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

[Emily's Cat]

What healthcare budget? It's just numbers on a piece of paper. What matters is the utilization of real health care resources.

It's still going to get counted in the total amount that the US spends on healthcare. It;s going to increase the US spend on healthcare. There's no incentive for providers to lower cost, because the effective cost to the consumer is $0. As far as they're concerned, none of their health care costs them money - it's all being paid by someone else. Right now the $8000+ per capita spending includes about 20% of people on whom $0 is spent. So you'll increase the spend for those people to $5K, you'll increase the spend to $5K for anyone who regularly spent less than $5K, and you'll still have the same spend for people who spent more than $5K. On the whole, your spend will increase.

 

[sunmaster14]

Lets say you're making an omelet at home. You've got 3 eggs sitting on the counter. I sneak in when you're not looking, and I swap your 3 eggs with 3 eggs from my hens. Will you be able to tell the difference?

Unless, the eggs are a different color, or a substantially different size, then I won't be able to tell. Other people might, however.

Let's say you're driving home and you stop for gas. While you're not looking, I take the spigot out of your car and fill it up with a different brand of the same grade. Will you be able to tell that I did so?

Not me, but perhaps some people could. The different brands have different mixtures of additives. I always go for the cheapest or most convenient gas station. Then again, I don't buy expensive cars either.

Let's say you're getting ready to go to work and you head to your garage. While you were sleeping, I sneaked in and swapped your Honda CRV with a Mazda CX-5. Will you be able to tell?

I'd be able to tell, but I probably wouldn't care terribly much, assuming the market value was the same.

If you went to have an appendectomy done by Dr. Experience, and he had his resident Dr. Green do it instead, while you were under general anesthesia, would you be able to tell?

 

[sunmaster14]

You know, my "insults" were explicitly attacks on your argumentation. I haven't personally attacked you.

Riiight. You're "about 99% certain that [I'm] just making wild assumptions because think they make sense to [my] brain, then [I'm] assuming that [my] assumptions are the only way it can possibly be... even though actually don't know a single thing about this topic," but it's my "argument" that you attacked. My argument - which of course has a mind that you can read and whose motives you can know, and whose knowledge base you can immediately assess.

I think maybe you don't know. You certainly don't seem to understand that economics is a specific element of our studies, and constitutes a fair portion of the material on which we're tested.

I'm just going by what I've observed here. EG3000K didn't have a good grasp of economics either, and he also claimed to be an actuary.

You give them $5000, of which $1000 must be spent on medical care, but the remaining $4000 is theirs to do with as they please. If they have medical costs exceeding $5000, they are covered for that through other means. They effectively have no skin in the game at all. The observed cost to the consumer is $0 in your plan.

No, the observed cost is $4,000. I don't see how anybody with even the most rudimentary understanding of economics could believe any different.

What exactly is going to create a competitive market?

The $1,000 to $5,000 range where the consumer is spending his own money. I claim that the consumer also cares about the $0 - $1,000 range too, at least until he gets to the end of the year. It's kind of like being short a $1,000 strike call option, where the underlying stock's price is equal to the consumer's cumulative health care expenditures for the year, which is of course under the consumer's control to some degree.

But he can stick that $5000 in an account to use throughout the year. and have a nice xmas bonus with no risk. There's no incentive to be frugal at all - the observed cost to the consumer is ZERO!

Huh? Sorry, but if I give you $5,000, it's yours. If you then lose that money, you'll be sad. You know why you'll be sad? Because you lost $5,000. Is this really a complicated idea?

Not going to happen. There is no cost to the consumer under your plan. They have no skin in the game. Their given free money up front, and they're given free money if they exceed the amount of free money that you gave them to start. Why not just cut out the administrative costs altogether and make health care free?

Well, your analysis is just hopelessly wrong. Hopefully, somebody else can set you straight, since you don't seem to be willing to put in the slightest bit of effort to try to understand what I write. But of course, why should you? You're 99% certain that I just make wild assumptions because I think they make sense to my brain ... even though I actually don't know a single thing about this topic.

 

[sunmaster14]

It's still going to get counted in the total amount that the US spends on healthcare. It;s going to increase the US spend on healthcare. There's no incentive for providers to lower cost, because the effective cost to the consumer is $0. As far as they're concerned, none of their health care costs them money - it's all being paid by someone else. Right now the $8000+ per capita spending includes about 20% of people on whom $0 is spent. So you'll increase the spend for those people to $5K, you'll increase the spend to $5K for anyone who regularly spent less than $5K, and you'll still have the same spend for people who spent more than $5K. On the whole, your spend will increase.

First of all, you're wrong about the incentives. Health care spending by the consumer will drop - a lot. Second of all, the money not spent on health care is - wait for this - not spent on health care. Deep I know.

The important thing to understand, and I remain hopeful that perhaps jimbob will have an "aha" moment, is that it is real resources that matter. Both their production and consumption. Not little green pieces of paper. We have health care inflation because there is too much demand for health care resources relative to the supply. If somebody spends his remaining $4,000 check from the government on hookers and booze, that represents health care resources which have not been gobbled up by somebody who is content to do without. Which are then available to somebody else who needs them more urgently. And the price will come down (this is a consequence of the law of supply and demand, which perhaps you heard about while studying for your actuarial exams). It's true that the demand for hookers and booze will go up, but those markets have been a little depressed lately, so they could use the stimulation.

