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July 28, 2009

Comments

I buy lumber of all kinds at the lumber yard in my town. It's probably slightly more expensive than the same stock at Home Depot, and it's better.

My point here is less about lumber per se, and more about how market forces in the form of competition and a drive toward efficiency frequently result in products and services of lower quality being offered.

According to some textbook version of the free market, that shouldn't happen. In real life, it does every day. I would go so far as to say that it's more or less the logical end state of pure market forces.

Net/net I'm suspicious of the free market's ability to make a useful level of health care broadly available to the population. I don't even think it's something that should be thought about in those turns.

Health care, IMVHO, is more like highways, postal service, running water, and fire departments than it is like consumer goods.

"Marty seems to be saying something different though. That profit seeking at a provider level (hospital/doctor group/doctor) is driving health care costs. This is more possible for at least two reasons I can think of. First, it identifies an area which is actually an enormous percentage of the total, so it could add up quickly."

This is true, and I'll ask you yet again if you've read the Atul Gawande piece, Sebastian, which speaks to this. (And I added a political footnote story yesterday to my post.)

"So maybe insurance works both directions--increasing systemic costs by encouraging use, decreasing costs by seeking profits."

That seems reasonable, though the amounts by which it's doing either, or where the balance lies, is unclear.

"Second, at the hospital level, there is an identifiable change that could apply--the shift from not-for-profit charity hospitals (often historically run in large part by donations from church organizations) to for-profit hospital models."

I can imagine that you might think that would help, but it seems to me that it's more apt to go in the other direction; I think the costs and profit-seeking incentives of for-profit hospitals and medical partnerships and medical business are far more apt to account for overall higher costs than any use of non-profit hospitals, although again I end up going back to the points Gawande made about the culture of how doctors are influenced in how they treat being key as part of all this.

"I'd like doctors to be able to make money independently of how many CAT scans they did or how few answers they gave to patients over the phone. But the policies that would acheive that goal might not be the ones that change how corporations in the health-care business make their money relative to the quality of care they provide their customers."

I agree with all that, and Russell's similar comments.

"Interesting that in most of these countries specialists work in hospitals and are salaried."

That doctors and other medical professionals, whether specialists or GPs, or anesthesiologists, or whomever, be salaried, and not otherwise incentivised, is exactly one of the points Gawande makes.

And also that it's the local medical culture that leads professionals towards increasing profits as their primary goal, rather than treating patients well, is another key point Gawande supports well. "Powell suspects that anchor tenants play a similarly powerful community role in other areas of economics, too, and health care may be no exception."

"In the business of health care, the free, private market seems to result in perverse incentives, assuming the goal is a well-cared-for population."

Just so.

"I equate systems where the government sets the rates and the countries where government delivers services as 'the same'."

But in many ways significant to most discussions, they're not. So such equations are a bad idea, save in specific discussions where the differences specifically aren't relevant.

If your only objective is to decrease cost, that's easy enough to do. Decrease demand and/or increase supply.

If everyone had to pay for their medical expenses out of pocket, demand would drop through the floor. Increase supply by allowing more people to become doctors. Bypass the doctors guilds to allow other medical personal to provide services that doctors currently reserve to themselves.

If you have other objectives, besides lowering cost, such as everyone having access to at least basic medical services, there's a limit to how much cost can be lowered if at all.

Medical technology, procedures and drugs have changed a lot in recent decades. Medical practice, not so much.

There's a reason why Lap-Band® and Lasik procedures have dropped in cost by about 50% in the last decade while just about everything else has gone up in cost.

Russell, "I buy lumber of all kinds at the lumber yard in my town. It's probably slightly more expensive than the same stock at Home Depot, and it's better.

My point here is less about lumber per se, and more about how market forces in the form of competition and a drive toward efficiency frequently result in products and services of lower quality being offered.

According to some textbook version of the free market, that shouldn't happen. In real life, it does every day. I would go so far as to say that it's more or less the logical end state of pure market forces."

The free market suggests that you are buying your higher quality lumber at a lower price than you would have otherwise and that a wider variety of quality is available. So depending on what you want the lumber for, there are more options. If you are building a decorative picket fence, perhaps the very cheap Home Depot stuff is ideal.

"I can imagine that you might think that would help, but it seems to me that it's more apt to go in the other direction; I think the costs and profit-seeking incentives of for-profit hospitals and medical partnerships and medical business are far more apt to account for overall higher costs than any use of non-profit hospitals"

I gave it as an example of why I thought prices went up--so in exactly the direction you were thinking. Now I don't know if it would illustrate that 'costs' were up. The cost may be the same with prices well up because they are no longer be subsidized by charity.

"My point here is less about lumber per se, and more about how market forces in the form of competition and a drive toward efficiency frequently result in products and services of lower quality being offered."

