March 2006

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Off to El Salvador!

March 25, 2006 in Uncategorized | Permalink

For the next week I will be headed to Ciudad Romero in the department of Usulatan in El Salvador to assist the local population through their NGO La Coordinadora del Bajo Lempa (Lempa is for the Lempa river which runs near the town). Directed by La Coordinadora, I will work on social justice projects such as planting, digging ditches for the laying of water lines and other tasks.

El Salvador is a poor, densely populated country with 6.7 million inhabitants. Life expectancy is 71.2 years and infant mortality is 25.1 deaths/1,000 live births (compared to 77.7 and 6.5 respectively in the United States). Fortunately, AIDS is not a problem in this country; only 0.7% of the population is infected. Although El Salvador is small and 36.1% of the population lives below the poverty line, it does have the third largest economy in Central America and a GDP per capita figure of $5,100. Over 16% of GDP, however, comes from remittances from Salvadorans living abroad. Politics in El Salvador is rarely stable, whether that be due to military dictatorships (such as Oscar Osorio and Fidel Sanchez Hernandez in the mid 1900s) or revolutionary Marxists groups (such as the Frente Farabundo Martí para la Liberación Nacional). In 1980-1992 civil war, rightist death squads created havoc for the local populations who would oppose their policies. Since the resolution of the war, however, El Salvador has been a peaceful place and the FMLN has even reconstituted itself as a legitimate political party.
For all those in cold weather cities, I’m sorry to say that Weather.com‘s ten day forecast has highs between 88 and 95 degrees every day.

My posts will resume on April 3rd. Hasta luego.

Source for Statistics on El Salvador: CIA World Factbook

The libertarian health care system

March 24, 2006 in Health Insurance, Public Policy | Permalink

The poor can not afford health care. Health care costs rise above inflation year after year. Serious errors committed by hospitals and physicians are reported by the news media on a daily basis. How can we fix these problems? Can we rely on Uncle Sam to do what’s needed?

Will Wilkinson doubts that government intervention can solve the health care industry’s problems. Wilkinson is an analyst for the libertarian Cato Institute and in his “Health Care Fantasia” post on his blog, he aims for radical reform. His arguments are provocative to say the least.

Wilkinson advocates abolishing the FDA and stripping the AMA of its monopoly to certify all doctors. While I think this is extreme, we should reduce the stringency of FDA regulation. The FDA adds to the cost of drug development and increases the time between innovation and provision to the sick. Regarding, the AMA one thing one must keep in mind is that this is not an altruistic organization and mostly acts in the best interests of doctors. Reducing the AMA’s power would lead to more cost efficient provision of medical services. For instance, more procedures should be done by nurses and physicians assistants who earn less than doctors.

As expected, Wilkinson is a big fan of HSAs. He advocates that the US create a negative income tax (which I generally support) and the government would deposit a portion of the money into an HSA. I am not sure how this would lead to consumer driven insurance. If a poor person does not have enough money in the HSA for a procedure, will society deny them care? Politically this is infeasible. If we decided to put enough money aside for the poor in their HSA that they will not have to pay any money out of pocket, then this amounts to full insurance.

For uninsurable patients, Wilkinson advocates that the government provide a low quality alternative to private insurance which includes significant rationing. This is similar to what we have now with Medicaid, but instead of having the poor as its target population, it would focus on those with privately uninsurable conditions (the ‘health poor’). Compared to John Kerry’s proposal during his 2004 campaign was for the government to insure all citizens for catastrophic illness, Wilkinson’s proposal is less expensive, but also less favorable in terms of horizontal equity. Both the Wilkinson and Kerry systems for people with severe illnesses would include rationing decisions.

Health Wonk Review #3

March 23, 2006 in Miscellaneous | Permalink

Kate Steadman’s Healthy Policy blog is hosting the Health Wonk Review #3 for this week. The HWR distills two weeks of health policy blogging to bring readers the best of the best. Topics include:

  • Reform: What’s the definition of “isâ€? edition
  • Changes are A’ Comin
  • Medicine and Health Policy
  • From the Unbeaten Health Blogosphere Path
  • To close the show…

I made my debut in the Health Wonk review with an article on Baumol’s Cost Disease.

Increasing health insurance prices and worker compensation

March 21, 2006 in Health Insurance, Labor Economics | Permalink

Economists typically assume that the majority of additional costs employers incur from hiring a worker are reflected in a lower compensation package for the employee.  For instance, employees owe payroll taxes for Social Security and Medicare on 7.65% (Social Security taxes are limited to earnings below $94,000 in 2006, but Medicare taxes are applied on all earnings).  Employers also pay a tax of 7.65% of workers wages to the government.  Economists believe that the true tax to workers is 15.3% since firms pass on the added costs to employees.

Increasing health insurance costs is another arena where employers may pass the costs on to employees.  A study by Goldman, Sood and Leibowitz (2005) analyzes how wages and benefits change in response to rising health insurance costs at one specific benefits consulting firm with a ‘cafeteria plan’.  The firm pays workers a wage and gives them a credit towards the purchase of a variety of benefits.  The credit can be used towards acquiring health insurance, as well as other benefits such a pension, accident insurance, life insurance, long term disability, etc.  The credit the firm grants to workers is based on their salary and their tenure at the firm.  Workers who wish to receive more benefits above their credit allocation can pay for the difference out of their salary.