 

[jimbob]

It's still going to get counted in the total amount that the US spends on healthcare. It;s going to increase the US spend on healthcare. There's no incentive for providers to lower cost, because the effective cost to the consumer is $0. As far as they're concerned, none of their health care costs them money - it's all being paid by someone else. Right now the $8000+ per capita spending includes about 20% of people on whom $0 is spent. So you'll increase the spend for those people to $5K, you'll increase the spend to $5K for anyone who regularly spent less than $5K, and you'll still have the same spend for people who spent more than $5K. On the whole, your spend will increase.

First of all, you're wrong about the incentives. Health care spending by the consumer will drop - a lot. Second of all, the money not spent on health care is - wait for this - not spent on health care. Deep I know.

The important thing to understand, and I remain hopeful that perhaps jimbob will have an "aha" moment, is that it is real resources that matter. Both their production and consumption. Not little green pieces of paper. We have health care inflation because there is too much demand for health care resources relative to the supply. If somebody spends his remaining $4,000 check from the government on hookers and booze, that represents health care resources which have not been gobbled up by somebody who is content to do without. Which are then available to somebody else who needs them more urgently. And the price will come down (this is a consequence of the law of supply and demand, which perhaps you heard about while studying for your actuarial exams). It's true that the demand for hookers and booze will go up, but those markets have been a little depressed lately, so they could use the stimulation.

By what mechanism is the cost going to fall?

The 20% of the population with no current claims will instead work out how to spend $1k. As you are assuming that the free market will sort out the price, then the market will develop an option for an end-of-financial-year checkup that costs anything up to $1k. They have an incentive to increase their costs. This is a perverse incentive in precisely the manner of the Cobra effect

Governmental spending will increase as they will spend at least $5k on everyone. This would effectively be an economic stimulus package, but you rational economists want to decouple economic stimulus packages from other needed governmental deliverables as the targets will only coincide by chance. Using healthcare as the vehicle, is... um, yet another eccentric approach.

The 5% who make up 50% of the current costs will have no incentive to reduce costs. Their costs will be covered once they break the $5k limit anyway, and they will know this as soon as they get a diagnosis.

Quite probably, the 20% who make up 80% of the current costs would also know that they are going to easily break the $5k limit, so would have no incentive to reduce costs.

This is only a small fraction of the costs, and you have already negated the savings by spending $5k per person on the 20% of the population that currently don't have any costs.

Even if you magically ignored this and focused on this group - why do you believe that they could shop around effectively? If I have a minor illness that requires a doctor's visit, I am not going to feel up to shopping around. If I have a crying baby, that's even less likely. If I have a moderately sympathetic partner with sufficient free time, then we might be able to shop around - but how would we be able to assess quality? I am talking about minor illnesses here, but as soon as you get to something larger and more complex, there is a time constraint (illness hurts, and costs money if you can't work so you want it fixed as soon as possible), there is a captive market (illness hurts, and costs money if you can't work so you want it fixed as soon as possible and you need a local provider), there is information asymmetry (assuming you lack an MD), and there are potentially severe and literally painful consequences of getting it wrong.

There is nothing in this about the patient finding the most medically appropriate treatment regime for their personal circumstances. Most people need an advisor and they don't want one with a financial stake in pushing any particular option. Many countries manage to set up systems so that GPs can fit this bill, as can other doctors.

You should read the Krugman Blog about why markets cant cure healthcare - I know that Krugman is a highly respected economist, but I doubt that he needed all his expertise to provide these answers as they are obvious if you stop to think about it.

http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/?_r=1

 

[sunmaster14]

By what mechanism is the cost going to fall?

I just explained it. Read my previous posts again.

The 20% of the population with no current claims will instead work out how to spend $1k.

As I've already pointed out, these people are already forgoing free health care. Evidently, they consider their time more important than even a free visit to the doctor for a checkup or to update their vaccinations. Why would the prospect of free stuff capped at $1,000 get them to eat into their $1,000 annual cushion?

As you are assuming that the free market will sort out the price, then the market will develop an option for an end-of-financial-year checkup that costs anything up to $1k. They have an incentive to increase their costs. This is a perverse incentive in precisely the manner of the Cobra effect

This is a good point, and I would be very interested to see what the market comes up with. It wouldn't necessarily be a waste, but it's true there will be an incentive to dress up some other type of good or service as a legitimate health care expense (which of course wouldn't actually strain real health care resources). Of course, we already have that problem now, in spades, because of Flexible Spending Accounts, an idea so dumb that it makes breaking windows (or perhaps Cash for Clunkers) look like enlightened economic policy. There is actually an equivalently dumb incentive in Obamacare whereby insurance companies are required to spend 80% or 85% of total premium revenues on claims.

Overall, though, I think that distortions caused by a $1,000 use-it-or-lose-it account will be small. I'd be happy to entertain a lower use-it-or-lose-it number, however.

Governmental spending will increase as they will spend at least $5k on everyone. This would effectively be an economic stimulus package, but you rational economists want to decouple economic stimulus packages from other needed governmental deliverables as the targets will only coincide by chance. Using healthcare as the vehicle, is... um, yet another eccentric approach.

It's not using health care as the vehicle for stimulus. That would be a terrible idea, since real health care resources are already in too short supply. It's just forcing non-catastrophic health care costs to be covered out of pocket, while giving poor people the cash resources to pay. To the extent that those cash resources are spent on something else, that's a good thing and stimulative to other areas of the economy, where aggregate demand has actually lagged capacity for many decades.

The 5% who make up 50% of the current costs will have no incentive to reduce costs. Their costs will be covered once they break the $5k limit anyway, and they will know this as soon as they get a diagnosis.

Quite probably, the 20% who make up 80% of the current costs would also know that they are going to easily break the $5k limit, so would have no incentive to reduce costs.

