A friend recently e-mailed me this article by Dee Dee Myers on the BP oil spill. She argues that--despite the fact that big government appears to have done virtually nothing to prevent or clean up the oil spill--we have no other alternative but to rely on big government. She asks "What aspect of the endlessly unfolding disaster off the Louisiana coast would have been made better with less government?" The answer is that quite a few aspects might have been made considerably better.
Certainly, we need some government and some regulations. But how much government and what kinds of regulations would be most beneficial? In this case, having less government bureaucracy may not have done much to help clean up the spill. But since the huge bureaucracy we have appears to have been impotent to either prevent or solve the problem, it at least seems reasonable to raise the question of why we should be spending all of those tax-payers' dollars to pay the salaries of so many useless bureaucrats. Could we be making better use of that money? Perhaps we could be using it to reduce the national debt or to provide tax relief to help stimulate the economy.
What I'm primarily concerned with in this particular case, however, are the unintended adverse consequences of government regulations. For example, if environmental laws had been more lax, it may have actually been better for both the environment and the economy, as paradoxical as that may seem to big-government advocates. Perhaps BP and other oil companies would have been able to drill more wells on land and in shallower waters closer to shore. And maybe they would have drilled fewer expensive, risky deep-water wells, in which it's much harder to plug leaks. Another concern I have is that--due to the political fallout from this BP spill--the government may make it even harder to get drilling permits. An unintended consequence of that would be that we'd have to bring in more imported oil in tankers. But the safety record for transporting oil in tankers is significantly worse than for offshore drilling. So, besides increasing energy prices and the trade deficit, banning more drilling could actually increase the amount of oil that ends up being spilled.
Friday, June 4, 2010
Thursday, April 8, 2010
Health-care inflation in the US
In some of my previous posts I mentioned this article by David Goldhill ("How American Health Care Killed My Father," Atlantic Magazine, September 2009). Although I have serious problems with his proposed solution, Goldhill provides an excellent description of what is wrong with health care in this country. On the second page of the article he makes the following point:
This graph shows how health-care costs in the US have increased from 1935 through 2009, in addition to showing overall inflation (i.e., the consumer price index, or CPI) for the same time period. Note that, just as Goldhill claims, health-care costs have increased continuously at a rate substantially greater than the CPI over a period beginning around 1965. For the thirty years prior to 1965, health-care inflation was comparable to overall inflation. Specifically, the annual health-care inflation rate averaged 3.06% between 1935 and 1965, while the average annual increase in the CPI was 2.81% for this same period. Thus, between 1935 and 1965, annual increases in prices for medical care were only 8.8% higher on average than the average annual increase in the CPI. Between 1965 and 2009, however, the average annual health-care inflation rate was 6.33%, compared with an average annual increase in the CPI of 4.46% for the same period. So, from 1965 through 2009, prices for medical care increased at an average annual rate that was 42.1% higher than the average annual rate of increase in the CPI.
The question is: What has caused health-care prices to increase at such an alarming rate for nearly half a century? Is Goldhill correct in his claim that Medicare and Medicaid had a lot to do with it? If so, how is it that these government programs produced such out-of-control price increases?
In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population. And it is no coincidence that the great inflation in health-care costs began soon after.In light of this statement, I thought it would be interesting to find out how much health-care cost inflation has actually occurred both before and after 1965. The Bureau of Labor Statistics maintains a website with a lot of data of this kind. By clicking on the Databases and Tables section of the site, you can find inflation data in various categories. Clicking on "Top Picks" under the section "All Urban Consumers (Current Series)" you'll find a series of boxes to check. Checking the box to the left of "U.S. Medical Care, 1982-84=100 - CUUR0000SAM" and then clicking "Retrieve Data" provides a table of medical-care price index data for different years. I set the date range to 1935 through 2009 to obtain the medical-care price index for those years. Similarly, checking the box to the left of "U.S. All items, 1982-84=100 - CUUR0000SA0" and then clicking "Retrieve Data," provides a table of the consumer-price index data for all items for different years. By plotting both of these time series, I obtained the following graph:
The question is: What has caused health-care prices to increase at such an alarming rate for nearly half a century? Is Goldhill correct in his claim that Medicare and Medicaid had a lot to do with it? If so, how is it that these government programs produced such out-of-control price increases?
Monday, March 29, 2010
Health care in the US (debate with E), part 3
A continuation of the health-care debate I've been having with my friend, E:
JCB (previous statement):
Yes. Health care is ridiculously expensive in this country. The question is: Why is this the case?
E (previous statement):
Quite a few factors I'm sure.
JCB (previous statement):
Yes. I think it's due to a combination of factors, including extensive government interference in the market, an aging population, and lawsuit abuse in a legal environment that favors plaintiffs.
E (new statement):
Ah, the Conservative Mantra. If there's a problem that seems to have anything to do with private profit, the smokescreen of "It's all the government's fault!" is quickly heard.
E (previous):
One would seem to be to be clearly the unmitigated greed of the insurance industry and the drug industry (in other words, the free market going where it always goes for other than commodities).
JCB (previous):
The problem I have with this explanation is that the health-care sector doesn't have a monopoly on greed. Pretty much all of us are greedy.
E (new):
I'm not, and I don't think that most people are. Not for material things anyway. Most people just want to survive and live for the most part like those around them. Very few people are striving for great wealth, which is what greed would motivate one toward. That and criminality. Further, a very great many people go through life doing what they do largely without consideration of material wealth. Millions of people work for non-profits and lower wages than they might make in the private sector.
From a quick google search: http://www.bls.gov/opub/cwc/cm20081022ar01p1.htm
By 2007, nonprofits employed 8.7 million workers, or 5.9 percent of all workers.
Why?
There are several hypotheses as to why the wages of nonprofit workers could differ from their for-profit counterparts. According to the labor donation hypothesis, workers in the nonprofit sector are willing to donate a portion of their paid labor and receive lower wages because they obtain satisfaction from the fact that their efforts achieve altruistic goals.
The numbers show that professionals such as ourselves earn less in non-profits than in private industry.
And then there are the umpteen zillion volunteer workers, who do not seem to show signs of greed. I expect that few of them are so wealthy that their alleged greed is already satisfied.
