Poverty and race can have huge effects on the demand for health, and demand for health services, and for other choices people and families make in our society. Of course, at any point in time lack of income limits demand for health care services. And it also costs poor households more of their own scarce time to travel to and from the points of service because they dont have a car or can’t afford taxis. But, more importantly, these same factors (scarce money and time) limit demand for important personal investments in education and in personal health, which we call Human Capital Investments. The levels of health and education are critically important factors or human infrastructure that determine our ability to function well in society, our capacity to earn decent incomes at work, our ability to manage a family successfully, and our happiness and satisfaction with life itself. We make decisions to make or not make these investment decisions to get more education, or to engage in a healthier lifestyle. And when we choose to invest in out own human capital, we divert our scarce time and money resources to these ends, and away from things that might have brought more satisfaction in the moment.

We talk about three big issues in this post:

1. how Poverty and lack of insurance influence access to care, and related patterns of health and care seeking behaviors.

2. how poverty and race seems to influence attitudes and levels of trust among vulnerable populations, and ultimately affect patterns of care and levels of health

3. how investment decisions (eg long term ) that households make in education and health are influenced by their poverty situation.

1.    Accèss to care     Simple economics would tell us that higher income and attachment to the workforce (where health insurance benefits are usually found) would influence the access and use of health services. These conclusions about the differences between a middle class and a low income population might be stated as:

a.   since many poor people will not be able to access insurance through Medicaid (unless they are parents of a child, also eligible for Medicaid) the use of health services may be easiest to access via hospital ER’s, since their license requires hospitals to check out and stabilize as necessary anyone who seeks treatment. The Medicaid eligibility requirements vary a lot across states, and the convenience and attitudes of workers across hospitals will vary as well, tending to concentrating poor people in some but not all hospitals in every community. (rural poor are it an unusually precarious situation, where the protection provided by hospital licensing are simply not available as a default option).

b.  Primary care services, having a regular doctor, being able to afford to fill prescriptions, propensity to take precautions and protections suggested by providers etc. are going to cost money, and be less accessible to the poor. This general problem is NOT something that Hospitals are required to provide in the ER, so without insurance this is simply not affordable outside of Medicaid.

c. there may be knowledge gaps as well, that might limit access to solid precautionary methods of staying health which may benefit the non poor (who access more education, and better medical advice). And, precautionary dietary patterns may not be affordable for the poor.

d. we know that higher levels of income are associated with more health care consumption and spending. That means that whatever advantages accrue to insurance and proximity to health services, those persons and families who earn more income will, other things the same, generally choose to spend a portion of their higher income on more health care. Their will be no equality in health services rendered if incomes are different when we are living in a society where consumers and providers have free choice about seeking care, and locating/providing services.

2. Levels of trust            Poor people are more than “poor” and sometimes less well informed (eg may suffer from information gaps that are available to their higher income counterparts). They make decisions about care seeking, about adherence to advice, and other matters based on the perceived power dynamics of society, often not trusting providers and organizations because they are perceived to be part of the same social structure that has created the social and economic differences that they suffer from day to day. For vulnerable populations this “lack of trust” is more than a poverty problem, but is a racial, ethnic, sexual identity and gender bias situation. This creates issues like (1) reluctance to seek care, (2) reluctance to adhere to provider recommends, and even to be more likely to believe in alternative theories of health and treatment propagated on the internet and in the community. Often, the alternative narratives are not articulated to providers when seeking care, but are deliberately suppressed(so as not to offend or otherwise cause the provider to mislead or do harm.

These attitudes have deep roots in our culture, and providers who often see these socially and economically vulnerable patient populations are commonly aware of the difficulties this deep distrust creates for diagnosis and effective treatment. Even enriching the mix of professional staff from these vulnerable communities, while helpful to regain trust, will not eliminate the distrust of institutions, of government policies, and of professed scientific guidance.

These “trust gaps” influence not only the access to care, but also the effectiveness of care rendered.

