My Economist Friend’s Take On Health Care Reform

Dr. David Beckworth, an economics teacher and former college classmate of mine, sent an e-mail during a group discussion of health care reform. It touches on several issues which I don’t think are being sufficiently discussed in the present debate. Here’s an excerpt:

Over utilization of health care by consumers. 85 cents of every health care dollar is paid by a third party. Very little incentive for consumers to be guarded in their consumption of health.

Doctors often over-treat their patients. There have been a number of studies done that show after accounting for income differences, insurance coverage, lawsuits, race, gender, etc. there is still wide variation in amount and type of treatments physicians prescribe to their patients. Much of the variation is attributed to a culture of how medicine is practiced that is idiosyncratic to a particular region–there are no sound reasons for the differences other than Doctor’s preferences who live there. Some studies show up to 30% of health care’s expenditures fall into this category. Not only is this wasteful but it increases the odds of complications which, in turn, leads to more health care expenditure. See this article in Times magazine, the New Yorker, and the book Overtreated (I read this book and loved it).

As this group learned from the book Crisis of Abundance: Rethinking How We Pay for Health Care which comes from the libertarian think tank CATO, most doctors are not very good at doing the statistics of cost-benefit analysis. Thus, they are prone to do more test & procedures than are warranted. Like Obama, this libertarian book suggested some committee of health care experts help select for Medicare what procedures are covered based on a benefit-cost analysis. (Note that Obama’s versions of this proposal is being promoted by critics as someone else deciding if you live or not. There are two problems with this view: (1) This is already being done implicitly. For every Medicare dollar being payed, say, to someone in the last six months of their lives this is one less dollar going to find a cure for, say, cancer and thus is somewhere along the line killing someone with cancer. So why are the current accepted procedures that are killing some folks appropriate versus some other list that would save someone else? (2) Medicare’s cost curve is soaring and something has to be done. To argue such a committee should not be doing cost-benefit analysis for Medicare is effectively to say we want to bankrupt our nation!)

Lawsuits also are exacerbating health care expenditures. Note that studies show that it is not the only factor, but it does matter. [. . .]

Insufficient number of doctors going into primary care positions. Specialties are sexier and pay more so this is a reasonable response by medical students, but there is much we could save on health care expenditures from having more preventative medicine and physicians to support it. (I understand Medicare is creating incentives to change this trend). Here is a great radio documentary about the shortage of primary care physicians cleverly titled “You Can’t See Your Doctor Now.”

The health insurance industry is plagued with problems. One, each state has its own state insurance agency–ridiculous. That makes it costly to have firms competing nationally. Two, there is evidence that health insurance companies abuse the system by dumping people for any reason they can find, even silly technicalities like making a mistake when filling out the form for health insurance. See this Slate article on the issue.

Related to (6) above, think about the implication of genome mapping and the learning of all the genes that causes certain conditions. What will happen to private insurance when it becomes known at birth that an individual has a greater than 50% chance of say some heart disease? I see problems only growing here.

There are huge administrative cost in health care right now. One is that there is little standardization in record keeping. Thus it is costlier for patients to move among providers. A related second point is that there is inadequate electronic record keeping. Everything I read says the health care industry is way behind other industries on this front.

There is no true free market in U.S. health care. The industry is highly regulated already and plagued by having different state insurance regulators. Also,whenever Medicare decides a procedure is covered it often is followed by private insurance companies.

For these and other reasons, health care costs are soaring at an unsustainable pace. Interestingly, if we do not make changes ourselves glottalization will force us too. We already see areas like radiology being outsourced via the Internet to radiologists in India and certain insurance companies paying their clients to go overseas to get health care procedures at a fraction of the costs in the United States. (The Economist had a great article on this here.) These external pressures will force us to reform some way. So I am optimistic in the long run. I am just concerned that in the short run we might make some poor policy choices.

Where is a full-fledged discussion of these problems? Mostly in the wonk-rooms, unfortunately. On the Democratic side, supporters of health care reform are too busy reacting to death panel scares and other loony claims. Meanwhile the Republican leadership is disingenuously pretending that the present system is just fine.
It’s not fine, and I wish we had a more rational discussion on the problems.

Max Keiser’s “On the Edge” Takes On Goldman Sachs (24 July 2009)

Via Zero Hedge, an entertaining series of Max Keiser videos regarding Goldman Sachs.
Mr. Keiser’s comments are over the top (for example, calling for financial leaders to be tried by The Hague), but he does raise legitimate questions regarding Goldman Sachs’ government ties and high frequency trading practices.

