Medical Science

Everything is moving so fast. The media reports on new research, studies and discoveries daily. People are living longer, healthier lives due in part to medical advancements.

 

I expect that this endless parade of seemingly miracle cures drives people to look beyond medical science and put their faith in so many unproven remedies. Scientific-sounding sales pitches, ancient wisdom or endorsements by friends, relatives and celebrities lure them in. Then all it takes is a little placebo effect to convince them that they have made a great discovery, and they too spread the word. 

 

Americans throw away countless millions of dollars in pursuit of relief from their latest aches and pains. Here are a couple more examples from reliable sources.

 

The first is about acupuncture. Many people believe acupuncture is an effective and safe alternative to mainstream medicine. Safety is not really the issue here. In the category of complimentary and alternative medicine, most of the pills and procedures are safe because they don’t do anything. The question in this case is whether it works.

 

If acupuncture works, it seems reasonable to assume that acupuncture points really exist and that experts or experienced practitioners can find them. Otherwise it would be random needling, a technique that would fly in the face of a theory based on the existence of qi and its meridians accessible at particular acupuncture points.

 

Journal of Acupuncture and Meridian Studies after looking at 14 separate studies found “’considerable variation’ in localization of acupoints among qualified medical acupuncturists.” They admit that accurate point location is a significant factor in effective treatment, but the various methods of finding them yield highly inconsistent results. 

Furthermore, my original source points out that the depth of the needles to access the point is not specified; and if the points were real, “wouldn’t they vary in location [from person to person] just as other anatomical structures” like blood vessels do? So many unanswered questions throw considerable doubt on the practice.

 

The second example concerns chiropractors charging thousand of dollars, not covered by insurance, for spinal decompression on a special device to alleviate back pain. One such device is “a mechanical table attached to Space Age-looking controls that its manufacturer claims can stretch the disks of the vertebrae.” (Medieval torture chambers had a similar table but without the space age-looking controls.) 

 

A group called Fair Warning, “based on review of lawsuits, scientific studies, government documents, chiropractic websites and interviews with experts, found that the claims of success for spinal decompression stretch the truth,” and that the treatment “has never been proven [to be effective] in scientifically rigorous studies.”

 

While Internet advertising and participating chiropractors rave about success, insurance companies describe the machines as experimental and investigative. While the promoters boast of success rates of 86% to 90%, investigators found their studies “lacked scientific rigor” and that “no definite conclusions could be drawn.”

 

A professor from Oregon Health and Science University and an expert on the subject of lower back pain says, “Eight in 10 people with back pain get better on their own.” The marginal difference with this machine, even if true, hardly seems like a good investment, especially since it has also resulted in serious injury.

 

Both cases are scientifically very dubious. Unfortunately, science means nothing to Americans unless it supports their preconceived notions. Climate change is real, based on science; but nuclear power is dangerous, based on emotion.

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Health Insurance Is Not The Same As Healthcare

“Half the harm that is done in this world is due to people who want to feel important. They don't mean to do harm; but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.”  ― T.S. Eliot

For more years than I have been writing this, politicians have been ranting about the cost of healthcare and how to fix it. Unfortunately, the conversation does not center on healthcare, instead they keep talking about insurance. The reason is simple: Insurance is much easier to fix; just throw money at it. Healthcare itself is a complex mechanism with many moving parts. But fixing insurance does not change the underlying issues. In some cases it makes them worse.

 

People often talk about how healthcare was good, but not great, back in the 1960s; and it was affordable. Some doctors still made house calls. They yearn for the good old days. Along these lines, an interesting comparison occurred to me.

 

Back in 1960 a typical television looked like this.

Just over half the population owned a black & white tube television, and you were lucky if you could get five channels.  The TV had no remote, and there was no cable, so you needed an outside antenna or an inside antenna known as "Rabbit Ears".  In 1960 an RCA black & white 21 inch console TV cost $268, most people financed this for about $10 a month.

Today the equivalent of $268, adjusted for inflation is about $2400, and here is what you can buy for a little more than half that!

But the costs of medicine and the education moved in the opposite direction. Today we live longer and healthier due to medical advances, but the price has increased faster than inflation. The cost of becoming a medical professional has likewise soared.

One reason for both, ironically, is government interference: low cost insurance on one hand and student loans on the other. This greatly reduced competition. Make it easier for citizens to pay for something, and the people who sell it have no incentive to control costs.

 

The only way to control cost, any cost, is to focus on the reasons behind the high cost. Politicians are silent about these underlying reasons for soaring healthcare costs, and have made no plans to deal with them. The primary reasons for the high cost of healthcare are summarized below. (A thorough explanation was given back in the spring of 2012.) 

• Insurance Design:  Insurance companies separate the provider from the patient. 
• Innovation: New medical technology and treatments save lives but add cost. 
• Lack of open competition.
• Over-testing.
• Billing and coordination issues.
• Regulations and Restrictions: Rules vary from state to state. 
• Liability: The high cost of malpractice insurance affects all patients' bills.
• Lax eligibility rules and outright fraud.

Unless someone comes up with a plan and makes a serious effort to address these issues, all the insurance or Medicare-for-all schemes will not succeed. The alternative would be for the government to fix a price on everything and see how many drug companies continue to innovate, how many doctors stay in business and how many students chose to get a medical degree.

