The Determined Statist akaThe Incidental Economist

Posted on June 5, 2013 by alsanblog

The authors of the blog The Incidental Economist are thinking of changing its name and are asking readers for suggestions (mine is given below). Evidently, the primary authors have no formal economic training and so the name doesn’t “convey” what they do, which is relating “health and health systems research to policy.” Indeed, the blog’s subtitle is: “Contemplating health care with a focus on research, an eye on reform.”

Many of the blog’s posts deal with medical studies and serve to encourage medical care based on evidence, so TIE does well in this regard. Major publications often cite to its posts and it primary authors are well-known. But healthcare policy also contains a sig-nificant political element, and here the authors are reluctant to explicitly state their political views. For that we have to look at the posts and their implications.

From what I’ve seen so far, the posts on TIE imply an extremely liberal orientation to healthcare policy and government, even to the point of supporting a statist view of government. I haven’t seen the TIE authors, for example, object to the idea of a health-care system that places 315 million Americans under the thumb of a central authority, notwithstanding the facts that (a) healthcare is a local activity and (b) centrally directed economies never perform very well.

Statism circumscribes individual freedom yet liberal healthcare policy wonks don’t seem to care. These wonks tend to see individuals as nothing more than statistics that they present in their charts, graphs, and tables. And they don’t seem even vaguely aware of the concept of self-government. So it’s no surprise that many of them, including TIE’s wonks, approve of a health system that treats adults as children, as is seen in their praise of a policy that places 25-year old adults on their parents’ health plan.

So if TIE’s authors wish to better convey what they do, I suggest they highlight the statist aspect of their blog. One possibility might be to call the blog “The Incidental Statist.” But wait – TIE’s statism seems to go beyond the incidental. So perhaps the name should be “The Determined Statist,” which might better capture the blog’s unflagging support of big government. And a cute new subtitle could be:  “We Heart Big Government.” Yeah, that’s the ticket.

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Noticing The Misogynists

Posted on May 27, 2013 by alsanblog

Well, this falls into the “Miracles Never Cease” category:  The Washington Post daring to print an article describing the abuse of women in Afghanistan. The articles we usually see from the Post tend to ignore the plight of women in certain areas of the world. Not only does the article highlight the misogyny in Afghanistan, but it also includes a photo of a woman peering through the eye slit of a burqa almost as if to suggest she’s  looking out through the bars of a prison.

The article itself outlines a backlash to a proposed law that would protect Afghan women from certain abuses. Key provisions of the law include raising the minimum marriage age for girls from 9 (this is not a typo) to 16, punishing men for beating their wives, and providing shelters for abused women and girls. The proposal tracks a 2009 presidential decree and is meant to make the decree more permanent.  Unfortunately, the law is now blocked in parliament, and in so far as some of the backlash is coming from students, the future doesn’t look too bright for Afghan women.

P.S.:  Every time the Post seems to be getting its act together, the editors demonstrate just the opposite. This time with an article describing the upcoming Iranian presidential election as if Iran were a robust and thriving democracy. Not a word explaining that Iran’s 12-member Guardian Council has already preselected the eight candidates on the ballot. The Guardian Council’s selection completed the real election and all that comes after is just for show. Evidently, the Post has no problem serving as the mullahs’ “useful idiot.”

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Debating Wing Nuts

Posted on May 23, 2013 by alsanblog

So liberals like Cass Sunstein of Harvard Law School think they have a way to humble  “wing nuts.” Wing nuts are people who, from the liberal perspective, disagree with the liberal “vision” of massive government. As he considers how to debate wing nuts, Sunstein finds a “subtle” lesson in a study by Philip Fernbach and his colleagues:

What produces an increase in humility, and hence moderation, is a request for an explanation of the causal mechanisms that underlie people’s beliefs.

Yes, it’s easy to see how the inability to explain in detail the basis for one’s beliefs might result in moderation of those beliefs, but this only shows that people can be reasonable. The question is:  did the Fernbach study include subjects who actually were wing nuts (who presumably are not rational)? If not, then the study results don’t tell us anything about how to deal with wing nuts.

