LTC Bullet: The Morality of Hazards

Friday, November 10, 2017


LTC Comment: If conventional morality is a trap, what would work better? Ruminations after the ***news.***

*** 1200th LTC BULLET: As of today, we’ve published 1,200 LTC Bullets since the Center for Long-Term Care Reform’s founding on April 1, 1998. Just think of what the field of long-term care financing has been through since then. The Deficit Reduction Act of 2005 substantially curtailed Medicaid planning abuse and unleashed LTCI partnerships. The CLASS Act came and went, dashing hopes for a government solution. Several more study commissions burned up time, effort and money, but came to naught. The long-term care insurance marketplace adapted heroically to historic challenges. Through all these years, only one thing remained unchanged: long-term care is a mess, mostly welfare-financed with public denial of risk prevalent and public financing completely inadequate. Maybe last week’s and this week’s LTC Bullets shed some light on why. But one thing’s for sure, you can follow the entire 20-year history of LTC financing since the Center’s founding here. You’ll find every LTC Bullet we’ve published archived both chronologically and by these topics: The LTC Problem and Solutions; Reality Check: The Facts on LTCI; Medicaid Planning; LTC Services; Politics and Legislation; Demographics and Other Data; CLTCR News. It’s a fascinating on-going saga. Check it out. ***

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LTC Comment: Last week’s LTC Bullet: The Hazards of Morality explained how altruism, America’s dominant ethical doctrine, backfires in practice. Altruism asks us to put others’ interests ahead of our own. If we truly did that, however, we’d never accumulate anything to share with others in the first place.

So, most people most of the time do what is in their own best interest. That’s human nature. Unfortunately, practicing self-interest violates the ethical guidance of altruism, which leads to guilt feelings. To assuage their guilt while pursuing their self-interest, the public farms out altruism to the political system.

But politicians are no more altruistic than anyone else. While they claim to help the needy, they actually trade favors for votes, ego gratification and graft. The needy fare poorly at the hands of politicians. Famously, “programs for the poor are poor programs.” Here’s what really happens.

We’ve been sold a bill of goods by public officials: don’t worry about the needy, work hard, pay your taxes and we’ll take care of the poor for you and, while we’re at it, we’ll take care of you as well. So, how’s that been working out for us?

Promised Social Security, Americans don’t save as much for retirement as they otherwise would. They get a dismal return compared to what private investment of their payroll taxes could have produced.

Promised ObamaCare or Medicare, beneficiaries don’t demand private health insurance with premiums based on individual risk. They’re compelled to pay excessive premiums, deductibles and co-insurance to subsidize others.

Promised Medicaid, people don’t save, invest or insure for long-term care. They end up in welfare-under-financed nursing homes with their wealth often expropriated by heirs in order to qualify them for public assistance.

Some of the scariest words in the English language are: “I’m from the government and I’m here to help you.”

The fundamental principle underlying our Faustian bargain with government is moral hazard, the natural tendency for people to be more careless if they’re protected against the consequences of their behavior. Moral hazard is more or less manageable in a clearly articulated, carefully drafted, properly underwritten legal contract of private insurance. But it’s a disaster writ large across society with only the vague idea that government has the right and responsibility, backed by a monopoly on the use of force, to compel some of us to help others. Such socialized moral hazard becomes an ethical and financial sinkhole.

You can see the results everywhere. More people are more dependent on government all the time. Over half of all births in the USA are paid for by Medicaid. We’ve spent trillions on welfare programs, but poverty rates are flat since the “Great Society” began. Deficit spending and artificially low interest rates, alleged to create jobs and help the needy, instead line the pockets of the affluent by artificially boosting asset prices. In the meantime, the national debt exceeds $20 trillion, unfunded liabilities top $200 trillion, and the three biggies—Social Security, Medicare and Medicaid alone threaten to consume most federal spending in 30 years.

We’ve lived on borrowed time and money for decades. The hole we’re in is too deep to climb out of without a major economic reckoning, a regression to the mean for taxes, spending, borrowing, interest rates and individual responsibility. When the current credit bubble pops, we’ll be weaned abruptly off dependency on government. The 80-year invoice for socially-induced moral hazard will come due. Then we’ll have no choice but to try something different.

What would work better? Call it the “morality of hazards.” Instead of asking the government to take care of the poor and us, let each person and family take responsibility for themselves. Would that leave everyone at risk? Of course. Life is risky. But the vast majority of us, if not seduced by the soporific effect of government dependency, would worry about life’s risks, plan ahead, and save, invest or insure to meet them. That’s what private insurance is supposed to do for us and would if its design, demand and supply were not distorted by counterproductive public policies and government regulations.

But what about the poor, you ask? They’ll prosper. All they get now are the scraps remaining after politicians and bureaucrats skim wealth diverted by political compulsion away from productive people. Leave that wealth at work in the economy and everyone will prosper, except the pols and public officials who consume so much of it now. Nothing benefits the poor more than jobs and jobs come from leaving capital in private hands eager to put it to work. But that’s not the only way the poor will benefit.

It is human nature to pursue self-interest. That’s not bad; it’s good because it brings self-confidence, self-esteem, self-reliance, success and prosperity. As soon as we’ve achieved those things for ourselves, we feel pride and we want to share our success with others. That’s human nature too. When government stops co-opting our natural good will and generosity by telling us to pay up, stop worrying about the poor, and let the good times roll, we’ll take philanthropy back. Private charity will grow again as it was doing in the first half of the 20th century before public charity thwarted it.

The hazards of relying on the morality of altruism are evident everywhere, getting rapidly worse, and pose existential risk. The “morality of hazards,” that is relying on self-interest, individual responsibility, private markets, freedom and human nature, is worth trying. In fact, when the current system finally collapses of its own weight, we’ll have nowhere else to turn. The big question remaining is whether enough of the spirit that made America great in the first place survives.