But politicians will continue to promise the easy non-solution to give the appearance that they care about fixing the problem.

Flashback – (Mis)understanding Insurance

If they learn economics in journalism school, they must quickly forget everything upon graduation. Furthermore, when the facts don't make a compelling story, they resort to the usual tactic of trying to make stories fit their worldview or make things look scarier than they are. Here is a prime example I gave in December 2016.

[As I was reading the transcript of Scott Pelley’s "60 Minutes" interview with House Speaker Paul Ryan, I noticed that he seemed uninterested in hard news or in-depth information so much as he was interested in tripping up the Speaker, trying to put him in a position of disagreeing with his new boss, making one or the other of them look bad, or uncovering something potentially embarrassing.

He asked how often the two speak on the phone and who initiates the conversation. The answers were almost daily and both. No news there. How does he answer the phone? “He doesn’t say, ‘This is the president-elect?’” No. “Have you told him being president is not being CEO of the United States, that the Congress is going to have a say?” 

Instead of asking how the two got together after a contentious election, he asked, “Who apologized to whom?” It’s clear by now that Pelley has no liking or respect for Donald Trump, thinks he is a bully and a racist, and is searching for evidence to back up his views. Better yet, he would like to get Ryan to agree on any point that might make it seem he is of the same opinion.

The silliness and self-serving finally comes to a close, and Pelley asks a number of questions about policy issues. Soon he gets to the details about possible changes to Obamacare and the sniping continues. At one point Pelley says “And women will pay the same as men? That didn’t used to be the case.” This is a question designed to get an answer that will incite outrage. He is trying to get some admission of Republican bias against women, but showing in the process that he does not understand how insurance works and counting on the fact that many Americans don’t either.

Insurance usually works by assessing the risk and charging premiums accordingly. If you have homeowner’s insurance you expect a discount for having a working alarm system. Teen drivers are generally less safe than more experienced drivers, but boys have more accidents than girls. Auto insurance for a young man 16-25 is higher. There is no outrage there. It’s not unusual for companies to charge smokers more for their health insurance benefits. Owners of cars with higher repair costs pay higher premiums. Older cars are cheaper to insure due to the lower replacement cost. Those who don’t drive as many miles sometimes pay lower premiums. Costs of auto and homeowners insurance vary by what part of the country and by the size of the town or city you live in. And since women outlive men and take fewer chances, they pay less for life insurance. Older people pay more, as do those who participate in dangerous hobbies like skydiving or juggling chainsaws.

This all happens without a stir. Everyone seems to understand that certain classes of people are at a higher risk for either the frequency or the size of insurance claims. Hence they should pay more. The ones in the classes with higher premiums don’t like it, but they pay. So why would people be upset that some women, especially those of childbearing age, might have to pay more? That “used to be the case” and it didn’t have anything to do with prejudice or victimization.

Apparently the government and some group of citizens have now decided that charging women more for health insurance can be explained only by prejudice. Everyone must purchase the same insurance for the same cost or there will be an uproar. And Scott Pelley and others in his profession are more than happy to incite and later fan the flames of that uproar, because it makes their job of reporting the news so much easier. Their job is not to inform or to educate; their job is to attract views and clicks. Nothing does that better than a good demonstration or protest, even those grounded in fundamental misunderstanding.]

P.S. I have often said that problems with healthcare costs must be solved on the basis of costs, not by tinkering with health insurance, but that’s for another discussion.

Flashback – Robbing Peter to Pay Paul

[Here, from over seven years ago, are some examples of government actions showing how failures in economic understanding lead to bad outcomes. Politicians will never change their tactics and sales pitch until voters wise up. In many cases we have to lead the people we elected  away from senseless legislation with hidden, but predictable, consequences.]

When I call for economic understanding by saying that there is no magic money tree, here is what I mean. When corporations incur added costs, whether it be shoplifting, a utility rate increase, wage increases or higher taxes, they find a way to pass the cost along to their customers, usually as higher prices. When governments decide to spend more money, they either raise taxes or borrow, leaving the taxpayers to absorb the cost directly or pay the interest now and leave the principle repayment to future generations.  No magic money tree means that the funds must come from somewhere, not out of thin air, and that somewhere is usually from our wallets, directly or indirectly.  The consumer/taxpayer is the bottom of the economic food chain.

As 2013 begins, the Affordable Care Act (ObamaCare) requires manufacturers of medical devices to pay an excise tax, 2.3% of sales. Besides the possibility of reducing costs by outsourcing to other countries and reducing development budgets, the industry also hints that the added costs will result in a price increase. As this article points out:  “Recent surveys show that medical technology executives are examining a host of other options that will have negative consequences, including passing along the added costs through price increases.” (Emphasis added) Those of us who don’t believe in a magic money tree are not at all surprised.

But look at how circular this situation becomes. The government adds a tax to help offset the cost of healthcare. The companies pay the tax by raising prices. Healthcare providers, doctors and hospitals, raise their prices to account for their now higher costs. Insurance companies raise their premiums or co-pays to account for their now higher costs. The government uses the tax money to subsidize health insurance that is now more expensive due to the tax itself! If anything, the cost of the whole system increases due to the added administration associated with paying and collecting a new tax.