This is only a small fraction of the costs, and you have already negated the savings by spending $5k per person on the 20% of the population that currently don't have any costs.

Let's look at some math. The average per capita annual health care expense is about $10,000. Using Emily's numbers (which you've quoted), 5% have 10 times the average, or $100,000 per year, per capita, in expense. The next 15% have $20,000 per year, per capita, in expense, 20% have $0 expense, and the remaining 60% have $3,333 per year, per capita in expense.

So, 60% of the people are in the sweet spot, and 20% are probably not going to change their behavior at all. The program would have little impact on the 5% who spend $100,000 per year on average, but perhaps some of the 15% who spend $20,000 per year would be affected. Certainly some of that 15% wouldn't know until well into the year that they were going well into the catastrophic range by the end of the year. Up until then, they had an incentive to be frugal.

Overall, you might have only 10 or 15% of the population, in any given year, who spend with abandon. That's a lot better than right now where the vast majority of insured do. Sure, higher deductibles and copayments help, and that's why the industry has been moving in that direction, but I think the effect is blunted tremendously by the fact that most people don't understand their deductibles at all, can't keep track of them, and don't know the price of anything a priori anyway.

Even if you magically ignored this and focused on this group - why do you believe that they could shop around effectively? If I have a minor illness that requires a doctor's visit, I am not going to feel up to shopping around. If I have a crying baby, that's even less likely. If I have a moderately sympathetic partner with sufficient free time, then we might be able to shop around - but how would we be able to assess quality? I am talking about minor illnesses here, but as soon as you get to something larger and more complex, there is a time constraint (illness hurts, and costs money if you can't work so you want it fixed as soon as possible), there is a captive market (illness hurts, and costs money if you can't work so you want it fixed as soon as possible and you need a local provider), there is information asymmetry (assuming you lack an MD), and there are potentially severe and literally painful consequences of getting it wrong.

There is nothing in this about the patient finding the most medically appropriate treatment regime for their personal circumstances. Most people need an advisor and they don't want one with a financial stake in pushing any particular option. Many countries manage to set up systems so that GPs can fit this bill, as can other doctors.

Well, we've been around the block on this many times. I'll just be succinct and say that I completely disagree with everything you wrote. I think it would take about 3 days for something like Yelp or Zagat's or Consumer Reports to start rating doctors and hospitals for various procedures. Or perhaps to have doctor and hospitals start advertising or offering services and getting reviewed on Amazon.

You should read the Krugman Blog about why markets cant cure healthcare - I know that Krugman is a highly respected economist, but I doubt that he needed all his expertise to provide these answers as they are obvious if you stop to think about it.

http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/?_r=1

Krugman says nothing new in there that I haven't addressed a dozen times already. Oh, by the way, I read Kenneth Arrow's paper that Krugman referred to. As I suspected, Krugman completely misrepresented it. Further evidence of his intellectual dishonestly (I don't really need anymore, however - I've known that he is a partisan shill for at least 15 years).

 

[jimbob]

By what mechanism is the cost going to fall?

I just explained it. Read my previous posts again.

The 20% of the population with no current claims will instead work out how to spend $1k.

As I've already pointed out, these people are already forgoing free health care. Evidently, they consider their time more important than even a free visit to the doctor for a checkup or to update their vaccinations. Why would the prospect of free stuff capped at $1,000 get them to eat into their $1,000 annual cushion?

As you are assuming that the free market will sort out the price, then the market will develop an option for an end-of-financial-year checkup that costs anything up to $1k. They have an incentive to increase their costs. This is a perverse incentive in precisely the manner of the Cobra effect

This is a good point, and I would be very interested to see what the market comes up with. It wouldn't necessarily be a waste, but it's true there will be an incentive to dress up some other type of good or service as a legitimate health care expense (which of course wouldn't actually strain real health care resources). Of course, we already have that problem now, in spades, because of Flexible Spending Accounts, an idea so dumb that it makes breaking windows (or perhaps Cash for Clunkers) look like enlightened economic policy. There is actually an equivalently dumb incentive in Obamacare whereby insurance companies are required to spend 80% or 85% of total premium revenues on claims.

Overall, though, I think that distortions caused by a $1,000 use-it-or-lose-it account will be small. I'd be happy to entertain a lower use-it-or-lose-it number, however.

But it won't be $1k they will be spending $1k of free money to get $4k of free money. That would be a no-brainer.

If I gave you $5k and said that you could keep it providing that you spent $1k at registered providers within the year and that you could negotiate the price of services at these providers, what would you do if you came up to the end of the year and had only spent $200?

Would you go to a provider and ask for "a fifteen minute checkup" and ask to pay $800 of free money in order to get another $4k? Most people would, and it wouldn't be fraudulent, just playing exactly by the rules.

One could get around this by having a list of acceptable prices - but that negates the whole purpose of the exercise which is to allow the market to fix the prices. It would also increase the administrative burden for this approach.

The basic premise of such a system is a massive loophole.

Governmental spending will increase as they will spend at least $5k on everyone. This would effectively be an economic stimulus package, but you rational economists want to decouple economic stimulus packages from other needed governmental deliverables as the targets will only coincide by chance. Using healthcare as the vehicle, is... um, yet another eccentric approach.

It's not using health care as the vehicle for stimulus. That would be a terrible idea, since real health care resources are already in too short supply. It's just forcing non-catastrophic health care costs to be covered out of pocket, while giving poor people the cash resources to pay. To the extent that those cash resources are spent on something else, that's a good thing and stimulative to other areas of the economy, where aggregate demand has actually lagged capacity for many decades.