 3.  Investment decisions made by poor households

The theory of Human Capital (G. Becker) provides a basis for understanding how people make decisions when using time and money to invest in their future well being. Specifically, we are thinking about the demand for education, the demand for health and the demand for relocation– anything where household must invest time or money today, in exchange for benefits that may occur in the future. This theory may inform two seeming intractable social problems. (1) It may explain systematic under investment that poor people tend to make in education, and in health—- which may tend to perpetuate the poverty problem intergenerationally. (2) It may also explain why institutions in poor countries (LMICs) are so poorly managed.  These situations are discussed at the end of this essay.

“Demand theory” suggests we weigh the value of time/money spent buying goods/services based on the incremental benefits of consuming them. This kind of decision calculus doesn’t apply directly to decisions when the benefits or costs are spread over future time periods. Why does money (or any benefit) have a lower value when it occurs in the future? Well, lets say someone owes you a dollar. They ask if you would prefer to have the dollar repaid now, or a year from now. You would always prefer it now because you can do something with it now (like put it in the bank) and it would be worth $1.02 or $1.03 or much more a year from now depending what you do with your choices. The value of money depends on when you get it —-  the value is greatest now, and the value declines the longer you wait to receive it.

The time value of money is different for everyone.  Those with a strong preference for “living in the moment” will not value future benefits — viewing them with large discount rates. Those who think more about the future, may value future benefits more and have lower discount rates.

Relevance? People making investment decisions to stay healthy, to go to college,  to move the family to another city have to weigh the present value of all benefits and costs. Do poor people have the same discount rate as other people? Probably not. It is likely much higher because of the urgency of life. So for me, maybe it is 10%. BUT, FOR A POOR FAMILY YOU’D HAVE TO GIVE ME A BIG PREMIUM TO WITHHOLD THAT DOLLAR FROM ME TODAY, TO PAY IT TO ME IN A YEAR.

        See Carvalho (Rand 2010) https://www.rand.org/content/dam/rand/pubs/working_papers/2010/RAND_WR759.pdf

        Klawitter et al (Contemporary Economic Policy, 2012)                                                                        http://courses.washington.edu/pbafadv/handouts%20+%20my%20presentation%20materials/savings%20and%20personal%20discount%20rates%20CEP.pdf

Application 1:  Making Educational Investments

What about choosing to make educational investments? Young people will make different choices regarding obtaining a college degree:

• Some will perceive a higher opportunity cost of not working (or working less) now than others —- other things the same, these people will not attend at the same rate
• Some will perceive more urgency in time preferences than others (a higher discount rate) —- other things the same, these people will not attend at the same rate

Unfortunately, these differences are not just randomly scattered across all high school graduates.

What about choosing to make Health investments? Some benefits of healthy living (eating well, exercising, etc.) yield immediate benefits; better mood, increased blood flow, better sleep, etc. Other benefits, may not appear until later in life. The benefits for health investments may be seen as short term or long term depending on the person. The long term benefits at the point of decision are going to be worth far less to those with higher discount rates than others.

What might contribute to differentials in time preferences across socioeconomic groups? Where does “investment” make sense? Where doesn’t it make sense? In the case of poor people, there may not be much opportunity in waiting. When you don’t know when or how you will obtain your next meal, it’s easy to conclude that discount rates regarding future benefits are very high. Urgency rules.  Planning, patience, investments, and future returns all may pale in the unmet needs of the moment. Investments in education aren’t appealing because the benefits are well over the horizon and aren’t worth much presently.  In spite of comparability of other costs and benefits associated with education, the difference in the time preferences (discount rates) will make the investment look less attractive for person A than person B. Person A may have such time preferences and discount rates because of the urgency of poverty.

This situation is problematic because the way out of poverty for families may well involve educational investments of money and time (opportunity cost). This may help explain why the income distribution is so sticky for the poorest Americans. It is because of “preferences” about scarcity of time and money, not just because of the lack money. Urgency in life creates a huge preference for living in the moment, and this creates a large discount rate on future time periods.

When you aren’t sure where the next meal is coming from…or how you can get the required school supplies, you have different frame of reference about the future.​ In poor countries this is a familiar, and nearly universal experience. Beyond that, in poor countries people who have jobs are often not sure if they will be paid on schedule, whether government corruption and absenteeism will interrupt operations today, or not. And the culture is consumed by the “live in the moment” decisionmaking. This carries over from household decisionmaking to the way organizations work and the way their managers think.