In an economy such as ours, this concept of punishing greedy companies with taxes or penalties doesn’t seem to work very well, and why would we even want to punish someone who provides us with a product or service that we want or need? In general, magic-money-tree thinking leads to a host of unintended consequences.  

As citizens and voters we can solve this, but not until we stop thinking this way ourselves. This type of logic drives decisions by both parties at all levels. They tell us that most of a project will be paid for by a federal government grant, as if that's not our money too.  They try to make us believe that corporations pay taxes by just reducing their profits or paying their CEO less. They spend as if the bills will never have to be paid, as if there is some magic money tree or secret treasury to make it all right.  

Different Cultures, Different Rules

A story about an incident in 2006 is suddenly getting a lot of attention on social media. An American woman temporarily working in Iceland “went from feeling a lump in her breast to getting checked out and assured that it was benign in the space of a single day, and for $3.” She posted the story of her experience on Twitter.

This gets many people stirred up, asking: Why can’t we do this in the United States? Some politicians think we can and are promising changes, but the comparisons are not as straightforward as we’d like them to be.

Iceland is a small, island nation in the North Atlantic with a population of about 350,000. For comparison, the city of Minneapolis has a population about 425,000. The entire country is smaller than many American cities. 

But it’s not just a matter of scale. Taking it a step further, that population is very homogenous. About 91% of the residents of Iceland are Icelandic citizens and only 16% are foreign-born. Unlike the US, the population is concentrated. Ninety-nine percent live in urban areas and 60% live very close to the capital. Furthermore, about 72% belonged to the same religion, the state Evangelical Lutheran Church of Iceland.

Back to our comparison example – where Iceland has homogeneity, Minneapolis has diversity. Its population is approximately 64% white from various heritages, 19% African American, 10% Hispanic and 7% various other ethnicities. It is the home of more than 50 denominations and religions.

How important is this homogeneity in the smooth operation of a more socially oriented society? Denmark believes it is vital to maintain the order and necessary shared values. “Beginning at the age of 1, [mostly Muslim immigrant] ‘ghetto children’ must be separated from their ‘ghetto parents’ for 25 hours per week for mandatory instruction in so-called ‘Danish values,’ which includes learning about the language and the traditions of Christmas and Easter, The New York Times reported in July 2018.”

(Again for comparison Denmark is about 35% larger than Maryland in area with about 5% fewer people. These are much smaller countries whose people share a common background and history.)

But there is no free lunch and no $3 health service without a huge subsidy. Here is a simplified comparison to make the point.

After a $5,145 deduction, Icelanders pay 36.94% of income up to about $85,000 and 46.24% on income above that. On top of that is a value added tax (VAT) of 24% on most goods and services, but a few categories are subject to a reduced rate of 11% (e.g. food, hotels, newspapers, books, and utilities).

Everyone in Iceland pays at least at the same level as the highest tax bracket in the US, 36.94% compared to 37%. They don’t “soak the rich;” they take it from everyone. On the other hand, their corporate tax rate is among the lowest.

In Minneapolis a single taxpayer owes no more than 17% on the first $85,000 after a standard deduction of $12,200 and pays about 8% sales tax, but not on food. (Sales tax and VAT are not identical, but the economic burden of VAT falls on the final consumer.)

Using those numbers, a single taxpayer earning only $20,000 in the US pays $780, whereas for the same situation in Iceland the tax bill would be roughly $5,500. When the money is spent, it is taxed again at a rate up to 16% more.

On another point, access to doctors is slightly better. Iceland has a physician ratio of 3.62 doctors per 1000. In the US it’s 2.3 doctors per 1000.

These and many other considerations are ignored by those who want to make simplistic comparisons, comparisons that in reality are light-years away from apples to apples. It would be nice to have all the benefits and not have to make any of the sacrifices, not have to adapt to an entire new set of values and expectations, not have to live within a completely different culture. (The US cannot even agree to have one official language!) But there are no simple answers.

Flashback - Health Insurance

[My argument back in July 2011 was that people needed to better understand how health insurance works to keep from getting fooled by advertisers and politicians. Here is the entry in full.]

A flyer in the newspaper today reminded me how naïve consumers are about understanding the economic process, business and insurance, or at least how naïve advertisers think we are.

An ad from AARP promoting their Medicare supplemental insurance plan states that Medicare pays only about 80% of Part B (non-hospital) expenses and the other 20% is up to you.  (True.)  Right below is the statement that a supplemental insurance plan could save you up to thousands of dollars in out of pocket costs. That looks like a great deal, but where do those thousands of dollars come from, the AARP magic money tree? Perhaps the insurance company, out of the goodness of its heart, is going to make up the difference? – of course not.

The insurance company is going to collect premiums from everyone.  (Since premiums are not out-of-pocket costs in insurance language, maybe they are ignored when counting up the thousands in savings.)  The first thing the insurance company must do if it intends to stay in business is to pay its expenses (including the costs of the “free” brochure and of paying for all the people who work there and of other operating costs).  They also want to make a profit.  So already the total amount paid by everyone must be more than the total amount paid back to everyone (or to their doctor).