For a better insight, Sunstein might consider Jonathan Haidt’s book, “The Righteous Mind.” Wing nuts seem to fall into the category of people who tend to sacralize an issue and as Haidt pointed out when describing the sanctity foundation of morality, once anything is “declared sacred, then devotees can no longer question it or think clearly about it.”

Hmm, sounds like Haidt’s sanctity foundation explains the incoherence of those who favor, for example, healthcare that is planned and controlled by a central authority despite the unassailable fact that centrally directed economies are always inferior to those based on markets and competition. Yep, it’s all a matter of faith for some people. Maybe even for Sunstein.

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No Shower After Working Out?

Posted on May 20, 2013 by alsanblog

Okay, so this post comes many years too late, but I still marvel at the hygiene (or rather lack thereof) exhibited by people who go the gym. Here’s what I mean:  in the old days, people would go to the gym, workout, and then after the workout, take a shower before going home. In fact, people often used to say:  “I’m going to hit the showers.” These days, however, most people, both men and women, skip the shower part and just go home (or wherever) after their workout.

So why don’t people shower anymore at the gym? Perhaps some find that the locker room is too crowded and maybe others think the locker room and showers are not very clean. Whatever the reason, it probably doesn’t matter anyway – most likely showers and even the locker room itself will be a thing of the past once Google Glass makes its appearance at the gym. Hard to see many people changing and showering at the gym when the video cams are running.

In the immediate future, the decline in showering may lead clubs to reduce the resources they devote to locker room amenities, one such amenity being cleanliness. For example, I’ve never seen anyone actually clean the showers at a club. One time I saw an employee hosing down the shower room, but there were no cleaning supplies in sight or a brush on a handle, you know, for scrubbing things. So now it appears that spraying water = cleaning.

Indeed, it’s getting to the point where these clubs hardly even want to provide towels, and heaven forbid if one should be so bold as to ask for two towels (please kind sir, may I have another towel?). And with so few people using the showers, it’s not important when clubs run out of towels from time to time:  Sorry about that, maybe next time. A luxury club today is one that not only provides towels, but includes them in the basic member-ship price.

But do people who leave immediately after their workout shower right away when they get home? One time, I noticed a woman who skipped the locker room after finishing her workout. I soon finished my workout, hit the showers, and went home. While running an errand later near my building, I spied the same girl on the street wearing the same gym outfit. I recognized her because her shorts had the name of her college emblazoned across her bottom (a nicely shaped bottom, by the way, but then, she does work out).

So, a shower after exercising is apparently not a priority for women and if the women don’t shower, well, it’s probably best not to even think about the post-exercise hygiene habits of the other half of the population.

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Benghazi Apologetics

Posted on May 11, 2013 by alsanblog

Glenn Kessler is the putative “fact-checker” for the Washington Post, but he steps out of that role in a recent column, which the Post styles not as fact checking, but as an “analy-tic look” at the news about Benghazi. According to Kessler, the administration didn’t intentionally lie about the nature of the Benghazi attack; no, the whole affair was simply a bureaucratic mix-up or as he puts it a “bureaucratic knife fight, pitting the State Department against the CIA.”

But who is Kessler kidding? Almost from the beginning of the Benghazi attack, the administration knew who was responsible (i.e., terrorists), yet everyone, from President Obama to Hillary Clinton to Susan Rice lied about it, pinning the blame instead on an American exercising his First Amendment rights. And all for the purpose of protecting Obama during the 2012 election campaign. A bureaucratic dispute about talking points doesn’t somehow make the subsequent lies disappear.

There’s no way to spin these lies, but that doesn’t stop Kessler from trying. His article is nothing more than a 500-word non sequitur.  Rather than fact checker or analyst, there’s a better term for Kessler:  propagandist.

Update:  Kessler has since written a fact checker column in which he considers Obama’s claim he called Benghazi an “act of terrorism” on the day following the attack. Kessler concludes that Obama’s claim is not true and he gives the president four Pinocchios. Okay, but this doesn’t absolve Kessler of the misdirection contained in his “analysis.”