In general, I think that most people want to maximize happiness, and that's only sometimes associated with significantly above-average wealth. I think that for most people, once a certain, relatively modest level of security and comfort are obtained (that's not greed) they aren't driven by greed to get "more stuff", and certainly not at the expense of hurting others. Most people would want a car. Few would be greedy to the point of claiming to need a Hummer or something equally expensive. For-profit businesses are a very different creature. Their profit objectives desires are without limits, and they are largely unhampered by ethical considerations unless they are forced to address such as a PR issue.
JCB (previous):
I'm a greedy optical engineer working for an unmitigatedly greedy multinational consulting corporation.
E (previous):
I'm sorry to hear that you're greedy. It goes without saying that your for-profit corporation is greedy.
JCB (previous):
Yet my salary and the rates my company charges its customers have risen at about the same rate as overall inflation.
E (new):
Those rates are already greatly inflated. My company's rates are too, charging the government 3x-4x what they pay me. Even after factoring in benefits, etc., I have to believe that companies such as ours are not richly satisfying the greed of their managers and shareholders (sadly, the former being more than willing to prey on the latter), at the expense of the public as a whole, who foots the bill.
JCB (previous):
Other than health care and higher education (another industry suffering from massive government interference),
E (new):
"Government interference" ... ha ha. Exactly what sort of hypothetical interference would this be? Mandating sterilization of surgical equipment? Mandating the rule of no needle re-use? Possibly (not sure) mandating work limits on surgeons (i.e. no surgery for 12 hours after pulling an all-nighter in the OR, though maybe no such rules exist)? Government regulation of health care is very definitely a Good Thing, and I expect that we need more of it, though hospital and other profit-motivated organizations and their lobbyists will no doubt prevent that.
I suppose you don't want the FDA mandating that your food and drugs not kill you either.
I don't see how higher education is suffering at the hands of the government at all. If anything, the government channels bazillions of dollars into schools of all sorts, from my local community college to Stanford. I think this has been the case forever in the US.
JCB (previous):
I can't think of a single example of an industry for which the average inflation rate has been consistently so much higher than the overall inflation rate.
E (new):
Which says exactly nothing about the cause of that state of affairs. An observation is not an explanation of anything.
JCB (previous):
There may be some of which I'm unaware. Let me know if you can think of any.
E (new):
The insurance industry. On my last health policy, a catastrophic one, after the first year they were going to raise my rates by 30%.
The oil industry (check pump prices). At one point, the beer hops industry.
Nevertheless, if I could think of any other industry with huge cost increases, you would simply say that it was because of "massive government interference" (a completely subjective term I might add) and dismiss the example.
E (previous):
Another would the fact that the relationship is so bizarre between customers (including companies trying to offer benefits), the insurance industry, and care providers.
JCB (previous):
That's an great point. But what is the source of this bizarreness?
E (new):
As I recall that article ["How American Health Care Killed my Father," by David Goldhill, Atlantic Magazine, September 2009] described the situation in some detail. I can't recall exactly, but it was interesting. I'll have to re-read the article.
JCB (previous):
Is it the free market and the unmitigated greed of the health-care industry?
E (new):
At least in part, I'd say yes. In this case, the "free" market is not really free. Consumers often have no choice when it comes to obtaining health care. When my brother had his appendix burst, it wasn't as if he could go shopping around or check Fat Wallet for best prices/deals. He had to go somewhere nearby and do it immediately. And thereafter, he had to pay whatever they chose to charge, and he did so. If you have very little money, you're forced to go to a place that will charge you little or to a free clinic, no matter how crappy it is. If you have an emergency or think you do, or sometimes even if you have a cold, without money you must get your health care at the emergency room. Health care is NOT a commodity in the current system in which it is provided. There's no "brain surgeon exchange" like there is a pork-bellies exchange.
JCB (previous):
If so, why haven't such bizarrely dysfunctional relationships evolved in other similarly-greedy yet less-heavily-regulated (i.e., more free-market) industries?
E (new):
How about banks and their credit cards? The credit-card industry, judging by its practices, is only about to become regulated in any consumer-meaningful way. And they fought that tooth and nail. And they tried to mitigate the effects of the upcoming legislation by jacking rates way, way up on cardholders who they did not otherwise terminate. Credit-card industry = dysfunctional (the relation to the consumer is to try to keep him/her in debt with large lines and low-monthly payments), very greedy as I've pointed out above, and apparently vastly-under-regulated, hence the need for this latest regulation.
I have no reason to believe that the health care industry is "heavily regulated" unless you mean the awful rules meant to keep people safe. I'd just as soon have more of that regulation.
And to your question, the answer is "because they can't get away with it". When any kind of for-profit organization can "get away with it" they inevitably do, no matter how evil the thing it might be. When they can't immediately get away with it, they try to lay the foundations of being able to get away with it. The credit-card industry, mentioned above, is one such example of organizations that get away with evil-for-profit and have been doing so for many, many years.
JCB (previous):
That's a great idea. If people would self-insure as much as possible, they'd be much more sensitive to costs and competition would drive prices down.
E (new):
That was one of the points of the article - that people are, with the current System, largely unaware of costs because they don't need to be. What do I care how much that MRI cost in total? But even a sensitivity to costs does not in any way lead to a state of affairs in which people can afford all the care that they need. It might well lead in that direction. But it also could, probably would I think, lead to a situation in which only the richest people would be able to get access to technologies and procedures that could improve their health. MRIs are one such example. I can't imagine someone like my archetypical neighbor, who is uninsured because his employers don't offer it, affording any of those MRIs without massively increasing his debt. And he has kids to feed.
So while perhaps more competition might make blood tests more affordable (maybe), it wouldn't mean that expensive things would become so. In fact, I could imagine a bidding war on tests/procedures for which there was not an broadly-available supply. There might well be a shortage of heart surgeons, and maybe, maybe, if rates for that procedure went up (which would be pocketed by hospitals and their shareholders) eventually more heart surgeons would come online, but in the meantime poorer people would die. "Too bad" says the Conservative. Because his insurance will cover it. If it didn't, you can sure he'd be on Fox news demanding his red-blooded-American rights to such coverage.
JCB (previous):
I'll have to read the article. I'm certainly no fan of the insurance industry as a whole. The sales pitches used by a lot of life-insurance salespeople, for example, are deceptive to the point that they border on fraud or may actually be fraudulent. Bank on Yourself is one such sales pitch I've encountered recently. Yet, rates for non-health-care-related insurance (i.e., life, homeowners, auto, etc.) have not risen faster than overall inflation, as far as I know.