Patients don't, as a rule, haggle with their doctors, and shop around for cheaper doctors and cheaper costs on procedures.

Gawande:

[...] We began talking about the various proposals being touted in Washington to fix the cost problem. I asked him whether expanding public-insurance programs like Medicare and shrinking the role of insurance companies would do the trick in McAllen.

“I don’t have a problem with it,” he said. “But it won’t make a difference.” In McAllen, government payers already predominate—not many people have jobs with private insurance.

How about doing the opposite and increasing the role of big insurance companies?

“What good would that do?” Dyke asked.

The third class of health-cost proposals, I explained, would push people to use medical savings accounts and hold high-deductible insurance policies: “They’d have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

He gave me a quizzical look. We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? “I’ll do three vessels for thirty thousand, but if you take four I’ll throw in an extra night in the I.C.U.”—that sort of thing? Dyke shook his head. “Who comes up with this stuff?” he asked. “Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

Am I missing the comment where you've responded to my queries about whether you've read this, or have you simply not had time to read it?, which would be understandable, given the limited number of hours in the day.

"The free market suggests that you are buying your higher quality lumber at a lower price than you would have otherwise and that a wider variety of quality is available."

Here are the brass tacks.

My local guy sells 8' 2x4's for $3.15 apiece. Home Depot sells the same stock in the same grade (KD) for $2.23.

It may be that my guy would sell for more if Home Depot wasn't around the corner, but I'm thinking probably not. He's already significantly more expensive, folks who are going to shop purely on price are gonna go to Home Depot, period.

The way it generally works around here is that contractors go to local yards, weekend warriors go to Home Depot. Contractors get a discount so the difference is less, and they get decent enough lumber that they can actually build something. The home handyman who is building a doghouse gets cheap lumber, which suits his dog just fine. Everybody has their niche, everybody makes a buck, everybody's happy.

So far so good.

What happens in some markets is that the local guy can't compete with Home Depot at $2.23 a stick for 2x4 studs, so the local guy goes away.

Then all you got is Home Depot. And their lumber really is not very good. By "not very good" I mean an 8' stud will torque enough that it can't be used to frame out a wall or door jamb that is both square and plumb.

Since that's what 2x4's exist to do, I'd say they were freaking useless.

I stopped buying lumber at HD because I got sick of taking studs back when, after being stored by being stacked neatly in my warm and dry basement for a couple of days, they were too warped to use.

In some places, that's all you'll be able to get, because HD will beat the other guy down enough on price that it's just not worth their while to keep getting up in the morning and opening their yard.

Hence my comment about natural end points.

All of which is sort of to the side of my primary concern.

My primary concern about free market dynamics is that they will always favor the most efficient outcome, where "efficient" is measured as "highest return on resource invested".

There are things for which that ought not be the calculus.

Highways, water supply, fire department and other public safety agencies, schools. I submit that the proper metric for things like that is not efficiency, but *effectiveness*. Does the necessary thing get done. If the necessary thing does not get done, it doesn't freaking matter how efficiently it failed to be accomplished.

I also submit that health should fall in this category.

Nobody wants to p*ss money away, but the market model is not now, and is not going to be, a useful model for providing health care.

The longer we screw around with trying to make that model fit, the longer we're going to keep having the same basic problem.

Which is, if you don't have the dough, you don't get to go to the doctor. And lots of folks don't have the dough.

We can work around crappy lumber somehow if we need to. We can't work around crappy health care.

"We can't work around crappy health care."
Crappy health care can be better than no health care at all. After all, people do go to VA hospitals.

Crappy health care can be better than no health care at all.

So, CharlesWT, does that mean you're not a supporter of the prominent No Health Care At All bill that everyone's been talking about?

Phil, thanks for the link. The article and comments make some good counter-arguments to the WSJ article. However, it shouldn't be surprising if there is, in fact, some moral hazard to having health insurance.

So then you should be able to point out the inevitable results of this moral hazard in Canada, the UK, France, Germany, etc., easily enough.

My primary concern about free market dynamics is that they will always favor the most efficient outcome, where "efficient" is measured as "highest return on resource invested".

There are things for which that ought not be the calculus.

If I might suggest a small change for clarity, I think what you mean here is "where 'efficient' is measured as 'highest financial return on resource invested'."

Your point, of course, being that there are all sorts of other valuable returns besides financial returns that can be derived from resources invested.

But the other returns, in terms of children better educated, more people more healthy, highways and bridges that don't collapse, more fires put out, more people kept safe, etc., without regard for their ability to pay are still "returns" as public goods. Your point is that we value those returns in those cases more than whether someone makes the most financial profit. (Obviously I emphatically agree with you.