Either people are going to get an extra $4k (plus $1k tied) or they are not.

If you give everyone $5k - that is going to act as a stimulus whatever your intent - you seem to accept that in the above paragraph, where you also say it isn't intended as a stimulus.

The 5% who make up 50% of the current costs will have no incentive to reduce costs. Their costs will be covered once they break the $5k limit anyway, and they will know this as soon as they get a diagnosis.

Quite probably, the 20% who make up 80% of the current costs would also know that they are going to easily break the $5k limit, so would have no incentive to reduce costs.

This is only a small fraction of the costs, and you have already negated the savings by spending $5k per person on the 20% of the population that currently don't have any costs.

Let's look at some math. The average per capita annual health care expense is about $10,000. Using Emily's numbers (which you've quoted), 5% have 10 times the average, or $100,000 per year, per capita, in expense. The next 15% have $20,000 per year, per capita, in expense, 20% have $0 expense, and the remaining 60% have $3,333 per year, per capita in expense.

So, 60% of the people are in the sweet spot, and 20% are probably not going to change their behavior at all. The program would have little impact on the 5% who spend $100,000 per year on average, but perhaps some of the 15% who spend $20,000 per year would be affected. Certainly some of that 15% wouldn't know until well into the year that they were going well into the catastrophic range by the end of the year. Up until then, they had an incentive to be frugal.

I suspect your numbers for the quintile bands is wrong, but can work with them.


I still can't see how this will significantly affect prices, and have even less clarity as to how this will improve value as opposed to cost.

The people responsible for 80% of the costs are not going to bother negotiating, and there is 20% of the population that is trying to negotiate higher costs in order to spend their minimum limit. Against that you have the 60% of the population who are in the right area to want to reduce their costs.

20% of the population want to increase their costs to $1k, and 60% want to reduce their costs from $3.3k

To have any effect on overall prices (not costs to the Government), these 60% need to negotiate a fall in their costs down to $2.3k whilst others are trying to pay more.

That isn't going to happen.

Overall, you might have only 10 or 15% of the population, in any given year, who spend with abandon. That's a lot better than right now where the vast majority of insured do. Sure, higher deductibles and copayments help, and that's why the industry has been moving in that direction, but I think the effect is blunted tremendously by the fact that most people don't understand their deductibles at all, can't keep track of them, and don't know the price of anything a priori anyway.

Even if you magically ignored this and focused on this group - why do you believe that they could shop around effectively? If I have a minor illness that requires a doctor's visit, I am not going to feel up to shopping around. If I have a crying baby, that's even less likely. If I have a moderately sympathetic partner with sufficient free time, then we might be able to shop around - but how would we be able to assess quality? I am talking about minor illnesses here, but as soon as you get to something larger and more complex, there is a time constraint (illness hurts, and costs money if you can't work so you want it fixed as soon as possible), there is a captive market (illness hurts, and costs money if you can't work so you want it fixed as soon as possible and you need a local provider), there is information asymmetry (assuming you lack an MD), and there are potentially severe and literally painful consequences of getting it wrong.

There is nothing in this about the patient finding the most medically appropriate treatment regime for their personal circumstances. Most people need an advisor and they don't want one with a financial stake in pushing any particular option. Many countries manage to set up systems so that GPs can fit this bill, as can other doctors.

Well, we've been around the block on this many times. I'll just be succinct and say that I completely disagree with everything you wrote. I think it would take about 3 days for something like Yelp or Zagat's or Consumer Reports to start rating doctors and hospitals for various procedures. Or perhaps to have doctor and hospitals start advertising or offering services and getting reviewed on Amazon.

You should read the Krugman Blog about why markets cant cure healthcare - I know that Krugman is a highly respected economist, but I doubt that he needed all his expertise to provide these answers as they are obvious if you stop to think about it.

http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/?_r=1

Krugman says nothing new in there that I haven't addressed a dozen times already. Oh, by the way, I read Kenneth Arrow's paper that Krugman referred to. As I suspected, Krugman completely misrepresented it. Further evidence of his intellectual dishonestly (I don't really need anymore, however - I've known that he is a partisan shill for at least 15 years).

You are proposing that you are somehow going to reduce costs by increasing spending, and with a system that has some customers negotiating to pay more, where the vast majority of the costs are untouched anyway, where a lot of the customers will be desperate so prioritizing speedy service above price, and where you still have most of the other administrative systems in place as well as this new one.

You have handwaved away Krugman's objections - you haven't refuted them, except by referring to how your theories believe that they don't happen (despite evidence that they do).

 

[jimbob]

If there wasn't a problem with information asymmetry then quarks would not exist.

 

[sunmaster14]

But it won't be $1k they will be spending $1k of free money to get $4k of free money. That would be a no-brainer.

If I gave you $5k and said that you could keep it providing that you spent $1k at registered providers within the year and that you could negotiate the price of services at these providers, what would you do if you came up to the end of the year and had only spent $200?

Would you go to a provider and ask for "a fifteen minute checkup" and ask to pay $800 of free money in order to get another $4k? Most people would, and it wouldn't be fraudulent, just playing exactly by the rules.

One could get around this by having a list of acceptable prices - but that negates the whole purpose of the exercise which is to allow the market to fix the prices. It would also increase the administrative burden for this approach.

The basic premise of such a system is a massive loophole.

They don't need to spend the $1K to get the $4K. You still don't seem to understand the idea.

Either people are going to get an extra $4k (plus $1k tied) or they are not.