E (new):
This http://docs.google.com/viewer?url=http://www.bls.gov/cpi/cpid1001.pdf if I read it correctly, shows an overall CPI increase of 2.6% from 1/2009 to 1/2010. In the same period, home/tenant insurance increased 3.3%, or 27% higher than the CPI. In the same period, motor vehicle insurance increased 4.7%, or 80% more than the CPI did. And these types of insurance are very "free market" in 1) you're not required to carry them at all, you have to choose to, and 2) judging by the ads in the media, they're all clambering for your business, and are mostly trumpeting their low prices. Low maybe, but increasing rapidly it seems.
JCB (previous):
So I doubt that insurance-industry corruption could be an important root cause of the health-care-inflation problem.
E (new):
Judging by the above, I doubt that insurance industry corruption is not an important root cause the health-care-inflation problem.
JCB (previous):
However, it could be that a higher-than-normal level of corruption has resulted from the massive government interference in the health-care market.
E (new):
It could be that a higher-than-normal level of corruption has resulted from insufficient government regulation of provider operations and prices and service quality, as well as insufficient government regulation of safety, leading to malpractice and the resulting oft-lamented-by-conservatives expensive malpractice suits and settlements. With more/better regulation, corruption might be reduced and prices might go down.
JCB (previous statement):
Yes. Health care is ridiculously expensive in this country. The question is: Why is this the case?
E (previous statement):
Quite a few factors I'm sure.
JCB (previous statement):
Yes. I think it's due to a combination of factors, including extensive government interference in the market, an aging population, and lawsuit abuse in a legal environment that favors plaintiffs.
E (new statement):
Ah, the Conservative Mantra. If there's a problem that seems to have anything to do with private profit, the smokescreen of "It's all the government's fault!" is quickly heard.
E (previous):
One would seem to be to be clearly the unmitigated greed of the insurance industry and the drug industry (in other words, the free market going where it always goes for other than commodities).
JCB (previous):
The problem I have with this explanation is that the health-care sector doesn't have a monopoly on greed. Pretty much all of us are greedy.
E (new):
I'm not, and I don't think that most people are. Not for material things anyway. Most people just want to survive and live for the most part like those around them. Very few people are striving for great wealth, which is what greed would motivate one toward. That and criminality. Further, a very great many people go through life doing what they do largely without consideration of material wealth. Millions of people work for non-profits and lower wages than they might make in the private sector.
From a quick google search: http://www.bls.gov/opub/cwc/cm20081022ar01p1.htm
By 2007, nonprofits employed 8.7 million workers, or 5.9 percent of all workers.
Why?
There are several hypotheses as to why the wages of nonprofit workers could differ from their for-profit counterparts. According to the labor donation hypothesis, workers in the nonprofit sector are willing to donate a portion of their paid labor and receive lower wages because they obtain satisfaction from the fact that their efforts achieve altruistic goals.
The numbers show that professionals such as ourselves earn less in non-profits than in private industry.
And then there are the umpteen zillion volunteer workers, who do not seem to show signs of greed. I expect that few of them are so wealthy that their alleged greed is already satisfied.
In general, I think that most people want to maximize happiness, and that's only sometimes associated with significantly above-average wealth. I think that for most people, once a certain, relatively modest level of security and comfort are obtained (that's not greed) they aren't driven by greed to get "more stuff", and certainly not at the expense of hurting others. Most people would want a car. Few would be greedy to the point of claiming to need a Hummer or something equally expensive. For-profit businesses are a very different creature. Their profit objectives desires are without limits, and they are largely unhampered by ethical considerations unless they are forced to address such as a PR issue.
JCB (previous):
I'm a greedy optical engineer working for an unmitigatedly greedy multinational consulting corporation.
E (previous):
I'm sorry to hear that you're greedy. It goes without saying that your for-profit corporation is greedy.
JCB (previous):
Yet my salary and the rates my company charges its customers have risen at about the same rate as overall inflation.
E (new):
Those rates are already greatly inflated. My company's rates are too, charging the government 3x-4x what they pay me. Even after factoring in benefits, etc., I have to believe that companies such as ours are not richly satisfying the greed of their managers and shareholders (sadly, the former being more than willing to prey on the latter), at the expense of the public as a whole, who foots the bill.
JCB (previous):
Other than health care and higher education (another industry suffering from massive government interference),
E (new):
"Government interference" ... ha ha. Exactly what sort of hypothetical interference would this be? Mandating sterilization of surgical equipment? Mandating the rule of no needle re-use? Possibly (not sure) mandating work limits on surgeons (i.e. no surgery for 12 hours after pulling an all-nighter in the OR, though maybe no such rules exist)? Government regulation of health care is very definitely a Good Thing, and I expect that we need more of it, though hospital and other profit-motivated organizations and their lobbyists will no doubt prevent that.
I suppose you don't want the FDA mandating that your food and drugs not kill you either.
I don't see how higher education is suffering at the hands of the government at all. If anything, the government channels bazillions of dollars into schools of all sorts, from my local community college to Stanford. I think this has been the case forever in the US.
JCB (previous):
I can't think of a single example of an industry for which the average inflation rate has been consistently so much higher than the overall inflation rate.
E (new):
Which says exactly nothing about the cause of that state of affairs. An observation is not an explanation of anything.
JCB (previous):
There may be some of which I'm unaware. Let me know if you can think of any.
E (new):
The insurance industry. On my last health policy, a catastrophic one, after the first year they were going to raise my rates by 30%.
The oil industry (check pump prices). At one point, the beer hops industry.
Nevertheless, if I could think of any other industry with huge cost increases, you would simply say that it was because of "massive government interference" (a completely subjective term I might add) and dismiss the example.
E (previous):
Another would the fact that the relationship is so bizarre between customers (including companies trying to offer benefits), the insurance industry, and care providers.
JCB (previous):
That's an great point. But what is the source of this bizarreness?
E (new):
As I recall that article ["How American Health Care Killed my Father," by David Goldhill, Atlantic Magazine, September 2009] described the situation in some detail. I can't recall exactly, but it was interesting. I'll have to re-read the article.
JCB (previous):
Is it the free market and the unmitigated greed of the health-care industry?
