CBO: Obamacare costs revised downward, again. Finds lower than expected premiums.

[sunmaster14]

No, a car is not a commodity. Cars aren't fungible. You can't swap out a BMW with a Hyundai without the consumer even noticing. Cars aren't traded as "cars" as a whole, they're traded by make, model, year, color, and options.

Maybe you're using the layman's version of commodity, as "something you can buy" as opposed to the economic meaning of the term?

wikipedia

By your definition, crude oil isn't a commodity, since there are dozens of different grades of crude oil. Right now, the Venezuelan basket (which has the heaviest, i.e. densest, and most sour, i.e. most sulphuric, crude oil) is trading at $32.1/bbl. Oil from Labuan, Malaysia, which is one of the lightest and sweetest, is trading at $46.6/bbl.

You certainly can't swap out Venezuelan crude for Malaysian without the consumer, i.e refiner, noticing. But like a car, which will transport you from A to B, whether it is a BMW or a Hyundai, crude oil is substitutable. That is, the price of one grade can't get too far out of line with the others because the others provide competition, even though they may generally be in different segments of the market.

Anyway, to get to your question, I am using the term commodity in its most economic sense, which is a relative measure of the degree that one good can be substituted for another. A product is commoditized if the producers of it have little pricing power because of competition from producers of similar products which the consumer sees as roughly substitutable.

In a healthy free market, there is an ongoing battle between producers for market share. Some try to emphasize the commodity nature of the segment, and try to win by having the lowest price, and some try to differentiate their products in order to justify charging a premium. When a market has such a dynamic, it is commoditized in my book. The healthcare market could be that way, quite easily. It kind of is that way (with wide variations in effectiveness and consumer satisfaction), except that there is no healthy pricing mechanism to enforce discipline or make things consistent.

 

[Frank Newgent]

Sometimes you just have to shop around to find the best deal on a chest x-ray.

 

[sunmaster14]

Sometimes you just have to shop around to find the best deal on a chest x-ray.

If only that were true. If I had my druthers, there would be special after xmas specials on x-rays.

 

[jimbob]

By your definition, crude oil isn't a commodity, since there are dozens of different grades of crude oil. Right now, the Venezuelan basket (which has the heaviest, i.e. densest, and most sour, i.e. most sulphuric, crude oil) is trading at $32.1/bbl. Oil from Labuan, Malaysia, which is one of the lightest and sweetest, is trading at $46.6/bbl.

You certainly can't swap out Venezuelan crude for Malaysian without the consumer, i.e refiner, noticing. But like a car, which will transport you from A to B, whether it is a BMW or a Hyundai, crude oil is substitutable. That is, the price of one grade can't get too far out of line with the others because the others provide competition, even though they may generally be in different segments of the market.

Anyway, to get to your question, I am using the term commodity in its most economic sense, which is a relative measure of the degree that one good can be substituted for another. A product is commoditized if the producers of it have little pricing power because of competition from producers of similar products which the consumer sees as roughly substitutable.

In a healthy free market, there is an ongoing battle between producers for market share. Some try to emphasize the commodity nature of the segment, and try to win by having the lowest price, and some try to differentiate their products in order to justify charging a premium. When a market has such a dynamic, it is commoditized in my book. The healthcare market could be that way, quite easily. It kind of is that way (with wide variations in effectiveness and consumer satisfaction), except that there is no healthy pricing mechanism to enforce discipline or make things consistent.

You are missing the point about commoditisation. Many commodities have different grades but they are grades. You don't spend advertising budgets building a brand for a commodity (unless you are trying to move your version out of being a commodity, and competing on something other than cost*).

Cars are not commodities -even though they are (generally) mass produced.

Medical procedures are far further from being a commodity than cars.



*Cost is not just price - especially in business-business sales, it is also reliability and flexibility of supply, opportunity cost, and loads of similar factors which mean that the lowest price mightn't be the lowest-cost option.

