"One cannot describe the status quo ante for the U.S. health care system -- the system that existed before Obamacare -- as a free market in health care. Health care and health insurance are among the most highly regulated industries, and in the case of health insurance the regulatory regime is a fragmented patchwork of conflicting state regulations."
Roderick pauses, and sips from a glass of water on the lectern.
"And so, one cannot characterize problems in the old system as market failure. It would be more apt to describe it as regulatory failure, or government failure."
Members of the Old Ivy Political Economy Club applaud Roderick's paper enthusiastically. Roderick beams, and waves to the crowd as he leaves the lectern. Lily Chang winks seductively as she passes him.
"Thank you, Roderick, For our next presentation, Penny Whiffenpoof will deliver her empirical study of marginal pricing in the Lake City S&M market. Penny?"
Penny strides onstage dressed in a black leather jacket, thong and high heels. She carries a whip.
Backstage, Roderick calls Mr, Smiley.
"Hello?"
"Hi, Mr. Smiley, it's Roderick."
"Hello, Roderick." Mr. Smiley is always pleasantly surprised when Roderick calls, because he does not look at the little thing on the phone that says who is calling. Smileys think it's impolite to check to see who is calling.
"I just delivered part four of my paper on health insurance."
"That's nice."
"Also, Christmas is coming soon."
"Yes, I suppose so," says Mr. Smiley matter-of-factly. Mr. Smiley doesn't seem too excited about Christmas because in Smileyville, every day is either Christmas Day, Christmas Just Happened or Soon It Will Be Christmas.
"What would you like for Christmas?"
"Oh, I don't know..." Mr. Smiley ponders the range of possible gifts. Not that there's much to ponder, since Smileys invariably give one another pickles, cheese or chocolate, or birdhouse kits that fathers and sons can build together. Oddly shaped and brightly colored bird houses.
"Heh!" says Roderick. "I'll bet you would like a nice slab of Emmenthal cheese."
Mr. Smiley thinks about a nice slab of Emmenthal. The thought makes him smile.
Wednesday, December 11, 2013
Sunday, December 8, 2013
Smileys Do Not Squeeze...
Members of the Old Ivy Political Economy Club stop babbling to one another as Lily Chang steps to the podium. Per usual, Lily is impressively hot in her daringly low-cut and tightly-fitting bright pink cocktail dress. This morning, Lily added a chapter to her book in progress, How to Succeed Through Hotness.
"Just a few announcements before we start." Lily ruffles through her notes, pausing to display some cleavage. "The Annual Christmas Party will be here, in this room, next Saturday the fourteenth. Jews are welcome to attend if you refrain from whining about Christmas music or mentioning pogroms and the Holocaust. We already celebrated Hanukkah last week, so just shut up about it already." She pauses, and glares at a fourth-year student in the front row. "This means you, Joshua."
"Okay, okay!" says Joshua. "I was only kidding about the pogroms."
Lily continues. "We will celebrate Ramadan whenever that is. Kwanzaa is on the holiday break, so you can celebrate that at home. If anyone is offended or feels left out, you are welcome to organize your own religiously themed holiday party." A hand shoots up in the back of the room. "Yes, Albert?"
"What about atheists?"
"You are welcome to organize an atheist holiday party, although so far as I know there are no atheist holidays."
At Old Ivy, there is no competition or conflict over allocation of student activity fees, because there are no student activity fees. Each club charges whatever it likes for membership, and students who want to organize a party may do so and fund it however they like, including admission fees.
"Moving along...," Lily shuffles her notes again and shows a little more cleavage. "...there will be another "overflow" presentation of papers this coming Wednesday at noon. Roderick will deliver part four of his presentation, and Willard Fong will present his paper QE2: WTF? There will be a free lunch."
There is a general hubbub in the room as members of the club look at one another in confusion and consternation.
"Okay, that was my little joke. There's no such thing as a free lunch, it will be ten bucks."
Audible sighs of relief, and scattered applause.
"Now I'd like to introduce Roderick, who will deliver part three of his long thing about health insurance."
"Thank you, Lily," says Roderick, stepping to the lectern. As he passes Lily, she whispers something in his ear that he doesn't quite catch, but it seems to be an invitation and includes a word that sounds like "duck".