E (new):
At least in part, I'd say yes. In this case, the "free" market is not really free. Consumers often have no choice when it comes to obtaining health care. When my brother had his appendix burst, it wasn't as if he could go shopping around or check Fat Wallet for best prices/deals. He had to go somewhere nearby and do it immediately. And thereafter, he had to pay whatever they chose to charge, and he did so. If you have very little money, you're forced to go to a place that will charge you little or to a free clinic, no matter how crappy it is. If you have an emergency or think you do, or sometimes even if you have a cold, without money you must get your health care at the emergency room. Health care is NOT a commodity in the current system in which it is provided. There's no "brain surgeon exchange" like there is a pork-bellies exchange.
JCB (previous):
If so, why haven't such bizarrely dysfunctional relationships evolved in other similarly-greedy yet less-heavily-regulated (i.e., more free-market) industries?
E (new):
How about banks and their credit cards? The credit-card industry, judging by its practices, is only about to become regulated in any consumer-meaningful way. And they fought that tooth and nail. And they tried to mitigate the effects of the upcoming legislation by jacking rates way, way up on cardholders who they did not otherwise terminate. Credit-card industry = dysfunctional (the relation to the consumer is to try to keep him/her in debt with large lines and low-monthly payments), very greedy as I've pointed out above, and apparently vastly-under-regulated, hence the need for this latest regulation.
I have no reason to believe that the health care industry is "heavily regulated" unless you mean the awful rules meant to keep people safe. I'd just as soon have more of that regulation.
And to your question, the answer is "because they can't get away with it". When any kind of for-profit organization can "get away with it" they inevitably do, no matter how evil the thing it might be. When they can't immediately get away with it, they try to lay the foundations of being able to get away with it. The credit-card industry, mentioned above, is one such example of organizations that get away with evil-for-profit and have been doing so for many, many years.
JCB (previous):
That's a great idea. If people would self-insure as much as possible, they'd be much more sensitive to costs and competition would drive prices down.
E (new):
That was one of the points of the article - that people are, with the current System, largely unaware of costs because they don't need to be. What do I care how much that MRI cost in total? But even a sensitivity to costs does not in any way lead to a state of affairs in which people can afford all the care that they need. It might well lead in that direction. But it also could, probably would I think, lead to a situation in which only the richest people would be able to get access to technologies and procedures that could improve their health. MRIs are one such example. I can't imagine someone like my archetypical neighbor, who is uninsured because his employers don't offer it, affording any of those MRIs without massively increasing his debt. And he has kids to feed.
So while perhaps more competition might make blood tests more affordable (maybe), it wouldn't mean that expensive things would become so. In fact, I could imagine a bidding war on tests/procedures for which there was not an broadly-available supply. There might well be a shortage of heart surgeons, and maybe, maybe, if rates for that procedure went up (which would be pocketed by hospitals and their shareholders) eventually more heart surgeons would come online, but in the meantime poorer people would die. "Too bad" says the Conservative. Because his insurance will cover it. If it didn't, you can sure he'd be on Fox news demanding his red-blooded-American rights to such coverage.
JCB (previous):
I'll have to read the article. I'm certainly no fan of the insurance industry as a whole. The sales pitches used by a lot of life-insurance salespeople, for example, are deceptive to the point that they border on fraud or may actually be fraudulent. Bank on Yourself is one such sales pitch I've encountered recently. Yet, rates for non-health-care-related insurance (i.e., life, homeowners, auto, etc.) have not risen faster than overall inflation, as far as I know.
E (new):
This http://docs.google.com/viewer?url=http://www.bls.gov/cpi/cpid1001.pdf if I read it correctly, shows an overall CPI increase of 2.6% from 1/2009 to 1/2010. In the same period, home/tenant insurance increased 3.3%, or 27% higher than the CPI. In the same period, motor vehicle insurance increased 4.7%, or 80% more than the CPI did. And these types of insurance are very "free market" in 1) you're not required to carry them at all, you have to choose to, and 2) judging by the ads in the media, they're all clambering for your business, and are mostly trumpeting their low prices. Low maybe, but increasing rapidly it seems.
JCB (previous):
So I doubt that insurance-industry corruption could be an important root cause of the health-care-inflation problem.
E (new):
Judging by the above, I doubt that insurance industry corruption is not an important root cause the health-care-inflation problem.
JCB (previous):
However, it could be that a higher-than-normal level of corruption has resulted from the massive government interference in the health-care market.
E (new):
It could be that a higher-than-normal level of corruption has resulted from insufficient government regulation of provider operations and prices and service quality, as well as insufficient government regulation of safety, leading to malpractice and the resulting oft-lamented-by-conservatives expensive malpractice suits and settlements. With more/better regulation, corruption might be reduced and prices might go down.
Sunday, March 28, 2010
Health-care debate with J.E. Hill, part 4
JCB's responses to previous statements made by J.E. Hill, a writer for The Skeptical Review:
JCB's previous statement:
There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations.
Hill's previous statement:
That's not what you said or "referred to". I'll remind you: "However, I would say that it is among the most heavily-regulated/subsidized."
As a matter of fact, the health-insurance industry doesn't receive one cent of subsidy from the government.
The "subsidies" you are referring to are not subsidies either. They are payment for services. There is a big difference. A subsidy is monetary assistance granted by the government to a person or private commercial enterprise, such as the Community Development Block Grant, or farm subsidies where the government gets nothing in return. In this case there are services rendered and that is what is being paid for.
So, the health-insurance industry is not subsidized contrary to your previously statement.
Correct? Yes or no.
JCB's response:
No. Although it's true that (as far as I know) the private, for-profit portion of the health-insurance industry is not subsidized, an ever-increasing percentage of health-care costs in this country are being paid by the government, through programs such as Medicare and Medicaid. See the graph at top of page 10 in this Rand Corporation publication:
http://www.rand.org/pubs/corporate_pubs/2005/RAND_CP484.1.pdf
Medicare and Medicaid are government-run providers of health insurance. The premiums people pay the government for the health insurance they receive through these programs fall far short of covering the cost of the benefits received in the form of payments for medical services. This is what I was referring to as government subsidization of health insurance. If you wish, you may choose not to refer to this as government subsidization of health insurance. But it doesn't affect my argument. Whether or not you choose to call it a subsidization of health insurance or something else, the reality is that the government is paying a large portion of people's health-care-related expenses and that this is creating severe distortions of the health-care market. These market distortions are a major reason that health-care costs are rising so much faster than the overall inflation rate. And, of course, increases in health-care costs inevitably lead to increases in premiums for insurance provided by the private, for-profit sector of the health-insurance industry.