If you give everyone $5k - that is going to act as a stimulus whatever your intent - you seem to accept that in the above paragraph, where you also say it isn't intended as a stimulus.

It is a stimulus, which frankly we need, but it is not a stimulus for health care. I think it will lower demand for health care, which is the point. It will stimulate other areas of the economy, though. If inflation starts becoming a problem, the government can raise taxes or reduce other spending. I highly doubt that replacing a huge fraction of the $3 trillion we spend on health care every year with $1.5 trillion per year of direct cash grants from the federal government is going to cause general inflation, but I have no proof of course. We do have a steeply progressive tax system, however, in which tax revenues rise dramatically with economic activity and inflation, so I think the risk of unwanted inflation is low.

I suspect your numbers for the quintile bands is wrong, but can work with them.

You suspect? It's a trivial calculation. I thought you were an engineer.

I still can't see how this will significantly affect prices, and have even less clarity as to how this will improve value as opposed to cost.

The people responsible for 80% of the costs are not going to bother negotiating, and there is 20% of the population that is trying to negotiate higher costs in order to spend their minimum limit. Against that you have the 60% of the population who are in the right area to want to reduce their costs.

I claim the 20% with zero claims now have an incentive to be frugal. I also claim that the 15% who spend a ton (average $20,000 per year) will probably have an incentive to be frugal earlier in the year before it becomes clear that they're going well above the $5K threshold. Also, the 5% who are hopelessly into catastrophic spending range still are consuming many of the same resources that other people are (whose cost will be subject to competitive pressures from those people). Their consumption works against price discipline for those resources (although there is no reason some sort of cost-sharing couldn't be imposed even for these people), but once prices separate, it will become easier for the 3rd party payer, i.e. some bean counter in the government, to restrict those high cost people's choices in order to reduce cost.

20% of the population want to increase their costs to $1k, and 60% want to reduce their costs from $3.3k

To have any effect on overall prices (not costs to the Government), these 60% need to negotiate a fall in their costs down to $2.3k whilst others are trying to pay more.

That isn't going to happen.

As I noted above, you're misinterpreting my proposal. The 20% has no incentive to increase spending to $1K. Not even the prospect of getting that $1K of stuff for free, since in most cases, they have that option now, and they're not exercising it.

You are proposing that you are somehow going to reduce costs by increasing spending, and with a system that has some customers negotiating to pay more, where the vast majority of the costs are untouched anyway, where a lot of the customers will be desperate so prioritizing speedy service above price, and where you still have most of the other administrative systems in place as well as this new one.

No, most of the administrative burden dealing with insurance claims is actually relieved. Of course, the burden doctors are really complaining about these days is the electronic record-keeping burden.

You have handwaved away Krugman's objections - you haven't refuted them, except by referring to how your theories believe that they don't happen (despite evidence that they do).

Krugman's objections are exactly the same ones that people keep parroting back to me on this forum. They're the same ones that your "Cain" post enumerates. I have addressed them repeatedly, mostly by pointing out two truths: (1) the allegedly anti-free market attributes apply only to the 2% of health care spending which is emergency and therefore involuntary; and (2) other areas of the economy where free markets have had undisputed success, e.g. computer chips, or automobiles, have the same sorts of alleged problems.

 

[jimbob]

But it won't be $1k they will be spending $1k of free money to get $4k of free money. That would be a no-brainer.

If I gave you $5k and said that you could keep it providing that you spent $1k at registered providers within the year and that you could negotiate the price of services at these providers, what would you do if you came up to the end of the year and had only spent $200?

Would you go to a provider and ask for "a fifteen minute checkup" and ask to pay $800 of free money in order to get another $4k? Most people would, and it wouldn't be fraudulent, just playing exactly by the rules.

One could get around this by having a list of acceptable prices - but that negates the whole purpose of the exercise which is to allow the market to fix the prices. It would also increase the administrative burden for this approach.

The basic premise of such a system is a massive loophole.

They don't need to spend the $1K to get the $4K. You still don't seem to understand the idea.

They get $5k - and up to $1k is deducted? How is that going to drive down costs if 80% of the costs are generated well above that?

Either people are going to get an extra $4k (plus $1k tied) or they are not.

If you give everyone $5k - that is going to act as a stimulus whatever your intent - you seem to accept that in the above paragraph, where you also say it isn't intended as a stimulus.

It is a stimulus, which frankly we need, but it is not a stimulus for health care. I think it will lower demand for health care, which is the point. It will stimulate other areas of the economy, though. If inflation starts becoming a problem, the government can raise taxes or reduce other spending. I highly doubt that replacing a huge fraction of the $3 trillion we spend on health care every year with $1.5 trillion per year of direct cash grants from the federal government is going to cause general inflation, but I have no proof of course. We do have a steeply progressive tax system, however, in which tax revenues rise dramatically with economic activity and inflation, so I think the risk of unwanted inflation is low.

Whether we need a stimulus *now* (and I agree with you, we do, and that giving cash to consumers would be better than quantitative easing) is a different question as to whether one should create a structural system that adds a repeating annual stimulus package indefinitely.

I suspect your numbers for the quintile bands is wrong, but can work with them.

You suspect? It's a trivial calculation. I thought you were an engineer.

I don't think the US per capita spending is $10k.

I still can't see how this will significantly affect prices, and have even less clarity as to how this will improve value as opposed to cost.

The people responsible for 80% of the costs are not going to bother negotiating, and there is 20% of the population that is trying to negotiate higher costs in order to spend their minimum limit. Against that you have the 60% of the population who are in the right area to want to reduce their costs.

