Health Policy Rant

One radom point that I would like to make is that I find health policy types never seem to question one of the underpinnings of the current system, namely that it is predicated on 3rd party payments, and its role in hampering innovation and cost control very frustrating. When you walk into your physicians office what should be immediately obvious to you is the substantial overhead costs involved with navigating this system. Even a simple practice will often have a billing department with several staff. This entails significant direct costs in the form of PC&B but indirect costs in the form of higher rent and the ability to see fewer patients as the doctor now also is managing a more complex operation. The conventional liberal response to that is "a-ha, single payer will make this go away". Well, not entirely, you would still have to chase reimbursements but now only from uncle sam. So you could let off some staff but you would you would still have a significant amount of overhead. There would be savings but not as much as one would think. Whereas if you simply paid when you received the service the avearge practice could probably make do with a support staff of one- a scheduler/bookkeeper. That is a small example but one that I think is accessible to most people as it is the extent of our normal interactions with the health care system and it is obviously inefficient.

Removing Qaddaffi

I oppose the war in Libya. I accept the conventional wisdom that our engagement in Libya is certainly no worse than Iraq (a war which I foolishly supported). I think the President has been much more responsible in leading our engagement in Libya than his predecessor. I just don't see much upside. Qaddaffi is unlikely to cave as he has pissed off nearly every world leader and probably doesn't have a safe haven outside of maybe Zimbabwe and Venezuela. So, if our stated goal is to remove Qaddaffi I think we will actually fail in this endeavor unless we commit ground troops. I can imagine a scenario where Libya effectively splits, or one where we maintain a no-fly zone for the better part of a decade. This is not to say that I think Qaddaffi is a good guy but I do think the zeal with which the international community is pursuing him will encourage some unintended consequences. Over the last decade Qaddaffi moderated his behavior significantly. He stopped sponsoring terrorism, it appears that he and his government provided significant insight into the financing of terrorism (after all, they had subject matter expertise), and stopped their WMD program. None these things make Qaddaffi a good citizen but they certainly demonstrate that our diplomacy was having an effect. With Qaddaffi as example in mind what should a modern day despot do? Clearly the Qaddaffi example shows that moderating your behavior will only lead to temporary gains (especially if you sitting on an ocean of oil). If I were a despot I would be musing about the counterfactual in which Qaddaffi got his nukes.

Secular Aethiest Islamists

They're all the rage these days don't you know. Here is Newt Gingrich: "I have two grandchildren: Maggie is 11; Robert is 9. I am convinced that if we do not decisively win the struggle over the nature of America, by the time they're my age they will be in a secular atheist country, potentially one dominated by radical Islamists and with no understanding of what it once meant to be an American." I thought the standard neoconservative nightmare was that we couldn't give way to secular aetheism because our secularly aetheistic society would be paralyzed in the face of the islamist threat and ultimately succumb. I didn't know that you could have a country which was simultaneously dominated by secular atheism and Islamism. I am sure Newt has some elaborate explanation of this phenomenon that he will share with us during the primaries.

Truthiness

I think this from Ezra Klein is quite true:
"4. Lots of policy problems can be solved with clever policy solutions. But Washington isn’t very good at passing or implementing clever. Simple programs and rules are often better in practice, even if they’re worse in theory."

Another Very Good Ezra Klein Interview

This time with Grover Norquist. The highlight, this line:
"I think golf and cocaine would more constructive ways to spend one’s free time time than negotiating with Democrats on spending restraint."

Credit Where Credit is Due

This is a phenomenal interview by Ezra Klein with Secretary of Agriculture (former Governor of Iowa) Tom Vilsack.
"TV: I think we would have fewer people. There’s a value system there. Service is important for rural folks. Country is important, patriotism is important. And people grow up with that. I wish I could give you all the examples over the last two years as secretary of agriculture, where I hear people in rural America constantly being criticized, without any expression of appreciation for what they do do. When’s the last time we thanked a farmer for the fact that only 6 or 7 percent of our paycheck goes to food? We talk about innovation and these guys have been extraordinarily innovative. We talk about trade deficits and agriculture has a surplus.
EK: I feel like I hear a lot of paeans to the good people of rural America. I feel like politics is thick with tributes to farmers and to the heartland -- and that’s fine with me. Which isn’t to say I doubt what you’re telling me. But I guess I’d offer a hypothesis: Some of the frustration you hear is because of the subsidies that go to rural America. If rural America wasn’t getting these subsidies but was flourishing, they’d get more of the respect you’re saying they deserve. But as long as they’re heavily subsidized, people are going to feel that there’s something wrong.
extraordinarily innovative. We talk about trade deficits and agriculture has a surplus.
TV: I don’t know if it’s that. I think one of the reasons that there’s a safety net for American farmers is that we don’t really want to be so dependent on other countries for our food. How much more do we spend on the military in order to protect our ability to get oil? I make the same argument on immigration: One reason we need immigration reform is that 50 percent to 75 percent of our food is, at some point or another, touched by immigrant hands. Growing our own food is important. That’s where I come from in my attitude that there should at least be some acknowledgment of the role that farmers and ranchers play in our country. You may be right that politicians speak up for these folks, but I have a hard time finding journalists who will speak for them."