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Celebrating Jason Collins

Posted on May 5, 2013 by alsanblog

So it seems that almost everyone is falling over themselves as they rush to deify pro basketball player Jason Collins, the new gay trailblazer. Since announcing his sexual orientation to the world, Collins has spoken with such heavyweights as Oprah Winfrey and even President Obama. And who hasn’t seen the praise from just about every liberal commentator and sportswriter in the country, such as this one from Washington Post sportswriter Mike Wise.

But if I may, I have a few questions about Collins and his ex-fiancée. Evidently, the couple was together for eight years, so assuming they weren’t celibate, was our hero cheating on her during those years (perhaps channeling Tiger Woods)? And if so, did he practice safe sex? In other words, did Collin’s behavior put his ex-fiancee at the risk of contracting HIV(not to mention placing himself at risk)? When a person goes public with his sexuality, these questions are fair game. Maybe the media should hold off on the celebration until we know the answers.

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More Liberal Lip Service About Women

Posted on May 1, 2013 by alsanblog

So now the intrepid Rep. Barbara Lee (D-Calif.) and other Democratic lawmakers are pushing a resolution to recognize that climate change hurts women more than men. According to Lee, climate change affects agricultural output which has a “disparate impact” on women. Among other things, the resolution will

affirm the commitment to include and empower women in economic development planning and international climate change policies and practices.

Wow, it’s good to see members of Congress and other leaders, such as the intrepid Hillary Clinton (still “fighting” for gender equality), “acting” to ameliorate the plight of women around the world. Hmm, maybe next we’ll see the DOJ go beyond a resolution and file a lawsuit against “climate change” under its beloved disparate impact theory of discrimi-nation (paging King Xerxes).

Of course, the biggest threat to women worldwide are actions by misogynists that oppress and enslave women in such places, for example, as the Middle East. But liberals don’t seem to be offering resolutions or making speeches explicitly condemning this real threat to women. No, that would take courage – it’s much better to posture over the easy target. After all, there’s no one to strike back.

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Catastrophic Care – Part Two

Posted on April 13, 2013 by alsanblog

The previous post reviewed some of the problems about healthcare in America as iden-tified by David Goldhill in his recent book “Catastrophic Care.” So how does Goldhill pro-pose to fix healthcare and contain costs? First, he would require everyone to purchase health insurance, but limit coverage to truly catastrophic medical illnesses. In practice, this would mean a policy with an extremely high deductible, which would sell for a relatively low price.

Second, Goldhill would create a health account for everyone. These accounts would be the “foundation” of the system and everyone would contribute some fixed percentage of their income to their account. The contributions would replace the premiums that employers and employees currently pay for health insurance (as well as what the government pays for healthcare), so the total amount of money spent under Goldhill’s system initially would equal what is spent today.

We would pay for our non-catastrophic expenses and catastrophic insurance premiums out of these health accounts. Any individual whose account balance failed to cover his expenses or his insurance premium would be entitled to a loan to cover the deficit. But don’t worry about the prospect of borrowing for healthcare:  loans would be repaid out of future contributions to health accounts and no one would ever be required to repay more than their total lifetime contributions.

Individuals would deal directly with providers for their medical care. Goldhill believes that such direct dealing would eliminate the moral hazard of insurance and make us all better consumers, meaning we would purchase less healthcare. And because individuals who die with a positive balance in their health accounts could leave the balance to their survivors, to be used for any purpose, moral hazard would be further lessened.

Most likely Goldhill is correct when he claims that individuals would not easily part with their health dollars if they directly handled the spending. But his proposal contains a major flaw:  the health accounts would provide an unending supply of money to con-sumers through the loans that would be available. And because individuals need not repay any loan amount that would exceed their lifetime contributions, the excess would be free money.

So a moral hazard would taint Goldhill’s health accounts in precisely the same way that Goldhill claims it taints our current system. After all, how many individuals with access to unlimited funds would scrutinize costs better or refuse additional care suggested by their doctors? With unlimited funds, it would be as if a third-party were paying the bills. So, Goldhill’s health accounts very much look like our current insurance except that we would speak of “contributions” rather than “premiums.”

