• Priceless: Chapter 3

    If you haven’t read my prior posts on John Goodman’s book Priceless, catch up using the Priceless tag. This post pertains to Chapter 3.

    My impression from this chapter is that John likes to paint himself as a warrior against the muddled health policy community. That, in fact, may be an accurate depiction of John, if not the health policy community. It lends itself to a strong sense of purpose and a forceful, argumentative style. Things seem black and white to John. Those who don’t call his black “black” and his white “white” are, in his words, “paternalistic” or “social engineers.” John would have us believe there is no other sensible way to contemplate the world than the economists’ way. Actually, he’s more specific than that: his view of the economists’ way. You can find many smart, capable, health economists who do not agree with him on economics grounds.

    Don’t get me wrong. I like the economists’ way. It can be useful and clarifying. But it is not the only way. It is not in any sense the uniquely right way. That the tone of John’s book suggests otherwise makes it hard for me to read. I don’t see it as a strength. I see it as an overreach. I’m happy for you to interpret this to be a commentary on me.

    For example, John rails against mandated benefits. In a pure economic sense, and provided you accept a host of other assumptions John doesn’t specify, they are inefficient. They drive up costs. Insofar as contraceptives are concerned, there are other ways to increase access, which John lists.

    Fine. If this is John’s black then I say “black.” But is anyone who is for mandated benefits necessarily wrong-headed? If this is John’s “white,” I’m willing to say “tan.” If I need to take off my economist hat to say “tan,” so be it. People have different values. Economic efficiency (again, assuming certain assumptions which may not hold in health care) isn’t the only one. To be sure, I think it would be preferable if more people learned what economic efficiency means and implies, but I don’t demand they check their other values at the schoolhouse door.

    John writes about the visceral dislike “many people in health policy” have for Medicare Advantage. He raises this in the context of what he thinks is a double standard. Some people, he says, let public insurance off the hook for the same crimes committed by private insurers. (By the way, some people do the exact opposite.) To him, it seems, you’re either for Medicare Advantage or against it. You’re either anti-government or pro-government, either in John’s camp or not. It’s black or white.

    Well, sorry. Some of us are neither. Some of us can acknowledge the value of Medicare Advantage to beneficiaries but still lament the large increase in taxpayer funds spent on them in recent years and for a relatively modest increment of additional benefit. Some of us can say critical things about the stewardship of Medicare Advantage while extolling the virtues of a competitive bidding regime for its plans. Some of us can analyze a Medicare reform idea to illuminate both its strengths and limitations.

    I just don’t see myself on the other side of the front in the war John is waging. I don’t see myself in his camp either. In short, I’ve yet to find myself in his book. And again, this is as much or more a reflection of me as it is John. I just wonder if he’s aware how off-putting, even insulting, his approach can be for some readers. (Am I alone?)

    Moving on, he wrote,

    Entrepreneurship cannot be replicated. […] Bill Gates, Warren Buffett and Sam Walton. If we could discover what they did right, and everyone copied their behavior, then we could all become billionaires.

    I agree with John that an expectation that this could work is total nonsense. However, I recall that in a prior chapter, he analogized health care to the iPhone, an analogy I found wanting. Still, if John believes the analogy is apt, then let’s play it out. The iPhone was and is a huge success, earning Apple and its management billions. It paved the way for what one might reasonably call “replication” by other companies. Android and Windows phones are different, but not all that different. The important aspects of the iPhone — what makes a touch screen smart phone great — were in some sense replicated. The market expanded. There is more competition. It’s great! So, is health care more like the iPhone or more like Warren Buffett?

    As this post is getting long, let me move to the lightening round:

    Do you care whether I have health insurance?

    In fact, I do. Same goes for many other people I get to know. In fact, I’m even happy that people I don’t know have health insurance. It solves a problem for me. It helps me sleep at night. Mark Pauly uses this very same expression about this very same issue. Mark Pauly is not muddle-headed!

    [T]here is virtually nowhere you can go to find a rational, well-thought-out, consistent analysis of why you should care whether or not I have health insurance.

    Ouch! That smarts, and especially in light of this:

    If we are concerned that the uninsured will impose an external cost on the rest of us, there is a simple remedy: impose a fine equal to the expected cost of any unpaid medical bills they might incur.