"Crappy health care can be better than no health care at all. After all, people do go to VA hospitals."

As I just pointed out over here (July 30, 2009 at 02:39 PM on the "Fighting For The Public Option" thread): "A 2008 poll by the U.S. Department of Veterans Affairs said 79 percent of patients classified their health care services as 'excellent' or 'very good.'"

Lots of other standards point to, overall, with some exceptions, VA health care as being exceptionall good.

And, again, from my previous comment: "The record: A national poll conducted by the Kaiser Family Foundation in April found 68 percent of Medicare recipients were satisfied with their health care. Among those with private insurance, the satisfaction rate was 48 percent."

Marty said: “My primary concern about free market dynamics is that they will always favor the most efficient outcome, where "efficient" is measured as "highest return on resource invested".

There are things for which that ought not be the calculus.”


My concern around the current private market is not only Marty’s point (rationing by ability to pay), but also around the ‘efficient’ (high ROI for suppliers) outcomes that actually impose inefficiency and higher costs. For example (profound apologies – I am in process of teaching myself to do hyperlinks):

Smoking Cessation - Most people who successfully quit smoking do so by abrupt nicotine cessation (‘cold turkey’) http://whyquit.com/joel/Joel_03_32_How_do_people_quit.htm. Why then, is official U.S. policy to recommend Nicotine Replacement Therapy to all smokers who want to quit?

Treating overweight/obesity - http://www.obesitydiscussion.com/forums/obesity-surgery/bariatric-surgery-growth-market-quadruples-1345.html From the article “The number of gastric bypass and related procedures performed per year swelled by more than 400% from 1998 until 2002 while hospital costs for bariatric surgery ballooned sixfold.”

I cannot find any hard data showing that these procedures result in sustainable, long term weight loss (or even a better long term result than diet). But they cost a fortune.

The private sector can be expected to create higher costs *and* poor outcomes, unless:

1) Experts independent of political control weigh in, strongly, on policy. That is why the efforts around establishing a panel *independent* of Congress to digest and report on Comparative Effectiveness research are important.
2) A large purchaser with the incentive to control health care (not health insurance) pricing is established, in order to drive price closer to cost. Insurance companies are not making this happen, but are instead passing the increased costs on to individuals through denial of reimbursements.

Single (or a properly regulated non-profit) payer (2) without (1) will not lower costs. CE panel (1) without (2), will not be able to enforce best practices. Any bill that makes both 1 and 2 possible would be my preference. Any opposition messaging that attempts to portray (1) as 'government wants to euthanize your grandmother' or 'keep you from choosing crappy food' should be considered an attempt to maintain high costs at the expense of the health of all Americans.

By the way, thanks to all front page posters for investing time and effort in maintaining this blog. Also, does anyone have suggestions around reading that details the transition period in other countries to their current HC system from whatever they had before?

Gary -

That's the gist of it, but I'd still say that highest return for resource invested should not be the metric.

It might, frex, cost $1M for a town to ensure that 85% of the houses in town will get a fire department response within 20 minutes. To cover the other 15% will cost another $500K.

The sweet spot in terms of return for dollar invested is covering 85% for $1M. But barring the case that the money is simply not available, the right thing to do is to get 100% coverage.

The goal is not efficiency of return, regardless of the coin in which the return is made, but to accomplish the thing that needs to be accomplished. The goal is effectiveness rather than efficiency.

Sometimes the money is just not there, but we happen to be an almost absurdly rich nation, so I don't really buy that as an impediment. The issue for us is one of priorities and values.

I'm picking a nit here, but what I'd like to establish is that the capitalist model -- optimal return on investment, regardless of the form in which the return comes -- is not appropriate for public goods.

"profound apologies – I am in process of teaching myself to do hyperlinks)"

Do the following, but use a "<" and a ">" for "[" and "]."

[a href="URL"]words you want to appear[/a]

Where "words you want to appear" appear above will be the words the link appears under and which is a clickable hyperlink.

I recommend this simple guide to tags. If my explanation wasn't clear, go there, and scroll or do a "find" down to "LINKS, GRAPHICS, AND SOUNDS" and see the examples there.

Use of blockquoting is also very helpful:

Like so.
Just again using angle brackets for the squares I use here, put what you want blockquoted between [blockquote] and [/blockquote].

To italicize put what you want between [i] and [/i].

Similarly, use "b" to bold and unbold.

That's practically all you need to know for basic HTML. See the guide I linked to for other simple options, however.

For god's sake, never use "blink."

"I'm picking a nit here, but what I'd like to establish is that the capitalist model -- optimal return on investment, regardless of the form in which the return comes -- is not appropriate for public goods."

I apologize for not being clear in having attempted to agree.

"Crappy health care can be better than no health care at all."

Well, I will certainly grant you that, CharlesWT.