Problems with PPACA

Matt Yglesias has a post rightly pimping pricing transpency in healthcare but unwittingly illuminates a core problem with PPACA. Yglesias shares the following reader experience:
"I think you should do some posts on the lack of transparent pricing of medical services. My girlfriend just injured her knee. Her primary care physician referred her to a sports medicine doctor who said, it doesn’t appear to be major, but I think you should get an MRI. When she makes an appointment for an MRI she learns that it may cost at least $900 out of pocket because her health insurance has a $2,500 deductible. I tried to look online to see if there were any websites that provided comparative pricing for MRI services and could find nothing. She called her insurance company and they said they were unable to provide her with pricing information for the various providers in the area. When you call the providers themselves and ask, they say Ask your insurance company. I think one way we could improve health care in the US is to require providers to post the prices of their services so that you can compare. There are at least 15 providers in the immediate area (Chicago) so it is not for a lack of competition that prices are out of whack, it a result of opaque pricing that leaves the consumer of medical services powerless."
Yglesisas goes on to make the point the PPACA has provisions which are supposed to improve transparency in pricing. I agree that this is a good thing. It is fundamental to cost control. However, you also need to have the incentive to economize, not just the information that enables you to do so. In the shared scenario the person seemingly has a high deductible health plan and has an incentive to comparison shop because she actually has to pay for the care herself. She presently lacks the information to comparison shop but has the incentive to do so. PPACA will invert this problem by effectively getting rid of HDHPs so while people will have the information to comparison shop they will no longer have the incentive to do so.

Ezra Klein on State Pensions

He states: "it's hard to argue that defined benefit plans should be done away with for states, though it's not hard to argue that they should be funded honestly and based on realistic projections for eventual returns."

It's actually not hard to argue that defined benefit plans should be done away with; the second clause in the excerpted statement tacitly makes the argument. As politicians are irresponsible as evidenced by chronic underfunding of pension funds (and improving benefits in the future that they have no intention of funding) a better retirement policy would be to shift towards defined contribution plans where politicians cannot kick the can down the road. Not difficult. I think Ezra puts in a lot of good reasons why defined benefit plans are good, but the political economy considerations remain the same. If the media were more vigilant about accurately reporting on deficits (you have not posted a surplus of $x if you have skipped a pension payment of $x or $x+1) then I would probably be more amenable to defined benefit pensions because when they are run properly and when they are funded adequately they are a superior solution. But I think the incentive will always be for politicians to promise more benefits in the out years and skip funding in the present creating problems for future taxpayers and retirees alike.

Update: Andrew Samwick and Megan McArdle have great posts on defined benefit plans and retirement savings more generally. One of the the things both discuss in their posts is how people get screwed when they switch employers in a defined benefit context. I think this is an underappreciated aspect of pensions. Once upon a time it was more likely for folks to stay with a single employer for their whole career, that is less and less the case.

Difficult Datapoint for Progressives

http://www.marginalrevolution.com/marginalrevolution/2011/03/canadian-data-on-income-stagnation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marginalrevolution%2FhCQh+%28Marginal+Revolution%29

A Breath of Fresh Air

Here is Chris Christie on why he doesn't think he should run for president:
"The issue is not me sitting here and saying, 'Geez, it might be too hard. I don’t think I can win.' I see the opportunity both at the primary level and at the general election level. I see the opportunity. But I’ve got to believe I’m ready to be president, and I don’t. And I think that that’s the basis you have to make that decision."
That type of self awareness and humility is not something that you find too often among politicians.