I claim the 20% with zero claims now have an incentive to be frugal. I also claim that the 15% who spend a ton (average $20,000 per year) will probably have an incentive to be frugal earlier in the year before it becomes clear that they're going well above the $5K threshold. Also, the 5% who are hopelessly into catastrophic spending range still are consuming many of the same resources that other people are (whose cost will be subject to competitive pressures from those people). Their consumption works against price discipline for those resources (although there is no reason some sort of cost-sharing couldn't be imposed even for these people), but once prices separate, it will become easier for the 3rd party payer, i.e. some bean counter in the government, to restrict those high cost people's choices in order to reduce cost.

And most of the cost is untouched but you are giving $5k for healthcare to everyone.

20% of the population want to increase their costs to $1k, and 60% want to reduce their costs from $3.3k

To have any effect on overall prices (not costs to the Government), these 60% need to negotiate a fall in their costs down to $2.3k whilst others are trying to pay more.

That isn't going to happen.

As I noted above, you're misinterpreting my proposal. The 20% has no incentive to increase spending to $1K. Not even the prospect of getting that $1K of stuff for free, since in most cases, they have that option now, and they're not exercising it.

You are proposing that you are somehow going to reduce costs by increasing spending, and with a system that has some customers negotiating to pay more, where the vast majority of the costs are untouched anyway, where a lot of the customers will be desperate so prioritizing speedy service above price, and where you still have most of the other administrative systems in place as well as this new one.

No, most of the administrative burden dealing with insurance claims is actually relieved. Of course, the burden doctors are really complaining about these days is the electronic record-keeping burden.

You have handwaved away Krugman's objections - you haven't refuted them, except by referring to how your theories believe that they don't happen (despite evidence that they do).

Krugman's objections are exactly the same ones that people keep parroting back to me on this forum. They're the same ones that your "Cain" post enumerates. I have addressed them repeatedly, mostly by pointing out two truths: (1) the allegedly anti-free market attributes apply only to the 2% of health care spending which is emergency and therefore involuntary; and (2) other areas of the economy where free markets have had undisputed success, e.g. computer chips, or automobiles, have the same sorts of alleged problems.

The objections are repeated because you haven't addressed them beyond claiming that they won't be a problem.

I agree that emergency care is involuntary, but that is not the only section of healthcare where that applies. Chronic conditions also count and these are going to make up the vast majority of the costs.

Even minor illnesses are going to have very limited choice - if you are a parent and your baby gets a sore throat in the night, you are going to go for the most convenient treatment.

Computer chips are discretionary purchases, as are automobiles. Large automobile manufacturers have recently been discovered to have acted to defraud the customer.

Both industries have been subject to anticompetitive practices.

You also claim that information asymmetry isn't a problem in healthcare - if that is the case, why are chiropractors making a living? As soon as you get beyond the simplest of illnesses, how do you separate information from misinformation? Do you think that a sufficient proportion of the population would be able to?

 

[sunmaster14]

They get $5k - and up to $1k is deducted? How is that going to drive down costs if 80% of the costs are generated well above that?

It's 80% of the costs, but not 80% of the people. And those costs are made up of a whole bunch of little ones. And those spending little today, may be the ones incurring huge costs tomorrow. That is, the low-spending customers that a provider might try to gouge today could turn into the big-spending customer next year. I think those 80% of the people doing 20% of the spending each year, could easily drive down the price of those items. Which would of course have the beneficial effect of making more people price sensitive. In any case, I think I would favor incentives for even the highest spenders to be somewhat frugal. There are many ways this could be done: copays, restrictive networks, tighter restrictions on what qualifies as a catastrophic expense, etc.

Whether we need a stimulus *now* (and I agree with you, we do, and that giving cash to consumers would be better than quantitative easing) is a different question as to whether one should create a structural system that adds a repeating annual stimulus package indefinitely.

A lot, or most of it, is spending the government does anyway. The savings from a more optimal use of real resources will more than pay for itself in terms of keeping inflation moderate.

I don't think the US per capita spending is $10k.

Does that number really matter? I can adjust the $5,000 number accordingly. Regardless, the $10,000 appears to be bang on:

Historical NHE, 2014:

NHE grew 5.3% to $3.0 trillion in 2014, or $9,523 per person, and accounted for 17.5% of Gross Domestic Product (GDP).

Medicare spending grew 5.5% to $618.7 billion in 2014, or 20 percent of total NHE.

Medicaid spending grew 11.0% to $495.8 billion in 2014, or 16 percent of total NHE.

Private health insurance spending grew 4.4% to $991.0 billion in 2014, or 33 percent of total NHE.
Out of pocket spending grew 1.3% to $329.8 billion in 2014, or 11 percent of total NHE.
Hospital expenditures grew 4.1% to $971.8 billion in 2014, faster than the 3.5% growth in 2013.

Physician and clinical services expenditures grew 4.6% to $603.7 billion in 2014, a faster growth than the 2.5% in 2013.

Prescription drug spending increased 12.2% to $297.7 billion in 2014, faster than the 2.4% growth in 2013.

The largest shares of total health spending were sponsored by households (28 percent) and the federal government (28 percent). The private business share of health spending accounted for 20 percent of total health care spending, state and local governments accounted for 17 percent, and other private revenues accounted for 7 percent.Historical NHE, 2014:

NHE grew 5.3% to $3.0 trillion in 2014, or $9,523 per person, and accounted for 17.5% of Gross Domestic Product (GDP).

Medicare spending grew 5.5% to $618.7 billion in 2014, or 20 percent of total NHE.
Medicaid spending grew 11.0% to $495.8 billion in 2014, or 16 percent of total NHE.
Private health insurance spending grew 4.4% to $991.0 billion in 2014, or 33 percent of total NHE.