And since in this country lots and lots of folks get to experience both crappy care and no care at all, we are uniquely situated to make that comparison.

Gary,
Thank you very much. My learning curve will be short - but today just wasn't the day for it.

"So, CharlesWT, does that mean you're not a supporter of the prominent No Health Care At All bill that everyone's been talking about?"
My preference is that government stay as far away as possible from important stuff like health care. If government has a role, it should be as referee and picking up stragglers, not out front setting the pace.

"My learning curve will be short - but today just wasn't the day for it."

It won't be on the test.

And you can use cut-and-paste for the formats; that might be easiest for you, or anyone, rather than memorizing even just the handful I've mentioned. (I barely know any more than that, myself.)

"So then you should be able to point out the inevitable results of this moral hazard in Canada, the UK, France, Germany, etc., easily enough."
Part of being human is to continually try to balance risk against other concerns. To the degree there is any moral hazard with health insurance, it should exist in those countries since they are populated with humans. (Well, maybe except for the France.) I'm not sure how I could point out. No one seem to find the WSJ article very convincing. I had some problems with it myself.

between [blockquote] and [/blockquote]."
Are you could just go ahead and use angle brackets in your demo:

<blockquote> and </blockquote>

:)

And now I have to balance the (grammatically risky) wisdom of this:


"Are you could just go ahead and use angle brackets in your demo"


against the logical opaqueness of this:

"Part of being human is to continually try to balance risk against other concerns. To the degree there is any moral hazard with health insurance, it should exist in those countries since they are populated with humans. (Well, maybe except for the France.)"


What shall I do?

"...against the logical opaqueness of this:"
Up thread Phil complained that I was just throwing links around instead of making arguments of my own. So I brought my cap pistol to join the artillery barrage.

My preference is that government stay as far away as possible from important stuff like health care.

What distinguishes "important stuff like health care" from "important stuff like owning nuclear bombs" or "important stuff like coining money" or "important stuff like fighting terrorism" or "important stuff like maintaining a patent system," exactly?

Part of being human is to continually try to balance risk against other concerns. To the degree there is any moral hazard with health insurance, it should exist in those countries since they are populated with humans. (Well, maybe except for the France.) I'm not sure how I could point out. No one seem to find the WSJ article very convincing. I had some problems with it myself.

I'll take that as a concession that the WSJ is kinda sorta full of shit and doesn't know what it's talking about, and also that, no, there is no demonstrable causal connection between "having medical insurance" and "getting fat," or any other identifiable moral hazard.

I mean, if you're so sure that carrying medical insurance has a moral hazard problem, then surely, in the countries that have cradle-to-grave, publicly-funded healthcare, you could show some kind of outcome that demonstrates this. There must be some mortality-related statistic -- obesity rates? drug addiction? alcohol-related fatalities or injuries? -- that shows that people are less likely to behave in a healthy manner in those countries. Right?

"Are you could just go ahead and use angle brackets in your demo"

You could if you didn't know that Typepad is erratic about when it does and doesn't allow using the coding to show angle brackets properly and not functionally, and when it does not allow it, on a random basis, which won't show up in preview, just as as Typepad does so many other ever-exciting things completely erractically and unpredictably, or if, knowing this, you felt like bothering to experiment at that given moment.

"What shall I do?"

As the saying goes, "choice defines us."

There are so many: go for a walk. Kiss a loved one. Ask for clarification. Vacuum your cat. Engage in snark. Create a piece of art. Work on a craft. Read something more intereresting. Ply yourself with intoxicants. Find something that will change your life. Take a nap. Smell some flowers. Look at the stars. Play a computer or board or card or other game. Read a good book. Find a beautiful piece of art to contemplate. Exercise. Plan some of your next week. Practice your yoga skills. Learn twelve ways how to kill a person with only a pencil. Meditate. Start a new business. Eat a nice piece of fruit. Begin a novel. Fly to Vegas, or maybe Tahiti, or Paris, or Ulan Bator, on a whim. Go on a drug binge. Be still and contemplate stillness. Change someone else's life for the better. Take a risk. Be safe.

There are so many choices.

I live to serve, but I am not competent to choose for you. It is not for me, yr. hmbl. obt. srvt., to say, madam.

I'm sure you'll do what's right for you at the given moment. And try to have as few regrets as possible later.

"I'm afraid I don't quite follow your response; could you expand on your point, please?" is a response I sometimes find useful, though.

"To the degree there is any moral hazard with health insurance, it should exist in those countries since they are populated with humans."

Allow me to complete your thought: "all of whom have health insurance".

Quite so. A great point, actually. Well played.

Like Phil, I look forward to your demonstration of exactly how that moral hazard manifests itself.

"There are so many choices.

