Immoral Hazard?

Whether you've heard the phrase before or not, if you are British you will definitely be familiar with the concept. Moral Hazard dominates arguments about healthcare, welfare, immigration to name just the most obvious three. I've written before about how often the most effective way to sell a lie is with a truth. My argument here is simple; Moral Hazard is being massively overstated. I am not suggesting it doesn't exist but it's over-representation is used to justify some really bad ideas. So let us begin with a theoretical (or not so theoretical) example.

It would be easy to presume, reading our media that there is no such thing as a real refugee but I want to begin with the concept of someone who applies for refugee status or political asylum. There are technical differences between 'refugee' and 'asylum seeker' but it doesn't matter here. Let me give you a couple of examples of what we are talking about. The amazing story of Donald Woods is told is the breathtaking film Cry Freedom. Woods being granted asylum in the UK was vital to bringing to the world the story of the state-murder of Steve Biko and this was emblematic of Apartheid South Africa. I want to begin there because I think it important to establish just how vital is the concept of granting asylum. This is completely separate from economic migration: this is the idea that it is necessary to provide a safe haven for people fleeing for their lives.

So let me give you an example of a refugee in modern times, fleeing to Britain:

In a forest pit in the Democratic Republic of Congo, Aimee and her baby son were held captive with 25 others. After seven days, 13 were taken to be shot - with Aimee last in the line. With little Daniel in her arms, she saw the terrified men and women killed one by one.

But when it came to her turn, the soldiers lowered their guns.
Aimee said: "I was crying. I thought I was going to die with my child. Then I heard them argue about what they would do with my child. For some reason they changed their minds. I don't know why, only that I am alive today."

After years of persecution and detention, Aimee Ntabarusha Mungu escaped from the Congo, fled to the UK and settled in Glasgow.

She contacted the local Red Cross branch and used their orientation service to help her adjust to life in Scotland. She also regained contact with her family, who she had left behind in the Congo, through Red Cross international family tracing.
Aimee said: "It was so hard to be here without them. A friend looked after them but they were always in danger as the government was after me. I wanted them here, safe with me."

 This is one of so many stories that can be found on the British Red Cross website.

So let me pose a question in the abstract. Let us say we have 100 people claiming to be refugees. Let us assume for a moment 95% of them are genuine. And let us assume that our vetting process has no means of distinguishing between the genuine and the imposter.

Should we let in all 100 or should we return them to where they came from? These are the choices. If we let them in 95 Aimees have been saved and 5 'bogus asylum seekers' have got in. If we refuse admission 95 Aimees have been sent to be tortured and/or killed but 5 people not entitled to enter the UK have been kept out.

Where the argument really becomes interesting is when we play with the percentages... how about if 20% are genuine? So the number of illegitimate claimants who get away with it is significant but still we prevent 20 innocent people having a horrible fate. How about 1%?

For 2013 there were 23,507 asylum applications to the UK. That's 0.03% of the UK population. So we're not really talking about big numbers here.  64% of applications were refused. (Three quarters of those refused appealed with around a 24% success rate on appeal).

It is impossible to know what human stories lie behind these statistics but let me give you these examples: Hidden stories of failed asylum seekers. In that 64%, how many Simons and Josephines and Gabriels and Joshuas and Isas are there?

There is, of course, no such thing as a perfect system but there is systematic bias. I think it is quite clear that the direction of travel with our system over the past decade has been to an ever 'tougher' system - seeking to deny as many claims as possible. To me, a 1 in 4 successful appeal rate suggests a systematic problem.

So, let us propose for the sake of argument a system that is very lax (dangerous word) let us propose that we allow the majority of applicants to stay, maybe around 20,000. A number that the UK could easily absorb. So, maybe we would be granting asylum to some who don't merit it but Aimee and Simon and Josephine and Gabriel and Joshua and Isa would be safe.

If you accept the responsibilities of the various post world war II refugee treaties, then I think the only reasonable argument to counter this is one of moral hazard. The concept that by allowing a small percentage of the undeserving in, in order to avoid the terrible risk of rejecting the truly needy we provide incentive for people to play the system, we effectively invite illegitimate claims.

I am going to leave immigration there for a moment and move on to the issue of the Welfare state.