Out of pocket spending grew 1.3% to $329.8 billion in 2014, or 11 percent of total NHE.

Hospital expenditures grew 4.1% to $971.8 billion in 2014, faster than the 3.5% growth in 2013.

Physician and clinical services expenditures grew 4.6% to $603.7 billion in 2014, a faster growth than the 2.5% in 2013.

Prescription drug spending increased 12.2% to $297.7 billion in 2014, faster than the 2.4% growth in 2013.

The largest shares of total health spending were sponsored by households (28 percent) and the federal government (28 percent). The private business share of health spending accounted for 20 percent of total health care spending, state and local governments accounted for 17 percent, and other private revenues accounted for 7 percent.

<snip>

You also claim that information asymmetry isn't a problem in healthcare - if that is the case, why are chiropractors making a living? As soon as you get beyond the simplest of illnesses, how do you separate information from misinformation? Do you think that a sufficient proportion of the population would be able to?

I've always thought chiropractors were quacks, but now I think there is something to it. It should probably be put in the same category as physical therapy and massage, both of which are clearly legitimate medical procedures. In any case, insurance is now mandated to cover chiropractic care in the US.

 

[jimbob]

The number of people is irrelevant, it isn't a democracy. Walmart has more purchasing leverage than any hundred small greengrocers, despite the fact that it's one company.

 

[sunmaster14]

The number of people is irrelevant, it isn't a democracy. Walmart has more purchasing leverage than any hundred small greengrocers, despite the fact that it's one company.

Let's take a toy model where health care consumption comes in $400 chunks, and suppose there are 250 days a year during which you can consume health care.

On any given day, 50% of the consumers will be from the highest spending category, and they are cost insensitive. 30% of the consumers will be from the 2nd highest spending category, and they may be cost sensitive early in the year, but less so later in the year. 20% of the consumers will be from the category with modest claims, who are very price sensitive. Personally, I think having more than 20% of your customers be price sensitive is enough to put pressure on you to be price-competitive. Even if that were not true, however, a provider would have to be conscious of the future. From year to year, real people shift from one category to another. The people who noticed that you were too expensive in one year when they were price-sensitive, will use and get comfortable with somebody else, or some other product. When and if they become price-insensitive big spenders in a future year, they'll stick with what they know - a kind of brand loyalty if you will. I think it would be bad strategy to have higher prices than your competition, unless you can really justify the higher prices with better quality or better service.

The designers of Obamacare, as well as every insurance company in the US, understands the importance of cost-sharing, even at low levels of spending. That's why deductibles exist, and why they've been increasing rapidly. That's a good thing in my opinion, but the fundamental flaw in the scheme is that consumers don't really understand their deductibles. Nor do they take them into account before making the decision to consume. It's kind of a Rube Goldberg scheme grafted onto a mess in order to try to enforce some pricing discipline on the health care market. It would be better if people just spent their own money directly.

 

[jimbob]

I've always thought chiropractors were quacks, but now I think there is something to it. It should probably be put in the same category as physical therapy and massage, both of which are clearly legitimate medical procedures. In any case, insurance is now mandated to cover chiropractic care in the US.

I chose chiropractors for a reason. The underlying doctrine is as insane* as homeopathy, but unlike homeopathy, the treatment itself if performed according to their theory is dangerous, as opposed to homeopathy, where it is merely ineffective.



*see this for example

https://www.sciencebasedmedicine.org/chiropractic-a-brief-overview-part-i/

Therefore, liver disease is caused by a subluxation which compresses the spinal nerve which supplies the liver with life force, depriving it of its vital innate intelligence. Palmer therefore believed he could cure by fixing these misalignments with manipulation.

http://www.chirobase.org/01General/risk.html

The Mysterious Vertebral Subluxation

Chiropractors have been adjusting vertebral subluxations since 1895 when D. D. Palmer, a magnetic healer, declared that "95% of diseases are caused by displaced vertebrae; the remainder by luxations of other joints." [10] Today, all 16 North American chiropractic colleges agree that "chiropractic is concerned with the preservation and restoration of health and focuses particular attention on the subluxation." [11]

In 1996, 16 chiropractic college presidents signed a position paper defining a subluxation as "a complex of functional and/or pathological articular changes that compromise neural integrity and may influence organ system function and general health." [11] A 1997 pamphlet for laypersons, published by the Foundation for Chiropractic Education and Research, explained what is meant by a "subluxation complex":

What the above means is that a subluxation is a joint problem (whether a problem with the way the joint is functioning, a physical problem with the joint, or a combination of these) that affects the function of the nerves and can therefore affect the body's organs and general health....Chiropractors believe that if joints function properly nerves will function properly and the body will be able to keep itself healthy [12].

Although some chiropractors no longer support the vertebral subluxation theory [13], the theory is still being taught in chiropractic colleges and still forms the basis for the average chiropractor's practice. There is no scientific evidence to indicate that vertebral misalignment or any dysfunction in structures of the spinal column is a cause of disease [14].

ETA
- for applecord the theory of humors and with the added risk of breaking one's neck

 

[applecorped]

Battle of the Wall O Text's

 

[jimbob]

Why should we believe that sufficient numbers of people who want to see a doctor are feeling like searching for the best price?

Your model is not remotely realistic.

The high-cost people will be in a separate part of the healthcare system when they are costing a lot. GPs will see mostly those whose costs are fairly low, whilst hospitals will see those whose costs are high.