I live to serve, but I am not competent to choose for you. It is not for me, yr. hmbl. obt. srvt., to say, madam.

I'm sure you'll do what's right for you at the given moment. And try to have as few regrets as possible later.

"I'm afraid I don't quite follow your response; could you expand on your point, please?" is a response I sometimes find useful, though."

There is wisdom in your post. I will consider it.

"There must be some mortality-related statistic -- obesity rates? drug addiction? alcohol-related fatalities or injuries?"

I'll leave the statistics to the pointy-head statisticians. Perhaps someone will do a more convincing study proving/disproving the assertion.

The study in the WSJ article does have a kind of truthiness to it. Researchers have claimed to find moral hazards in other areas: Drivers of large vehicles or vehicles with air bags may not drive as carefully as drivers of small cars and cars without air bags.

"Like Phil, I look forward to your demonstration of exactly how that moral hazard manifests itself."
The idea itself has been around for awhile:

In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

Two types of behavior can change. One type is the risky behavior itself, resulting in what is called ex ante moral hazard. In this case, insured parties behave in a more risky manner, resulting in more negative consequences that the insurer must pay for.
[...]

Moral hazard: In insurance

Proving it in particular cases is, no doubt, difficult.

Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

OK, so, again, it should be trivial to demonstrate that, for example, in the UK, relative to the US, people overconsume healthcare services.

Which should be tricky, since most people who appear to share your political persuasions will also argue that services are rationed, and are in fact made more scarce.

"What distinguishes "important stuff like health care" from "important stuff like owning nuclear bombs" or "important stuff like coining money" or "important stuff like fighting terrorism" or "important stuff like maintaining a patent system," exactly?"

Not sure what this point is but the answer is, except for that pesky patent system, thats what we, the people, created the Federal government to do back in the 1780's.

""I'm picking a nit here, but what I'd like to establish is that the capitalist model -- optimal return on investment, regardless of the form in which the return comes -- is not appropriate for public goods."

This sounds good and I want to agree with it. But are we discussing insurance or healthcare?

Food is pretty essential, possibly one of those public good things, but we tend to let the free market work and then provide food stamps so people have a better chance of not starving.

Public good is defined locally for the most part. Fire fighters, public servants of all kinds have budgets that get raisedd and lowered in good and bad times. Roads get more or less potholes based on the budget, heck in the north money decides how much salt you get on the road in winter.

There are risks in using either approach to provide insurance or care. Both have great features, both have downsides. The market works, even in healthcare, if we take away public and private incentives to do it poorly.

I believe that the governments role here could actually be better as the definition, measurement and reporting authority on who provides "good" healthcare.

There are areas where us mortals don't know who the good guys are. As trite as it sounds I look for an energy star rating as a baseline for purchases, the Good Housekeeping seal carried weight for decades. Give us ten or twelve criteria that are meaningful, outcomes to costs, and let us decide.

Very few people negotiate with their doctor, lots seek second opinions and solid rating assessment would help pick where to get that opinion.

In the end government can be a force to stifle positive competition, level the playing field to encourage it or take over. I usually favor the level playing field approach.

Not sure what this point is but the answer is, except for that pesky patent system, thats what we, the people, created the Federal government to do back in the 1780's.

First off, you might want to read your Constitution again. Like Article I, Section 8.

Second, I'm pretty sure the Constitution doesn't say anything about nuclear weapons, so no, we did not create the Federal government in the 1780s to do that.

Third, anticipating your objection to my second point, that means that, in fact, the government can take on duties and responsiblities beyond what the people in 1789 anticipated. Like health care.

"First off, you might want to read your Constitution again. Like Article I, Section 8."

You are correct, I had forgotten that pesky patent system was in there, thanks for the reminder.

Conclusions [page 33]
Economic theory suggests that health insurance may reduce prevention because it lowers the cost of medical care and thereby reduces the financial and health consequences of illness. This implies that receipt of insurance will result in an increase in unhealthy behaviors like smoking and drinking. This is often referred to as
ex ante moral hazard. However, previous research in the context of health insurance has not found evidence of an ex ante moral hazard effect, which is surprising because in similar contexts, workers compensation insurance and automobile insurance, evidence of an ex ante

We hypothesize that one possible explanation for this is that health insurance not only changes incentives related to prevention and health behavior, but also changes use of medical services and contact with medical professionals. These effects may be offsetting and the net effect of insurance on health behaviors may be positive or negative. More importantly, previous empirical research has not separated the direct (ex ante moral hazard) effect from the indirect effect (physician visits) of insurance on health behaviors. Here we do so.

