Matt Yglesias

The Social Construction of Health Care Biases

Ezra Klein said something important but, I think, slightly wrong about what kind of health insurance people prefer:

People tend to prefer PPOs to HMOs. PPOs tend to be more expensive than HMOs. But HMOs tend to have a higher actuarial value. The average PPO is in the low 80s, while the average HMO is 93 percent.

The reason is that PPOs make up for their easy access to specialists by building in more copayments and cost-sharing. HMOs offer more first-dollar coverage, and though specialists are more irksome to access, there’s less cost-sharing. But people prefer ease of access to coverage, so the HMO’s actuarial advantage doesn’t translate into a market preference. In other words, actuarial value isn’t everything.

It’s worth observing that Danish people have the reverse set of preferences.

Danes have two insurance options to choose from for outpatient care. Group 1 is an HMO-style system in which all doctors’ visits are free, but in order to see a specialist you need to get cleared by your primary care physician. Group 2 is a PPO-style system in which there’s cost-sharing when you see a doctor (the government still pays most of the tab, but you need to pay some) but you have the right to go see a specialist directly. Group 1 includes a staggering 98.5 percent of the population indicating an overwhelming preference for cheaper over easier access.

I think the strong, but opposite, US and Danish preferences are mostly about status quo bias. In the United States, HMOs were a relatively new innovation and people have proved willing to spend a considerable amount of extra money to avoid them. In Denmark it’s the reverse, and the Group 2 option is an innovation after decades of non-availability, and Danes seem uninterested in giving up their traditional free medicine in order to get more flexibility.

Denmark in ISAF

Danish Defense Minister Søren Gade with Robert Gates (Denmark MOD photo)

The news that NATO defense ministers are prepared to back a counterinsurgency strategy for Afghanistan seems a little bit weird given that we’re in the middle of a debate about what to do here in the United States. Something I noticed in Europe was that NATO Secretary General Anders Fogh Rasmussen, former Prime Minister of Denmark, actually seemed considerably more hawkish in his rhetoric on Afghanistan than Barack Obama is.

And it actually turns out that Denmark, which until recently was under his leadership, was, in fact, putting more effort into Afghanistan than the United States was. Denmark only has 700 soldiers in Afghanistan of whom 26 have been killed, but Denmark has about as many people in it as Cook County. Scaled up to America’s population this would be as if we had had about 1,400 soldiers killed out of a 38,000-strong deployment. Of course in a war absolute number count and Denmark is still a small contributor. But part of the context for what happens at these meetings is, I think, the fact that NATO’s civilian chief is a guy who was the architect of what’s been, for his country, a pretty major war.

Race in America and Europe

Pat Buchanan says, of white people, “America was once their country. They sense they are losing it. And they are right.” I affiliate myself with what Adam Serwer has to say about this, but it also seems like a good jumping-off point for something I’ve been meaning to write about since I came home from Europe.

There’s often a kind of conventional idea on the left that the United States is an unusually racist society. And I think there’s also often a kind of image of Europe as a place where more of the progressive agenda has been achieved than in the USA. But I think that you’ll find if you look at Europe through the eyes of the liberal agenda that while the German left has certainly been more successful than the American left at securing universal health care, it’s been much less successful at promoting a tolerant, integrated, multicultural society. And allowing for the errors implicit in making any kind of sweeping generalization, I’d say that’s pretty generally the case across Europe. This Swiss People’s Party campaign poster would, I think, make Jesse Helms blush. And I’m not even sure which of the Northern League posters from Italy is the most egregious.

In the US, in other words, racial problems have been more salient for a long time since we’ve been a racially diverse society for a long time. But by the same token, for all the problems we have with us today, we’ve made enormous progress over the years. Racial and ethnic tensions are a common problem in the world, and the United States manages diversity pretty well in comparison with other places (not just in Europe) even if we fall short in some absolute terms. Just look at Barack Obama. I think we’ll be waiting a while yet before someone of non-European ancestry is elected head of government in a European country. Denmark has some great public policy ideas, but it’s also kind of made itself into the gated community of nations in a way I don’t find particularly appealing.

