Monday, October 29, 2012

They're All Wrong on Healthcare

Throughout this campaign season we have been hearing the healthcare debate, but I have yet to hear any candidate propose a plan to really reduce the cost.  All they talk about is insurance, as if that will fix the problem – make healthcare insurance more affordable and the cost of service will somehow stabilize?  Just refuse to pay the doctors and hospitals any more and we will continue to get the same quality and availability but for less?  As I have pointed out many times before, concentrating on insurance not only won’t fix the problem, it’s part of the problem.

Health insurance acts as an information barrier and fosters a less competitive environment.  We don’t have grocery insurance, or insurance to help us buy cars, gasoline, or houses.  Imagine shopping to pick up your groceries for the week.  None of the items are marked with prices either on the cans or on the shelves.  You don’t know how the prices compare to the store down the street, which you are not allowed to shop at anyway because they are “out of network.”  When you check out, you are told to pay $20 and the rest will be submitted according to a card you showed at the door.  Months later you will find out if you owe anything based on some secret negotiation between the store and an entity chosen by the government or your employer to provide your insurance.  Included in your bill may be extra charges for services you don’t recall receiving, but if the insurance pays for it you don’t bother to dispute it.  On the other hand, if the store doesn’t use exactly the right codes in billing, you could be surprised with charges you didn’t expect and then have to fight it out with both parties, possibly enlisting the services of an “advocate” to help sort out the mess.  (By the way, there are currently 13,000 healthcare codes, increasing to 68,000 within 2 years.)

Would getting more people into a system like this bring down the cost of apples, milk or steaks?  Of course not!

In the past I have listed areas that must be addressed to even scratch the surface:  Insurance Design, which inhibits open competition and communications and can encourage people to make more frequent visits; Innovation, with no control over how much new technology/treatment makes financial sense (and we want it all.); Lack of Open Competition, competition among providers not among insurers; Convoluted Billing and Coordination Issues; Inconsistent State Regulations; and Fraud.

Here’s another – the risk of legal liability leads to over-testing, automatically driving up costs.  According to this report:  “In a recent anonymous survey, orthopedic surgeons said 24% of the tests they ordered were medically unnecessary. This kind of treatment is a form of defensive medicine, meant less to protect the patient than to protect the doctor or hospital against potential lawsuits.”  Additional tests mean not only additional costs but also additional risks to the patient.  

So why do politicians keep harping on insurance?  Perhaps the real problem is too big to tackle or perhaps the degree of critical thinking needed to solve it would not play well with the voters.  In any case, the way we are headed, there's little hope for improvement.

Friday, October 26, 2012

Unintended Consequences

A few days ago my wife called to me about a news story on the Internet.  “In France, they’re raising the taxes on the rich to 75%, so guess what’s happening.”  I responded that some rich people were probably moving out of France.  “Yes, and the realtors are happy to get those huge houses on the market.”

It didn’t take a stroke of genius to guess correctly, merely some critical thinking.  Behavior has consequences, actions have reactions, and rich people have a lot more flexibility than the rest of us.  When taxes go up, they can move their investments or even move themselves.  In America it’s rare that they would leave the country, but the wealthy and the big corporations gravitate toward states where the tax and regulatory environment is more favorable.  If the rest of us had more flexibility, wouldn't we do the same?

The following day I read about a proposed bullet tax in Chicago.  The Cook County President proposed a tax of five cents per bullet and $25 per weapon sold in the county.  One objection to the proposal is that customers would just go to gun stores in neighboring counties or states to do business.  Actual tax revenues would be lower than expected, and gangs probably don’t buy their guns and ammo anyway.  It would not get the desired result.

There are many other government actions and programs that don’t always yield the anticipated benefits.  One that comes to mind is Unemployment Insurance.  Some government-funded research indicates that extensions can be counter-productive.  “For some UI recipients...these same payments can lead to a prolonging of their time in benefit status and higher aggregate unemployment. The UI Program can adversely affect the labor market in other ways, such as increasing the volume of unemployment occurrences caused by employers. The combined effects on unemployment duration and unemployment occurrences cause the overall unemployment rate to be higher than it would otherwise be.”

Another example is the college assistance program which, in some cases, rewards parents who spend on toys and vacations rather than saving for college.  I know of some cases where couples delayed marriage to avoid counting the fiancĂ©’s income which would not make their children ineligible for aid.  Encouraging this behavior is clearly not the intent of the program.

I remember several years ago an ill-fated tax on luxury yachts intended hit the wealthy that resulted instead in lost jobs for workers at American ship building companies as rich buyers took their business overseas.