Cultures of poverty have a familliar theme—- withdraw to trust yourself, and the interests of your family and maybe the tribe ——- but dont trust of worry about the collective interests ( R. Klitgaard, The Culture and Development Manifesto, Oxford 2021).  Organizations like schools, Businesses, Hospitals and the like are a  form of collective activity). And when these organizations are created in poor cultures they often fail to  t perform well. Patients and other clients are ignored, supply chains are broken and nobody is fixing them, absenteeism is rampant and nothing is being done about it, demand for services may vastly exceed supply capacity, and yet nobody is acting to take obvious steps to rebalance supply and demand for service.  And the list goes on and on. Every person tells the same story about these miserable organizations: there isn’t enough money to meet the need, we have no authority to take actions, and often there is a cry to “change the overarching policy to improve the perfromance of the organizations”.  Unfortunately the problem isnt at the top of the organizational heirarchy— but a deeper, cultural problem among employees who just dont see the need of  improving the perfomance of the ‘organization’.  Indeed the ‘organization’ is is almost seen as a threat to what is important (individual and the family), or like the guy in the village with a car—everone hates them.

Experience suggests that poor performing organizations in LMICs, as elsewhere, result from a missing management function.  While many local and international organizations prefer to suggest that poor central policy is at fault, the new policies usually do not result in better performance owing to the failure to tackle the fundamental problem—- nobody is managing. Being a manager, and trying to improve the ‘organization’ is not valued behavior in the culture, and nobody does it.   Put explicitly, the culture of poverty maybe causing people who are assigned “management roles in the hospital, the school, the government agency …to say…..”why should i hassle these individuals who report to me, to work harder or work more effectivley, to improve this outsider’s organization?”

 From top to bottom, appointments to “managerial roles” are based on politics and status, not on achievement (competencies).  Experience from the field shows that organization’s performance is a direct impact of the management style in the organization itself and at the same time an indirect outcome of the ineffective governance that governs the whole system.  Good management practices are not part of mentoring in government service, not ever modeled by leaders, and the performance expectations for most managers are very low in many situations, hence the institutional and systemic performance suffers.

What is good management anyway? At different levels of organizations, managers are responsible to organizations being effective in their mission, and efficient in the way that it gets done. Good managers do this by the often steer organizations using a Plan-Do-Check-Act sequence:

Planning (setting goals, allocating resources against those goals),

Making explicit assignments to staff

Monitoring achievement of these plans,

Identifying performance problems

Seeing that those problems are fixed,

In well developed economies we have expectations that managers will see to it that “things get done” at all levels in organizations, or “heads will roll”. Our high levels of performance (output, customer satisfaction, profits) in organizations is astonishing, and we take it for granted. But, it doesnt happen in poor countries. because, among other resons, the management function, as we know it,  is completely missing.

What is missing?  Think about Plan-do-check-act!. Its about a process to create sustained levels of high performance in an organization. Its about solving problems that might interfere with sustained levels of high performance. Its all about PLANNING for achievement of goals set for the future, and tracking performance of the processes for achieving those goals. Its all driven by achieving future goals. Indeed, management is all about investing some of our resources (now) for the purpose of achieving meeting organizational goals and sustainability of those goals through time.

Why is it missing? The “in the moment” LMIC culture doesnt value activities that diverts resources from the urgency of today to invest in a better future. Nor, is it of value in these cultrues to compromise the individual-family-tribal culture to help make the “outsider” organization stronger. Nobody sees the point. Managers are honorific titles. They dont solve problems, they certainly dont plan, the accept the pay raise. But they dont do the job we would expect as typified in the P-D-C-A framework. As a consequence, these organizations are not designed with such a function in mind. Nobody who works there would expect someone doing that function to be there. Nobody has seen such a role in these cultures before.

The function of planning,  and investing resources in a manager to steer us toward that future, is a foreign notion in a culture of living in the moment and high discount rates.