We study the effects of receipt of Medicare on the health behavior of elderly persons. We use both longitudinal and cross-sectional data and a similar research design to obtain estimates of the effects of Medicare. Specifically, we compare changes in health behavior preand post-age 65 of those who are (likely) uninsured and those who are (likely) insured prior to age 65. We expect the change in health behaviors of those who are (likely) uninsured prior to age 65 to differ from those who are (likely) insured, and we assume that this difference is the effect of Medicare. To identify the ex ante moral hazard effect, we estimate models that control for physician visits.

The pattern of results shows consistent evidence of an ex ante moral hazard effect and consistent evidence that physician visits result in improved health behaviors...
[...]
The similarity and consistency of these findings across genders and analyses (data, samples and methods) are notable. They provide evidence that Medicare (health insurance) is associated with less prevention as manifested by an increase in unhealthy behaviors among the elderly. The effect sizes appear to be large enough to adversely affect health. But evidence also suggests that Medicare was associated with an increase in visits to the doctor and that doctor visits are associated with significant improvements in health behaviors. Often these two effects associated with Medicare are sufficient to yield a combined effect that is small and usually not statistically different from zero.

Health Insurance and Ex Ante Moral Hazard: Evidence from Medicare (.pdf)

Moral hazard: In insurance

Proving it in particular cases is, no doubt, difficult.

This sounds like an argument against insurance in general, rather than one specific to health insurance. Either way, is this to suggest that we shouldn't have health insurance at all? I suppose that's orthogonal to the public/private insurance debate that is only part of the health-care reform debate. It's hard to imagine that whatever moral hazard exists by virtue of an individual having health insurance would be of much significance. It's not as though anyone at all is shielded from the all the costs of risky behavior with regard to his or her health. Whether I pay nothing in terms of money as a consequence of my taking risks with my health, I'm still the one whose life is at stake, I'm still the one who may have to go under the knife, I'm still the one who may be hobbled or rendered helpless or may suffer great pain, I'm still the one whose children may become fatherless. Money aside, the largests costs are there for me.

Food is pretty essential, possibly one of those public good things, but we tend to let the free market work and then provide food stamps so people have a better chance of not starving.

I loved the film Trading Places. The scene in which Ralph Bellamy is explaining the commodities market to Eddie Murphy always stuck with me. Eddie Murphy initially thinks he's being served breakfast. Pork bellies, frozen concentrated orange juice, wheat, which is made to make bread, are all commodities. They are easily commoditized. They are made in many places in great quantity, shipped all over the world and are available from a great many sources all in competition with one another. There is high subsitutablity among various food stuffs. The basic economic laws of supply and demand apply very well to such things. The question is: WTF does that have to do with health care?


Arguments against ex-post moral hazard in health insurance:

The Moral-Hazard Myth: The bad idea behind our failed health-care system.

Is ‘Moral Hazard’ Inefficient? The Policy Implications Of A New Theory

Argument for:

Moral Hazards: What Happens When You Think Healthcare Is Free

"I loved the film Trading Places. The scene in which Ralph Bellamy is explaining the commodities market to Eddie Murphy always stuck with me. Eddie Murphy initially thinks he's being served breakfast. Pork bellies, frozen concentrated orange juice, wheat, which is made to make bread, are all commodities. They are easily commoditized. They are made in many places in great quantity, shipped all over the world and are available from a great many sources all in competition with one another. There is high subsitutablity among various food stuffs. The basic economic laws of supply and demand apply very well to such things. The question is: WTF does that have to do with health care?"

I think this is exactly the point. Healthcare has become a commodity, delivered by many competing entities, and is in fact highly substitutable today. So the market, if allowed, will work to maximize the value to the consumer. This is a reasonably new phenomenon. Healthcare has not traditionally been a commodity. So many of our discussions based on data, even as recent as ten years ago, is skewed.

I think this is exactly the point. Healthcare has become a commodity, delivered by many competing entities, and is in fact highly substitutable today. So the market, if allowed, will work to maximize the value to the consumer. This is a reasonably new phenomenon. Healthcare has not traditionally been a commodity. So many of our discussions based on data, even as recent as ten years ago, is skewed.

It is exactly the point, but I think it's the opposite of what you're saying. Health care is not a commodity, and the fact that it is being treated as such is one of the problems - and one that appears to be getting worse. The market is taking us in the wrong direction and all indications are that it will continue to do so if allowed. You don't pack surgeries up on a freighter like oranges to ship them from California to Alaska. You don't buy futures on diagnoses. And you don't go to the supermarket for dialysis. Nor do you buy insurance for catastrophic orange purchases. And you don't need years of schooling, training, residency or internship to grow or sell oranges.

The stuff people learn in Econ 101 is quite useful in a wide range of areas, but not all. Linear algebra is great, too, but sometimes you need trigonometry to solve a given problem. You know what? I believe the Laffer Curve is completely valid, but I don't think it says a damned thing about tax cuts paying for themselves in the United States in the late 20th or early 21st Century. Newtonian Mechanics don't work so well to describe what's happening at the center of the Sun, either.