Part 2 of 3
Part 3 of 3
Perhaps the most revealing part of the videos is the comment by Rep. Kanjorski at 0:30 of Part 3. The congressman implies that behind the scenes last fall, Treasury Secretary Paulson all but threatened that there would be hunger, riots, and martial law in the U.S. if Congress didn’t pass TARP and other emergency bailout provisions.
Such episodes are important to highlight because there’s a concerted effort underway to flush last fall’s extraordinary events down the memory hole and pretend that Obama is to blame for our current economic woes. Obviously, the economic tsunami hit shore last summer.

I Don’t Mourn The Death of Cursive

Claire Suddath has an article at Time.com entitled “Mourning the Death of Handwriting.” At issue is not the act of writing by hand (though that is in decline too) but rather writing in so-called script or cursive.
Suddath identifies 1980 as a line of demarcation–people born after that have rougher handwriting and almost never write in cursive. She attributes the decline to a shift in educational emphasis and the rise of the computer.
I started school just before 1980. Early Radio Shack computers were just starting to rear their ugly heads at the school, and we still had to use cursive in handwriting class. I hated it. I never understood why people would prefer to use cursive instead of the print that was universally used in books.
The only rationale that made sense to me was the explanation that cursive is faster to use, since you don’t keep having to lift your pen off the paper. But in my case, it wasn’t any faster, just uglier. My cursive is so bad that I even have a hard time reading it. That may be one of the reasons I never liked the format–my writing is scary to look at.
So I shed no tears for the disappearance of funky Zs and curly Qs. Good riddance.

Knoxville Ranks 5th In “Allstate America’s Best Drivers Report™”

A couple weeks ago Allstate released its fifth annual “Allstate America’s Best Drivers Report™.” The report compares the frequency of vehicle collisions in America’s 200 largest cities.
According to the report, Knoxville drivers average a collision once every 12.3 years, which means a collision is 19.0% less likely than the national average. Here’s the top ten “safest” driving cities:

1. Sioux Falls, S.D.
2. Fort Collins, Colo.
3. Chattanooga, Tenn.
4. Cedar Rapids, Iowa
5. Knoxville, Tenn.
6. Fort Wayne, Ind.
7. Lexington-Fayette, Ky.
8. Eugene, Ore.
9. Boise, Idaho
10. Colorado Springs, Colo.

Note that none of these cities are very large. The press release indicates that cities with over 1 million residence are more likely to have accidents than the national average. One more reason to avoid big city traffic.
It’s good to see Knoxville so high on the list. But there are plenty of bad drivers here, too. It makes me wonder how scary it is to drive (or worse, bicycle) in a city at that ranks near the bottom of the list.

“We’re All Predictably Irrational”

Here’s a presentation by Dan Ariely a professor of behavioral economics at Duke University (website). He’s author of the book Predictably Irrational: The Hidden Forces That Shape Our Decisions (2008). His speech here is a little difficult to understand, but it’s worth the effort.

The most interesting aspect I took from the presentation was the part about Asymmetric dominance (starting at 12:20). Briefly put, if you have two primary choices (“A” and “B” below), but add a similar, yet inferior alternative to one of them (“C”), it makes people more likely to pick the choice that is superior to the inferior alternative (B), even though it’s no better than the other primary choice (A). In other words, the existence of a bad (C) tilts peoples’ perception in favor of (B).
A<------------>B<-->C
So, Ariely concludes, if you go out bar hopping, you want to take along a slightly uglier friend.

Minting Too Many Coins

This didn’t come to my attention until I read it in Michael Zielinski’s NY TImes op/ed piece:

Last year Congress passed legislation that will have a long-term impact on our pocket change. The law authorized a new series of quarters, to be released over 11 years, with at least 56 different designs featuring national parks or sites.
. . .
This year we have even more coin programs featuring rotating designs. For Lincoln’s 200th birthday, four different reverse (tails) designs were produced for the penny. American Indians will be honored with a new series of dollar coins. And six quarters will be issued featuring the District of Columbia as well as the territories of Guam, American Samoa, the Virgin Islands, Puerto Rico and the Northern Mariana Islands.

I agree with Mr. Zielinski that this too much. The 50 State Quarters Program was successful because at the time new coin designs were a novelty. Lured by the prospect of additional profits, Congress took this good thing and has gone too far with it. It’s getting to the point where we won’t even be able to recognize which coin is which.
The only coin of all the above proposed designs that I’d be interested in having would be one of the Great Smoky Mountains National Park, and that’s only because of my regional attachment to it. I say just mint those and forget the rest.
Oh, and one more thing on the topic of U.S. money: please redesign the $1 bill to match the other redesigned bills. Thanks.
Just my two cents.