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

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

INSURANCE (non-health)

BUSINESS

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.”

Links

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.

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