Healthcare Economist

• California’s PPO report card.
• A tax increase by any other name: California taxpayer’s compulsory interest-free loan to the state.
• Confusion: Los Angeles marijuana dispensaries face a federal ban, California medical marijuana laws, and now possible city ordinances.
• 32% fee increase for the University of California system.
• California hospital prices increased 10.6% per year for private pay patients.

“The curious task of economics is to demonstrate to men how little they know about what they imagine they can design.”

• F. A. Hayek, The Fatal Conceit.

Economist Tsung-Mei Cheng has developed three Universal Laws of Health Care Systems.  These are:

1. No matter how good the health care in a particular country, people will complain about it.
2. No matter how much money is spent on health care, the doctors and hospitals will argue it is not enough.
3. The last reform always failed.

Source: The Healing of America, p. 26-27.

Life is full of questions:

1. What is the meaning of life?
2. Which company will become the next Google?
3. Is getting rid of medical underwriting the right thing to do?
4. Should you risk choosing a business name that can be confused with a cuss word?

This blog carnival answers some of these questions [3, 4] and more, on the Q&A edition of the always informative Cavalcade of Risk.

HEALTH

• Is getting rid of medical underwriting is the right thing to do? Louise of Colorado Health Insurance Insider says yes, but not if people can come and go as they please in the insurance system.
• What do double decker buses and heart attacks have in common? Henry Stern, LUTCF, CBC of InsureBlog, provides the answer.
• What is defensive medicine and why should we care? Amy B. Scher explains at Healthcare Hacks.
• Should all adults get an HIV test? David Williams of the Health Business Blog reports that the CDC and the VA both think so.
• Should you take a pharmaceutical that prevents breast cancer, but causes uterine cancer? The Blog that Ate Manhattan gives the story that the N.Y. Times missed.
• What is the difference between an HSA, HRA, and FSA? Good Financial Cents explains.
• What are the latest advances for treating PTSD? Julie Ferguson of the Worker’s Comp Insider reports on the latest research.
• Can telling your doctor private medical information hurt you down the road? Chris Brooks of TermLifePolicy.com evaluates whether your insurance company can take advantage of the information in your medical record.
• How does France’s system of copayments reduce moral hazard? The Healthcare Economist explains that its effectiveness may rely on the French being ‘hyperbolic’.

INSURANCE (non-health)

• Do you have an emergency plan when disaster strikes? Silicon Valley Blogger says you should, whether you live in Silicon Valley or in Manila.
• Should you get life insurance for your child? Tom at The Canadian Finance Blog says no.

BUSINESS

• Should your company care about employee wellness? Nancy Germond of AllBusiness.com says only if you care about your bottom line.
• Why do debt collection agencies buy debts? The How to Eliminate Debts website explains.
• How can your business deal with unknown unknowns? Leverage Point uses a cruise ship’s stabilizers as a metaphor for how your business should adapt to a changing business environment.
• How should a risk manager solve a probability problem? Mike Clayton of Shift Happens! says don’t even try.
• Why does the U.S. has such a large and tax-favored third sector? The Nonprofit Law Prof Blog claims that having a large non-profit sector made up of small businesses creates ideas and, if these ideas are successful, the government can elect to implement them nationally (e.g., City Year).
• Should you take a risk with a controversial business name? The Strategy Daddy reports that for the French Connection, using the abbreviation FCUK meant big profits.

America’s Health Ratings 2009 report ranks states according to overall healthiness.  Mississippi is the least healthy state and Vermont is the healthiest state.  The ranking methodology is available here.

The following states are the least healthy (starting with the least healthy):

1. Mississippi
2. Oklahoma
3. Alabama
4. Louisiana
5. South Carolina
6. Nevada
7. Tennessee
8. Georgia
9. West Virginia
10. Kentucky

The following states are the most healthy:

1. Vermont
2. Utah
3. Massachusetts
4. Hawaii
5. New Hampshire
6. Minnesota
7. Connecticut
8. Colorado
9. Maine
10. Rhode Island

According to Eisenberg (Medical Care 2002):

“Although physicians’ professional fees represent only one fifth of health care expenditures, they are responsible far decisions that govern the way that as much as 90% of each health care dollar is used.”

