October 2008

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Happiness and body image

October 31, 2008 in Miscellaneous | Permalink

Many Americans are dissatisfied with how they look.  They want to be thinner or have bigger muscles or have larger breasts or have fuller lips.  The diet industry, the plastic surgery industry, the fitness industry all make money because people are dissatisfied with how they look.  How can you be happy with your looks?

As an economist, I will explain this with mathematics.

Let the variable I be your ideal body type which is measured on a scale from 1 to 10.  When I=10, this can represent the body of a supermodel of your choice.

Your current body type is measured by the variable B, also measured on a scale from 1 to 10.  Let us assume that for the average person, B=5 and I=9.

Your happiness is a function of how far your body type is from your ideal body type.  We can construct a utility function where happiness, H, is equal to a function of the difference between your body type and the ideal body type [i.e., H = f(-(I-B))].

There are two ways to improve your happiness.  The first is to make yourself look better through diet, exercise or the extreme measure of plastic surgery.  This can increase your body type factor, B, moving it closer to your ideal image, I.  However, no matter how much you diet or exercise, you likely will only be able to increase your body type by one or two units.  Further, as you age the level your body type will necessarily decrease.  Thus, maintaining an unrealistic ideal, I, and trying to increase your body type to reach I will be a frustrating process.

The other choice you can make is to change I.  If you make your ideal body very close to what your body looks like now, you will by definition be very satisfied with your body.  I am not advocating that you should never exercise or eat only junk food; these behaviors will adversely affect your health.  However, altering your ideal body image to be more in line with your present body type will make you happier.  This is of course easier said than done (especially for many of my peers who live in Southern California).  However, changing your expectations and learning to be satisfied with the body you have will make you happy.

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Health Wonk Review is posted

October 30, 2008 in Carnivals | No comments

The latest edition of the Health Wonk Review is up at David Harlow’s HealthBlawg.

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How does managed care affect physician incentives to reduce care?

October 30, 2008 in Physician Compensation, Supply of Medical Services | Permalink

Patients generally believe that managed care systems are put in place to restrict their access to care.  Many patients believe that physicians who receive capitation compensation will provide less care to their patients than physicians who are paid on a fee-for-service basis.  A paper by Fang and Rizzo (2008) investigates whether or not this is really they case.

The authors find that “both capitated and noncapitated managed care significantly increased physician incentives to reduce care during 2000-2001.”  This is just what economists would predict.  When physicians receive capitation payment, they receive non-positive marginal revenue, giving them an incentive to reduce care.

By 2004-2005, however, Fang and Rizzo found no statistically significant difference in physician desire to reduce care between physicians in managed care organizations and those who were not.  Capitation compensated doctors still were more likely to reduce care levels than other doctors but this was only marginally statistically significant (p<.08) and of a much smaller magnitude.

What can we conclude from this?  Likely it is the case that over time, managed care organizations have become less managed; non-managed care organizations have put in place more restrictions over time.  Separately identifying how managed care incentives (e.g., referral restrictions) and physician compensation incentives (i.e., capitation vs. fee-for-service) impact care levels is very important as insurance plans become more homogeneous.

If you are interested in how physician compensation affects surgery rates, you can read my paper “Operating on Commission: How physician financial incentives affect surgery rates.”

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Quotation of the Day

October 29, 2008 in Current Events | No comments

“Nothing is more permanent than a temporary program.”

Health Care Expenditures in 2040

October 29, 2008 in HC Statistics | Permalink

According to Health Affairs, the U.S. spent 16.0% of GDP on health expenditures in 2006.  What will we be spending on health care in 2040?

Robert Fogel takes a stab at answering this question.  He claims that by 2040, the U.S. will spend 29% of GDP on health care in 2040.  

There are four main avenues by which health care spending will change.  First, there will likely be a continued downward trend in the age-specific prevalence of chronic diseases.  The prevalance of age specific chronic diseases “declined at a rate of about 1 percent per annum between 1910 and 1980.”  Second, the cost of treating diseases will change by 2040.  In the future, will innovations create higher quality medical care at higher cost, or will these innovations decrease health care spending?  Thirdly, as life expectancy increases and fertility rates decrease, we will likely see an increase in the share of the population who is elderly.  This will of course lead to increased health care spending even if the prevalence of age-specific chronic diseases and treatment costs remain constant.  Fourth, health care is a luxury good.  As incomes rise, individuals general spend a higher share of their income on medical care.  Fogel (2000) estimates that the long-term income elasticity of health care consumption is 1.6.