At any rate, in some sense it’s probably true that white America has “lost” “its” country, but that’s a good thing. It’s everyone’s country!

You Could Have It So Much Worse

New Daily Beast column from yours truly takes a look at health care in Sweden and Denmark to put the Obama proposals in perspective and remind the interest groups looking to block reform that they’re actually turning down a very generous offer:

Whether reform passes this year or not, the status quo really is untenable. Something will have to change someday. And what Obama and Baucus are proposing is close to the minimum amount of change conceivable. If insurance-industry groups succeed in killing the bill, the lesson will be that appeasement hasn’t worked. And that may mean that next time around, reformers will start thinking big and try to put health care under democratic control and financed on the basis of solidarity. Industry may vehemently oppose even modest reforms, maybe trying to kill it off entirely. That would be an ugly fight that would mean years of delay in providing help to people who urgently need it. But unless insurers can recognize how much the powers that be are bending over backward to be nice to them, it might be the only way forward in the long run.

Here’s my earlier post on health care in Denmark and here’s health care in Sweden. The systems are similar, though I’d say Sweden’s is marginally better. The Swedish government’s English-language description of their system also includes my new favorite health policy catchphrase: “Swedish health and medical care is based on the principles that care should be provided on equal terms and according to need, that is should be under democratic control and financed on the basis of solidarity.”

Where Is Scandinavia

Freshly returned from a great trip to Scandinavia, I can’t help but enjoy the FuckYeahScandinavia tumblr that I was first shown this morning. That said, no fan of northern Europe can avoid observing that several of the countries the tumblr covers aren’t technically “Scandinavian.” Americans often find this a bit confusing but Scandinavia, strictly speaking, only refers to Denmark, Sweden, and Norway. If you want to add in Iceland and Finland and miscellaneous extra territories (Åland, Faeroe Islands, Greenland) the word you’re looking for is “Nordic.”

I don’t totally understand why the distinction has been drawn this way—but roughly the point is that Finnish is a very different language from the others and that Iceland is clearly a geographically distinct phenomenon from the rest.

The larger point, however, is that the giant phone in this Robyn video is totally awesome. I also like that in Sweden health care is “under democratic control and financed on the basis of solidarity.”

Green Conservatism

Connie Hedegaard (photo by Kate Sheppard)

Kate Sheppard was on the same trip to Denmark as I was, and wrote up this post about our conversation with Connie Hedegaard, Folketing member for the Conservative People’s Party and Minister for Climate and Energy in the current Liberal-CPP coalition government:

“It’s at the core of conservatism to take care of the environment, to protect nature, to use resources responsibly,” said Hedegaard. “I can think of nothing that’s more conservative than that.”

Her priority, she said, is that their policies be vehicles for economic growth. The export of clean tech increased 19 percent last year, triple what it was ten years ago. Just recently it passed pork as the country’s leading export product.

“I have tried to turn this into a growth agenda. It is not an anti-growth agenda,” she said. “Often back in the ’70s for the left, socialists and liberals, it was an anti-growth agenda. In a world where we’re going to become 9 billion people by the middle of this century, we must have growth. The challenge is to make this growth more green, to make it sustainable.”

This is basically a Teddy Roosevelt kind of view that from time to time has been espoused by John McCain here in the United States. Starting in the waning days of the Presidential campaign, and continuing for most of the Obama administration, this strain of green conservatism seems to have largely vanished. It recently got a bit of a boost, however, in the form of a joint op-ed by John Kerry and Lindsay Graham. Still, one strains to come up with an example of a right-of-center American politician whose level of commitment to the climate change issue would be recognizable by a Hedegaard or an Angela Merkel or a Nicholas Sarkozy. In part that reflects interest-group politics—the United States is a significant producer of fossil fuels in a way that only Norway is in Europe. But in large part I do think it reflects a kind of failure of intellect and imagination that American politicians have occasionally flirted with transcending, usually only to return to orthodoxy soon enough.

Unemployment in Denmark

I got these numbers from the official government of Denmark statistics page but the current unemployment rate seems a bit implausibly low:

At any rate, unless I’m badly misunderstanding what they’re reporting, Denmark seems to be weathering the current global downturn quite well.