One way to change behavior is to give physician feedback. Here’s how to do it right:

“…the simple transmission of feedback to physicians may alter behavior, but when it is provided in an impersonal manner (such as form letters), it is often considered to be offensive and threatening. Feedback is most successful when offered face-to-face by a respected member of the medical professional community, when it is individualized for the physician, and when it represents current or at least recent data.”

• Campaign to reduce hospital-acquired infections.
• Malpractice litigation accounts for roughly 2-10% of medical expenditures.
• In Australia: Private hospitals persistently outperform public hospitals.
• New anti-discrimination law: Genetic Information Nondiscrimination Act.
• “The surgical research establishment has told patients what…best suits the surgeons’ economic interests, but not what those patients want and need to know.”

“Despite the spectacular failure of Fannie Mae and Freddie Mac, some economists insist that Fannie and Freddie need to be kept in place but somehow, just made safer. This optimistic advocacy—which assumes that Fannie and Freddie are like airplanes that need better landing gear—is in spite of the fact that between 1992 and 2008 Fannie and Freddie had their own regulator, the Office of Federal Housing Enterprises Oversight, that failed to stop the meltdown of Fannie and Freddie that has cost the U.S. taxpayer about $100 billion and counting.  Somehow, this time will be different.”

• Roberts, Russell (2009) “How Little We Know,” The Economists’ Voice: Vol. 6: Iss.11, Article 3.

T.R. Reid’s book The Healing of America looks at the best parts of health care systems around the world.  In France, one of the most interesting aspects of their health care system is the pricing mechanism.  Prices are regulated by the government and almost every doctor charges the same price for a given service.  While free marketers may abhor the centralized price setting, this system does have one advantage over the U.S. system: patients and doctors actually know the price of the medical services rendered.  This increases the transparency of how medical resources are allocated.  

However, the most interesting part of the French system is how they use copayments.  Patients must make a copay almost any time they receive medical services (the poorest citizens are exempt from this however).  The copayments work as follows:

“My visit, a ‘consultation for joint pain or stiffness,’ was priced at €26, or $33.80.  Patients were expected to pay this fee at the time of the visit, and the insurance would reimburse the patient about 70 percent of the fee, or $25.  In other words, a visit to an orthopedic specialist would cost about $10 out of pocket.”  

The question is, why doesn’t the French system just charge a $10 copayment instead of going through the hassle of a $34 copay and then having to reimburse the patient.  When ask about the reimbursement scheme, one French doctor said: 

“Does it seem impractical?…No, I think it is entirely reasonable.  Medical care is a valuable commodity.  Its value can be life or death.  When we ask the patient to pay that €21 in my office, we remind her that she is receiving a costly service. Even though she’s going to get the money back from insurance in a week, maybe two, it is important to convey that something of value is exchanged when they come to see us.  And maybe, if someone calls me to their home just out of loneliness, just to have a chat, maybe that person will spare me the trip because he doesn’t want to pay the €31.”

In essence, the doctor is saying that the copayment reduces moral hazard.  However, why the reimbursement?  Hyperbolic discounting may explain the payment structure.  Many individuals will be indifferent between $100 one year from now and $110 two years from now.  However, a person with hyperbolic preferences will prefer $100 today to $110 one year from now.  Or they may even prefer $100 today to $110 one week from now.  

Hyperbolic discounting implies that the discount rate in the immediate future is much higher than it would be over a similar time span in the more distant future.  Thus, someone who has hyperbolic preferences may be willing to pay €20 for physician house call, but would not be willing to pay €31 for the visit, even if €21 would be reimbursed one week later.  While the reimbursement system adds some administrative expenses to the French health care system, it does reduce moral hazard.

• “For most of human history, doctors have done more harm than good.”
• Swine flu news from around the world.
• What having the H1N1 flu feels like.
• Quality is a priority for only half of hospital boards.
• Device companies prohibit hospitals from disclosing prices.