 

[Emily's Cat]

By your definition, crude oil isn't a commodity, since there are dozens of different grades of crude oil. Right now, the Venezuelan basket (which has the heaviest, i.e. densest, and most sour, i.e. most sulphuric, crude oil) is trading at $32.1/bbl. Oil from Labuan, Malaysia, which is one of the lightest and sweetest, is trading at $46.6/bbl.

You certainly can't swap out Venezuelan crude for Malaysian without the consumer, i.e refiner, noticing. But like a car, which will transport you from A to B, whether it is a BMW or a Hyundai, crude oil is substitutable. That is, the price of one grade can't get too far out of line with the others because the others provide competition, even though they may generally be in different segments of the market.

Anyway, to get to your question, I am using the term commodity in its most economic sense, which is a relative measure of the degree that one good can be substituted for another. A product is commoditized if the producers of it have little pricing power because of competition from producers of similar products which the consumer sees as roughly substitutable.

In a healthy free market, there is an ongoing battle between producers for market share. Some try to emphasize the commodity nature of the segment, and try to win by having the lowest price, and some try to differentiate their products in order to justify charging a premium. When a market has such a dynamic, it is commoditized in my book. The healthcare market could be that way, quite easily. It kind of is that way (with wide variations in effectiveness and consumer satisfaction), except that there is no healthy pricing mechanism to enforce discipline or make things consistent.

Sunmaster, you are wrong. Simply wrong. A commodity is a pretty well defined thing in the economic sense, and the way you're trying to use it is NOT what it is. If you want to take it up with the entire field of economics, be my guess. I don't particularly care if it's commoditized "in your book". Until you rewrite the whole subject area, you're simply wrong.

Right now, you're like an ID supporter trying to redefine what constitutes a theory in their book, and insisting that the scientists adopt their bastardized interpretation of a very specific term.

 

[jimbob]

Sunmaster, you are wrong. Simply wrong. A commodity is a pretty well defined thing in the economic sense, and the way you're trying to use it is NOT what it is. If you want to take it up with the entire field of economics, be my guess. I don't particularly care if it's commoditized "in your book". Until you rewrite the whole subject area, you're simply wrong.

Right now, you're like an ID supporter trying to redefine what constitutes a theory in their book, and insisting that the scientists adopt their bastardized interpretation of a very specific term.

Pretty accurate summary.

 

[Emily's Cat]

sunmaster, do you have a primary care doctor?

 

[sunmaster14]

Sunmaster, you are wrong. Simply wrong. A commodity is a pretty well defined thing in the economic sense, and the way you're trying to use it is NOT what it is. If you want to take it up with the entire field of economics, be my guess. I don't particularly care if it's commoditized "in your book". Until you rewrite the whole subject area, you're simply wrong.

Right now, you're like an ID supporter trying to redefine what constitutes a theory in their book, and insisting that the scientists adopt their bastardized interpretation of a very specific term.

First of all, I'm not wrong. The Google search I posted before has dozens of high quality hits to commoditized health care in just the last two years. Everybody in the industry knows what commoditization means. Second of all, you're trying to divert the discussion into one about semantics. The central issue here is whether or not health care is amenable to free market pricing and competition. In rebuttal, you claim that health care is not a commodity, just like a car is not a commodity. How does this help your argument? Do you deny that there is a very efficient and very competitive market in cars?

 

[sunmaster14]

sunmaster, do you have a primary care doctor?

No, I'm a robot, so I have a primary care mechanic.

 

[jimbob]

First of all, I'm not wrong. The Google search I posted before has dozens of high quality hits to commoditized health care in just the last two years. Everybody in the industry knows what commoditization means. Second of all, you're trying to divert the discussion into one about semantics. The central issue here is whether or not health care is amenable to free market pricing and competition. In rebuttal, you claim that health care is not a commodity, just like a car is not a commodity. How does this help your argument? Do you deny that there is a very efficient and very competitive market in cars?

It isn't just semantics. It seems to be a fundamental misapplication of terms which renders the idea of a commodity almost meaningless.

Markets can work with goods and services that are not commodities.

However, as you said, it is somewhat irrelevant to discussion of health; Emily's Cat has posted details showing a classic Pareto type distribution. Even if your model worked, it would only affect the costs for a small part of the total pie.