The concept of diminishing marginal utility would also undercut the claimed benefits of health accounts. As their balances in the health accounts increased over time, individuals would come to value the marginal dollars less and less, which means they would become more and more willing to give up those marginal dollars in exchange for healthcare. So at some point, diminishing marginal utility would weaken any tendency of individuals to reduce their purchases when they deal directly with providers.

If Goldhill’s health accounts generate system-wide savings (not to be confused with the positive and negative balances in the accounts), there would be constant political pressure for the government to reduce the required contributions so that they more closely matched lifetime medical expenses. This means that the average person would have little or nothing to leave to a survivor upon death. As consumers would certainly understand this, the incentive to reduce their purchases would be further eroded.

Goldhill’s criticism of our current system implies a false consciousness on the part of Americans. But his solution calls for a false consciousness of its own, by tricking us into forgetting about the free money that would be available through the health accounts. He also needs us to pretend that if we reduce our healthcare purchases, a pot of gold will be there at the end of our lives for our survivors (if any). Most likely, this pot of gold would be as illusory as the one that lies at the end of the rainbow.

In reality, Goldhill is calling for the creation of two insurance systems, one for catas-trophic care and the other for non-catastrophic care (called health accounts). And both systems would be based on a single-payer concept, so say hello to central planning and control for one-sixth of the largest economy in the world. The inevitable result of this would be low quality, stagnation, and decline. But maybe Goldhill is correct when he calls his proposal radical in so far as no developed country has ever placed 315 million people under the thumb of a central authority.

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Catastrophic Care – Part One

Posted on April 11, 2013 by alsanblog

In his recent book “Catastrophic Care,” David Goldhill argues that the central problem with America’s healthcare system is the use of insurance to finance healthcare expen-ditures. According to Goldhill, insurance-based healthcare cannot control costs because consumers (i.e., patients) don’t directly pay for their healthcare. Rather, intermediaries such as health plans and government pay the bills, which Goldhill says is bad because they cannot effectively contain costs.

Goldhill points out that insurers seek profits, so their long-term goal is to increase prices and expand coverage for new types of care. Therefore, health insurers have what Goldhill calls a “fundamental disincentive” to restrain pricing and healthcare purchases and be-cause of this, Goldhill insists they will never be as effective as individuals would be if individuals themselves dealt directly with providers about their care.

Although many people seem to agree with Goldhill’s claim that profit-seeking insurers cannot contain costs, the claim is nonsensical. Firms in all markets seek to maximize profits, but fortunately for consumers, if markets are competitive, then market forces will restrain prices no matter how eagerly sellers seek those profits. Sellers are powerless to gouge customers in the face of alternatives. This is how competitive markets operate and it’s why we should like them.

If healthcare markets are not price competitive, then the answer is to tighten and enforce the antitrust laws in order to fix those markets that don’t work. A system that relies on individuals to purchase services isn’t going to bring about lower prices if markets are not competitive in the first place. Providers in highly concentrated markets aren’t going to lower their prices simply because the customers are individuals rather than health plans. One way to start enforcing the antitrust laws would be to break up the big hospitals and big insurers.

Goldhill also complains that the use of insurance creates a moral hazard that he defines as the “tendency of a person to make claims, inflate claims, or tolerate higher costs” when a third-party pays the bill. Because our health insurance covers too many types of medical expense, Goldhill argues that moral hazard has come to completely dominate the industry’s economics and pricing. To reduce moral hazard, Goldhill would allow insur-ance for the most catastrophic cases only (with health savings accounts to handle the remaining expenses).

But Goldhill’s concern with the health coverage would be less of an issue if antitrust enforcement resulted in more competitive markets and lower prices. Individuals have value scales by which they rank the importance of various goods and services. If some individuals prefer to spend more money on additional healthcare rather than additional units of other goods and services, then so be it. Prohibiting individuals from choosing the level of care they prefer and are willing to pay for would be difficult to defend on moral grounds.

