Health insurance gets all the headlines, the fierce political battles, the politicians accusing each other of wanting fine, upstanding American citizens to die. But while health insurance may pay your medical bills, it does nothing to protect you from a big risk that all Americans face: that when they get sick, they won’t be able to work, and all the obligations they’ve taken on — the car payments, mortgage, student loans and credit card debt — will send them spiraling into financial catastrophe.
What the middle class may need even more than health insurance, in other words, is income insurance: assurance that if the worst does happen, at least you’ll be able to keep the house and the car and some semblance of a normal life. In the United States, tales of budgetary disaster after an illness are all too common. In Denmark, by contrast, where workers enjoy a high level of income protection, the personal economic effects of a serious illness such as breast cancer are fairly muted.
Unfortunately, too few Americans have that sort of protection. Only about half of employers offer disability insurance, and only about a third of all workers are covered, because when employers ask employees to pay all or part of a premium, they frequently decline. Which is a terrible mistake, because according to the Social Security Administration, a 20-year-old has a one-in-four chance of becoming disabled before reaching retirement age. And Social Security disability income replaces only a fraction of earnings for all but the poorest workers.
Obviously, everyone whose employer offers disability insurance should insure their income for the maximum amount. And young and reasonably healthy people who can qualify for a private policy should purchase a long-term disability policy through a broker if they can’t get it at work. But the fact that people should be protecting their income doesn’t mean they will. And that leads public policy expert Mark Kleiman to ask, “If everyone needs disability insurance, why not make it a public program?” In other words, why don’t we just go full Denmark?
That’s a question that’s been on a lot of lips recently. Ever since Sen. Bernie Sanders (I-Vt.) started selling socialism, Scandinavian-style, the American left has had what you might call “Denmark envy.” And the American right has, naturally, been avid to prove that it’s all a sham, that Denmark is a nation of lazy cheaters who are destroying their economy with their overbearing welfare state.
On this, the right is wrong: Denmark’s economy is doing just fine. But the left is wrong, too, because you can’t just import the bits of Denmark you like — the generous welfare benefits and social liberalism — and graft them onto American culture and institutions.
For although it is not true that Denmark is a pit of welfare grifters and unproductive bureaucrats, it is true that this is fairly unusual. In other countries, when you jam up the tax take and offer extremely generous benefits, you see pathologies that the right predicts: high rates of unemployment (particularly youth unemployment), fleeing capital, lower gross domestic product growth (thanks to the “deadweight loss” of all that taxation) and, yes, benefit cheating. Denmark and its Nordic neighbors get away with it because they have an extraordinarily high level of social trust. As Swedish economist Tino Sanandaji asks, why would you assume we’re going to be Sweden instead of Italy?
“Social trust” is, well, what it sounds like: How much do you trust your neighbors? And in turn, how trustworthy are they? In a low-trust place such as Greece, people don’t trust their neighbors not to cheat, which in turn makes them more likely to cheat themselves, because why should you stay honest when everyone else is getting away with something? This affects everything: whether people pay their taxes, whether they take benefits they don’t really need, how easy it is to regulate companies. And social trust also works as a productivity booster, because you can do away with a lot of the cumbersome monitoring that is ubiquitous in modern societies — the supervisors who oversee low-level workers, the store clerks who keep an eye on the customers. Every worker who is not making sure that people don’t steal or shirk can be re-employed doing something that actually increases output.
The United States simply doesn’t have that level of trust. And while it would be nice to think that we could get there if companies and government simply stopped acting so suspicious, the fact is that they frequently act suspicious because, well, Americans cheat more than Danes do. (Compare, for example, the American and Danish rates of tax evasion). Moreover, the mutual suspicion that Americans feel for each other restricts the range of politically feasible policies. Even if people aren’t cheating on benefits, if there is a widespread social belief that your fellow citizens might, you will not be willing to support a generous welfare state. (This helps explain why support is highest for old-age benefits in the United States; it’s hard to fake turning 65).
It’s worth noting that there are drawbacks to the high-trust Danish model. The trust extends to other Danes, but not necessarily to immigrants, who consequently have a much harder time integrating into Danish society than they might in the United States, where the rate of unemployment for immigrants is slightly lower than for native-born residents; in Denmark, it’s almost double. And Danish opposition to allowing refugees in draws strength from the strain it puts on their generous welfare systems.
But even if that weren’t the case, we have no easy recipe for making our society more trusting. Which leaves us where we are: We cannot have the Danish welfare state because we don’t trust each other enough to vote for such a thing, and if it were somehow imposed, it probably wouldn’t work the way it does in Denmark.
That doesn’t mean there’s nothing we could do. We could regulate non-employer disability insurance more effectively, so that Americans could trust that their insurer would actually pay the claims promptly when needed. And we could make employer disability insurance “opt-out” rather than “opt-in,” ensuring that more people would take it up.
That sort of solution isn’t going to cure anyone’s case of Denmark envy. But it would help some who really need it. However lovely the Danish system may be, we’ll have to be content with an American-style solution for an American problem.