Recently I have been supporting a friend through the process of a formal capacity assessment for the Personal Independence Payment that is replacing Disability Living Allowance. I will write a full blog entry on that alone but for now I want to just say, for context, that I have recently had dealing with the DWP (Department for Work and Pensions) and insight in to what our Welfare system currently looks like.

It is worth remembering the concept of a Welfare state is an insurance scheme for everyone - because none of us know when we might be afflicted by unemployment or illness or disability. So as a society we all contribute and we all have the right to basic provision as and when we need it. I just want to add here that the lowest 10% of households pay more in tax (as a proportion of their income) than any other grouping (including the richest 10% of households). This is often overlooked as the poorest pay relatively little in direct taxation.

Anyway, implicitly a system that provides a safety net has in it a moral hazard - if you don't have a job you won't stave, we have a basic income for you. If you are too ill to work, we will provide for you etc. etc.

The various disability benefits is a good place to start to demonstrate the issues but it is a systematic one. In principal, assessing whether someone is fit to work, providing support to get back to work where appropriate and providing differing levels of support is the right thing to do.

Successful appeal rates against WCA decisions currently run at around 40%. (This rises to nearly 80% when the claimant as access to proper legal support). I don't know about you but I would suggest that a system with a 40% successful appeal rate is a broken system.

Obviously it is fraud for someone to claim this welfare payment when they are not ill or disabled. The official figure on fraud is 0.7%. So in a attempt to stop the less-than-one in a hundred who claim falsely we have constructed a system that penalizes the most vulnerable (by definition). Even if a claimant is successful the process is immensely stressful and demonstrably harmful to them. There are a number of deaths (at least 50) related to the benefit assessments and sanctions that are being investigated by the DWP. It's difficult to find the exact number as the DWP refuses to disclose this even after freedom of information requests.

I want to propose that we should construct a system designed to ensure that we do not deny help to those who most desperately need it - even if by doing so we increase the risk of people taking from the system when there are not entitled to it. Once again the overwhelmingly loud counter argument - constantly in the media - is one of moral hazard.

In healthcare we hear talk of moral hazard too. Thus far it has not, as yet taken hold so much in the narrative but it is often put forward that a free-service will see no end of demand. Charging people a nominal charge for visiting their doctor comes around repeatedly as a way of apparently stopping time-wasting patients from using healthcare inappropriately. I am very wary of this for a number of reasons. Prescription charges began as a nominal charge - before being  massively increased. A nominal charge for one person could easily be prohibitively expensive for another. Patients as well as overestimating the significance of symptoms also often underestimate them too. There are some interesting studies that show how important it is for people to participate in their own healthcare. One famous one, showed that mosquito nets given away were hardly used whereas those sold at a nominal charge were much more widely used leading to a drop in malaria. However, how and where this is translatable to other areas is not straight-forward. Patient-own participation in their healthcare does not need to necessarily be financial and I would argue that people naturally have a stake in their own healthcare anyway. I think the mosquito net example has lots of potential confounders particularly relating to disease perception. Furthermore as the UK experience of dental care shows, the up-front costs deter many people from regular care.

These are complex areas, it will never be possible to construct perfect systems but the debate is important. It is my contention that the argument is far from balanced. What is happening is that rather than weighing the risks of an over-difficult to access system (be it asylum or welfare or healthcare to pick these three examples) against the moral hazard of an 'exploitable system,' all we ever hear about are the moral hazards. As a consequence, systems are made more and more draconian and often Byzantine such that those who are most in need of them struggle to access them.

This is not about raw statistics, it's about real people and real human suffering at the end of the line. It is almost impossible to have a rational discussion about this - the shouting down with moral hazard arguments is immense. I do not deny that the moral hazards exist and need to be addressed but I stipulate that if you look at the evidence they are wildly overstated. Maybe I am guilty of a tactical error here, maybe I should adopt the approach of the other side and ignore their argument and just shout, shout, shout and shout some more about the immorality of the systems we have designed for our selves. Maybe by acknowledging there is a point to their argument, I concede too much. I mean how many fake benefit claimant stories have you read in the newspapers? How many of these stories even mentioned the grave suffering of those wrongfully denied their entitlements?

Ultimately though, the moral hazard arguments are used to an absurd level that they cannot sustain, it is long past time that we cut through them.

AFZ