Gregory on September 27, 2007 at 2:46 PM | PERMALINK

....U.A.W. members, assured of health care benefits that were the envy of the labor movement, had little incentive to take better care of their health, since their generous coverage would pay for most any ailment.

Damn straight. In fact, I hear lots of U.A.W. members would stab themselves in the gut or bang their heads repeatedly into a concrete wall, inflicting horrible bloody wounds, just because they thought fuck it, so what, my generous coverage will pay for this....

Posted by: Stefan on September 27, 2007 at 2:47 PM | PERMALINK

Maybe the idea is this.

At GM, the UAW in effect controlled the terms of the health care benefit. Its members, who in effect exercise that control, simply chose not to pay attention to their health, because they could always have their bodies patched up by doctors.

At Toyota of America, though, it's the company that controls access to health care benefits and that is concerned about the cost of health care. Its concern is about its employees in particular, since only they are covered by the company plan. They therefore require that their employees take care of their bodies so that they don't have to pay so much for insurance.

Posted by: frankly0 on September 27, 2007 at 2:48 PM | PERMALINK

great Escher staircase metaphor!

Posted by: absent observer on September 27, 2007 at 2:49 PM | PERMALINK

....U.A.W. members, assured of health care benefits that were the envy of the labor movement, had little incentive to take better care of their health, since their generous coverage would pay for most any ailment.

Same with my car insurance. I routinely speed down highways at 100 miles an hour, never wear my seatbelt, and quite often close my eyes when behind the wheel, all because I know my generous coverage will pay for most any kind of damage....

Posted by: Stefan on September 27, 2007 at 2:50 PM | PERMALINK

Just to be clear, I was trying to explicate the passage in the Times, not to justify its claims.

Posted by: frankly0 on September 27, 2007 at 2:51 PM | PERMALINK

What's probably true is that if someone paying for your benefits can FORCE you to do healthy things like exercise, then that's more likely to make you do those things than if you're left to your own devices.

How to draw some profound anti-union message from this fact is in the hands of the mischievous.

Posted by: frankly0 on September 27, 2007 at 2:54 PM | PERMALINK

"I'm sure George Will and David Brooks are even now practicing using the words in front of a mirror.

Posted by: bleh"

On the street they know that vampires don't reflect in mirrors.

Posted by: slanted tom on September 27, 2007 at 2:54 PM | PERMALINK

it's also worth noting that many plans provide generous benefits when you do get sick but provide little or nothing in the way of preventative care that in the long run would reduce costs. and if you think that the prospective of losing a limb or going blind through diabetes is incentive enough for most people to take proper care of themselves, look at the menu and look around you the next time you visit a fast food joint.

Posted by: mudwall jackson on September 27, 2007 at 2:56 PM | PERMALINK

OOHHHHH, OOOOHHHHH I KNOW, I KNOW, the Heritage Foundation is one of the article's sources. It is just about as loony as the Heritage Foundation's argument that normal people will drop their children's health coverage so they can go on SCHIP.

The newspaper of record, my ass.

Posted by: corpus juris on September 27, 2007 at 3:04 PM | PERMALINK

I'm with Horatio Parker -- union bashing -- it's the new black.

Posted by: Prior Aelred on September 27, 2007 at 3:24 PM | PERMALINK

I can't see why nobody's worried about the moral hazard of having a fire department that will come and put out house fires - and at public expense no less. With a program like that in place, why shouldn't I start bonfires in my living room? Hell, I've got home owner's insurance to boot.

Posted by: mike on September 27, 2007 at 3:28 PM | PERMALINK

The plan GM and the UAW agreed to is similar to what Walter Reuther wanted to set up in the late 40's. The UAW would collect premiums from the companies. All firms they represented would pay. The union would run the insurance program.
The companies all wanted to handle the insurance. I presume they wanted control and the right to invest the money in other ways while they were waiting to pay health care.
And I guess they weren't all that concerned about competition from Toyota at that time.

Posted by: art hackett on September 27, 2007 at 3:34 PM | PERMALINK

What is it doing in the story? Providing another line of attack on American workers and shoring up the anti-union argument of corporations.

Posted by: Kija on September 27, 2007 at 3:37 PM | PERMALINK

Maybe they're just leaving out some details concerning differences in coverage. What's Japan's policy on viagra?

Posted by: B on September 27, 2007 at 3:55 PM | PERMALINK

I assume they are talking about the U.S. Toyota plants and not the Japanese plants.