Life in a Small House

As everyone emphasizes, the cheapest form of renewable energy is really energy efficiency—just not wasting as much energy. A cousin of this point, however, is that the truly cheapest thing of all is to just do with less. So for example, American houses actually use slightly less heat energy per square meter than do European houses. But since American houses are much bigger than European houses, we use far more energy in home heating than do Europeans. The Danes are substantially more efficient than the average Europeans, so they use less energy per square meter than we do despite living in a much colder climate. But on top of that, the average Danish house is about half the size of the average American house.

Since home-related energy use is a big deal and housing is a big component of household finances, the large size of American houses is a really important aspect of the American way of life. And it is worth asking how valuable our super-sized homes really are. It’s definitely a good thing that our modern houses are much bigger than houses were circa 1900. That brought about substantial reductions in overcrowding and real benefits in human welfare. It seems to be the case, however, that we’ve crossed over into territory where further increases in house size are driven by positional arms races. People aren’t looking for bigger houses, in other words, they’re looking for houses bigger than their friends’ houses in a way that’s not producing much of any net gains in welfare.

If that’s right, then we’re really wasting a disturbing quantity of resources not only building the very large homes but also heating them. Housing spending has the long duration properties of investment goods, but it’s not really productive the way a factory or an office building is. It’s just a very big, very expensive, very durable consumer good. Which is fine, insofar as it’s really leading to satisfied consumers. But it seems that it isn’t and if we all crowded into Danish-sized houses we’d quickly adjust, feel just as good about ourselves, and then go buy more non-housing stuff (or if we actually moved to Denmark, spend the money we’re saving on housing paying very high taxes in exchange for generous public services).

Taxes, Taxes Everywhere

The overwhelming fact about Danish public policy is that taxes in Denmark are really high. There’s a substantial VAT and also a substantial income tax. You pay taxes to buy a car, and you pay higher taxes for heavy cars. Gasoline taxes are high (gas costs almost $7.50 a gallon) as are taxes on electricity, which account for more than half the cost of electricity to consumers. In exchange for all this, the Danes have basically achieved all the stuff progressives say they want. The country is rich, clean, and highly egalitarian. The high taxes finance generous public services, and the high levels of expenditure allow the country to do without a lot of extraneous business regulation which helps keep the place economically dynamic. According to surveys, the people are all very happy, which is exactly what you would expect from a very rich, very egalitarian society. And as this trip has emphasized, they do it all while doing much less polluting than Americans do, despite a higher average material standard of living.

There’s more to that than taxes, of course, but the high taxes really are integral to the whole thing. And that includes the environmental piece. In part because there are directly pro-environment taxes. But also, I would say, in large part because it’s the egalitarian income distribution and robust redistributive state that makes the environmental policies tolerable. Cheap gas and electricity are, in part, what we do in the United States instead of real social policy.

All of which is just to emphasize a point I’ve been making a lot over the past few months: there’s no way to have a progressive renaissance in the United States unless progressives find some politically feasible way of directly making the case that higher taxes for better services can be a good trade. And it’s worth trying to be honest about this. The other American journalists I’m traveling with, all lefty environmentalist types, can’t stop complaining about how expensive basic consumer goods are here. And it’s true, stuff’s expensive! But college and preschool and doctors and hospitals are all free, and the carbon emissions are low. This is, I think, a good trade but it really is a trade. Low taxes plus cheap dirty energy and large numbers of poor people will give you cheaper restaurants.

The Copenhagen Suburbs

Was out in the suburbs of Copenhagen today for a bit, and they look, well, a lot like American suburbs except with smaller-than-average houses. But if you go visit an American suburb with smaller-than-average houses—usually an older one—then you’ll very much have the right idea. What was quite different, however, was the transportation from the suburbs into the central city. Copenhagen’s suburbs are organized around the “finger plan” illustrated in the map on the right. Each finger is, as you would do in the United States, built around an arterial road. But the roads have fewer lanes than an American arterial would have. But running alongside them (or at least running alongside the one our bus was driving on) are very nice, very wide bike paths. And roughly parallel to the roadways are the S-Tog commuter rail lines.