I'm sick of people trotting out perfectly valid theories to explain things outside their applicability, and that's what you're doing when you attempt to apply or suggest the application of the economics of simple commodities to modern health care. It doesn't work.

"It is exactly the point, but I think it's the opposite of what you're saying. Health care is not a commodity, and the fact that it is being treated as such is one of the problems - and one that appears to be getting worse. The market is taking us in the wrong direction......"

It is or it isn't, it is being run that way by providers. So we have to change how the people doing it think about it, or treat it like they do. The problem we have is they are selling and delivering like it is a commodity and we are treating it like it is a public good.

If you are correct and the market won't manage it then we have to have government control delivery.

I don't have any facts on which would work better so I haven't decided yet.

"I'll leave the statistics to the pointy-head statisticians. Perhaps someone will do a more convincing study proving/disproving the assertion."

Let us know when that "someone" shows up.

And yeah, I saw your wiki link. Yes, there is likely some measurable moral hazard associated with insurance of any kind. But we insure ourselves against various risks anyway.

Bully for you that you're willing to go without insurance and take your chances. The rest of us don't want to live that way.

Next topic, please.

"Healthcare has become a commodity, delivered by many competing entities, and is in fact highly substitutable today. So the market, if allowed, will work to maximize the value to the consumer."

I agree that healthcare has been commoditized, and I strongly disagree that this will result in maximizing value to the consumer.

Health care isn't made in some places in great quantities, and then shipped everywhere around the world where it's needed. Health care is a service provided directly by one person, or set of persons, to another.

The commodity model is *not a good fit* for healthcare.

And the market model, which emphasizes efficiency and maximizing return on resource invested, will not yield higher value to the *consumer*. Because the value to the consumer is not maximum yield on investment.

The value to the consumer is being healthy.

What commoditizing health care looks like is, frex, outsourcing surgery to offshore hospitals in poorer countries like India or Mexico. We do that now.

It is cheaper, which is great for the insurer or whoever is paying. But what does the consumer do if there is a complication? A post-op infection? A mistake? What opportunity does the consumer have to consult with the surgeon before the operation?

What's next? Online discount medical consultations with physicians in Bangalore? Walk-in discount a la carte lab tests at the mall?

How are any of those things beneficial to the *consumer*?

Commoditizing health care will make a different version of crappy health available to folks who currently get their crappy health care at the ER. It will also motivate insurers to refer folks who currently have pretty good health care to the crappy version so they can save a few bucks.

What we need is decent basic health care for everyone. "Decent basic health care" is not something that is going to be delivered as a commodity.

"What's next? Online discount medical consultations with physicians in Bangalore? Walk-in discount a la carte lab tests at the mall?"

To be clear, both of these things exist today. It's called remote medicine, there are many applications for it when specialists are needed in remote areas. We do all kinds of testing in walk in labs that would be much more convenient if they were in the mall so i could shop while I was waiting.

When I say "online consultation with a physician in Bangalore" I'm not talking about making specialist expertise available to a remote location.

That isn't commoditizing the services of the specialist.

The essence of a commodity is that there is no qualitative difference between different instances of the good within a market. Paper is paper, wheat is wheat, copper is copper.

The fact that you would make a specialist's services available remotely demonstrates that in fact it *is not a commodity*.

The specialist's knowledge is either not available at all in a certain place, or is of sufficiently better quality that you would go the trouble of making it available in the remote location.

I agree that there are medical goods and services that could readily be provided as commodity. They are those which don't require any particular level of individual human expertise. Vitamins. Taking blood pressure or other basic vital signs.

Once you get into areas where there is a real or potential difference in the quality of the good or service depending on who provides it, you are by definition out of the realm of commodities. I'd say that includes almost the entirety of medical care.

It takes individual skill to be a good diagnistician, or to understand how a given treatment regime is going to be tolerated by a given patient in his or her particular life situation. It takes individual skill to run many basic lab tests accurately and correctly.

These are not commoditizable items, because they cannot be rationalized to the point where there is no qualitative difference between one provider and another.

Health care is an expert service provided by humans, to humans. It cannot be commoditized.

"What's next? Online discount medical consultations with physicians in Bangalore? Walk-in discount a la carte lab tests at the mall?"

Actually if these things were cheap and easy, that would be GREAT!

Actually, if they were cheap, easy, and of sufficient quality to insure that people actually were kept healthy, that would be great.

And that last is the rub.

"Health care is an expert service provided by humans, to humans. It cannot be commoditized."

Replace Healthcare in that sentence with:

IT services
Bankers
Financial advisors

(and you could probably go back to tailors and hatmakers)

and you have the history of the commoditization of the American economy.