Portion of JCB's previous statement:
Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries?
Hill's previous statement:
Oh, you mean like the financial sector?
JCB's response:
I'm not exactly sure what you're referring to here. I personally haven't noticed any significant cost increases in the financial sector. My checking accounts and savings accounts are still free. I believe that costs paid by consumers for products provided by the financial sector predominantly take the form of interest charges, and interest rates are currently at historically low levels. In fact, my wife and I are thinking of refinancing, even though we already have a really low-interest (5.5%) fixed-rate mortgage. One exception may be interest rates on credit cards, which I believe I've heard have gone up somewhat in the past year or so. But I don't know of any long-term inflationary trend in the financial sector that's even remotely comparable to the decades-long trend of health-care costs increasing at a rate higher than overall inflation. If you have data showing that such a long-term trend exists, I'd be interested in seeing it.
Hill's previous statement:
Greed is certainly a factor, but probably more so is the fact that people get sick more often than they buy cars. The biggest factor is that health insurance is its own worst enemy. By reducing their client pool by rejecting claims, they have to keep increasing premiums to keep the profits rolling in and Wall Street happy.
JCB's response:
I'm glad to see you're distancing yourself from the view that greed is the primary cause of our health-care woes. However, I'm not sure I fully understand your two new theories. The first of these theories is that the enormous cost increases we've experienced for decades in the health-care sector are due to "...the fact that people get sick more often than they buy cars." I agree that people get sick more often than they buy cars, at least if you count minor illnesses, such as colds and athlete's foot. But the cost of the resources (i.e., raw materials and labor) required to treat a typical cold or case of athlete's foot are far less than that required to build a car. So I'm not sure why the fact that we get sick more often than we buy cars is relevant. It's also true that, on average, we take showers more often than we get sick. So, by your theory, shouldn't we also be experiencing even more economically-unsustainable price increases for soap, shampoo, and conditioner than we're experiencing for health care?
Perhaps you're simply trying to say that the demand for health care has risen too fast for the health-care industry to keep up. If that's the point you're trying to make, I think you're correct. Due to the increase in both the size and the average age of the population, the demand for health care has risen fairly rapidly over the years. And our health-care system has not responded efficiently to this increase in demand. The crucial question is: Why hasn't it responded efficiently? Is it because we have too much of a free market in health care? If so, then how do you explain what has happened in other more-free-market industries in which demand has increased rapidly over the years? Take the personal-computer industry, for example. Due to it being a much newer industry, we've had a much greater increase in demand for PCs over the past few decades than for health care. When I was a child, no one had even heard of PCs. In those days computers were enormous, expensive machines that took up whole rooms and could only be afforded by large, wealthy organizations. And the capabilities of those machines were pathetically poor by current standards. Now it seems like almost everyone has at least one PC. Many people I know have three or four. And we have a much freer market for PCs than for health care. At the very least, I don't see how anyone could plausibly argue that the PC market is less free than the health-care market. Yet the long-term trend in the PC industry has been for prices to continue dropping dramatically, while the capabilities (e.g., disk size, amount of memory, speed, software sophistication, degree of miniaturization, etc.) have dramatically improved.
Your second theory is that the health-insurance industry has to increase premiums to make up for a reduction in its client pool due to a rejection of claims. Presumably, the clients who are being eliminated from the pool would mostly be the sickest clients. It would not make any economic sense for insurance companies to take actions that would cause them to lose their healthiest clients, since it is these clients that make them the most money. Since the sickest clients are the ones the insurance companies lose money on, one would think that eliminating them would increase profits, rather than reduce them. Thus it does not appear plausible to argue that elimination of clients through claim rejection would lead to higher premiums. If anything, the opposite would seem to be the case. Even if it were true, your theory would only explain increases in health-care premiums. It wouldn't explain the unsustainable increases we're experiencing in the cost of health care itself.
JCB's previous statement:
Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care?
Hill's previous statement:
Not a real good example.
JCB's response:
I thought it was a pretty good example of an industry operating in a relatively free market that provides quality service while efficiently controlling costs. At any rate, it was better than the examples you've attempted to give of industries in relatively free markets that are as economically dysfunctional as health care. But that's really not your fault, since I don't believe there are any valid examples of such industries.
Hill's previous statement:
If you really want me to take the time to deconstruct this I will, but it's really a waste of time to do so.
JCB's response:
If you're willing to waste your time deconstructing it, I'm willing waste my time deconstructing your deconstruction.
JCB's previous statement:
Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?
Hill's previous statement:
Oh, my homeowners insurance has been going up...about 10% a year and never a claim.
JCB's response:
Really?! That seems a bit anomalous. For how many years has it been increasing at that rate? Maybe you should shop around for a new policy. Our homeowner's insurance has gone up 10.9% in the past 5 years (11/2004 - 11/2009), which averages out to 2.1% per year. The consumer price index has gone up 13.3% during that same period, or 2.5% per year:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
I tried to find some statistics on rates of increase in homeowner's insurance premiums, but wasn't able to. But it's hard to believe that homeowner's premiums have been increasing over the long term anywhere near as fast as health-care costs. If they had been, it would have been big news.
Hill's previous statement:
But the short answer is it's all actuarial and (this is very important) they all have to compete for my business and I can switch companies anytime I want.
JCB's response:
Right! In other words, there's a relatively free market in these other forms of insurance. This results in vigorous competition, which keeps costs under control. Unfortunately, we have much less of a free market for health care and health insurance. For example, due to the fact that health-insurance costs are deductible for employers but not for employees, the choice of health-care provider available to most people is--for all practical purposes--limited to the few options their employers happen to offer.
Hill's previous statement:
Competition is a wonderful thing. This is why the health-care industry don't want it from the government or other insurers. But if you have claims or are a bad risk, they'll still insure you but it'll cost an arm and a leg. With health-insurance, I don't have choices. If you were just asking this because you really didn't get this part, I am not so sure we need to continue. I don't mean to be abrupt, but this is really basic stuff.
JCB's response:
Yes! You're right that competition is a wonderful thing! You're probably also correct in your belief that many in the health-care industry like the fact that competition in their industry is severely limited. As great as competition is for the economy as a whole, it rarely seems quite so wonderful when it's directed against one's own efforts. A lack of competition is, of course, a well-known characteristic of a market that isn't very free. Thanks for helping me make my point.