Roderick launches into his presentation. "You may recall from the first session that we discussed a three-part categorization of health and medical services: emergency care, for which it is difficult to speak of a "market" per se; services that are medically necessary but not urgent; and discretionary services. Today, I will outline policy solutions for urgent care and discretionary care, and on Wednesday I'll outline policy solutions for everything else.
"We begin with urgent care. It may surprise you to learn that this category accounts for just two percent of all health care spending. Under existing law, emergency rooms must treat all patients regardless of ability to pay, and most states offer subsidies to hospitals to fund free care. The quality of emergency care in the United States is excellent.
"It seems to me that emergency care is comparable to police and fire services: there is a reasonable case to be made that these services are a public good and should be made available to anyone regardless of ability to pay. Like police and fire, emergency care should be funded at the state and local level, since states and municipalities are best able to monitor quality and compliance, and to determine appropriate levels of service. There is no compelling reason for a Federal role in funding emergency health services, except to provide research grants, support emergency medical training and education and to assist local jurisdictions with capital spending.
"Since the Federal government already does these things, the appropriate course of action is to do nothing."
There is a murmur of approval in the room.
"At the other extreme, discretionary care, the policy options are also easy. There is no reason why anyone should be forced to subsidize breast implants, sex change operations, laser vision treatment and so forth. Discretionary care is also subject to moral hazard, and not an insurable risk. Those who want these services should pay for them out of their own pockets.
"Now, some might point out that it's not fair that wealthy people will be able to afford breast implants and psychotherapy, but poor people will not. They will seek to form an alliance with those who provide these services -- plastic surgeons, psychotherapists, acupuncturists, chiropractors, massage therapists, "past lives" counselors and the like -- that these services are all medically necessary. To which I have two responses: first, there are many things in life that are not fair; wealthy people have nicer homes and cars than poor people, and send their children to private schools. It's not possible for everyone to have the same share of the wealth, and in most areas of policy we don't even try.
"My second response is simply that risks are either insurable or they are not insurable. Discretionary medical spending is not insurable due to the moral hazard; this is true whether the insurance is underwritten by the government, by charities or a for-profit insurance company. European-style government-run health insurance programs do not cover discretionary health care expenses for the simple reason that they can't afford to do so. In this country, Medicare does not cover discretionary treatments, for the same reason.
"So, unless you are a Communist I think you will agree that discretionary medical spending is best left to the free market, and the Federal government should do nothing.
There being no Communists among the membership of the Old Ivy Political Club, the audience responds to this line with heartfelt applause.
Lily steps to the lectern and whispers to Roderick: "Nice presentation. Would you like to squeeze my buttocks?"
Roderick does so, and departs.
Later, in the Dining Hall, Roderick sits with Molly and Megan.
"I delivered the third part of my presentation on health insurance today," he announces, "and then I squeezed Lily Chang's buttocks."
"Really?" says Molly, raising her eyebrows. "How do her buttocks compare to mine?"
Roderick thinks about his response, recognizing this to be a trick question. Truth be told, Roderick has never actually squeezed Molly's buttocks, though he has seen them and snuggled against them many times.
"Your buttocks are the best," he murmurs, an answer that seems to satisfy Molly.
Megan chimes in. "I have lovely buttocks."
Roderick can't disagree with Megan on this point. He has observed Megan's buttocks at close quarters many times, and her buttocks are right up there with Molly's, maybe a little nicer, but he would never mention that last part in front of Molly.
Later, Roderick calls Mr. Smiley.
"Hello?"
"Hi, Mr. Smiley, it's Roderick."
"Hi, Roderick."
"Whatcha doing?"
"Oh, you know, the usual thing for a Sunday evening." Roderick understands this to be Smiley code for "nothing".
"I delivered the third part of my paper on health insurance today."
"That's nice."
"And at dinner we discussed buttocks, and the squeezing thereof."
Mr. Smiley isn't quite sure how to respond to this. Smileys, as a rule, do not squeeze one another's buttocks, nor do they consider it polite to discuss any body part "down there". Mr. Smiley understands, however, that Roderick can't be expected to comprehend Smiley ways. He thinks about happy cows, and smiles.
"That's nice."