If Goldhill is right that Americans are buying more medical care than we need, then we seem to be laboring under a false consciousness. But what is the source of this false understanding? One of the traditional liberal arguments is that advertising creates its own demand, but Goldhill specifically laments the lack of marketing in the healthcare industry, unlike firms in other industries that seek out customers. So apparently advertising is not misleading us.

Other causes of our confusion might be providers who influence patients by virtue of their superior knowledge or a government that is unable to control itself, as it relentlessly expands coverage of Medicare programs that the private sector is only too happy to mimic. No matter what the cause, the question is whether individuals purchasing care on their own would result in fewer purchases and lower prices. As we’ll see in the next post, Goldhill’s proposals don’t offer much hope on this score.

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Cost Shifting In Healthcare

Posted on March 30, 2013 by alsanblog

One popular idea in healthcare policy has been that providers, such as hospitals, make up for low Medicare prices by charging more for the services they provide to private insurers. This is called cost shifting and hospitals and the insurance industry have based argu-ments against reductions in government reimbursement rates on the concept. But some experts, such as Austin Frakt of The Incidental Economist, claim (incorrectly) that cost shifting is something that almost never happens.

Drawing on a monograph by Michael Morrisey, Frakt reviews the argument against cost shifting in several posts (here and here) at The Incidental Economist. To illustrate the analysis, Frakt uses the standard profit-maximizing model of monopoly, with downward sloping demand, etc., and he demonstrates that as Medicare reimbursement declines, hospitals reduce Medicare capacity and increase their capacity for private patients, which results in lower prices for private insurers.

So rather than raising private sector rates, Frakt purports to show that reductions in Medicare prices would actually lower both rates. But a major problem here is that Frakt assumes that hospitals are able to reduce their capacity for Medicare patients in response to lower reimbursement rates, and his conclusions depend upon this assumption. Of course, assumptions are necessary when using models, but this one is simply untenable.

It’s unlikely that hospitals could refuse service to a significant number of Medicare pa-tients while accepting other Medicare patients. Perhaps a single hospital in the market could get away with this kind of discrimination, but not all hospitals in the market could. At some point, such conduct would bring the wrath of the government down upon every-one. If we reject the assumption, then Frakt’s analysis falls apart and his conclusions about the effects of Medicare price reductions are not valid.

Another problem with the analysis is that private price and capacity, as seen in Frakt’s diagram, are determined at a point where marginal revenue exceeds marginal cost. In a profit maximization hypothesis, which this is supposed to be, we would find the private price level and admissions at the point where marginal revenue equals marginal cost. And this would be true even if marginal revenue from Medicare patients exceeded the margin-al revenue derived from private patients. All that counts is that MR > MC.

So the Frakt/Morrisey diagram is incoherent. Because private admissions would always be at the profit-maximizing level, any attempt to increase them, in response to a reduction in Medicare price, would only reduce profits. And any attempt to reduce Medicare capa-city would also reduce profits, unless the price reduction drove price below marginal cost. Most likely, hospitals would hold firm on admissions for both private and Medicare patients.

How would a Medicare price cut really affect hospitals? For the Medicare segment of its business, each hospital would immediately lose revenues (which would be easy to calcu-late) and because prices are below average costs (experts agree on this), the lost revenues would represent lost income. The lost income would be an additional cost imposed on each hospital, and any analysis of the market for privately insured patients would include them.

In the private market, an increase in costs for each hospital would cause an upward shift in the cost curve for each hospital as well as an upward shift in the supply curve for the entire private market. This means the new equilibrium price for each hospital and, in the aggregate, for the market would be higher. And, of course, supply and demand also sug-gests that capacity for private sector patients would be reduced.

Although a reduction in private capacity would be predicted at the new equilibrium price, it’s unlikely that much reduction would occur in practice. Hospital costs account for approximately one-third of total healthcare costs, so the impact of hospital price increases on the overall price of health plans would be diluted. Demand is relatively inelastic for most health plan purchasers – that is, they would simply eat the increase rather than drop the insurance.

So it appears that those who argue that Medicare price reductions increase the price for private insurers are correct after all. Not only does cost shifting make sense when erro-neous assumptions are rejected, but it would occur when hospitals maximize profits and even when they lack market power.

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