Hill's previous statement:
It really seems like your big issue is with government regulations, since subsidies are now off the table.
JCB's response:
Despite your semantic gymnastics pertaining to this issue, the unavoidable fact remains that health care in this country is heavily subsidized by the government and has been for many years.
JCB's previous statement:
There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations.
Hill's previous statement:
That's not what you said or "referred to". I'll remind you: "However, I would say that it is among the most heavily-regulated/subsidized."
As a matter of fact, the health-insurance industry doesn't receive one cent of subsidy from the government.
The "subsidies" you are referring to are not subsidies either. They are payment for services. There is a big difference. A subsidy is monetary assistance granted by the government to a person or private commercial enterprise, such as the Community Development Block Grant, or farm subsidies where the government gets nothing in return. In this case there are services rendered and that is what is being paid for.
So, the health-insurance industry is not subsidized contrary to your previously statement.
Correct? Yes or no.
JCB's response:
No. Although it's true that (as far as I know) the private, for-profit portion of the health-insurance industry is not subsidized, an ever-increasing percentage of health-care costs in this country are being paid by the government, through programs such as Medicare and Medicaid. See the graph at top of page 10 in this Rand Corporation publication:
http://www.rand.org/pubs/corporate_pubs/2005/RAND_CP484.1.pdf
Medicare and Medicaid are government-run providers of health insurance. The premiums people pay the government for the health insurance they receive through these programs fall far short of covering the cost of the benefits received in the form of payments for medical services. This is what I was referring to as government subsidization of health insurance. If you wish, you may choose not to refer to this as government subsidization of health insurance. But it doesn't affect my argument. Whether or not you choose to call it a subsidization of health insurance or something else, the reality is that the government is paying a large portion of people's health-care-related expenses and that this is creating severe distortions of the health-care market. These market distortions are a major reason that health-care costs are rising so much faster than the overall inflation rate. And, of course, increases in health-care costs inevitably lead to increases in premiums for insurance provided by the private, for-profit sector of the health-insurance industry.
Portion of JCB's previous statement:
Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries?
Hill's previous statement:
Oh, you mean like the financial sector?
JCB's response:
I'm not exactly sure what you're referring to here. I personally haven't noticed any significant cost increases in the financial sector. My checking accounts and savings accounts are still free. I believe that costs paid by consumers for products provided by the financial sector predominantly take the form of interest charges, and interest rates are currently at historically low levels. In fact, my wife and I are thinking of refinancing, even though we already have a really low-interest (5.5%) fixed-rate mortgage. One exception may be interest rates on credit cards, which I believe I've heard have gone up somewhat in the past year or so. But I don't know of any long-term inflationary trend in the financial sector that's even remotely comparable to the decades-long trend of health-care costs increasing at a rate higher than overall inflation. If you have data showing that such a long-term trend exists, I'd be interested in seeing it.
Hill's previous statement:
Greed is certainly a factor, but probably more so is the fact that people get sick more often than they buy cars. The biggest factor is that health insurance is its own worst enemy. By reducing their client pool by rejecting claims, they have to keep increasing premiums to keep the profits rolling in and Wall Street happy.
JCB's response:
I'm glad to see you're distancing yourself from the view that greed is the primary cause of our health-care woes. However, I'm not sure I fully understand your two new theories. The first of these theories is that the enormous cost increases we've experienced for decades in the health-care sector are due to "...the fact that people get sick more often than they buy cars." I agree that people get sick more often than they buy cars, at least if you count minor illnesses, such as colds and athlete's foot. But the cost of the resources (i.e., raw materials and labor) required to treat a typical cold or case of athlete's foot are far less than that required to build a car. So I'm not sure why the fact that we get sick more often than we buy cars is relevant. It's also true that, on average, we take showers more often than we get sick. So, by your theory, shouldn't we also be experiencing even more economically-unsustainable price increases for soap, shampoo, and conditioner than we're experiencing for health care?
Perhaps you're simply trying to say that the demand for health care has risen too fast for the health-care industry to keep up. If that's the point you're trying to make, I think you're correct. Due to the increase in both the size and the average age of the population, the demand for health care has risen fairly rapidly over the years. And our health-care system has not responded efficiently to this increase in demand. The crucial question is: Why hasn't it responded efficiently? Is it because we have too much of a free market in health care? If so, then how do you explain what has happened in other more-free-market industries in which demand has increased rapidly over the years? Take the personal-computer industry, for example. Due to it being a much newer industry, we've had a much greater increase in demand for PCs over the past few decades than for health care. When I was a child, no one had even heard of PCs. In those days computers were enormous, expensive machines that took up whole rooms and could only be afforded by large, wealthy organizations. And the capabilities of those machines were pathetically poor by current standards. Now it seems like almost everyone has at least one PC. Many people I know have three or four. And we have a much freer market for PCs than for health care. At the very least, I don't see how anyone could plausibly argue that the PC market is less free than the health-care market. Yet the long-term trend in the PC industry has been for prices to continue dropping dramatically, while the capabilities (e.g., disk size, amount of memory, speed, software sophistication, degree of miniaturization, etc.) have dramatically improved.
Your second theory is that the health-insurance industry has to increase premiums to make up for a reduction in its client pool due to a rejection of claims. Presumably, the clients who are being eliminated from the pool would mostly be the sickest clients. It would not make any economic sense for insurance companies to take actions that would cause them to lose their healthiest clients, since it is these clients that make them the most money. Since the sickest clients are the ones the insurance companies lose money on, one would think that eliminating them would increase profits, rather than reduce them. Thus it does not appear plausible to argue that elimination of clients through claim rejection would lead to higher premiums. If anything, the opposite would seem to be the case. Even if it were true, your theory would only explain increases in health-care premiums. It wouldn't explain the unsustainable increases we're experiencing in the cost of health care itself.
JCB's previous statement:
Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care?
Hill's previous statement:
Not a real good example.
JCB's response:
I thought it was a pretty good example of an industry operating in a relatively free market that provides quality service while efficiently controlling costs. At any rate, it was better than the examples you've attempted to give of industries in relatively free markets that are as economically dysfunctional as health care. But that's really not your fault, since I don't believe there are any valid examples of such industries.
Hill's previous statement:
If you really want me to take the time to deconstruct this I will, but it's really a waste of time to do so.