"Just a few announcements before we start." Lily ruffles through her notes, pausing to display some cleavage. "The Annual Christmas Party will be here, in this room, next Saturday the fourteenth. Jews are welcome to attend if you refrain from whining about Christmas music or mentioning pogroms and the Holocaust. We already celebrated Hanukkah last week, so just shut up about it already." She pauses, and glares at a fourth-year student in the front row. "This means you, Joshua."
"Okay, okay!" says Joshua. "I was only kidding about the pogroms."
Lily continues. "We will celebrate Ramadan whenever that is. Kwanzaa is on the holiday break, so you can celebrate that at home. If anyone is offended or feels left out, you are welcome to organize your own religiously themed holiday party." A hand shoots up in the back of the room. "Yes, Albert?"
"What about atheists?"
"You are welcome to organize an atheist holiday party, although so far as I know there are no atheist holidays."
At Old Ivy, there is no competition or conflict over allocation of student activity fees, because there are no student activity fees. Each club charges whatever it likes for membership, and students who want to organize a party may do so and fund it however they like, including admission fees.
"Moving along...," Lily shuffles her notes again and shows a little more cleavage. "...there will be another "overflow" presentation of papers this coming Wednesday at noon. Roderick will deliver part four of his presentation, and Willard Fong will present his paper QE2: WTF? There will be a free lunch."
There is a general hubbub in the room as members of the club look at one another in confusion and consternation.
"Okay, that was my little joke. There's no such thing as a free lunch, it will be ten bucks."
Audible sighs of relief, and scattered applause.
"Now I'd like to introduce Roderick, who will deliver part three of his long thing about health insurance."
"Thank you, Lily," says Roderick, stepping to the lectern. As he passes Lily, she whispers something in his ear that he doesn't quite catch, but it seems to be an invitation and includes a word that sounds like "duck".
Roderick launches into his presentation. "You may recall from the first session that we discussed a three-part categorization of health and medical services: emergency care, for which it is difficult to speak of a "market" per se; services that are medically necessary but not urgent; and discretionary services. Today, I will outline policy solutions for urgent care and discretionary care, and on Wednesday I'll outline policy solutions for everything else.
"We begin with urgent care. It may surprise you to learn that this category accounts for just two percent of all health care spending. Under existing law, emergency rooms must treat all patients regardless of ability to pay, and most states offer subsidies to hospitals to fund free care. The quality of emergency care in the United States is excellent.
"It seems to me that emergency care is comparable to police and fire services: there is a reasonable case to be made that these services are a public good and should be made available to anyone regardless of ability to pay. Like police and fire, emergency care should be funded at the state and local level, since states and municipalities are best able to monitor quality and compliance, and to determine appropriate levels of service. There is no compelling reason for a Federal role in funding emergency health services, except to provide research grants, support emergency medical training and education and to assist local jurisdictions with capital spending.
"Since the Federal government already does these things, the appropriate course of action is to do nothing."
There is a murmur of approval in the room.
"At the other extreme, discretionary care, the policy options are also easy. There is no reason why anyone should be forced to subsidize breast implants, sex change operations, laser vision treatment and so forth. Discretionary care is also subject to moral hazard, and not an insurable risk. Those who want these services should pay for them out of their own pockets.
"Now, some might point out that it's not fair that wealthy people will be able to afford breast implants and psychotherapy, but poor people will not. They will seek to form an alliance with those who provide these services -- plastic surgeons, psychotherapists, acupuncturists, chiropractors, massage therapists, "past lives" counselors and the like -- that these services are all medically necessary. To which I have two responses: first, there are many things in life that are not fair; wealthy people have nicer homes and cars than poor people, and send their children to private schools. It's not possible for everyone to have the same share of the wealth, and in most areas of policy we don't even try.
"My second response is simply that risks are either insurable or they are not insurable. Discretionary medical spending is not insurable due to the moral hazard; this is true whether the insurance is underwritten by the government, by charities or a for-profit insurance company. European-style government-run health insurance programs do not cover discretionary health care expenses for the simple reason that they can't afford to do so. In this country, Medicare does not cover discretionary treatments, for the same reason.
"So, unless you are a Communist I think you will agree that discretionary medical spending is best left to the free market, and the Federal government should do nothing.