Finally, here is a recent example from Italy.  All seven members of the National Commission for the Forecast and Prevention of Major Risks were convicted and sentenced to six years in prison for not giving adequate warning of an earthquake that struck in 2010.  Earthquakes are extremely unpredictable.  Since then four other top government scientists have resigned, and I wouldn’t expect too many applicants for the vacant positions.  By this action they have undermined their own program as well as the integrity of international seismic research where open sharing of data is vital.

People change their behavior in response to rules and regulations in predictable ways.  The same thing often happens in corporations with poorly designed incentive systems.  Executives collect bonuses even when business results are poor.  Line workers game the system to meet goals without improving productivity or performance.  Taking a behavioral viewpoint and using a little critical thinking during the drafting or design stages could anticipate these consequences, making laws and programs more effective.  Unfortunately, it doesn’t happen enough.

Monday, October 22, 2012

Value of a Human Life

What is the value of a human life?  Though this may seem like a philosophical or theoretical question, it becomes a very practical, but rarely considered one, especially when laws are proposed or proponents for change use the argument “if only one life is saved, it’s worth it.”  These choices imply a value, often without admitting it and without considering the impact of changes.  (This posting expands on the question from last time about how much society owes certain classes of victims.)

Many would argue that a life is priceless, that the value can’t be determined.  It is a gift from God not to be degraded by setting a price.  Though this may be true from a religious or philosophical viewpoint, we are often faced with the question of how much of our limited resources we are willing to spend to save a life.  Is it practical to spend a trillion dollars on a particular gadget or medical research to save one life – or a dozen, how about 100 or 1,000?  Could that money be better spent to save ten thousand or more?  Resources are not unlimited.  Someone must decide.  Is this best done on a case-by-case basis as so often happens today?

Recently the Supreme Court ruled that states have the option to enact more-inclusive Medicaid standards.  To do so will cost taxpayers.  A study completed at Harvard suggests that expanding Medicaid could reduce deaths among non-elderly Medicaid recipients by about 96,500 per year.  They compared data from states with expanded programs to data from nearby states without.  The head researcher admits, ‘‘I can’t tell you for sure that this is a cause-and-effect relationship, that the Medicaid expansion caused fewer nonelderly adults to die,” but the study was well designed using the best available data.  Now the question becomes, is it worth the investment?  Should states make the change?  Reviewing several sources, I found that there would be 17 million additional recipients at an annual cost from $77.4 billion to $112 billion (estimates vary).  That would be an expenditure of $802,000 to $1,160,000 per life saved.  By making (or not making) this decision they implicitly put a value on a human life.

Since 2001 the federal government requires that all passenger cars have a trunk release handle.  This became an issue after 11 children died in locked car trunks in 1998.  Although this was not a typical year for such incidents, it started a groundswell of support led by an advocacy group called the Trunk Releases Urgently Needed Coalition.  At a government-estimated cost of $2.00 per passenger car, that comes to around $14 million annually.  This cost was treated as irrelevant because “if it saves just one child, it’s worth it.”  Even using the unusually high rate of 1998, that’s an implied value of about $1.3 million per child's life or more.

Earlier this year the State of Indiana along with other parties involved with entertainment at the 2011 State Fair offered $13.2 million to the victims of the stage collapse.  Five were killed and over 50 injured.  The proposed distribution of the payout was not made public, but somehow that amount was reached.  Again, it implied a value to the 5 lives lost.  The FAA is more forthcoming and generous, assigning a value of $6.2 million per life when evaluating the cost/benefit of new rules for airlines.

I think you can see what I’m getting at.  It’s always tempting to spend great gobs of money, our money, on safety devices, legal settlements and regulations.  Although it may seem cold and unfeeling, we cannot pass laws or make social decisions on the basis of “if it just saves one life, it’s worth it.”  We don’t have unlimited resources.  This is the hard edge, but necessary application, of critical thinking.  Why should we leave these ever-more-frequent decisions to bureaucrats, politicians, judges, juries, appeals courts and big business risk management departments to make on a piecemeal and arbitrary basis with no guidelines and no controls?  Unfortunately that's exactly what will happen, because in an America with so few critical thinkers, the if-it-saves-one-life advocates will always win the hearts and souls of the public, while politicians will always shrink from making these necessary, but unpopular decisions.

Friday, October 19, 2012

Who's the Victim?

Sometimes the borderline cases where things aren't clear-cut are most interesting.  The current meningitis scare is a good example.  I found an article from Nashville presenting many of the facts while highlighting the dilemma facing many of the victims.  Usually when I see the word "victim," I immediately look for a link to the dimension of responsibility.  Are people really victims or are they acting helpless for sympathy, for financial gain, or to avoid some negative consequence?  Who is a victim, what is a victim?

