Friday, June 22, 2007

The Wicked Truth: A Hypothetical Case Scenario as to Why Johnny Has No Health Insurance

Johnny is 25 years old, and he is part of the largest, atleast as a percentage, group of uninsured Americans. That is, he is young, healthy, older than college age, younger than the age that most people get sick, and though this problem afflicts women as well, he is even more likely to be uninsured as a man. He has a two year vocational degree and is learning the real life ropes as an auto mechanic making about $26,000/year. He is white, his family was working class, but by no means poor, and he comes from a middle sized city in Middle America.

So what's the deal? Johnny's father gets insurance from his current job as an assembly line supervisor, and he covers Johnny's sister and mother. Johnny's mother gets no insurance from her position as a receptionist for a building that houses a few small private law firms. She has never really looked into it anyway, because his father has been fortunate enough to work for Widgets Inc., which has covered its employees since the 1930s. Johnny however, lost coverage through his father's employer when he finished trade school. He has been uninsured since, and it hasn't been a problem thus far. On the surface, Johnny appears to be the one in trouble. Looking deeper, a more severe crisis is about to unfold.

Only a handful of states allow insurance companies to band ages when determing risk. Johnny doesn't live in one. In his state, rather than being lumped in with other young healthy adults, he is lumped in with every 75 year old diabetic. In fact, it is illegal for companies to offer certain variations in treatment options or premiums. What they do of course is find an average where it is most profitable to sell insurance, deny people who are too sick, and sell insurance to young healthy people at a rate much higher than their personal risk justifies. In his state, Johnny would have to pay $150/month even for catastrophic insurance. He has a friend in a state that allows banding who pays only $70/month. He sees his offer as a ripoff, and he is right. He thinks about it and realizes that his odds of getting sick are very low, and insurance is more than 6% of his gross income. Besides, if he gets really sick, no one will let him die. It scares him, but he makes a choice that seems cunningly rational. He goes without. Atleast he doesn't live in a state that requires insurance to offer everyone treatments ranging from psychotherapy sessions to in vitro fertilization. Those things really run up the cost to the risk pool, and his premiums would have been even worse.

Johnny's father started working at Widgets Inc. at the age of 18. He was never a particularly bright person, but he was reasonably hard working. He is now 52, and he has been credited with 34 years of service. He has a pension that he will be able to access in old age and a company insurance guarantee that promises him benefits until death. He has considered opting for early retirement next year, which would lower his total monthly pension benefit, but would let him retire five years early.

Here's the problem. Widgets Inc. never really produced a cheap product. In fact, the product quality has probably declined since the companies inception, though there has been a recovery to a degree. The problem is that a new company formed in 1976, called Things Corp., has started producing the exact same product for 70% of the price. How? Simple, they had a better business model, a more efficient production line, and they don't have a load of pension obligations weighing them down. In effect, they are a better business. Once Things Corp. entered the market, Widgets Inc. started losing market share. They have only turned a profit in one of the last 8 years. The shareholders are getting restless. The company has considered filing for bankruptcy. Of course, one of the first things that they will be requesting in bankruptcy court is the right to reorganize (aka eliminate many of the benefits from) the pension fund. This really isn't because Widgets Inc. is evil or has some sort of conspiracyl; they simply cannot compete or fund future pension obligations with the current business model.

For Johnny's father however, it could be devastating. Bankruptcy might mean layoffs. Layoffs might mean he would become unemployed. Not only would this leave him with no job or pension (assuming restrucuring), but it also leaves him with no health insurance. If he loses his health insurance, the results could be disasterous for his wife and daughter.

Widgets Inc. never had any intention of offering health insurance when it formed in 1926. However, New Deal caps on wages forced the company to find another method of recruiting skilled labor. Like many companies, they started offering health insurance as an incentive. Before big companies like Widgets Inc. started offering health insurance, the entire insurance market was really a small niche industry, and almost no one actually carried insurance. Widgets Inc.'s attempt to get around government regulation in the 30s left them susceptable to future competition. The full impact of this is only being felt now

Health Insurance Inc. is a business that sells health insurance. Like all businesses, they want to make money. With a market of over 40 million uninsured in the US, the company president is seeking a way to tap into this untapped market in order to increase its profit. They now that many of these people are actually working, and they are seeking a low cost solution to offer basic services to these people at a price that they will buy at. People like Johnny are the perfect client. He is young, healthy, and low risk. The company keeps excellent records and determines at what price they can offer health insurance to people just like Johnny at an acceptable profit. They know that they can't try to make too much money, or Johnny won't buy it. For the rare accident or illness that does occur in this age range, they will offer coverage. For those that don't get sick, they will have been paying premiums that they can afford.