Some form of collective payment is needed to cover the cost of the more expensive treatment (5% of patients are responsible for 50% of the costs, and 20% are responsible for 80% of the costs).

Your preferred system wouldn't do anything to that - except possibly make it more expensive.

 

[sunmaster14]

It isn't just semantics. It seems to be a fundamental misapplication of terms which renders the idea of a commodity almost meaningless.

Markets can work with goods and services that are not commodities.

However, as you said, it is somewhat irrelevant to discussion of health; Emily's Cat has posted details showing a classic Pareto type distribution. Even if your model worked, it would only affect the costs for a small part of the total pie.

Some form of collective payment is needed to cover the cost of the more expensive treatment (5% of patients are responsible for 50% of the costs, and 20% are responsible for 80% of the costs).

Your preferred system wouldn't do anything to that - except possibly make it more expensive.

I guess you understood her point better than I. Is the claim that because most of the costs are incurred by a small percentage of the population that free markets wouldn't help? I don't see how that follows. Invariably, those large costs are the sum of a whole crapload of little ones. It's not like there's a single-use, cancer curing machine which costs $500,000 per shot, and it's just a matter of building one and getting access to it. Curing cancer might involve hundreds of blood tests and transfusions, dozens of courses of different drugs, dozens of overnight hospital stays, minor surgeries or major surgeries, consultations, and routine use of routine diagnostic equipment. Most of those things are multi-use and are subject to normal market pressures. Bring the cost of those things down by factor of 2, then even the $500,000 cost of curing leukemia comes down by a factor of 2.

 

[Frank Newgent]

Sometimes you just have to shop around to find the best deal on a chest x-ray.

If only that were true. If I had my druthers, there would be special after xmas specials on x-rays.

If there are no affordable after xmas specials, what do you do... wait forever?

 

[Emily's Cat]

First of all, I'm not wrong.

Yes, actually, you are. Your interpretation of what constitutes a commodity is wrong. End of story. Sorry, but that's the way it is.

The Google search I posted before has dozens of high quality hits to commoditized health care in just the last two years.

Clearly if the interwebs says it, it must be true?

Everybody in the industry knows what commoditization means.

Which industry is that?

Second of all, you're trying to divert the discussion into one about semantics. The central issue here is whether or not health care is amenable to free market pricing and competition. In rebuttal, you claim that health care is not a commodity, just like a car is not a commodity. How does this help your argument?

That's an interesting rehash of the topic. Yes, the conversation is around whether or not health care can be stable and sustainable under a pure free-market, lasseiz faire approach. You, however, are the one that introduced commoditization into the mix - you opined that health care would work because it's mostly a commodity. You assumed that 95% of the costs are generated from routine & basic care (which they are not), and that such care is commoditized (which it is not). It's not a matter of this helping my argument - it's a matter of your argument being flawed and me pointing out why it's flawed.

Do you deny that there is a very efficient and very competitive market in cars?

There is a competitive market. In economic terms, it is not an efficient market. Efficiency only applies to traded assets (stocks, bonds, commodities) in an exchange environment. Furthermore, market efficiency is known to be an incomplete hypothesis - it's a model of behavior that consistently misses, but gets fairly close often enough to be useful.

 

[Emily's Cat]

No, I'm a robot, so I have a primary care mechanic.

It was a serious question. Some people don't have a primary care doctor.

So, assuming that your sarcasm was actually an affirmative answer... I'll move on to the next question.

Would it be okay with you if I swapped out your primary care doctor (Dr. Smith) and replaced them with a different doctor (Dr. Jones)?

 

[Emily's Cat]

I guess you understood her point better than I. Is the claim that because most of the costs are incurred by a small percentage of the population that free markets wouldn't help? I don't see how that follows. Invariably, those large costs are the sum of a whole crapload of little ones. It's not like there's a single-use, cancer curing machine which costs $500,000 per shot, and it's just a matter of building one and getting access to it. Curing cancer might involve hundreds of blood tests and transfusions, dozens of courses of different drugs, dozens of overnight hospital stays, minor surgeries or major surgeries, consultations, and routine use of routine diagnostic equipment. Most of those things are multi-use and are subject to normal market pressures. Bring the cost of those things down by factor of 2, then even the $500,000 cost of curing leukemia comes down by a factor of 2.