Using these four assumptions, Fogel claims that the U.S. will spend 29% of GDP on health care.  U.S. GDP in 2007 was $13.84 trillion.  If we assume a 2.5% annual growth rate, 29% of GDP in 2040 means that the U.S. will spend $9.07 trillion on health care.  

In the future, the health care system may need a bail-out as well.

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Blogged.com likes the Healthcare Economist

October 28, 2008 in Blogging | No comments

The Healthcare Economist received a “Very Good” rating of 7.7 according to Blogged.com.

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Is the newspaper dead? Christian Science Monitor: Exhibit A

October 28, 2008 in Blogging | No comments

The Christian Science Monitor has decided that from now on it will only be publishing online.

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Apple donates $100,000 to support gay marriage…why?

October 28, 2008 in Current Events | 1 comment

The San Francisco Chronicle reports that Apple has donated $100,000 for the No on Prop 8 campaign.  Proposition 8 is a California referendum that aims to pass the “Marriage Protection Act” which would outlaw gay marriage.  Apple may gain some customers who approve of gay marriage, but most people won’t buy a computer just because Apple supports gay marriage.  On the other hand, opponents of gay marriage may decide they would rather purchase a laptop from company that don’t overtly supports gay marriage. Claremont University Marketing Professor Peter Sealey claims that Apple’s decision could drive away customers who disapprove of same-sex marriage.  From a marketing point of view, Apple seems to be making a big mistake.  

So why would Apple give money to one side of such a controversial issue? 

One reason may be that Apple is not trying to appeal to its customers, but its employees.  Apple is based in Silicon Valley.  Many of its employees are likely young, liberal, and favor gay rights.  Thus, the support of gay marriage may be a ploy to appeal to the sentiments of Silicon Valley techies.  

Or there is a third possibility.  Apple may just be following the ideals of its workers, managers, and shareholders.  ”Apple was among the first California companies to offer equal rights and benefits to our employees’ same-sex partners, and we strongly believe that a person’s fundamental rights – including the right to marry – should not be affected by their sexual orientation”

  • The Healthcare Economist endorses a NO vote on Proposition 8.

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UC San Diego Job Market Candidates

October 27, 2008 in Economics - General | No comments

The UC San Diego Department of Economics has posted this year’s list of Job Market Candidates.  Included in the list is your favorite healthcare economist, Jason Shafrin.

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Cost to bring a drug to market: Is it really $802m?

October 27, 2008 in Pharmaceuticals | No comments

In April 2006, I reviewed a well-known article which stated that the cost to bring a pharmaceutical to market was $802 million.  This included the the cost R&D, clinical trials, failed drugs, and the cost of capial.  The estimate was from DiMasi, Hansen and Grabowski (2003).  The $802m figure was an updated from DiMasi, Hansen, Grabowski, Lasagna (1991) which claimed the cost to bring a pharmaceutical to market was $231 million in 1987 dollars.

Are these numbers correct?

An article in the Harvard Health Policy Review is suspicious. First, the data used to calculated the cost of bringing a drug to market was confidential.  This makes independent verification of these figures impossible.  Confidentiality may have been necessary to convince the pharmaceutical companies to share their cost data with researchers, but without independent verification it will be difficult to acertain if this $802m figure is exactly correct.

Secondly, Light and Warburton’s critique claims that about half of the pharmaceutical companies invited to participate declined to do so.  Since no comparison is made between the pharmaceutical companies who decided to participate in the study and those that did not, it is unclear of the cost data are representative.

The authors also claim that tax subsides and tax deductions should not count towards the cost of the manufacturing the drug.  From the firm’s perspective this is true, but from a societal point of view, these are still costs that someone (the taxpayer) has to incur.  I think DiMasi et al. were wise to include these costs in their study.

So what is the actual cost to develop a pharmaceutical?  Regardless of the exact figure, the answer still is ‘a lot’.

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