The president figures that he can do this by limiting the number of services that his company offers. He'll cover many of the common ailments that plague people in Johnny's age group, but he'll offer different plans at different prices that cover different things. As he attempts to move into Johnny's state, he is in for a rude awakening. He tries to offer insurance aimed at Johnny's age group. He finds out that this is illegal. He tries to eliminate services that while often desired, are not life or death, it is also illegal. He figures that he could offer insurance that covered the standard of care for 10 years ago, which still is the standard of care in many countries. He finds this either illegal or finds no hospitals willing to comply, as they will be liable for malpractice by not honoring the current standard of care. By the time that he complies with all of the regulations, he is shocked that he cannot beat the current market best price of $150/month for catastrophic. He is disappointed, but it makes no sense for his company to enter the market. Besides, it's nearly impossible to get passed the state regulatory board. Ironically, he offers insurance in the next state over, where the still significant, but less stringent regulations, allow him to offer the insurance to Johnny at $100/month. He figures that he might still turn a profit at this price, but he finds that it is illegal again. Johnny can't buy his health insurance from the next state.

The basic point is that health insurance for Johnny really is over-priced. I say this not because it is expensive, but because the only things stopping it from being cheaper are all sorts of rules and regulations that follow special interests, the well connected, the well intentioned, and some of the insurance companies within the state who themselves fear the competition. This isn't the true market price, and that is why it is overpriced. These regulations that help certain individuals have seriously hurt Johnny. Johnny is now a victim of regulations that protect others over him.

The rest of his family has also been victimized. The illogical process of offering health insurance through a job has made his father vulnerable to any market downturn that impacts a single company. His position is precarious. There is no reason why he should have purchased health insurance through a company. It is a fluke of history that failed to die based on a now defunked market control scheme instituted over 70 years ago. There is no reason that health insurance should be as all encomapassing as it is, leaving those that don't have it on the outside for basic treatment. There is no reason that group purchasing of insurance should go through jobs. It could operate through any sort of association, probably with a lot less variability and unpredictability than it does through a job. Regardless. the victim in this case is exactly the person that most of the rules have been instituted to protect.

Tuesday, June 19, 2007

Charity vs. Entitlement

Alright, I'm going to take a quick breaks from the pure economic ideaology of the last couple of posts to clear up something about my personal ideaology. This is partially because I keep on having to explain this to people who I am debating and partially because those of you who are particularly disenchanted with my view on the world won't have to be bothered trying to determine what it is that I think.

I believe that charity is good. It is one of the things that makes us human, and care for your fellow man is both good for others and personally rewarding. I am personally quite charitable, and I have at times sacrificed time or money that I didn't really have in order to provide for others. The important note here is that I made sacrifices by choice. No one was hurt. No one did anything that they didn't want to do. There was good all around. Others received what they wanted or needed. I gave and found it personally satisfying.

I believe that entitlements are bad. Every entitlement has a victim, which makes them fundamentally different than charity. Entitlements are promised by the government, and they are promises of a product that the government neither has or produces. The only way for the government to get it is to take it from someone else. This can be in the form of money, time, or liability. Regardless of how it is done, the end result is one person being victimized in order to provide for someone else.

We'll take this one step farther. By and large, there are two people who are often exempted from much of the entitlement liability. These are the groups receiving the entitlements, meaning that the more you are given, the less that is expected of you, and the individuals who are powerful enough in government to avoid it. This largely leaves Middle America carrying the load, with the most productive members of society being most heavily punished in order to provide for the least productive members of society.

Charity is personally rewarding, while entitlements create a sense of loss. Everyone does their best to exempt themselves from as much of their tax burden as possible. In stark contrast, people overwhelmingly go out of their way to give by choice. Post-9/11, most accountants didn't go out of business, but the private giving was so profound, that it became difficult to find immediate uses for the money.