There will be winners and losers. The (financial) winners will be the people with high medical expenses for doctor visits, tests, etc. The losers will be the healthy ones. This may fluctuate, so in some years you come out ahead and in other years you may be part of the healthy bunch subsidizing the sickies – paying more in premiums than you receive in return.  Except for people who are chronically ill, this amounts to little more than a smooth-monthly-payment program similar to the installment plans offered by some electric and gas utilities. It is often a good budgeting tool to trade unknown payments for smooth, predictable ones, but you are hardly getting thousands of dollars for nothing as the flyer suggests.

This is a common tactic. It implies that the money is coming from somewhere else - but there is no money except our money. Companies and governments handle it, allocate it, and sometimes waste it, but their only source is to get it from us. Americans must listen to advertisers, news media and politicians with this always in mind to avoid getting tricked by this common something-for-nothing sales pitch that is really a smokescreen to disguise redistribution.

[Note that two and a half years after this posted, Jonathan Gruber, a professor at MIT and an architect of Obamacare said publicly: "And basically, call it the stupidity of the American voter or whatever, but basically [an intentional lack of transparency] was really really critical to get for the thing to pass." According to Snopes, the video footage of his remarks was deleted from the Internet in an attempt to hide it.]

Fluoridation Facts

I stole the above title from a newly released American Dental Association (ADA) pamphlet on the controversy about fluoridation of public drinking water. This is another area where people with little understanding of science have spread falsehoods leading to some resistance to a beneficial practice. A brief review of the executive summary makes it quite clear; fluoride prevents cavities.

Although I have never had doubts about the safety of adding fluoride to drinking water, twice a year I am faced with the question of whether to pay an extra $35 at the dentist for a fluoride treatment. I know there is evidence that these treatments, along with the fluoridation of drinking water and toothpaste, are beneficial for children’s teeth, but I wondered about the effectiveness for adults. 

The fact that my insurance company doesn’t pay for it raises some suspicion. Coverage decisions may be based on cost factors, but one cost factor they must consider is higher future dental bills. Normally they would prefer to pay for prevention than to pay more later.

I began my research on the effectiveness of fluoride treatment for adults at a site billing itself as “the top magazine for dental hygiene professionals.” One hygienist, whose boss wants her to push the treatment to increase business, asks directly whether every patient needs fluoride.

The answer goes to an ADA publication from 2007. (The advisor didn’t know of any more recent updates.) A patient whose risk is low “may not receive additional benefit from professional topical fluoride application.” Low risk is defined as "No incipient or cavitated primary or secondary carious lesions during the last three years and no factors that may increase caries risk." It goes on to say there are other factors to consider, but generally “blanket mandates of fluoride for everyone are not appropriate.”

Consumer Reports gives basically the same answer (with less dentist jargon). “Extra fluoride may be helpful if you’re at increased risk of developing cavities, indicated by frequent tooth decay in recent years, dry mouth caused by medications or disease, or gum recession that exposes the vulnerable tooth roots.” 

They go on to say that home treatments are not effective, and that those in the low risk category should do fine by brushing twice a day with fluoride toothpaste “especially if your water is fluoridated.”

The National Center for Biotechnology Information site reviews a compilation of research on the “effectiveness of fluoride in preventing caries in adults.” They believe that the authors' conclusions favoring the use of fluoride treatments for adults “appear to follow from the results presented, although the paucity of more recent studies and poor quality of the included studies limit their reliability and relevance to current populations.” This vague recommendation (also from 2007) is not very compelling.

A Healthline.com page from 2018 asks: “What Are the Benefits, Side Effects, and Recommendations for Fluoride Treatment?” Again the emphasis was on children and adolescents with some discussions of minor side effects of treatments and real dangers of fluoride supplements. A little new information was that it was “best to get fluoride both topically [gel or toothpaste] and systemically [ingested]” from drinking water.

With several references to the 2007 ADA advice, I went there next. In addition to brushing twice a day, flossing and regular dental examinations, a “key to good oral health is fluoride.” Maximum benefit “is achieved when fluoride is available both topically and systemically.” Treatments from a dentist are recommended for adults with high risk factors such as poor oral hygiene, active caries, eating disorders, drug or alcohol abuse, lack of regular professional dental care, high levels of bacteria in the mouth, exposed root surfaces” and a few others.

In my case it seems I have been correct in saving $35 per visit. I eat most of my meals at home, so I am able to brush three times a day. We use fluoridated tap water for cooking food and drinking. (Bottled water is non-existent in the house.) I have not had a cavity in at least ten years. (Knock on wood.) Nor do I have any of the other critical factors or habits.

It’s interesting what a little research – a factor in critical thinking – can do to help with everyday decisions. 

Medicare for All – Part 2

With all the campaign promises about Medicare for all, I took the opportunity about two months ago to explain how Medicare actually works. Politicians give the impression that it’s a totally free health insurance program. Just walk into the doctor’s office or emergency room, tell them your number, get fixed up and leave with no expectation of receiving a bill. 

Real Medicare today is not like that at all. Why would they spend time on TV and in mailings advertising supplemental insurance that “helps pay some of the health care costs that Original Medicare doesn't cover, like: Copayments, Coinsurance, Deductibles”? Those extra costs can only be avoided by paying money up front as a premium for the additional insurance.