Using a fixed-effects model with data between 1989-91, the authors estimate how changes in the price of health insurance affected the workers choice of benefits.  They find that when the price of health insurance increases by $1, workers finance the increase with a 52 cent reduction health insurance expenditures, a 37 cent reduction in take home wages, and a 17 cent reduction in other benefits.  This result shows the demand for health insurance is inelastic since a price increase leads to increased expenditures–48 cents in this example–on the good.

A problem with the study is the narrowness of its scope.  Since it only deals with one white collar firm, this result may not be generalizable to other sectors or the economy as a whole.  Also, the authors claim that as employees reduce the amount of other benefits as health care prices rise, an employee may be more vulnerable to health, mortality, disability and other risks.  We do not know, however, whether or not the employees decided to increase their savings rate in the face of decreased benefits in order to ‘self insure’ against future risks.  Thus the magnitude and sign of the change in an employee’s vulnerability to future risk is indeterminate.

Source: Dana P. Goldman, Neeraj Sood, and Arleen Leibowitz (2005) “Wage and Benefit Changes in Response to Rising Health Insurance”, Forum for Health Economics & Policy, Forum: Frontiers in Health Policy Research, Volume 8: Article 3. http://www.bepress.com/fhep/8/3

Number of Uninsured may be overstated

March 20, 2006 in Medicaid/Medicare | Permalink

The Kaiser Family Foundation’s State Health Facts website gives a wide variety of statistics detailing health insurance in America. The study finds that there are 45.5 million uninsured non-elderly individuals (16% of the total non-elderly population). Out of this total 4.1 million (9% of the uninsured) are poor children and 12.6 million (28% of the uninsured) are poor adults.

While these numbers are large, they may be overstated. The 1997 Balance Budget Act created the State Children’s Health Insurance Plan by which states were required to offer insurance to all children in poor households. Thus, the balance of the 4.1 million children must be composed of a) illegal immigrants, b) children in households where their parents decided not to sign them up for SCHIP or c) poor bureaucratic implementation of the progam in certain states.

Also, the 12.6 million figure for poor adults may be overstated as well. While these individuals may not have insurance, many poor individuals who undergo hospital procedures are signed up for Medicaid at the hospital. Thus, although these individuals are technically uninsured, in reality they do have access to health insurance. All poor adults are not eligible for Medicaid, however. Most single males between the ages of 18 and 65 who are do not qualify for Social Security Disability also do not qualify for Medicaid.
The extent to which these figures are overestimated, however, is difficult to calculate.

The State Health Facts numbers come from the Urban Institute and Kaiser Commission on Medicaid and the Uninsured estimates based on the Census Bureau’s March 2004 and 2005 Current Population Survey (CPS: Annual Social and Economic Supplements)

Should Non-Profit Hospitals get a Tax Break?

March 19, 2006 in Current Events, Taxes | Permalink

Of course they should! Non-profit hospitals treat the poorest patients in the most underserved communities using a bare bones administrative budget…right?

According to the New York Times (“Nonprofit Hospitals Face Scrutiny Over Practices“), the traditional view of non-profit hospitals as altruistic institutions may be flawed. The commissioner of internal revenue, Mark W. Everson, said tax officials often found little difference between nonprofit and for-profit hospitals “in their operations, their attention to the benefit of the community or their levels of charity care.” In fact, uninsured patients may pay more for services than the uninsured. For instance, HMOs often negotiate price discounts for their customers who receive services at non-profit hospitals; the uninsured have no one to negotiate on their behalf.

Some excerpts from the article:

  • Some nonprofit hospitals have hired debt collection agencies that “harass the poor.”
  • Some nonprofit hospitals and health systems in Minnesota have provided “lavish gifts” and “grossly excessive” compensation to top executives while providing “paltry levels” of charity care. For instance, the president of NewYork-Presbyterian Hospital, Dr. Herbert Pardes, received more than $4.3 million in compensation in 2004, plus $1.2 million in contributions to his employee benefit plan.

Do you want your tax dollars to help arbitrarily subsidize some hospitals over others? If we want to assist the uninsured, policy should help the poor to afford health insurance, either through easier access to Medicaid or (preferably) monetary transfers to these individuals.

HC Economist diagnosis: A case of Baumol’s Disease

March 18, 2006 in Economics - General | Permalink

The American health care system seems ill.  Prices for medical services have continued to outpace inflation during recent history.  What is the Healthcare Economist’s diagnosis?  Simple, its a case of Baumol’s cost disease.