Consequently, there are fewer people driving on the road than you would have in the US and there are more people biking and taking the train.

It’s worth noting that this sort of thing leaves overall automobile congestion neither better nor worse than an alternative strategy of fewer options and wider roads would. Insofar as you build road capacity, drivers will fill that capacity up. You get a choice of what level of automobile traffic you want to see the congestion at. But if you actually want uncrowded rush hour roads then you have basically only two choices. One is that you can build “road to nowhere” type projects where the economic rationale for infrastructure development is so poor that people don’t really want to drive on your shiny new highway. The other is that you can do congestion-pricing. But absent congestion-pricing, even the really admirable provision of alternative modes has limited impact. When valuable goods are given away for free, you get shortages. Copenhagen is apparently considering following Stockholm and Oslo and implementing a congestion fee, but they haven’t done it yet.

Still the moral of the story is, I think, pretty clear. When you build infrastructure to facilitate commuting from suburbs to central cities, lots of people will avail themselves of the opportunity to move to the new suburbs. But how they actually get to the central city depends on what kind of infrastructure you build. If you build giant highways, they’ll drive. If you build smaller roads and also some trains, then some people will drive and some will take the train.

For the sake of comparison, note that Copenhagen is a pretty small city. There are 521,000 people in the city proper and 1.8 million in the metro area. That would make it the 30th largest metro area in the United States, slightly bigger than the Las Vegas MSA and slightly smaller than the Kansas City MSA. All told, about 129 million Americans live in metropolitan areas that are bigger than metro Copenhagen. About a third of Danish people live in Greater Copenhagen, whereas over 40 percent of Americans live in metro areas that are bigger than Greater Copenhagen.

Green Tax Shift in Denmark

On the Wikipedia page for Danish Prime Minister Lars Løkke Rasmussen, who currently leads a center-right (by Danish standards) coalition, I read the following about his time as Finance Minister before Anders Fogh Rasmussen stepped down as PM to be the top civilian official in NATO:

In February 2009, Lars Løkke Rasmussen was the chief negotiator in the political agreement behind a major tax reform, implementing the government’s ambition of reducing income tax and increasing taxes on pollution. The reform was, according to Lars Løkke Rasmussen, the biggest reduction of the marginal tax rate since the introduction of the income tax in 1903. The opposition accused it of being historically skewed in favouring those with high-income jobs and giving very little to those with low-income jobs.

You can read Google’s translation of Danish newspaper articles about this here and here. Relative to the tax agenda pursued by George W. Bush, Rasmussen’s approach:

1. Achieves the U.S. right-wing’s core policy objective of reducing taxes on rich people.
2. Also contributes to solving a bona fide public policy problem.
3. Does a much better job relative to the budget deficit, an issue the U.S. right-wing at least claims to care about.
4. Would have screwed around with the Democratic Party’s political coalition by attracting support from green groups and from upscale liberal voters.

That seems like a lot to like had a more serious, thoughtful, and courageous group of people been in power. Obviously the interest-group politics is totally different in Denmark where there are substantial industries around wind power and efficiency and basically no fossil fuel production. They use coal and oil, in other words, but don’t produce much of any so there’s not the same kind of pro-pollution constituency. That accounts for part of the difference. But much of the rest of the difference seems like a lack of imagination combined with a lack of good sense and a lack of morality.

Health Care in Denmark

I’m here in Denmark primarily to learn about energy and environmental policy, but visiting a country is always a good time to fire up the old Google and learn about health care policy. 84 percent of Danish health spending is accounted for by the state, with the remaining sixteen percent mostly representing out-of-pocket spending on medicines and dental products. The state just straightforwardly pays for care out of tax revenue. Denmark has the highest taxes in the world, and part of the reason is that they rather efficiently don’t monkey around with a lot of quasi-taxes in which they make employers contribute to health funds or whatever. It’s just straight-up tax and spend.