That being said, catastrophic illness is basically setting yourself up for death in Japan. That's just the way they think. My Japanese born partner's grandfather just had a stroke. And I was telling him that wouldn't be a problem -- they have rehabilitation and medicines and things. He'll live for another 20 years. He says no, it's just not the way things are done. His grandfather is considered to be dying at this point. It would be a waste of resources to expend all that effort to keep him alive. There will be no rehab and there will be no 30 pills a day. That would just be stupid to them -- so the insentive to stay healthy is cultural. You stay healthy, you work out. (You have to do calisthenics every day to even begin school -- you get a little pass that says that you did your exercises or they wont let you in the building.) If you don't take care of yourself -- you will die. Perhaps this also at least partially explains why Japanese are such germaphobes. If you have a cold or flu, you were a mask. Staying healthy is your individual responsibility. The state is there to administer care -- up to a point -- yes, but it is your responsibility to the nation and the emperor to stay healthy.

Posted by: DC1974 on September 27, 2007 at 4:00 PM | PERMALINK

art hackett: The plan GM and the UAW agreed to is similar to what Walter Reuther wanted to set up in the late 40's.

Actually that was Reuther's plan B. His plan A was UHC, which he asked the car companies to join him and the UAW in supporting politically. They refused, and wound up with Reuther's plan C. Of course Reuther warned them that plan C might set the car companies up for large future financial liabilities. Needless to say, they weren't convinced by that argument.

Walter Reuther, self-avowed socialist, was far more prescient about financial matters than the self-proclaimed business people of the car industry.

Posted by: alex on September 27, 2007 at 4:01 PM | PERMALINK

This was also part of the commentary by one of the panelists on the Diane Rehm show this morning on NPR.

Posted by: dead last on September 27, 2007 at 4:40 PM | PERMALINK

is it cheaper to die at 80, than at 50? everyone dies sometime, i've never met an immortal.

Posted by: sameoldjeff on September 27, 2007 at 4:45 PM | PERMALINK

nepeta: At the same time, I'm put off by insurance programs that, like in the Toyota case, require members to exercise, quit smoking, lose weight, etc., etc. I'll be shouted down here on my second point but all of this concern over the cost of illness to society caused by specific groups seems to me to be based on somewhat mythical evidence. Everyone will sooner or later be a drag on health care expense unless they are lucky enough to die in their sleep of old age. Genetics plays a very important part in the equation. Also, spending an inordinate amount of time and energy worrying about illness and one's mortality, accompanied by increased stress, seems to me to be ounterintuitive.

You raise some interesting points.

Even if genetics plays a big role (just like luck does in accidents), however, wearing a seat belt (like exercising, losing weight, and not smoking) increases ones chances of survival overall, even though in particular relatively rare circumstances a seat belt is irrelevant or even counterproductive.

Some people may not be able to stave off the negative results of "bad" genetics, but the vast majority of people would improve their odds of living longer and better by exercising, losing weight, and not smoking, which means intuitively over the long haul and for most people greater productivity as balanced against the inevitable health care costs that come with age.

As for stress thinking about it, exercise generally relieves stress and certainly people who are significantly overweight tend to be stressed by the effects of their own appearance and societies view of the obese so that any stress over the link between the need to exercise and be of an appropriate weight as it relates to mortality would in my mind likely be a wash.

In any event, I think you would have to be quite obsessive about the link between exercise (and weight and smoking) and mortality to experience any stress and I just don't see that happening and the lessening of stress that would come from giving up smoking and having more money to spend on essentials and other forms of entertainment would also appear to be a wash with any stress associated with linking smoking and mortality.

Finally, once you've given up smoking, lowered your weight, and gotten on a regular exercise regimen, then wouldn't the stress over mortality decline since the chances of dying would lessen?

Posted by: anonymous on September 27, 2007 at 5:02 PM | PERMALINK

I'm going to agree with the other commentators who point out that the article is talking about Toyota's plants in America, not its plants in Japan.

Posted by: Ben Bartlett on September 27, 2007 at 6:29 PM | PERMALINK

sameoldjeff: i've never met an immortal

We're all immortal until proven otherwise.

Posted by: alex on September 27, 2007 at 7:17 PM | PERMALINK

U.A.W. members, assured of health care benefits that were the envy of the labor movement, had little incentive to take better care of their health, since their generous coverage would pay for most any ailment.

If you extend this kind of thinking, we should eliminate health coverage for everyone. We would all have more incentive to take care of ourselves if we had we had to pay for everything out of pocket.