Baumol’s cost disease is a phenomenon which appears in industries which have slow productivity growth over time (see “What ails us” in The New Yorker).  Fine arts performances, education, and health care all fall into this category.  For instance, it takes about the same amount of time for a doctor to examine a patient as it did 100 years ago.  As productivity in other industries (such as manufacturing, technology, etc.) marches upwards, the relative price of health care services increases.  Jane Galt’s blog has a succinct review of the problem (“What’s happening on health care?“)

So, are increased health care prices going to destroy the American way of life?  I do not think so.  A precondition for Baumol’s cost disease is that productivity in other sectors is increasing.  With increased productivity, wages should increase and allow consumers to be able to afford more health care.  I do, however, expect health care services to take up a larger share of the average consumer’s income as the relative price of all other goods continues to fall over time.

The WHO revises its Tuberculosis Strategy

March 17, 2006 in International Health Care Systems | Permalink

Tuberculosis is the world’s deadliest curable, infectious disease. According to the World Health Organization TB report, there were 8.9 million new TB cases in 2003.  Over 1.7 million people die of the ailment, 90 percent of them in developing countries.  Africa has the highest incidence of TB with 2.8 million cases in 2003, but even in the Americas and Europe there are 370 thousand and 439 thousand cases respectively. It remains one of three major epidemics in the world today (HIV/AIDS and malaria making up the other two).

Today, the World Health Organization revised its policy of treating the disease (“WHO Announces New Global TB Strategy” – The Houston Chronicle).  They aim to focus more on individuals with TB and HIV/AIDS as well as those with a multi-drug resistant form of TB (MDR TB).   Paul Farmer, who I wrote about on March 14th, advocates this strategy.

Fighting TB is one of the most effective means by which the developed world can help less developed countries.  In addition to the health benefits which will accrue to the individuals effected, we will expect these same individuals to lead more productive lives and hopefully lead their respective countries out of poverty.  For those who are more concerned about U.S. tax dollars being spent on Americans, fighting TB in the developing world may still be cost effective.  By treating those residing in the ‘third world,’ the new WHO strategy aims to prevent the possible spread of the drug resistant form of TB into the developed world.  ‘Mountains beyond Mountains (pp. 141)’ details how an MDR TB outbreak in New York City in the late 1980s cost various American agencies approximately $1 billion to staunch.
If you are interested in donating money towards the fight against TB, Partners in Health and ‘The Global Fund to fight AIDS, Tuberculosis and Malaria‘ are great organizations.

Job Lock: A Literature Review

March 16, 2006 in Labor Economics, My Papers | 6 comments

I have recently completed a paper titled Job Lock: A Literature Review, which has been posted in the ‘Papers by HC Economist‘ page. Here is a brief excerpt from the beginning of the paper.

“Three in 10 Americans say they or someone in their household have at some time stayed in a job they wanted to leave mainly to keep the health benefits, according to a New York Times/CBS News Poll. The survey provides some of the strongest evidence yet of pervasive concern about the costs of medical insurance and care.”

“We will strengthen health savings accounts — making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get. We will do more to make this coverage portable, so workers can switch jobs without having to worry about losing their health insurance.”
- President George W. Bush,
- State of the Union Address, 2006

INTRODUCTION

Health insurance is a major issue in the United States. Nearly
everyday, residents can pick up a newspaper and read a story
expounding on the worsening `health care crisis.’ Many workers
fear losing their job, not simply due to the loss in wages, but
even more due to the loss in health insurance coverage. In fact
many workers decide to stay at a job whose compensation is less
than their marginal product because they fear the loss of their
health insurance. This phenomenon is known as `job lock.’ The
term has received much publicity both in the economics literature
and in the popular press. The economics literature seeks to
answer the following three questions:

  1. Does job lock exists?
  2. If job lock does exist, what is its impact on social welfare?
  3. Does current regulation aimed at combatting job lock improve social welfare?

In the following literature review, I will show how the field of
Economics has attempted to answer these questions.

Tourney Time

March 15, 2006 in Miscellaneous | Permalink

The NCAA Men’s basketball tournament is almost upon us. Time to fill out your brackets and cheer for your favorite teams. I have filled out my bracket, but as an economist, I can’t do this as any normal person would. I have used some quantitiative measures in order to rank the teams. The teams are ranked according the to the JRI (Jason Ratings Index):

  • JRI=(AMV) *log(200-SOS)

AMV is the ‘Average Margin of Victory’ for each team and SOS is the team’s Strength of Schedule ranking according to the RPI index. Any team with a strength of schedule below 199 (see George Washington) I predict to lose. Here are my top ten teams in the tournament with the JRI in parenthesis:

  1. Texas (35.1)
  2. UConn (34.7)
  3. Memphis (33.6)
  4. Duke (31.0)
  5. Florida (30.6)
  6. Kansas (30.1)
  7. Villanova (26.5)
  8. UNC (26.2)
  9. Illinois (26.0)
  10. Washington (25.8)

My predicted final four is Texas, UConn, Memphis, and Florida. I have picked Texas over UConn in the finals. My upset specials (which are predicted by the JRI) are that Nevada and Xavier will get to the sweet sixteen.

Despite these quantitative predictions, I would love it if Penn, Marquette, Wisconsin, or UW-Milwaukee made it to the final four. Go Quakers!

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