From recent news, though, it’s clear that this misimpression is not the only problem. Medicare fraud is another big issue. Sometimes this is a critical thinking issue where patients are lured in as unwitting participants. Sometimes it goes deeper.

Late last month, thirty-five individuals associated with dozens of telemedicine companies and laboratories were charged with fraudulently billing Medicare more than $2.1 billion for expensive cancer genetic tests. Nine of the defendants are medical doctors. “In addition, the Centers for Medicare & Medicaid Services, Center for Program Integrity (CMS/CPI), announced…adverse administrative action against cancer genetic testing companies and medical professionals who submitted more than $1.7 billion in claims to the Medicare program.”

One of the defendants in this case, who cost taxpayers more than $1 billion in illegal Medicare reimbursements, “has been under near-constant federal scrutiny for the past five years and was supposed to have been deported more than a decade ago.” That was billions lost to fraud as a result of only one investigation, due in part to government inaction.

Meanwhile, the U.S. Department of Health and Human Services Office Inspector General has issued an alert to the public about other genetic testing schemes. Medicare eligible patients are offered a free genetic screening for undetected conditions, but the real motive is to get their Medicare information “for identity theft or fraudulent billing purposes.” The screenings are unnecessary and are usually denied by Medicare. When they are, the individual could be responsible for the entire cost of these useless tests, sometimes thousands of dollars. 

They get nothing but the promise of some new information about their health with the selling point that, as Medicare recipients, it may be free to them. This promise of something for nothing – free testing or free devices all paid for by Medicare – is used so often it’s beginning to sound stale, but it must be working.

Advice from the Inspector General is to not volunteer any information to these genetic testers, don’t stop at their booths at health conferences, ignore their ads, and return unopened any testing kits received in the mail.

Medicare fraud is a huge problem. The AARP reported in March of last year “roughly 10 cents of every dollar budgeted for the giant health insurance program is stolen or misdirected before it helps any enrollee. Looked at another way, about $1,000 is lost per Medicare member through theft or waste each year.” That estimate is based on government reports, but a leading expert from Harvard University believes the real number could be much higher, 20% or more.

AARP used the figure of $60 billion in fraud for the 2018 calculations cited above. Other sources show exactly the same estimate for 2015 and 2011. The number hasn’t changed in eight years. Apparently as fast as they can lock people up or put them out of business, more fraudsters spring up to take their place.

Would the general public as a whole be less likely to become victims of Medicare-for-All fraud schemes? That’s doubtful, and it leads to so much waste. 

Medicare For All?

People who are excited about the idea of “Medicare for all” obviously have as meager an understanding of Medicare as they do of Social Security. In fact Medicare is much more complicated than Social Security. It’s not a matter of walking into the doctor’s office, showing an ID card, receiving services and leaving without a bill.

When Medicare was passed in 1965, the government tried to follow a private insurance model. As a result they came up with two parts. Generally speaking, Part A covers hospitalization, and Part B covers regular visits to the doctor. But just like private insurance there are many details about what is covered and what is not.

In most cases Part A has no premium, but it does have a deductible of $1,364 for the first 60 days of Medicare-covered inpatient hospital care. Note that it’s the same for one day as it is for 60 days, so several short hospital stays can become quite expensive. From the 61^st through the 90^th day a $341 per day charge applies. 

The standard monthly premium for Medicare Part B enrollees is $135.50 for 2019. Some pay less and some pay more depending on an income scale. The annual deductible for all Medicare Part B beneficiaries is $185.

This government website gives more details of both parts, but it is clearly not free healthcare with the government picking up the tab.

But there is more. “With Part B coinsurance you typically pay 20% of the Medicare-approved cost of most services, after your deductible is met.” The bill comes from the provider showing the standard charge, Medicare reduces it to the Medicare-approved charge and pays 80%, then the remaining 20% is the patient's responsibility.

But there are also three classes of doctors. The 20% applies to participating doctors. “Non-participating doctors have not signed an agreement with Medicare and therefore might not ‘accept assignment’ for all of their services. A non-participating doctor may take the payment…for 80% of Medicare’s approved cost. But he or she can charge you 15% of the approved cost on top of the 20%.” Doctors who do not accept Medicare assignment can charge in full at the time of the visit.

Part D was added early in this century to cover prescription costs. It is a nightmare of private insurance options, premiums and differing formularies (a list of what drugs are and aren’t covered at different levels by each insurer). And what is available differs by location.

Because Medicare doesn’t cover everything, private companies sell supplemental insurance, sometimes called Medigap plans. There are 10 plans available in most states. “These plans are labeled Plan A, B, C, D, F, G, K, L, M and N, and each plan covers a different set of basic benefits.” How’s that for an additional headache?

Besides the complexity and added costs, two additional problems arise: reimbursement levels and funding.