For the purposes of non-hospital care, all Danes need to choose to be either in Group 1 or Group 2. Children under the age of 15 are enrolled in the group chosen by their parents, and when you turn 15 you’re enrolled by default in Group 1, though you’re free to choose Group 2. In practice, almost nobody chooses Group 2 and Group 1 covers 98.5 percent of the population. The good news for Group 1 patients is that you get to choose your general practitioner and you get to see him (or a substitute if he’s sick or on vacation or if you’re traveling in another town or what have you) for free. You also get to see specialists for free, but only with a recommendation from the GP. In Group 2 you need to pay a portion of the cost of a visit to the doctor, but you have the right to go directly to a specialist.

Denmark has 4,100 general practitioners and 1,200 practicing specialists, which I believe is a way higher GP:specialist ratio than we have in the United States.

Hospitals-wise, Denmark is organized into five regions. The basic idea is that if you need to go to a hospital, you go to one of the ones your region runs. However, certain kinds of services may be so specialized that they’re not available in all regions, so the regions have reciprocity agreements with each other in which you might get sent to an out-of-region hospital. Denmark is also a pretty small country—a population larger than Minnesota but smaller than Wisconsin—so for some rare treatments you may need to go out of the country, and it’s possible to get the state to pay for that.

Denmark also has a private hospital sector. Some of what happens in the private hospitals is that they provide specialized care under contract with the regions. In addition, the ruling center-right coalition introduced a law in 2002 saying that citizens may choose to go to a private hospital or clinic “if the waiting time for treatment exceeds two months and the chosen hospital has an agreement with the regions’ association regarding the offer for treatment.” In 2007 they expanded this initiative by reducing the waiting time to one month.

Denmark spends a relatively large amount on health care, but it’s very close to its fellow small northern European countries. Lately Denmark has been putting more emphasis on preventive health. This is probably a good idea since Denmark’s life expectancy, though slightly higher than America’s, is near the bottom for western Europe.

Copenhagen Bicycle Identity Crisis

(cc photo by NicestAlan)

Today I got to go on a bicycle tour of Copenhagen guided by two representatives from the Dansk Cyklist Forbund (Danish Bicycle Federation). It was a great way to learn about Copenhagen’s bike infrastructure by actually riding around and experience it, stopping periodically to have things explained. I’d been to European cities with impressive bicycle infrastructure before—Berlin and Stockholm very recently—but those places seemed like a difference in degree compared to the United States. Copenhagen was a difference in kind. There’s just not—at all—a sense of danger or even competition with the automobile. On streets that are heavily trafficked, there are bike lanes, and the lanes are usually physically separated from the road. On streets where there aren’t bike lanes, there isn’t much traffic. And most of all there are tons of people on bikes wherever you go. Thirty-seven percent of Copenhagen commuters use bikes. And given that presumably some people are walking to work, some people are using the bus, some people are using the Metro, and some people are using the S-Tog the resulting situation is one in which cyclists and drivers are really equals.

It’s actually impressive to a degree that’s somewhat unsettling. Regular bicycle commuting in the United States is, among other things, a somewhat meaningful identity category. Initially it’s thrilling to see so many of “your people” everywhere. But looking closer you start to see exactly what was explained to me—the whole reason you have so many people biking around is that cycling is totally mainstream in Copenhagen and doesn’t constitute an identity at all.

From a policy perspective, what you’re basically seeing in Denmark is path-dependency on steroids. Back in the 1970s there were a substantial number of cyclists in what I guess you would call the “pre car” mode where people ride bikes because the country is too poor for everyone to afford a car. Then came the oil crisis and driving got even more expensive. And alternative policies started to be explored where for the first time the country started consciously trying to encourage bicycling. And the policy was never really dropped. So you have lots of cyclists which creates a constituency for more infrastructure which leads to more cycling which creates a constituency for more infrastructure. Denmark is the country with the highest share of GDP going to taxes, and part of that is very high taxes on cars and on gasoline so even though Denmark is a very rich country today lots of families still have a strong financial incentive to limit car ownership and car use.