Trying to reduce hospital costs by shopping around for a GP isn't going to do much.

 

[Emily's Cat]

EG3000K didn't have a good grasp of economics either, and he also claimed to be an actuary.

Yes, well, I take leave to doubt his claim altogether, based on a large variety of things that didn't fit.

No, the observed cost is $4,000.

How do you figure that?

The $1,000 to $5,000 range where the consumer is spending his own money.

How do you figure that? You gave them $5K for medical expenses, then said if they don't use all of it on medical expenses they can keep the rest... but it's still free money for their medical expenses which means they aren't actually paying those medical expenses out of their budget.

 

[Emily's Cat]

It's still going to get counted in the total amount that the US spends on healthcare. It;s going to increase the US spend on healthcare. There's no incentive for providers to lower cost, because the effective cost to the consumer is $0. As far as they're concerned, none of their health care costs them money - it's all being paid by someone else. Right now the $8000+ per capita spending includes about 20% of people on whom $0 is spent. So you'll increase the spend for those people to $5K, you'll increase the spend to $5K for anyone who regularly spent less than $5K, and you'll still have the same spend for people who spent more than $5K. On the whole, your spend will increase.

First of all, you're wrong about the incentives. Health care spending by the consumer will drop - a lot.

How do you figure I'm wrong about the incentives? What makes you think consumer health spending will drop at all, let alone by "a lot"?

Let me give you a few cohorts of people, and you explain exactly how you think this is going to work out.

1. People who currently spend $0 on health care. Do you think these people will continue to spend $0 when you give them $5K with the requirement that $1K be spent on healthcare before they can pocket the rest? What do you think these people are most likely to do, on average?
2. People who spend >$0 but less than $1K on health care. Do you think these people will spend less on health care than the $1K that they spend now? Do you think that the requirement that they spend $1K then keep the rest might influence them to spend a bit more so they get $4K in cash to keep?
3. People who spend >$1K but less than $5K on health care. Do you believe that these people will reduce their spending? You've given them enough cash from an external source (so it doesn't come out of their budget) to cover all of their costs. Why would they seek to spend less than they do now, when you've effectively given them a raise to their budget that fully compensates their current medical costs?
4. People who spend >$5K on health care. Do you think they will now spend less than $5K? Given that once they exceed $5K, they fall into your catastrophic coverage, and given that you've given them free money to cover the first $5K, what makes you think they'll change their shopping habits now?

Which of those cohorts of people are going to spend LESS than they do currently, and why do you think so?

Second of all, the money not spent on health care is - wait for this - not spent on health care. Deep I know.

On the government budget, the line item marked "$5K per capita health care subsidy" is going to be allocated to health spending. Unless perhaps you're planning to institute a detailed audit of actual spending for every person in the US? Because I'm sure that will be very administratively efficient and won't increase costs at all...

 

[Emily's Cat]

You should read the Krugman Blog about why markets cant cure healthcare - I know that Krugman is a highly respected economist, but I doubt that he needed all his expertise to provide these answers as they are obvious if you stop to think about it.

http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/?_r=1

I liked his closing lines:

There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

 

[Emily's Cat]

I just explained it. Read my previous posts again.

You haven't explained it, though. You've just said it will happen, because people will shop around, and then you leave it at that as if it's self-evident. You haven't actually discussed the mechanism and the incentive involved, relative to the mechanisms and incentives already in place.

As I've already pointed out, these people are already forgoing free health care. Evidently, they consider their time more important than even a free visit to the doctor for a checkup or to update their vaccinations. Why would the prospect of free stuff capped at $1,000 get them to eat into their $1,000 annual cushion?

Because their $1000 is actual free money, whereas their "free" preventive visits currently come with a price tag of about $1800 per year in premiums. Plus, the current schema doesn't give them an extra $4000 to keep as a free gift if they just manage to spend $1000. It's Brewster's Millions.

Let's look at some math. The average per capita annual health care expense is about $10,000. Using Emily's numbers (which you've quoted), 5% have 10 times the average, or $100,000 per year, per capita, in expense. The next 15% have $20,000 per year, per capita, in expense, 20% have $0 expense, and the remaining 60% have $3,333 per year, per capita in expense.

So, 60% of the people are in the sweet spot, and 20% are probably not going to change their behavior at all. The program would have little impact on the 5% who spend $100,000 per year on average, but perhaps some of the 15% who spend $20,000 per year would be affected. Certainly some of that 15% wouldn't know until well into the year that they were going well into the catastrophic range by the end of the year. Up until then, they had an incentive to be frugal.

Overall, you might have only 10 or 15% of the population, in any given year, who spend with abandon. That's a lot better than right now where the vast majority of insured do. Sure, higher deductibles and copayments help, and that's why the industry has been moving in that direction, but I think the effect is blunted tremendously by the fact that most people don't understand their deductibles at all, can't keep track of them, and don't know the price of anything a priori anyway.

People don't spend with abandon. Your math is correct, but your deductions are not.

I think it would take about 3 days for something like Yelp or Zagat's or Consumer Reports to start rating doctors and hospitals for various procedures. Or perhaps to have doctor and hospitals start advertising or offering services and getting reviewed on Amazon.

You do know that this already exists, right?
http://www.healthgrades.com/
https://www.ratemds.com/wa/mountlake-terrace/
http://www.yelp.com/c/seattle/physicians

Krugman says nothing new in there that I haven't addressed a dozen times already.

Saying that you disagree, and saying "this is how it is" doesn't really constitute an effective address of the issues. It falls particularly flat when you, a non-expert, are dismissing the expert with a hand-wave.