JCB's response:
If you're willing to waste your time deconstructing it, I'm willing waste my time deconstructing your deconstruction.
JCB's previous statement:
Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?
Hill's previous statement:
Oh, my homeowners insurance has been going up...about 10% a year and never a claim.
JCB's response:
Really?! That seems a bit anomalous. For how many years has it been increasing at that rate? Maybe you should shop around for a new policy. Our homeowner's insurance has gone up 10.9% in the past 5 years (11/2004 - 11/2009), which averages out to 2.1% per year. The consumer price index has gone up 13.3% during that same period, or 2.5% per year:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
I tried to find some statistics on rates of increase in homeowner's insurance premiums, but wasn't able to. But it's hard to believe that homeowner's premiums have been increasing over the long term anywhere near as fast as health-care costs. If they had been, it would have been big news.
Hill's previous statement:
But the short answer is it's all actuarial and (this is very important) they all have to compete for my business and I can switch companies anytime I want.
JCB's response:
Right! In other words, there's a relatively free market in these other forms of insurance. This results in vigorous competition, which keeps costs under control. Unfortunately, we have much less of a free market for health care and health insurance. For example, due to the fact that health-insurance costs are deductible for employers but not for employees, the choice of health-care provider available to most people is--for all practical purposes--limited to the few options their employers happen to offer.
Hill's previous statement:
Competition is a wonderful thing. This is why the health-care industry don't want it from the government or other insurers. But if you have claims or are a bad risk, they'll still insure you but it'll cost an arm and a leg. With health-insurance, I don't have choices. If you were just asking this because you really didn't get this part, I am not so sure we need to continue. I don't mean to be abrupt, but this is really basic stuff.
JCB's response:
Yes! You're right that competition is a wonderful thing! You're probably also correct in your belief that many in the health-care industry like the fact that competition in their industry is severely limited. As great as competition is for the economy as a whole, it rarely seems quite so wonderful when it's directed against one's own efforts. A lack of competition is, of course, a well-known characteristic of a market that isn't very free. Thanks for helping me make my point.
Hill's previous statement:
It really seems like your big issue is with government regulations, since subsidies are now off the table.
JCB's response:
Despite your semantic gymnastics pertaining to this issue, the unavoidable fact remains that health care in this country is heavily subsidized by the government and has been for many years.
Health-care debate with J.E. Hill, part 3
J.E. Hill's responses to previous statements made by me:
JCB's previous statement:
There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations.
Hill's response:
That's not what you said or "referred to". I'll remind you: "However, I would say that it is among the most heavily-regulated/subsidized."
As a matter of fact, the health-insurance industry doesn't receive one cent of subsidy from the government.
The "subsidies" you are referring to are not subsidies either. They are payment for services. There is a big difference. A subsidy is monetary assistance granted by the government to person or private commercial enterprise, such as the Community Development Block Grant, or farm subsidies where the government gets nothing in return. In this case there are services rendered and that what is being paid for.
So, the health-insurance industry is not subsidized contrary to your previously statement.
Correct? Yes or no.
JCB's previous statement:
http://www.newsweek.com/id/202015/page/1
"A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that
* Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.
* Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.
* Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"). The huge costs would force employers to reduce take-home pay."
The Goldhill article I mentioned in a previous e-mail (i.e., the one you said you didn't want to read) provides good explanations of the nature of these many of these distortions:
http://tinyurl.com/yendgv9
As Goldhill points out, "...it is no coincidence that the great inflation in health-care costs began soon after [Medicare and Medicaid were created in 1965]. "
Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries?
Hill's response:
Oh, you mean like the financial sector? Greed is certainly a factor, but probably more so is the fact that people get sick more often than they buy cars. The biggest factor is that health insurance is it's own worst enemy. By reducing their client pool by rejecting claims, they have to keep increasing premiums to keep the profits rolling in and Wall Street happy.
JCB's previous statement:
Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care?
Hill's response:
Not a real good example. If you really want me to take the time to deconstruct this I will, but it's really a waste of time to do so.
JCB's previous statement:
Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?
Hill's response:
Oh, my homeowners insurance has been going up...about 10% a year and never a claim. But the short answer is it's all actuarial and (this is very important) they all have to compete for my business and I can switch companies anytime I want. Competition is a wonderful thing. This is why the health-care industry don't want it from the government or other insurers. But if you have claims or are a bad risk, they'll still insure you but it'll cost an arm and a leg. With health-insurance, I don't have choices. If you were just asking this because you really didn't get this part, I am not so sure we need to continue. I don't mean to be abrupt, but this is really basic stuff.
It really seems like your big issue is with government regulations, since subsidies are now off the table.
JCB's previous statement:
There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations.
Hill's response:
That's not what you said or "referred to". I'll remind you: "However, I would say that it is among the most heavily-regulated/subsidized."
As a matter of fact, the health-insurance industry doesn't receive one cent of subsidy from the government.
The "subsidies" you are referring to are not subsidies either. They are payment for services. There is a big difference. A subsidy is monetary assistance granted by the government to person or private commercial enterprise, such as the Community Development Block Grant, or farm subsidies where the government gets nothing in return. In this case there are services rendered and that what is being paid for.
So, the health-insurance industry is not subsidized contrary to your previously statement.
Correct? Yes or no.
JCB's previous statement:
http://www.newsweek.com/id/202015/page/1
"A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that
* Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.
* Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.
* Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"). The huge costs would force employers to reduce take-home pay."
The Goldhill article I mentioned in a previous e-mail (i.e., the one you said you didn't want to read) provides good explanations of the nature of these many of these distortions:
http://tinyurl.com/yendgv9
As Goldhill points out, "...it is no coincidence that the great inflation in health-care costs began soon after [Medicare and Medicaid were created in 1965]. "
Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries?
Hill's response:
Oh, you mean like the financial sector? Greed is certainly a factor, but probably more so is the fact that people get sick more often than they buy cars. The biggest factor is that health insurance is it's own worst enemy. By reducing their client pool by rejecting claims, they have to keep increasing premiums to keep the profits rolling in and Wall Street happy.
JCB's previous statement:
Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care?
Hill's response:
Not a real good example. If you really want me to take the time to deconstruct this I will, but it's really a waste of time to do so.
JCB's previous statement:
Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?