There being no Communists among the membership of the Old Ivy Political Club, the audience responds to this line with heartfelt applause.
Lily steps to the lectern and whispers to Roderick: "Nice presentation. Would you like to squeeze my buttocks?"
Roderick does so, and departs.
Later, in the Dining Hall, Roderick sits with Molly and Megan.
"I delivered the third part of my presentation on health insurance today," he announces, "and then I squeezed Lily Chang's buttocks."
"Really?" says Molly, raising her eyebrows. "How do her buttocks compare to mine?"
Roderick thinks about his response, recognizing this to be a trick question. Truth be told, Roderick has never actually squeezed Molly's buttocks, though he has seen them and snuggled against them many times.
"Your buttocks are the best," he murmurs, an answer that seems to satisfy Molly.
Megan chimes in. "I have lovely buttocks."
Roderick can't disagree with Megan on this point. He has observed Megan's buttocks at close quarters many times, and her buttocks are right up there with Molly's, maybe a little nicer, but he would never mention that last part in front of Molly.
Later, Roderick calls Mr. Smiley.
"Hello?"
"Hi, Mr. Smiley, it's Roderick."
"Hi, Roderick."
"Whatcha doing?"
"Oh, you know, the usual thing for a Sunday evening." Roderick understands this to be Smiley code for "nothing".
"I delivered the third part of my paper on health insurance today."
"That's nice."
"And at dinner we discussed buttocks, and the squeezing thereof."
Mr. Smiley isn't quite sure how to respond to this. Smileys, as a rule, do not squeeze one another's buttocks, nor do they consider it polite to discuss any body part "down there". Mr. Smiley understands, however, that Roderick can't be expected to comprehend Smiley ways. He thinks about happy cows, and smiles.
"That's nice."
Wednesday, December 4, 2013
Health Insurance in Smileyville
"Ahem." Roderick checks the mike and waits for silence. The Old Ivy Political Economy Club meets tonight to hear part two of Roderick's paper on health insurance.
He continues. "In the first part of this paper, I discussed the heterogeneous nature of health care services, and drew a distinction between urgent care, care that is medically necessary but not urgent, and care that is truly discretionary. I pointed out that at the two extremes, one can argue that there is a robust market for discretionary services (such as laser vision surgery), but that it is difficult to speak of a market at all for urgent care.
"Turning attention to health insurance services (as distinguished from health care services), we should draw a distinction between those risks that are insurable and those that are not. Insurable risks have specific properties: they are (1) well-defined and specific; (2) measurable; (3) predictable in a large population, and (4) distributed at random in the population. This last point covers the concepts of adverse selection and moral hazard, which I will illustrate with examples.
"It is possible, for example, to write an insurance policy that indemnifies a homeowner from losses in a fire because the risk is well-defined, measurable and the insurance industry has lots of data about the incidence of fires. Such policies necessarily exclude coverage in the case of arson by the homeowner, just as life insurance policies generally exclude coverage in the case of suicide. Arson and suicide are examples of moral hazard, where the insurance beneficiary can influence the probability of a claim.
"Insurance pools that do not prevent moral hazard will be subject to adverse selection, or the tendency to attract high-risk individuals. In other words, a fire insurance pool that does not exclude arson will attract a disproportionate number of potential arsonists and soon run out of money. This is true regardless of who underwrites the policy; the principles of insurance apply to government-issued insurance and private insurance alike.
"Health insurance is particularly susceptible to moral hazard. As previously noted, there is an entire class of health services that is discretionary, and entirely within the control of the beneficiary. There are other kinds of moral hazard in health insurance that are more subtle. For example, doctors are more likely to prescribe expensive medical treatments when they know that the patient has a generous health care insurance plan. Studies have shown that there are patterns in the distribution of medical diagnoses that are best explained as profit-maximizing by health service providers.