Individuals receiving charity have an incentive to better themselves. Quite simply, relying on charity is relying on good will. It is not usually permanent, and if you manage to make it so, a certain degree of appreciation towards the benefactor is usually observed. Contrast this to entitlements which have a tendency to create a dependent class that far from being appreciative, is usually militant in its desire to be given more. Also, charity respects the rights of the giver of the right of the receiver, while entitlements respect a right to property of the receiver that supercedes the right of the individual who actually owns the property.

That's where I stand. I have been accused of being impractical. I am not. I have been accused of being zealous. If the above is zealous, then I suppose I am. I have been accused of being uncompassionate. Anyone who knows me in real life would probably consider this absurd. I have a philosophy that finds giving to be very good. That same philosophy leads be to believe that giving is a choice that I make. Money taken from me isn't giving on my part, and it makes no one better in the end.

Friday, June 15, 2007

How to Make Good Healthcare Cheaper: STOP MAKING IT FREE

Okay, so this post kind of sounds like an oxymoron. However, the above statement is true. We just need to define who it is getting cheaper for and who is currently getting it for free.

In the current healthcare system, there are 2 ways to get all of your healthcare for free and one more way that makes it kind of pseudo-free. The two ways are the following:

1: Qualify for and sign up for Medicaid
2: Go to an emergency department, shirk your bill, and don't keep enough assets to be worth suing.

What should be painfully obvious about the first two, is that the less productive you are, the more likely it is that you will qualify for free healthcare. The pseudo-free healthcare comes in the form of Medicare. I call it pseudo-free, because most of its recipients have been paying for it for their entire lives. However, it pays regardless of the level of investment on the part of its benificiary, and the citizens who utilize it generally stop paying for it around the time that they qualify to use it.

Generally, Medicaid doesn't pay well enough to cover the cost of seeing the patient. Obviously, someone is losing money when someone shirks the ER bill as well. What does all of this mean? For one, it means that healthcare providers generally lose money by seeing the people who currently receive free healthcare. Where does such a provider make up these losses? With paying patients of course.

I'm going to stick the obvious disclaimer on this post that seems to elude some people. Doctors cannot make money appear. If they are not profitable, they cannot stay in business. Regardless of how ludicrous it is to think that doctors should work for free all the time in the first place, it is even more ridiculous to think that even the most self-effacing physician could continue to treat people without breaking even. As they say in business, "no margin, no mission."

Now, let's take a look at an inner city ER, with a 20-30% collections rate. Consider this, the ER doesn't really care if it collects 20-30% of the bill from every person or 100% of the bill from 20-30% of the people. To them, the result is the same. Consider then, that in that same ER, each individual bill could be reduced to 20-30% of the individual bill if 100% of the people paid, without changing the overall cost structure. This same ideaology could be extrapolated, albeit a bit more complicatedly, to apply to every Primary care doctors office in the country, where they are forced to bill well paying patients against these losses from Medicaid or non-payers in order to stay solvent. These costs are then often pushed up through the insurance companies and come out on the other side as higher premiums.

I'm not advocating eliminating charity care, but it seems pretty obvious that the entrenched system that we have right now is what drives healthcare costs to the outrageous heights that they have achieved. When you have problems paying your own premiums, question whether your anger is well founded when aimed at your doctor or even the insurance executive. Perhaps we should all get a little bit more angry at the people who are abusing the nations ERs and the system that lets the least productive members of society leach the life out of its marginal income members. Many of these people are often forced to lose the very thing that they are being forced to pay for.

Friday, June 08, 2007

How Good Doctors Can Hurt Our Collective Health

I promise that I'll eventually get back to my posts on economics and medical school, but my thoughts have been elsewhere lately.


Even though we've had some bad press in the last couple of decades, those of us in the "caring professions" still enjoy a degree of respect that is often not afforded to those who pursue other careers. Doctors still have more knowledge and understanding about the human body than most people could ever dream of having, and an ever shrinking (but still large majority) of patients still understand that. In fact, physicians opinions have always been considered in many facets of social policy, even those in which a profound understanding of the human body isn't remotely helpful.