I think you can already see embryonic versions of this positive reenforcement cycle in some American cities—New York and Washington to name two—but it still looks very different and I think something dramatic would have to happen to really change the path dependence dynamic. Then again I think that if you look at where oil prices were before the financial crisis hit it’s not all that unlikely that something dramatic will happen, comparable to the oil crisis of the seventies. At any rate, the current center-right government in Denmark hadn’t actually been very interested in bike-promotion over the past eight years (the Copenhagen city government is another matter) but no they’ve changed their tune and are appropriating about $200 million in competitive grants to municipalities for bike projects.

Thune Falsely Claims House Health Care Bill Would Result in “Most” Americans Paying Half Their Income in Taxes

Looks like John Thune took to the Senate floor yesterday to warn that the House health care bill’s surtax—a measure that would only effect 1.3 percent of the population—would lead to “most Americans and most small businesses” paying “fifty cents of every dollar in taxes.”

Pat Garofalo observes that this is all kinds of wrong. The highest-tax country in the world at the moment seems to be Denmark, where government revenue equals 50 percent of GDP. Even there if we assume the tax code is even a little bit progressive, most people will be paying less than 50 percent of their income in taxes.

Meanwhile, Denmark is also a great place! It’s one of the richest countries on earth, and thanks to its much more egalitarian distribution of wealth and income, median living standards are higher than in the United States. Indeed, notwithstanding its high taxes Denmark always rates high on right-wing metrics of “economic freedom” as well as on things like the UN’s Human Development Index. The Danes also happen to be the happiest people on earth and are operating what’s probably the most ecologically sustainable of all the developed economies. I wouldn’t say they owe it all to their high tax rates, but certainly the fact that Danes are willing to to fund public services and public infrastructure at adequate levels is helping them.

The Horrors of Nordic Socialism Exposed

The Daily Show did a nice segment the other day exposing the horrors of socialism as practiced in Sweden. Basically, most people are better off than most Americans, but rich Swedish people aren’t nearly as rich as rich Americans:

My sense of things is that, all joking aside, Sweden really has gone too far and if I were Swedish I’d be looking to recalibrate to something more like the model of social democracy on display in Denmark or Finland or the Netherlands which all, like Sweden, are ahead of us in the Human Development Index and would be regarded by Glenn Beck as little better than life in a gulag.

Denmark: A Land of Good Policy

Some links on Denmark all via Justin Fox. First, they have excellent energy policies in Denmark, which I already knew. Second, Denmark combines high taxes and general social welfare benefits with a good climate for business ventures, which I also knew. What I didn’t know what that they also have a smart mortgage finance system described thusly by George Soros:

Second, mortgage originators are required to retain credit risk and to perform the servicing functions, thereby properly aligning the incentives. Third, the mortgage is funded by the issuance of standardized bonds, creating a large and liquid market. Indeed, the spread on Danish mortgage bonds is similar to the option-adjusted spread on bonds issued by the GSEs, although they carry no implicit government guarantees.

Finally, the asymmetric nature of American mortgages is replaced by what the Danes call the Principle of Balance. Every mortgage is instantly converted into a security of the same amount and the two remain interchangeable at all times. Homeowners can retire mortgages not only by paying them off, but also by buying an equivalent face amount of bonds at market price. Because the value of homes and the associated mortgage bonds tend to move in the same direction, homeowners should not end up with negative equity in their homes. To state it more clearly, as home prices decline, the amount that a homeowner must spend to retire his mortgage decreases because he can buy the bonds at lower prices.

To be sure, these policies may be partially responsible for Denmark’s relatively low homeownership rate:

That said, even though it’s become a dogma in American politics that more people owning homes is a sign of economic progress, I don’t see any real reason to believe that to actually be true. Especially in a large country like the United States, it would arguably be beneficial to encourage people to be as flexible as possible in terms of where they live—i.e., to rent and to be prepared to follow labor market opportunities where they may take you.

Cophenhagen Airport

I’d really like to visit Copenhagen some day. For now, I’ll need to settle for Copenhagen Airport. Extremely elegant architecture and design here at the transfercenter as I’m waiting for my connecting flight to Helsinki to get a gate assignment. Also: A 7-11. Hadn’t realized there were 7-11s abroad.