Quote-of-the-day mailing list
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Subject: qotd: What "forgiveness formula" would be appropriate for
Date: Wed, 20 Mar 2013 12:03:09 -0700
From: Don McCanne <firstname.lastname@example.org>
To: Quote-of-the-Day <email@example.com>
The New York Times
March 20, 2013
By Casey B. Mulligan, Economics Professor, University of Chicago
In an ideal world, collecting debts would be as simple as asking debtors
to pay their obligations when they are able to. But in reality most
businesses have found that they need to obtain other assurances, such as
collateral or the option to shut off services to a delinquent payer.
Otherwise it is too easy for debtors to claim hardship and walk away
On the other hand, many families and other debtors do experience genuine
hardship. In those cases it can be compassionate and even efficient to
at least partly forgive the debts of people who have fallen on hard
times. Many economists see loan defaults as (sometimes) an
efficiency-enhancing form of risk-sharing.
One approach would be for lenders to develop and disclose a "forgiveness
formula" that would clearly define "hard times" and indicate precisely
what kind of forgiveness is possible. The advantage of forgiveness
formulas is that distressed borrowers can be certain where they stand
with the lender and can readily evaluate whether they were treated "fairly."
Hospitals are also known to partly forgive medical debts incurred by the
uninsured, while they make no accommodation for many others. Some states
require hospitals to explain in writing how they go about discounting
charges for hardship patients, but you might guess that hospitals worry
that patients will game those calculations in order to pay less.
One advantage of health reforms that get more people on health insurance
is that by getting people to pay for their health care before they get
sick, the reforms reduce the number of cases in which clear forgiveness
has to be traded off with formula gamesmanship.
NYT Reader Response:
San Juan Capistrano, CA
A forgiveness formula for hospitals?
Other nations have been successful in providing health care to everyone
at a cost much below that of our dysfunctional system here in the United
States. Their programs often have first dollar coverage; therefore
medical debt is almost unheard of - certainly a minuscule fraction of
what we have here.
Instead of establishing strategies for forgiveness in the future,
wouldn't it be more logical to establish a health care financing system
in which debt forgiveness would never need to be a consideration?