This case shows us some true victims.  People went to the doctor looking for relief from back pain and found out later that the injection was tainted.  Some developed meningitis and some have died.  The people acted in good faith; the doctors acted in good faith, but tragedy resulted.

I call this a borderline case, because there are people also featured in this article who remain healthy.  The first example is a man who was notified that he was exposed and refuses to pay his doctor bill.  He claims to be a victim, but a victim of what?  Is exposure the same as contracting a disease?  There were over 14,000 possibly exposed, about 2% have contracted meningitis, and about 0.15% have died (so far).  Others in his position have already contacted lawyers, preparing to file suits, probably against the Massachusetts drug company but perhaps against the doctors and the medical facilities where they were treated. 

Is someone a victim if only exposed?  If you go to the doctor and realize there is a good chance of becoming sicker thanks to the one sitting next to you in the waiting room, should you expect not to pay?  Are you a victim if you are notified of a possible danger from your treatment, but have no symptoms?  Of course, anyone would be very worried and stressed, but would it be better not to notify them, thereby lowering the probability of them seeking immediate help if symptoms develop?  What role does the news media play in adding unnecessarily to the worry and stress?

Finally, what does society owe the people who never get sick?  I say society, because there is no magic money tree.  Any judgments or settlements, in this case or others like it, will come back to us eventually in the form of higher premiums for our own health or liability insurance.  Since we are all connected economically, we must take a more personal view of these actions and decisions.

Yes, these borderline cases are extremely interesting.  When we think about them in behavioral terms in the key dimensions, I think we at least start asking the right kinds of questions. 

Monday, October 15, 2012

Science Is Not Magic

Last week magician David Blaine completed a stunt “where he spent…72 hours standing inside an artificial lightning storm generated by seven high-voltage, low-current Tesla coils,” on a stage 20 feet above a New York City pier.  This is not magic; it’s science.  The most amazing thing about it was his ability to stand upright for three days without food, not the special effects created by the artificial lightning show.

If you visit a science museum (or check YouTube) you may see an example of a Faraday cage.  In a science museum, they don’t try to pass it off as magic; they explain how it works.  A Faraday cage is a hollow conductor where the charge remains on the external surface of the cage while the interior has no charge.  Static electricity striking the outside of the cage stays on the outside.  Anything inside the cage is not affected. 

There are practical uses for this scientific knowledge, but a magician may also use it to put on a spectacular show with a million volts of artificial lightning, trying to scare an audience into believing that he is in some physical danger.  As is the case with most magic tricks, this is a harmless illusion created by using ingeniously designed props.  It did not, however, get the ho-hum response it probably deserved from what I’ve described before as a “scientifically unsophisticated populace.”  This general lack of scientific understanding can lead to serious consequences, health-wise, financially or both, when advantage is taken not by magicians for entertainment purposes, but by unscrupulous businesspeople or charlatans.

Friday, October 12, 2012


Last Sunday’s newspaper was a goldmine of examples of America’s need for improvement in the key dimensions.  Let me start with two articles that appeared on facing pages.  They are unrelated by subject but very much related in terms of clearly demonstrating why the country is not progressing.

First I read that the “percentage of American adults who are 100 or more pounds over a healthy weight has skyrocketed since 2000” – clearly a discipline issue.  The sub-headline read:  “Researcher blames genetics, food abundance” – where’s the responsibility?

On the next page the headline read: “Report: 40% of food goes uneaten in US.”  This waste can be attributed to perspective, not appreciating what we have, and to critical thinking, not planning well or looking for appropriate options.  One solution offered:  Americans should “become less averse to buying scarred or otherwise imperfect produce”…and should “save and eat leftovers.” The same story from another source quoted an expert as saying that we throw out some food because, “we have reached the point where appearance trumps taste with our food” – another example of valuing appearance over substance – showing problems with both critical thinking and perspective.

I made these easy observations before I read the article in the Business section about the increased use of obesity in advertising, because it has become so common that “the new generation doesn’t see (obese people) as different.”

The news a few pages earlier of 400 murders in Chicago already this year may have seemed more shocking to most readers, but this is a problem of poor behavior among a localized few.  The behavioral examples I cite above are representative of the entire nation.  I think that tens of millions slowly killing themselves by poor lifestyle choices and comparable millions wasting a quarter of their hard-earned grocery money by feeding the landfills are far more important issues and far easier to solve.  We know exactly where the problems lie, and we know what to do about them.