Hill's response:
Oh, my homeowners insurance has been going up...about 10% a year and never a claim. But the short answer is it's all actuarial and (this is very important) they all have to compete for my business and I can switch companies anytime I want. Competition is a wonderful thing. This is why the health-care industry don't want it from the government or other insurers. But if you have claims or are a bad risk, they'll still insure you but it'll cost an arm and a leg. With health-insurance, I don't have choices. If you were just asking this because you really didn't get this part, I am not so sure we need to continue. I don't mean to be abrupt, but this is really basic stuff.
It really seems like your big issue is with government regulations, since subsidies are now off the table.
Friday, March 26, 2010
Health-care debate with J.E. Hill, part 2
Further debate between J.E. Hill of The Skeptical Review and myself:
Hill:
You wrote:
"However, that's not the fault of the free market. Is it merely a coincidence that our health-care industry is simultaneously the most heavily-regulated/subsidized, as well as the most dysfunctional? "
Are you asserting that the health-care insurance industry is the most heavily-regulated/subsidized of all industries?
JCB:
This is a thought-provoking question. Subsidization and regulation are not entirely quantifiable because comparing different types of subsidies and regulations across different industries amounts to an apples-to-oranges comparison. So I'll admit it was a bit rash of me to claim that health care is the most heavily-regulated/subsidized of all industries. Instead, I probably should have said something like "...among the most heavily-regulated/subsidized...." I would say that health care is currently the most dysfunctionally regulated/subsidized of industries in our country, in that the severe market distortions caused by those regulations/subsidies are rapidly bankrupting us, while destroying the quality of available care. We have a lot of problems of various kinds in many other industries, but these pale in comparison with the threat posed to our economic and physical well being by our current health-care system.
Hill:
I am not so sure you read the question carefully, so I'll ask this again: Are you asserting that the health-care insurance industry is the most heavily-regulated/subsidized of all industries?
JCB:
You're correct that I inadvertently overlooked the word "insurance" in your question. As in the case of the health-care industry as a whole, I would not claim that the health-insurance portion of that industry is necessarily the single most heavily-regulated/subsidized of industries. However, I would say that it is among the most heavily-regulated/subsidized. Here's a link that provides an overview of health-insurance regulations by states and the federal government:
http://www.allhealth.org/briefingmaterials/HealthInsuranceReportKofmanandPollitz-95.pdf
In addition, the government has nationalized huge sectors of the health-insurance market through Medicare, Medicaid, and various other programs. In these sectors, health-insurance is not merely regulated, but is completely controlled (i.e., owned and operated) by the government and is massively subsidized in a manner that is completely unsustainable.
Hill:
You have yet to show the insurance industry is heavily subsidized by the federal government.
Please show the federal agency that provides these subsidies and the amount that is paid directly to the health insurance industry on a yearly basis.
Of course Medicare, Medicaid and other federal or state health programs exist. The reason Medicare, for example, exists is that seniors simply cannot afford what health insurance companies would charge them for health care. But that's not the question here.
We'll get to the regulations later.
JCB:
Hill:
You wrote:
"However, that's not the fault of the free market. Is it merely a coincidence that our health-care industry is simultaneously the most heavily-regulated/subsidized, as well as the most dysfunctional? "
Are you asserting that the health-care insurance industry is the most heavily-regulated/subsidized of all industries?
JCB:
This is a thought-provoking question. Subsidization and regulation are not entirely quantifiable because comparing different types of subsidies and regulations across different industries amounts to an apples-to-oranges comparison. So I'll admit it was a bit rash of me to claim that health care is the most heavily-regulated/subsidized of all industries. Instead, I probably should have said something like "...among the most heavily-regulated/subsidized...." I would say that health care is currently the most dysfunctionally regulated/subsidized of industries in our country, in that the severe market distortions caused by those regulations/subsidies are rapidly bankrupting us, while destroying the quality of available care. We have a lot of problems of various kinds in many other industries, but these pale in comparison with the threat posed to our economic and physical well being by our current health-care system.
Hill:
I am not so sure you read the question carefully, so I'll ask this again: Are you asserting that the health-care insurance industry is the most heavily-regulated/subsidized of all industries?
JCB:
You're correct that I inadvertently overlooked the word "insurance" in your question. As in the case of the health-care industry as a whole, I would not claim that the health-insurance portion of that industry is necessarily the single most heavily-regulated/subsidized of industries. However, I would say that it is among the most heavily-regulated/subsidized. Here's a link that provides an overview of health-insurance regulations by states and the federal government:
http://www.allhealth.org/briefingmaterials/HealthInsuranceReportKofmanandPollitz-95.pdf
In addition, the government has nationalized huge sectors of the health-insurance market through Medicare, Medicaid, and various other programs. In these sectors, health-insurance is not merely regulated, but is completely controlled (i.e., owned and operated) by the government and is massively subsidized in a manner that is completely unsustainable.
Hill:
You have yet to show the insurance industry is heavily subsidized by the federal government.
Please show the federal agency that provides these subsidies and the amount that is paid directly to the health insurance industry on a yearly basis.
Of course Medicare, Medicaid and other federal or state health programs exist. The reason Medicare, for example, exists is that seniors simply cannot afford what health insurance companies would charge them for health care. But that's not the question here.
We'll get to the regulations later.
JCB:
There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations:
http://www.newsweek.com/id/202015/page/1
"A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that
* Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.
* Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.
* Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"). The huge costs would force employers to reduce take-home pay."
The Goldhill article I mentioned in a previous e-mail (i.e., the one you said you didn't want to read) provides good explanations of the nature of these many of these distortions:
http://tinyurl.com/yendgv9
As Goldhill points out, "...it is no coincidence that the great inflation in health-care costs began soon after [Medicare and Medicaid were created in 1965]. "
Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries? Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care? Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?
http://www.newsweek.com/id/202015/page/1
"A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that
* Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.
* Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.
* Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"). The huge costs would force employers to reduce take-home pay."
The Goldhill article I mentioned in a previous e-mail (i.e., the one you said you didn't want to read) provides good explanations of the nature of these many of these distortions:
http://tinyurl.com/yendgv9
As Goldhill points out, "...it is no coincidence that the great inflation in health-care costs began soon after [Medicare and Medicaid were created in 1965]. "
Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries? Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care? Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?
Thursday, March 18, 2010
Health care is not a right
Scott Holleran's blog has a link to this speech by Leonard Peikoff, written in 1993 during the attempt by President Clinton to massively increase government control over the health-care industry. It makes an excellent case that it is not only impractical for the government to take over health care, but also immoral.
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