"In the political debate about health insurance, much attention is given to the question of insurance for those with pre-existing conditions. This is considered the acid test of any credible policy proposal, and it is the justification for the individual mandate. Aside from the fact that the actual incidence of this problem is greatly exaggerated, the most important thing to consider is that while this is a political and social question, it is not an insurance question at all. A person who is already diagnosed with Huntingdon's Disease, for example, does not face the risk of high medical expenses; they face the certainty of high medical expenses. It is not possible to write an insurance policy that will cover the cost of treatment for Huntingdon's Disease among the population of those already diagnosed with the disease, for the simple reason that such an insurance pool would rapidly become insolvent unless premiums are set so high to make it too expensive for anyone to purchase.
"In other words, it is not possible for anyone -- for-profit companies, charitable institutions or the government -- to insure against the cost of health care for previously diagnosed conditions. The only possible course of action is to subsidize the cost of these policies."
Roderick notices that Lily, who is exceptionally hot tonight in her low-cut and tightly fitting black cocktail dress, is motioning to him and pointing to her watch.
"Looks like I'm out of time here, so I'll deliver part three in another session." Roderick takes his papers and steps away from the podium, to polite applause.
Lily steps to the podium. "Thank you, Roderick, I'm sure we're all looking forward to that. Next on the agenda tonight, I would like to welcome fourth-year student Rodney Tinklestein, whose paper is titled "Bitcoin: The New Reserve Currency."
Rodney, who is something of a rock star among fourth years, steps to the podium amidst thunderous applause.
Backstage, Roderick calls Mr. Smiley. "Hello, Mr. Smiley, it's Roderick."
"Hello, Roderick."
"I just delivered the second part of my paper about health insurance."
"That's nice." Mr. Smiley doesn't really understand health insurance. In Smileyville, you go to the doctor when you are sick, and somebody else pays.
He continues. "In the first part of this paper, I discussed the heterogeneous nature of health care services, and drew a distinction between urgent care, care that is medically necessary but not urgent, and care that is truly discretionary. I pointed out that at the two extremes, one can argue that there is a robust market for discretionary services (such as laser vision surgery), but that it is difficult to speak of a market at all for urgent care.
"Turning attention to health insurance services (as distinguished from health care services), we should draw a distinction between those risks that are insurable and those that are not. Insurable risks have specific properties: they are (1) well-defined and specific; (2) measurable; (3) predictable in a large population, and (4) distributed at random in the population. This last point covers the concepts of adverse selection and moral hazard, which I will illustrate with examples.
"It is possible, for example, to write an insurance policy that indemnifies a homeowner from losses in a fire because the risk is well-defined, measurable and the insurance industry has lots of data about the incidence of fires. Such policies necessarily exclude coverage in the case of arson by the homeowner, just as life insurance policies generally exclude coverage in the case of suicide. Arson and suicide are examples of moral hazard, where the insurance beneficiary can influence the probability of a claim.
"Insurance pools that do not prevent moral hazard will be subject to adverse selection, or the tendency to attract high-risk individuals. In other words, a fire insurance pool that does not exclude arson will attract a disproportionate number of potential arsonists and soon run out of money. This is true regardless of who underwrites the policy; the principles of insurance apply to government-issued insurance and private insurance alike.
"Health insurance is particularly susceptible to moral hazard. As previously noted, there is an entire class of health services that is discretionary, and entirely within the control of the beneficiary. There are other kinds of moral hazard in health insurance that are more subtle. For example, doctors are more likely to prescribe expensive medical treatments when they know that the patient has a generous health care insurance plan. Studies have shown that there are patterns in the distribution of medical diagnoses that are best explained as profit-maximizing by health service providers.
"In the political debate about health insurance, much attention is given to the question of insurance for those with pre-existing conditions. This is considered the acid test of any credible policy proposal, and it is the justification for the individual mandate. Aside from the fact that the actual incidence of this problem is greatly exaggerated, the most important thing to consider is that while this is a political and social question, it is not an insurance question at all. A person who is already diagnosed with Huntingdon's Disease, for example, does not face the risk of high medical expenses; they face the certainty of high medical expenses. It is not possible to write an insurance policy that will cover the cost of treatment for Huntingdon's Disease among the population of those already diagnosed with the disease, for the simple reason that such an insurance pool would rapidly become insolvent unless premiums are set so high to make it too expensive for anyone to purchase.
"In other words, it is not possible for anyone -- for-profit companies, charitable institutions or the government -- to insure against the cost of health care for previously diagnosed conditions. The only possible course of action is to subsidize the cost of these policies."