You are working on a large set of assumptions, sunmaster, and I think you would really benefit from understanding that they are just that - assumptions. They're not reality, and you don't actually know what reality looks like.

The suite of services that constitutes an open heart surgery includes several components, true. But you cannot pick and choose which of those components you want, and just swap them out as you see fit. Just like a car consists of many components (engine, windows, transmission, valves, struts, etc.). All of those pieces are part of the end product. You as a consumer don't get to go through and select every item. You don't get to select which manufacturer the rivets and screws in your car come from, and you don't get to select which valve stem the manufacturer uses. You get the car, as a whole product, as it is manufactured.

Those items might be subject to market pressures if they are purchased separately. Screws are subject to market pressures, sure... but not the screws inside the car you're buying. That's part of a different transaction altogether - the transaction between the auto manufacturer and the screw manufacturer. It's NOT part of the market transaction between the consumer and the auto manufacturer. Similarly, a PET scan machine might be subject to market pressures theoretically*, But the course of treatment for cancer does NOT include that transaction for the consumer.


*Theoretically because there really aren't many manufacturers for that machine, so the competition is pretty thin. There aren't many manufacturers of chemotherapy drugs either. And many of the most effective chemo drugs nowadays are biologic compounds that are grown, not compounded, so there is no such thing as competition.

 

[sunmaster14]

Yes, actually, you are. Your interpretation of what constitutes a commodity is wrong. End of story. Sorry, but that's the way it is.


Clearly if the interwebs says it, it must be true?


Which industry is that?

Business, as well as health care, to the extent it is a business (which it is). Actually, I found a wiki entry, which gives a reasonably good definition.

In business literature, commoditization is defined as the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition. Hence, the key effect of commoditization is that the pricing power of the manufacturer or brand owner is weakened: when products become more similar from a buyer's point of view, they will tend to buy the cheapest.

That's an interesting rehash of the topic. Yes, the conversation is around whether or not health care can be stable and sustainable under a pure free-market, lasseiz faire approach. You, however, are the one that introduced commoditization into the mix - you opined that health care would work because it's mostly a commodity commoditizable.

FTFY. For the sake of precision.

You assumed that 95% of the costs are generated from routine & basic care (which they are not), and that such care is commoditized (which it is not). It's not a matter of this helping my argument - it's a matter of your argument being flawed and me pointing out why it's flawed.

I never, ever said that. Perhaps that's why you've become so adamant that I'm wrong. I did, however, claim that 95% of care was easy to commoditize. There's nothing special about high cost care. Nothing special except its cost, that is. What's special about a spending a day in the ICU being monitored by round-the-clock machines and nurses? Nothing. Or getting a state of the art MRI scan? You can have that done anywhere. But you're still going to be charged up the wazoo because of the amortized cost of constructing and maintaining such a facility. However, the marginal cost is low, and the differentiation is close to nil. These are services which are ripe for commoditization. The only ingredient missing are price-sensitive consumers.

There is a competitive market. In economic terms, it is not an efficient market. Efficiency only applies to traded assets (stocks, bonds, commodities) in an exchange environment. Furthermore, market efficiency is known to be an incomplete hypothesis - it's a model of behavior that consistently misses, but gets fairly close often enough to be useful.

I'm not sure why you keep veering into pedantry. If I wanted to, I bet I could out-pedant you when it comes to economics and finance. It has been my profession for over 20 years after all. My point is that the car market works exceptionally well. We've had massive gains in safety, comfort, performance, and options, while inflation-adjusted prices have dropped. Nobody would dream of allowing a government takeover of the car industry (well, except for Obama in 2009 and maybe Bernie Sanders, and, of course 50% of the Democratic party, but still).

I see nothing that distinguishes healthcare from car buying, leasing and repair, except for a screwed up, tax-subsidized, 3rd party payer system that we've had since the 1950s.