Update: I agree with his self-assessment on his electoral chances. I do believe that he would be the favorite in the Republican primary and if the economy continues to be weak just about anyone will have a fighting chance against Obama.

Wyden-Brown Amendment

Donald Taylor discusses the import of the Wyden-Brown amendment and the types of waiver requests that are likely to be granted (opening exchanges to everybody or a single payer). One of the limiting factors in the Wyden-Brown amendment is that the operates within the context of ACA which defines the minimum benefit at a fairly comprehensive level. I think to promote health we should be spending less money on health insurance and directing more money towards things like mass transit, pre-natal nutrion, and health school lunches. I would be interested to see if the Secretary of HHS would allow for a waiver with resources diverted away from health insurance subsidies towards broader wellness incentives.

Increasing Blog Traffic: Matthew Yglesias Edition

Apparently criticizing Matthew Yglesias posts is a great way of driving traffic to your site. However, it does appear there is an inverse relationship between the Matthew Yglesias blog (excellent) and the commenters it has driven my way. Nonetheless, thanks for the traffic.

A Test for Obamacare

One bellwether for PPACA will be whether Mitch Daniels request of HHS to extend the Healthy Indiana Plan to Medicare eligible patients is approved. If approved this will indicate the administration's willingness to enable states to experiment with different health care approaches.

Question for Progressives

Why is it that with health care, the presumption is that we need an intermediary for routine predictable transactions? Or even non-routine care but that isn't necessarily of the urgent life threatening variety (an MRI, a colonoscopy, etc.)? Why is that a more efficient process than giving people either cash or something akin to an in-kind benefit along the lines of food stamps where people would have a debit card that has restricted purchasing abilities*?

If you insist that there is an intermediary to each transaction, then there will be a considerable amount of overhead costs to facilitate transactions that in other industries don't exist. On its face this is an inefficient set up. Why should someone that practices family medicine need anything more than one staff member who functions effectively as his bookkeeper and scheduler. That additional overhead gets passed on to you in the form of premiums to pay for more staff at the providers office to chase reimbursements and more staff at the insurer to process claims. But additionally, the only possible avenue for cost control is top down as opposed to a bottom up manner that we find in most industries. If I am spending my money directly then I have an incentive to minimize my expenses. For instance, if I have to get a colonoscopy, something that does constitute a significant and expensive procedure, but not urgent, I can research prices and reputation and make a more informed decision. If we make price information available I think initially we will find a wild variance in pricing but that will come down, resulting in significant savings to the average consumer. None of this I think is terribly controversial but it seems that we view health care in such a manner that all rules that apply to other goods and services don't to health care.

* I think the non-paternalistic alternative to providing lower income folks with free or massively subsidized insurance is to just give them cash. The obvious criticism here is that lower income folks having many needs and wants and very little cash will forgo care for other things both wise or unwise. I think there is a middle ground to providing cash and a strictly in kind benefit and that would be something along the lines of a medical debit or credit card that has strict restrictions on purchasing. To a doctor this would be as good as cash but to a grocer it would be worthless thus it would seem to address the fear with someone forgoing necessary care but still retain the efficiency of reducing the parties to a routine transaction.

Matt Yglesias Makes a Stupid Point

He postulates a scenario where a pill is invented that enables us to live till our 100th birthday without any illness and then suddenly die. In such a world there would be no health care sector and thus those incomes go away and his view would cause "a catastrophic economic collapse". I guess I think of it differently, I would have $15k of discretionary income that I don't currently have and that money I could spend on my child's education and development, my wife and my leisure, or towards investments. I think there is a mindset that looks at technology as displacing labor, which it often does, and draws the conclusion that it is bad. Such would be the case if human wants were finite, but they are in fact infinite.

No Defense Cuts

It amazes me (and heartens me) that Republicans are proposing $15 billion in Defense cuts. I find it ironic if not suprising that President Obama is citing the proposed cuts as one of the reasons he is threatening to wield his veto pen.

I think there is a good argument to be had that now is not the optimal time to start budget cuts. And I don't think budget cuts where the discretionary non-defense to defense ration is 85-15 is appropriate either. I would be content with a smaller cut this year where the non-defense to defense ration was 25-25 for a total of $50 billion and scaled up to $100 billion the following year and the year after that the ratio would change to 50-100 with a total cut of $150 billion. The reason I think you want to start with modest cuts now is that you don't know that the economy will start roaring back due to deficit spending. So while revenues will probably continue to rise the deficit is likely to be a problem for a while and the longer we fail to address it the more likely it is that we will be present with harsher choices when we are forced to deal with it.