Good, cheap, ubiquitous services is the point of even BHO's healthcare reforms. Meaningful use of EHR's facilitates this commoditization of most primary care.

IDN's now have segmented doctors so that the primary care doctor never has to go to the hospital, because there are full time doctors that just work at the hospital. Almost every surgery is done by surgeons who just do that every day, all day. My cardiologist doesn't do much except decide when I need to go have a test run.

Commoditization is a reality, we may not like the feeling that it is less personal, that doesn't mean it isn't.


"Replace Healthcare in that sentence with:

IT services
Bankers
Financial advisors

and you have the history of the commoditization of the American economy."

And it's unclear to me that the commoditization of IT services, bankers, or financial advice, to the degree that those things have been commoditized, has yielded better technical services, banking, or financial advice to the end consumer.

"IDN's now have segmented doctors so that the primary care doctor never has to go to the hospital, because there are full time doctors that just work at the hospital. Almost every surgery is done by surgeons who just do that every day, all day. My cardiologist doesn't do much except decide when I need to go have a test run."

Those things have all improved somebody's bottom line.

Have they delivered a useful level of health care to the population as a whole?

Do more people have access to health care? Have medical outcomes improved? Are we healthier than we were before the trend toward commoditization?

I'm not saying commoditization isn't happening. I'm saying it's not a good thing for the consumer.

And I'm saying relying on commoditization to solve the problem of making a useful level of health care to the broader population is not going to have the desired result.

Health care is not widgets.

And as an aside, I'm not sure that specialization, which is mostly what you're talking about in your comment, is the same as commoditization.

Surgeons may do nothing but surgery day in and day out but all surgeons are not the same. When you roll in for your bypass, you don't really want it done by whoever happens to be on duty that day.

Health care is people delivering an expert service to other people. There are certainly niche areas where a commodity model can work -- one nurse, or even a health tech, can take basic vital signs as well as another -- but the goods and especially services that actually keep you healthy are not well suited to being provided on a commodity basis.

You wake up, go to the bathroom, and there's blood in your urine. Or you pass out while grocery shopping. Or you lose sight in one eye suddenly. Or you wake up and it's Tuesday, and the last thing you remember it was Sunday afternoon.

Go online and ask the good doctor in Bangalore to make the diagnosis. Nothing against Indian physicians or Bangalore, please feel free to substitute Dublin, Budapest, or Omaha.

And there's nothing wrong with making expert knowledge available remotely. What I'm talking about here is the commodity model -- the idea that all instances of some good or service are fungible, and one is not significantly better or worse than another.

So yeah, let's go online and have a chat session with Doctor X, somewhere out there in the virtual ether. Then you're gonna do whatever he or she recommends and that's how you're going to treat your malady.

You go first.

I've just gotten back home, with my dad in tow. Some random points that may be of interest.

Saw a Morgan Spurlock interview on my last night in the US which noted that over 19% of US medical costs are problems related to obesity.

My cousin, who is in the Public Health Service Commissioned Corps, said that the highest Medicare reimbursments are from the Texas county where the headquarters for the Scooter Store ('Mobility is your right!'). My google-fu doesn't turn up anything to support that, but it sounds right after seeing the scooter store commercial on every cable channel.

The GP my dad goes to is really great, and he sets it up so that the patients can get their blood drawn and have the blood work done there rather than going to another office, which is a huge boon for the rural patients he deals with. However, the WaPo article points to problems with doctors providing one-stop shopping.

The fungibility/commodity problem is interesting. The Japanese government sets medical prices nationwide, so a scan I get in Hokkaido is going to be the same price as one I get down here. I can understand why the office in NYC might have higher operating costs than one in Mississippi, but charging what the market can bear seems problematic.

CharlesWT: My preference is that government stay as far away as possible from important stuff like health care. If government has a role, it should be as referee and picking up stragglers, not out front setting the pace.

Earlier CharlesWT: However, I'm eligible for Medicare in about three years. Whoopee!

Who is going to be the one to tell CWT that Medicare is a government program?

I'd do it myself, but I fear that might constitute a moral hazard.

"Who is going to be the one to tell CWT that Medicare is a government program?"
The government has taken money from me most of my working life for Medicare. I might as well get back what I can from it. Just because I was forced into making a bad investment I didn't want to make, I should leave the money lying on the table?

The "Whoopee!" was sarcasm.

"If government has a role, it should be as referee and picking up stragglers, not out front setting the pace."

I just figured that CharlesWT was calling himself a "straggler."

"I just figured that CharlesWT was calling himself a 'straggler.'"
Perhaps. :)

Oh, straggler! - not strangler...
Man, I thought there was something weird about that.

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