The Medicare reimbursement to doctors and hospitals is typically lower than private health insurance and much lower than the actual billed rate. (One of my recent bills for a simple annual checkup came in at 60% of the billed rate.) This can discourage providers, who must cover their costs. This source, for example, is not as current as I’d like but “a Kaiser Family Foundation analysis found that 93 percent of non-pediatric primary care physicians were participating providers with Medicare in 2015, but only 72 percent were accepting new Medicare patients.” In addition, a recent change to a flat rate payment program may discourage doctors from accepting Medicare for more challenging medical conditions. Will it soon become difficult, even under the current system, to find a participating doctor? Will fewer young people be inclined to study medicine if the program is expanded, further squeezing doctors' ability to earn an adequate living? All the insurance in the world does not help if you can't find a doctor.

Finally, there is the problem of funding. The money taken from each paycheck (with a matching amount from the employer) pays 88% of the cost of Part A, but the Part A trust fund is projected to be depleted in 2026. This may result in the institution of premiums for Part A. Premiums paid for Part B contribute only 26% to the cost with the rest covered by general government tax revenue. “Medicare spending was 15 percent of total federal spending in 2018, and is projected to rise to 18 percent by 2029.” (This website has some excellent graphs showing current and projected costs with no change to the system, particularly in Figures 6 and 7.)

As it is today the system is complex, and anything but free. It has many of the drawbacks of private insurance systems including waiting months for the paperwork to arrive. Already, many wonder how the government can afford to keep it up. 

This rather long explanation only scratches the surface. “Medicare for all” is easy to promise, but extremely difficult to explain. And, as I wrote years ago, the only way to reduce the cost of healthcare is to address the cost directly in ways that introduce transparency and competition, not by making it easier to pay ever-increasing prices.

Competition is Good

It’s been a while since I wrote about Economic Understanding – that there is no magic money tree. Here is a short refresher.

A few often misunderstood economic concepts are that one person getting richer does not mean others must be getting poorer and that competition in markets usually benefits everyone.

Many politicians try to convince us that rich people got that way by taking money from us. They must be dishonest and greedy. They are not playing by the rules or paying their fair share (whatever that is). When they give examples of those rich, fat cats, they never seem to mention rich people we admire. They omit the professional athletes, TV and movie stars, studio heads, software executives and others who make their millions by bringing us the entertainment we crave. Those people get rich, and they don’t do it by stealing. They earn their money honestly; fans spend freely on tickets and apparel. The majority of other rich people also did it honestly, and if they took advantage of loopholes, that’s what the politicians should be focused on rather than stirring up envy. (Most of those politicians are also very well off.)

In a free society, where people make their own choices about how to spend their money, that money flows to those with the best ideas, best products or best services as determined by some combination of quality and price. Consumers get what they want at a price they are willing to pay, and the providers make a profit. 

This fair exchange, happy buyer and happy seller, keeps the economy growing. As one seller sees a rival doing more business due to a better product or better price, he is motivated to improve quality and/or make the operation more efficient to be able to lower the price. We get better things for less.

Examples are easy to find. In 1975 a good (tube) TV with a 26-inch screen could easily cost in the $450 range. Here is a 65”, Ultra HD, Smart LED TV with good reviews for about the same price. That is a direct comparison without considering that $450 in 1975 would be over $2,200 in today’s dollars. 

 Air conditioning in cars began as a luxury item, but today about 99% of new cars sold have it. And those smart phones owned by many, even some of those considered poor, were unavailable twenty years ago at any price! Anyone claiming that poor and middle class families are not better off today would have to ignore history and economic reality. Examples are so easy to find.

The progress we see all around us, and mostly take for granted, was driven not by government programs, but by the free exchange happening everyday across the nation as consumers made choices based on quality and price. Those free choices forced the competition and innovation that led to generally increased prosperity. Certainly that prosperity is not evenly divided, but that’s not the fault of people we willingly gave our money to.

The idea of competition can be scary, but it only means everyone has to work harder to keep improving price and quality. Where would your favorite sports team be without competition – playing inter-squad scrimmages all year? What fun is that?

One market where competition seems impractical is public utilities. Years ago cable companies were treated like utilities because towns and cities didn't want more than one entity digging up yards and streets to lay cable. Today in my neighborhood outside a small Midwest city, I have a choice of traditional cable, fiber optic cable, satellite dish and soon Internet and TV delivered by my electric utility. Four companies compete and prices are now coming down! 

When the government alone provides goods and services, there is no competition. There is scarce pressure to be more responsive, more customer-oriented, more efficient, with better quality at a lower price. Prices go up at rates greater than that of inflation with minor if any improvements in the product, e.g., public colleges and universities. The post office and the DMV have for years been held up as examples of poor service. If we want their services, or are forced to use them, we don’t have a choice. We take what we get, pay what they demand; and improvements are slow.

Competition should not be scary. Competition is good.

Opinions, Opinions…

It happened at the beginning of this week. James Holzhauer broke a 32-game winning streak on Jeopardy after winning nearly $2.5 million. 

Many people were puzzled and suspicious by his totally explainable final wager. Some thought he threw the game. Some neighbors agreed with and passed along an idea being circulated on Facebook that another win would move him into a higher tax bracket.