When Will RIM Go Out of Business

I have a blackberry through work and I have an android based phone. Even before I got my blackberry from work I never seriously considered using it as my personal phone (at the time I had a dumbphone). Even without ever fiddling around with an iPhone or Android phone the blackberry's limitations were pretty pronounced. My work throttles the use of it so this may not be entirely fair (the camera is disabled and the app store is disabled- no sexting on the work phone). The functionality that I do have is crap. The browser sucks. The UI is really clunky. I like physical keys but I have actually been surprised how the touchscreen keyboard is surprisingly tolerable (and if physical keys are a must you can get android based phones with them, though not an iPhone). My intuition is that RIM has business side pretty much locked down but is probably losing individual and family subscriptions at a steady clip (and to the extent they are maintaing those subscriptions they are probably subsidizing the phones at near cost or even a loss to keep a place in the market). At some point I would imagine that either Apple or Google will at least make a foray into getting some of the corporate or government market. When that happens I don't see how RIM survives.

Public Lockin Effects Creat Bad Policy Outcomes

One such example that always annoys me is the consequence of the following views that are widely shared by voters: 1. Roads should be free; 2. Transit should be able to pay for itself. The end result is a ridiculous amounts of congestion and everyone is worse off because we fail to price roads and invest in transit.

In Health Care we see something similar. The employer exclusion is the original sin in healthcare. Most of my coworkers can tell you how frequently they can get prescription glasses for "free", if their plan reimburses a gym membership or not, if the copay on a doctor's visit is low. They won't be able to tell you what the coinsurance is in the event they have a major medical event. Even a low coinsurance rate, say 20% can add up quickly if you have an extended hospital stay. They can't tell you how much they are foregoing in wages as a result of the employer contribution to their health care plan, because of course, don't you know, the employer pays it. One of the policy constraints politicians operated under was this lockin effect of people's expectations of continuing this form of first dollar coverage with somebody else's money. The problem with first dollar coverage is it is expensive and paying for it with somebody else's money is ultimately gonna cost you in wages. But alas, that is where we have ended up in health care reform, building on and further reinforcing a broken model.

Microsoft Musing

I caught this courtesy of Brad DeLong:
"Every quarter Microsoft reports earnings, and every quarter it reports a massive loss in its online operations. Today it reported a $543 million loss for its December quarter. This gives Microsoft a trailing-four-quarter loss of $2.5 billion. That's simply astounding. We've asked it before, and we'll ask it again: Has any company lost as much money online as Microsoft?"
This blows my mind. I am sure this is more than just Bing and Internet Explorer but both suck tremendously. Ironically Bing is the default search engine of my Android phone (courtesy of Verizon apparently getting boatloads of money from Microsoft to make it so).

Less Care or Greater Productivity?

There is a fundamental assumption in health care reform that "bending the cost curve" is synonymous with reducing care*. For example see this very thoughtful post from Donald Taylor**. I think this assumption leads most health care experts to focus on empowering some omniscient bureaucrat (whether employed by the federal government or by an insurer) to wisely decide how to maximize the returns on our health care dollar by only spending on high bang for the buck procedures. This view precludes the notion that productivity gains could drive down costs. In health care the conventional wisdom holds that technology only drives prices up (it may also enhance quality but at a significant premium). I wonder how much of this is driven by the fundamentals of health care financing as opposed to actual delivery? The areas of health care where insurance is not the normal means of financing care such as plastic surgery or dental care have shown significantly lower cost growth than the rest of health care. Or if you look at something like Lasik eye surgery there has been both an increase of quality, utilization accompanied with price decreases. Obviously insurance should play an important role in health care but the important question is what role? Should we be subsidized to purchase a product that adds parties to a routine and predictable transaction? No. We should focus on ensuring that when something that unexpectedly causes one to incur great expenses that he does not end up in the poor house.

*I do believe that part of bending the cost curve will be better utilization of care and this will necessarily entail some reduction in the care provided. But I can't help but wonder if how health care delivery is financed holds back some potential productivity enhancing measures.

**If you are interested in health care policy Donald Taylor's blog is a must read. He has considerable expertise in health care policy but also has a keen read on the politics of health care. He has a very provocative compromise proposal that I will blog in a bit but you should definitely read now.