 

[sunmaster14]

It was a serious question. Some people don't have a primary care doctor.

So, assuming that your sarcasm was actually an affirmative answer... I'll move on to the next question.

Would it be okay with you if I swapped out your primary care doctor (Dr. Smith) and replaced them with a different doctor (Dr. Jones)?

Sure, it's no big deal to me. I'm on my 3rd in the space of two years anyway, since my first retired (in large part due to Obamacare), my second was from the same group, but I decided to move to a new group that was more convenient. Actually, technically, I'm on my fourth because I saw somebody else first at my new place and then was switched. I get along with everybody. I'm not picky.

 

[sunmaster14]

You are working on a large set of assumptions, sunmaster, and I think you would really benefit from understanding that they are just that - assumptions. They're not reality, and you don't actually know what reality looks like.

The suite of services that constitutes an open heart surgery includes several components, true. But you cannot pick and choose which of those components you want, and just swap them out as you see fit. Just like a car consists of many components (engine, windows, transmission, valves, struts, etc.). All of those pieces are part of the end product. You as a consumer don't get to go through and select every item. You don't get to select which manufacturer the rivets and screws in your car come from, and you don't get to select which valve stem the manufacturer uses. You get the car, as a whole product, as it is manufactured.

Those items might be subject to market pressures if they are purchased separately. Screws are subject to market pressures, sure... but not the screws inside the car you're buying. That's part of a different transaction altogether - the transaction between the auto manufacturer and the screw manufacturer. It's NOT part of the market transaction between the consumer and the auto manufacturer. Similarly, a PET scan machine might be subject to market pressures theoretically*, But the course of treatment for cancer does NOT include that transaction for the consumer.


*Theoretically because there really aren't many manufacturers for that machine, so the competition is pretty thin. There aren't many manufacturers of chemotherapy drugs either. And many of the most effective chemo drugs nowadays are biologic compounds that are grown, not compounded, so there is no such thing as competition.

With real price transparency and price-conscious consumers, real competition will lead to these bundled services becoming subject to unbundled price pressures. Why not? The cost of the whole should be closely tied to the sum of the parts. It will be in a commoditized market.

 

[Frank Newgent]

You are working on a large set of assumptions, sunmaster, and I think you would really benefit from understanding that they are just that - assumptions. They're not reality, and you don't actually know what reality looks like.

The suite of services that constitutes an open heart surgery includes several components, true. But you cannot pick and choose which of those components you want, and just swap them out as you see fit. Just like a car consists of many components (engine, windows, transmission, valves, struts, etc.). All of those pieces are part of the end product. You as a consumer don't get to go through and select every item. You don't get to select which manufacturer the rivets and screws in your car come from, and you don't get to select which valve stem the manufacturer uses. You get the car, as a whole product, as it is manufactured.

Those items might be subject to market pressures if they are purchased separately. Screws are subject to market pressures, sure... but not the screws inside the car you're buying. That's part of a different transaction altogether - the transaction between the auto manufacturer and the screw manufacturer. It's NOT part of the market transaction between the consumer and the auto manufacturer. Similarly, a PET scan machine might be subject to market pressures theoretically*, But the course of treatment for cancer does NOT include that transaction for the consumer.


*Theoretically because there really aren't many manufacturers for that machine, so the competition is pretty thin. There aren't many manufacturers of chemotherapy drugs either. And many of the most effective chemo drugs nowadays are biologic compounds that are grown, not compounded, so there is no such thing as competition.

With real price transparency and price-conscious consumers, real competition will lead to these bundled services becoming subject to unbundled price pressures. Why not? The cost of the whole should be closely tied to the sum of the parts. It will be in a commoditized market.

Should be would be could be...can you give an example were such was/might be realized?

Plenty of real-world examples here in the US where specific circumstances allowed no such thing to happen.

 

[jimbob]

Should be would be could be...can you give an example were such was/might be realized?

Plenty of real-world examples here in the US where specific circumstances allowed no such thing to happen.

Yes, loads of (unconventional) theory and ignoring real life examples that wouldn't happen if the theory was right.