First, his wager in Final Jeopardy made perfect sense. Since he had not hit any of the Daily Doubles, he was unable to risk large amounts at a time, a tactic that led to insurmountable leads on previous shows. This was a bit of bad luck. His opponent was quick on the button, hit the Daily Doubles and managed to have a small lead going into the final question – 26,600 to 23,400. She only needed to risk enough to finish one dollar ahead of him in case he risked everything, which is what she did. He understood that his only chance to win was for her to get the answer wrong. If they both got it wrong, he needed to risk enough to still be ahead in case the third place contestant got it right and doubled his score of $11,000. That is exactly what he did – 23,400 minus his “conservative” wager of 1, 399 would have been 22,001. The amount he bet, conservative or not, was the best decision.

People who didn’t understand this jumped right to a subject they likewise don’t understand, tax brackets!

The US has a progressive income tax; the tax rate increases as the taxable amount increases. The tax rate on the first taxable dollar is the same for everyone whether you make one dollar or $2.5 million. The tax on the first $100,000 is exactly the same for everyone $13,874. That is about 14%. Anyone making another dollar pays 22% of that additional dollar. Anyone who makes $110,000, for example, pays the same as everyone else on the first $100,000 and then pays 22% on the additional $10,000. That’s how it works as the brackets change. The rate goes to 24% at $165,000, to 32% at $315,000. The highest bracket under the current system is 37% from $600,000 on up. (All examples are for the status of Married Filing Jointly.)

There is no bracket issue in the $2.5 million range. Taxes would be 37% for every additional dollar.

Note how this misunderstanding lets politicians get away with something that is not quite a lie, but is at least a misrepresentation. As the system works, if they lower the rate for the middle class, it lowers the rate for everyone who makes under $100,000, but it also lowers the rate on the first $100,000 for everyone else who makes more than that – even those evil rich people. Fiddling with the lower tax rates to help the middle class, helps everybody, the rich too. It can’t be helped. It’s how the system is set up! 

Now those same politicians have the power to change the system and make it work differently, but they don’t, they just propagandize.

But the biggest takeaway from the Jeopardy story is not the wager or the tax implications. The biggest take away is how inclined people are to form an opinion, defend that opinion, post it on line and spread the word on subjects they don’t understand and apparently are too lazy to do a little bit of research to find the truth. They are so confident that their opinions are right, because they have been constantly reinforced by others with the same degree of ignorance. Bad information spreads like the plague.

Everyone pretends to understand taxes, but they are too complicated for most people to do themselves, which allows politicians to demonize opponents and tax preparation companies to stay in business. But many other more important and complex subjects fall into this same category of confidently held opinions grounded in a woeful lack of understanding: Social Security, Medicare, the healthcare system, economics in general – such as minimum wage and the comparative virtues of socialism vs. capitalism, government spending and the National Debt and the proliferation of deceptive advertising and junk science.

Many Americans can’t even figure out Jeopardy wagers, yet on issues vital to their personal and to the national success they participate in protests and demonstrations, post nasty comments and cartoons on social media and go to the polls to vote for politicians who are often equally mistaken about how the world works.

Another Tax Day

With the beginning of a new election cycle there has been much talk about another change to what politicians refer to as the healthcare system. It is really just another modification to health insurance. It may improve access to healthcare as more people can afford the insurance, and it may restrict access as more doctors and medical students decide it’s not worth the hassle. Some critics complain that a government-run system will put most of the health insurance industry out of business. As usual the two sides have opposite opinions.

Since today is “tax day,” the deadline for filing personal income tax, I would like to make an alternative proposal. If the government is going to put any industry out of business, it should be the tax preparation business. Think about it; what value does it add to our lives or to society?

Now I have nothing personal against paid tax preparers. Some of my friends and relatives are in that business. And as one site that solicits tax preparers points out: “Tax preparation is BIG business employing hundreds of thousands of people, mostly small business, but with [total] estimated revenues last year of $11 billion. They are also recession resistant as every American is legally required to submit an income tax return.”

Do we get anything tangible and worthwhile from that $11 billion we spend each year? No. We get someone to follow complex rules and add up numbers for us to keep us out of trouble. That complexity is imposed by a government that refuses to simplify the system to a point where everyone could do it for themselves. (We are also required to pay sales tax in most states, but they don’t ask us to stand in the checkout line and calculate it ourselves – and then penalize us if we get it wrong!)

Some will recall back in 2009 several appointees to the Obama cabinet were found to have had tax problems. “Kathleen Sebelius, President Obama's nominee to become Health and Human Services secretary, said in a letter obtained by the Associated Press that she made ‘unintentional errors’ on her taxes and has corrected her returns from three different years.” Obama’s original nominees for HHS secretary and for chief performance officer “withdrew from consideration over tax issues.” Timothy Geithner, who became Treasury secretary, had to pay $42,702 in additional taxes and interest for tax years 2001 to 2004 around the time of his nomination. How user-friendly is a system that can trip up a potential Treasury secretary? 

The whole setup is flawed. It would be like having to hire someone to ride in your car and warn you to slow down because the speed limit signs were too complicated for someone without special training to understand. If that were the case, people would scream until the DOT fixed the problem so we could use our money for something more productive or enjoyable.  But when it comes to taxes, everyone likes their special little benefit, and the complexity persists.

Meanwhile the $11-billion industry adds about as much value to society as being forced by law to hire someone to shovel snow off your sidewalk in the summer. The money buys you a service to unload an unpleasant chore. But that chore is made necessary only by a totally fabricated set of regulations driven by a multitude of diverse special interests, most of which could easily be eliminated if lawmakers had the guts to do it.