Doctors may collectively be the most ignorant group of professionals in the history of existance when it comes to money. On a personal level, the number of physicians who manage to pull in incomes that rival executives at large corporations and still end up broke is astonishing. Almost all of us who spend any time around doctors know of someone who managed to big house, exotic vacation, and expensive car his six figure income into bankruptcy. Much like the other group of people who consistently show financial incompetency (those in congress), physicians have historically been involved in numerous pushes for change in social policy. There is often a significant and ignored financial component to these things as well.


So you might ask, "how does financial ignorance hurt our collective health?" It's a fair question,and one which requires some explanation. I am the first to admit that most doctors who promote changes in social policy have done so with the best of intentions. This makes the damage all the more sinister, because those involved don't understand that it is being done.

Consistently, the number one indicator associated with health is wealth. Individuals with greater access to financial resources live longer. This has been demonstrated in so many studies, that I don't even know where to begin. Yes, some indicators in the form of race and gender play a role, but socioeconomic status is still consistently associated with better outcomes within these subgroups. Interestingly, this tends to hold true regardless of differences in insurance, neighborhood, or healthcare provider. In general, this may just be the benefit of consistently having good food, shelter, and the ability to go about one's business without constantly fearing bankruptcy. It may be because people with more money also tend to have a better education, which may translate into better decision making.

Regardless of the reason, it is hard to argue with those facts.


So we've made two very important points:

#1: Health is strongly correlated with wealth
#2: Doctors know painfully little about wealth.

This brings us to another important point:

Doctors who fail to understand wealth may infact hurt health.

Ever since the end of the second world war, people got it into their heads that physicians should be politicians. Far from the sacred doctor-patient relationship of a one-on-one partnership espoused in the Hippocratic Oath (yeah, yeah, along with all of the garbage in the oath), we've graduated to the Code of Geneva, in which physicians who don't know anything about politics, money, or social policy are responsible for and expected to be involved in expensive social policy. In fact, it would be a bit unwise to even apply to medical school if you didn't think you could pretend that your actual job of being a doctor should come second to the "demands of society" or some other philosophy in which the physician becomes all knowing guru who can seemlessly weigh the cost and benefit of a treatment for his patient against the needs of society and bring the whole world into Nirvana.

The problem is that doctors, along with everyone else, don't actually know how to do this. On a large scale, economists and the "great leaders of state" have consistently failed to create effective controlled economies. There is really no reason to believe that physicians, who are among the most financially ignorant members of society, would do a better job of perfectly balancing everyone's needs than any of these entities.


After it's initial opposition to the creation of Medicare and Medicaid, the AMA and the government organizations have become strange bedfellows, with many doctors becoming reliant on the entities for income. This kind of relationship exists in an even more convoluted fashion when it comes to physicians, local hospitals, and government funding for those hospitals. Regardless of the arrangement, it is clear that many physicians are deriving a good proportion of their income directly or indirectly through tax dollars. Thus, the treatment of a patient by a physician now often correlates to a direct financial loss on the part of an unrelated taxpayer. A loss that the majority of physicians providing the treatment fail to understand.

A simple example here in Miami goes as follows:

Many individuals are losing their homes in no small part because of rising local taxes, a not insignificant portion of which go to local hospital systems. Thus, the local healthcare system is actually hurting many of the individuals in the community. Physicians who are thorough with the treatment of local patients may actually drive up the number of individuals who are losing their personal wealth. This is even more profound when the government pays for something like an organ transplant. In this example, the $250,000+ correlates to the total taxes paid by ~25 families for the entire year.


As the ever more predictable reality of a universal healthcare system comes to fruition, I can only see the above scenario multiplied over and over again. Physician advocates for universal access and other government intrusions may actually hurt the economic viability of other sectors of the economy. In doing so, it will diminish overall wealth, which is consistently one of the best indicators of health. Thus, good doctors will actually be bad for health. Remember that a good doctor isn't necessarily a good politician.

I'll probably come up with more on this later.

It's Finally Over (Atleast for Now)

It's official. I am done with my boards. Thanks for your patience everyone, and I'll try to get everything back on line here soon.