In fact, we should eliminate all insurance. If we didn't have life insurance, I'd bet there wouldn't be so many of us dying.

Posted by: JJF on September 27, 2007 at 7:38 PM | PERMALINK

"[quoting Frum] “The great, overwhelming fact of a capitalist economy is risk. Everyone is at constant risk of the loss of his job, or of the destruction of his business by a competitor, or of the crash of his investment portfolio. Risk makes people circumspect. It disciplines them and teaches them self-control. Without a safety net, people won’t try to vault across the big top. Social security, student loans, and other government programs make it far less catastrophic than it used to be for middle-class people to dissolve their families. Without welfare and food stamps, poor people would cling harder to working-class respectability than they do not.” [end Frum quote]

The thing that makes capitalism good, apparently, is not that it generates wealth more efficiently than other known economic engines. No, the thing that makes capitalism good is that, by forcing people to live precarious lives, it causes them to live in fear of losing everything and therefore to adopt – as fearful people will – a cowed and subservient posture: in a word, they behave ‘conservatively’. Of course, crouching to protect themselves and their loved ones from the eternal lash of risk precisely won’t preserve these workers from risk. But the point isn’t to induce a society-wide conformist crouch by way of making the workers safe and happy. The point is to induce a society-wide conformist crouch. Period. A solid foundaton is hereby laid for a desirable social order."
(From John Holbo's review of Frum's Dead Right.)

Posted by: Dan S. on September 27, 2007 at 10:17 PM | PERMALINK

As several people have guessed, the article is talking about Toyota US. In Japan, for a company like Toyota, enrollment of dependents is mandatory.

Posted by: has407 on September 27, 2007 at 10:25 PM | PERMALINK

anonymous,

You're right, of course. The seat belt analogy is excellent. An admission: I'm a smoker and therefore have a defensive reaction towards the whole subject. I did a bit of googling yesterday though to get a firmer hold on the statistics. Here is what I discovered. In 2004 (or possibly 2002, didn't write down the year) 2,897,615 Americans died. Of those 162,460 died of lung cancer. I know that smoking raises the risk of heart disease and quite a few other illnesses but for reasons of simplicity I chose only to consider lung cancer. If my trusty Mickey Mouse caluculator is working properly, that's 5.6% if all deaths, and obviously all those people were not smokers. Of those who died of lung cancer, the 6th and 7th decades of life contained by far the highest percentages of lung cancer-caused deaths. My point is that if lung cancer had not been the cause of death, isn't it quite likely that a non-smoking cause may have presented itself in the near future?

As a smoker I'm constantly accosted by virulent anti-smokers who have vices of their own, not the least of which is an assumed superiority and righteousness that is not quite obnoxious. I have no desire to impose my smoke on others in public places. But the laws currently being passed by some communities to outlaw smoking in public parks begins to approach the absurd considering the air pollution problems in all urban/suburban areas at least. It's really hard for me to express (without becoming emotional and hence irrational) what I experience as a very strange public phenomena. I haven't quite figured it out yet. There are other considerations to take into account as well, but for the time being I'll just finish this without further humiliation.

Posted by: nepeta on September 28, 2007 at 12:50 AM | PERMALINK

nepeta -- Most of my friends in Japan (and I) smoke like chimneys. And they still outlive us in the West.

Posted by: has407 on September 28, 2007 at 2:05 AM | PERMALINK

has407,

Thanks for the comment. It appears we both inhabit the wee hours of the AM too. Coincidence?
(gr). Or are you in Japan now?

Posted by: nepeta on September 28, 2007 at 2:28 AM | PERMALINK

nepata -- Unfortunately not in JP at the moment (just late work here in the US), but I do tend to keep TYO hours even when here in the US for the last couple years.

Otherwise about now I'd be looking forward to a Friday evening with friends... sashimi/sushi or maybe go slumming in yakitori alley, plenty of sake and soju, karaoke and maybe some bowling--and smokes of course.

Posted by: has407 on September 28, 2007 at 3:44 AM | PERMALINK

Now that my employer is paying for my health insurance, I can go ahead and have that heart attack I always dreamed of, but could never afford!

Posted by: Daryl McCullough on September 28, 2007 at 8:52 AM | PERMALINK

The idea that people don't have an incentive to stay healthy because they have health insurance is asinine. Like, I don't care if I get cancer, it's, like, *covered*!

Posted by: Nancy Irving on September 29, 2007 at 2:02 AM | PERMALINK




 

 

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