Don’t Just Shrug

So often, especially on TV, a news story can go flashing by so fast that we hear the main point and don’t pay much attention to the rest and don't think too much about implications. Before we know it, they've moved on.

Last week the news came out with such a story, that the FDA has approved an exciting new cancer drug. According to an NBC report: “While several drugs are approved to treat a variety of different cancers based on genetic mutations, Vitrakvi, known generically as larotrectinib, is the first that is approved from the beginning to treat cancers solely based on the mutation.” Instead of being approved to treat specific cancers that arise in certain parts of the body, Vitrakvi goes after the genetic characteristic of a cancer arising anywhere in the body. Although it doesn’t work for all types of cancer, this appears to be a significant breakthrough.

But there is a huge downside. In the sub-headline NBC mentions that the wholesale cost is expected to be $393,000 a year.

Another website discussed the cost in a little more detail. “The wholesale cost for the children's syrup is $11,000 for a month's supply and the oral capsules for adults wholesales for $32,000 per month. With insurance, most patients would pay $20 or less for a 30-day supply.” (This last comment is the part that I think would blow past most people causing them either to shrug or to decide that the downside was minimal.) 

But it’s not, and it should make everyone slow down and ask where that money to pay the difference, that is, $31, 980 per month, is coming from. Initially it comes from the insurance companies, but ultimately it would come from premium payers, you and me - either directly or indirectly when employers count the benefit costs as part of total compensation.

Assuming that the estimate is correct and that this drug could benefit up to 3000 people a year, that’s $90 million a year that has to come from somewhere. And neither the insurance companies nor Bayer, the manufacturer, is going to foot the bill out of the goodness of their hearts. The cost will be distributed. Everyone must understand that this is true for all drugs that are covered in part by insurance. As newer, better and more expensive drugs are developed to treat or cure a wider variety of diseases, that same pattern is followed every time. This is basic economic understanding; there is no magic money tree.

This is the kind of information that slides by when we shrug it off without thinking it through.

Side comments: 

Is there any irony in the fact that the same company that makes this new cancer drug also makes RoundUp, a substance many people believe causes cancer and that some lawyers are now advertising about to solicit clients?

How would a member of the if-you-can’t-pronounce-it-don’t-eat-it crowd react if the cure to their cancer turned out to be larotrectinib? 

In other words, why clutter the courtroom and the dinner table with real science when you can rely on misinformation and Internet memes for guidance?

Chiropractic - Handle With Care

Several months ago I noticed a couple of friends going to the chiropractor on a regular basis and tried to talk them into trying a yoga class instead.  They said they were too old and stiff for yoga, a typical response, and besides, Medicare paid for the chiropractor.  I wasn’t sure this was correct, but let it go.

Recently though, I ran across a fact sheet from the government and learned the following: “Spinal manipulation is a covered service under Medicare. However, maintenance care is not considered by Medicare to be medically reasonable and necessary, and is not reimbursable by Medicare. Only acute and chronic spinal manipulation services are considered active care and may, therefore, be reimbursable.”  It went on to define maintenance therapy, which sounded exactly like what my friends were getting.  Of course, I don’t have all the information and may be wrong, or the chiropractor may be violating the law.

From what I have read most chiropractors are honest and sincere.  They and their patients believe that treatment of subluxations in the spine provides relief from pain and other back problems.  Likewise Medicare recognizes subluxation as a problem that calls for medical attention.  But this in itself may be a problem.

One of many skeptical sources shares a different view.  “According to classical chiropractic, a ‘subluxation’ is a misalignment of the spine that allegedly interferes with nerve signals from the brain. However, there is no scientific evidence for spinal subluxations and none have ever been observed by medical practitioners such as orthopedic surgeons, neurosurgeons, or radiologists. On May 25, 2010, The General Chiropractic Council (GCC), a UK-wide statutory body with regulatory powers, issued the following statement:  The chiropractic vertebral subluxation complex is an historical concept but it remains a theoretical model. It is not supported by any clinical research evidence that would allow claims to be made that it is the cause of disease or health concerns.”  It’s like a metaphor that American professionals and  their patients take seriously.

Besides proper coding and billing, chiropractors must also be careful about the results they promise.  Some have advertised that spinal manipulation can improve general health, cure many different diseases, cure children of earaches, autism, and asthma, and prevent spinal degeneration.  None of these claims have any scientific backing.

Then there are the cases of unethical behavior like this one in Utah where the doctor was disciplined for financially abusing two patients and failing to cooperate with board investigations among other offenses.  But ethical failings happen in every profession.

In short, it is smart to be skeptical about the benefits of a visit to the chiropractor.  Maybe yoga, physical therapy or some other stretching routine will yield the same benefits.  Maybe most of the effect is placebo, based on a belief it will work.  All I know is that when I do a weekly review of medical articles, information about an investigation of problems with one chiropractor or another – ethics, false claims, and other problems – appears quite often.

(For a comprehensive scientific critique of the practice, see this YouTube video.  But I know many will read this or even view the video and still ignore facts that don't agree with a worldview they don't want to change.)