Roderick notices that Lily, who is exceptionally hot tonight in her low-cut and tightly fitting black cocktail dress, is motioning to him and pointing to her watch.
"Looks like I'm out of time here, so I'll deliver part three in another session." Roderick takes his papers and steps away from the podium, to polite applause.
Lily steps to the podium. "Thank you, Roderick, I'm sure we're all looking forward to that. Next on the agenda tonight, I would like to welcome fourth-year student Rodney Tinklestein, whose paper is titled "Bitcoin: The New Reserve Currency."
Rodney, who is something of a rock star among fourth years, steps to the podium amidst thunderous applause.
Backstage, Roderick calls Mr. Smiley. "Hello, Mr. Smiley, it's Roderick."
"Hello, Roderick."
"I just delivered the second part of my paper about health insurance."
"That's nice." Mr. Smiley doesn't really understand health insurance. In Smileyville, you go to the doctor when you are sick, and somebody else pays.
Sunday, December 1, 2013
Four-Part Fugue
Dorabella has to travel to Lake City today, so there is no Story Hour today at Dorabella's Bookstore. Instead, Dorabella posts this picture of a bunny:
Meanwhile, Mr. Smiley calls Mr. Smith to say hello.
"Sorry, Mr. Smiley, gotta run, on my way to Pacific City, will call later this week, OK?"
"OK," says Mr. Smiley, a little disappointed.
Roderick's phone rings. It's Lily Chang.
"Hello?"
"Roderick, it's Lily."
"Hi."
"The Political Economy meeting is postponed to the middle of the week, do you mind?"
"Um, no, that's fine."
"So why don't you come over now."
"Um..."
"I'm completely naked."
"Aren't you chilly?"
"No, the thought of you has me in flames."
"I have to do some laundry this afternoon, maybe some other time?"
"OK," says Lily, a little disappointed.
"Who was that?" says Molly, who is sprawled on the floor with her Counterpoint book, completely naked.
"It was Lily. She's completely naked and wants me to come over."
"That's nice. Can you explain what retrograde inversion means?"
"That's where the you play the melody backwards and upside down."
"Oh."
Silence.
Molly stretches. "Why did you tell her you have to do laundry?"
"It's just a ruse. She just wants to have sex with me."
"Really?" Molly squints. "Yes, I suppose that's possible."
Roderick calls Mr. Smith to say hello, but the call goes straight into voicemail. "Hi, Dad, thought I'd catch you before you leave, but I guess you've left already. Have a nice trip to Pacific City."
As soon as Roderick hangs up, his phone rings. It's Mr. Smiley. Roderick chats with Mr. Smiley while Molly writes a four-part fugue, making use of the retrograde inversion.
"Sorry, Mr. Smiley, gotta run, on my way to Pacific City, will call later this week, OK?"
"OK," says Mr. Smiley, a little disappointed.
Roderick's phone rings. It's Lily Chang.
"Hello?"
"Roderick, it's Lily."
"Hi."
"The Political Economy meeting is postponed to the middle of the week, do you mind?"
"Um, no, that's fine."
"So why don't you come over now."
"Um..."
"I'm completely naked."
"Aren't you chilly?"
"No, the thought of you has me in flames."
"I have to do some laundry this afternoon, maybe some other time?"
"OK," says Lily, a little disappointed.
"Who was that?" says Molly, who is sprawled on the floor with her Counterpoint book, completely naked.
"It was Lily. She's completely naked and wants me to come over."
"That's nice. Can you explain what retrograde inversion means?"
"That's where the you play the melody backwards and upside down."
"Oh."
Silence.
Molly stretches. "Why did you tell her you have to do laundry?"
"It's just a ruse. She just wants to have sex with me."
"Really?" Molly squints. "Yes, I suppose that's possible."
Roderick calls Mr. Smith to say hello, but the call goes straight into voicemail. "Hi, Dad, thought I'd catch you before you leave, but I guess you've left already. Have a nice trip to Pacific City."
As soon as Roderick hangs up, his phone rings. It's Mr. Smiley. Roderick chats with Mr. Smiley while Molly writes a four-part fugue, making use of the retrograde inversion.
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