    Sounds familiar. But I can’t quite figure out if it is a penalty or a tax.

    Massachusetts cut the number of uninsured in that state in half through then-Governor Mitt Romney’s health reform. But while expanding the demand for care, the state did nothing to increase supply. More people than ever are trying to get care, but because there has been no increase in medical services, it is more difficult than ever to actually see a doctor.

    It may be difficult to see a doctor in Massachusetts today. But if it is, it appears as if it was just as difficult even before Romneycare was implemented. (This link is to a piece by Jon Cohn based on a Massachusetts Medical Society report, the same one, I believe, that John Goodman mentions in his book.)

    Finally,

    Imagine a preacher, a priest, or a rabbi who gets up in front of the congregation and gets a lot of things wrong. Say he misstates facts, distorts reality, or says other things you know are not true. Do you jump up from the pew and yell, “That’s a lie”?

    No. That would be disrespectful, disruptive, and counterproductive. But, there are other ways to engage opposing points of view. One of them is to exit the dark sanctuary, to mingle among people with less dogmatic presentations of them, and to try to see the light for what it is: full spectrum, not black and white.

    I’ll post on Chapter 4 in a few days.

    @afrakt

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    • Interesting summary of the chapter, Austin. The fact is that in health care — much more than in other fields people operate on assumptions that are rarely made explicit. This makes discussion very diificult if you don’t accept the assumptions.

      Sorry it’s offputtng, but it’s really true that many people in the field hold government and the private sector to different standards, believe that incentives don’t matter and believe that process is more important than results — when they are talking about health ecnomics!!

      If your trained as an economist, you need to be forewarned that you are going to encounter people who assume things that economists do not ordinarily assume.

    • I found the comment about Medicare Advantage off-putting. Maybe it is the economists I read, but I dont see anyone expressing a visceral dislike for MA. What I do see is dismay that a program intended to cut costs, resulted in higher costs. You can argue about whether there is a return on value for that money, but the fact remains that costs went up, which is not what we really needed. I think I have seen as much or more support for competitive bidding in MA on the left as I have seen on the right, again maybe I don’t read the correct lefties.

      I was also puzzled about the entrepreneurship comment. John has repeatedly extolled programs like the one in Indiana. I think he has, feel free to correct me if wrong, suggested that we could learn from that program and institute similar elsewhere. Same for the HSA programs he likes. (I think some of these have some promise. I would like to see them trialed on a larger scale, at least attempting to avoid selection bias.)

      I dont know how we leave out values in a discussion of health care. It is not efficient to take care of ld demented people, yet we do. Same for many of our disabled. Still, I think there is some merit in Heinlein’s (?) statement that we have the ethics we can afford. Let’s make them affordable.

      Steve

    • After some reflection, I realized that the knee replacement surgery example (in Chapter 2) could be used to make a slightly different point from the one in John’s book.

      Of course MediBid only serves the needs of a few wealthy people. The rest of us could not afford knee replacement without an insurance plan.

      Nevertheless, the existence of a service like MediBid allows prices to be found that could be used for setting prices where an efficient market does not exist (or perhaps cannot exist for various reasons).

      I’m not an economist, so maybe I’m not understanding this correctly. But this strikes me as helpful.

      This may have been John’s real point after all!

    • Wheew, Austin. I read your post along with Aaron’s and felt a marked rise in temperature. Then I noticed the earlier clarity had been partially erased. It was then I recalled that we were on chapter 3 “Why People Disagree About Health Policy”. It seems a bit of smoke might have been created.

      Anyway I noted a whole bunch of things that didn’t seem to make sense, but maybe it was because there wasn’t much explanation. John had written that “Entrepreneurship cannot be replicated”  It then seemed that you were trying to make a point asking “is health care more like the iPhone or more like Warren Buffett?”. I didn’t get your point. Many things in health care can function like the iPhone if permitted and one can copy the iPhone or MRI’s since they are just electronic devices, but the entrepreneur, the one with ideas and who understands what the market requires cannot be copied. Does anyone believe Steve Jobs could be replicated? How about the Mayo Clinic? That is why Apple dominated the market.

      I’ll take just one more issue and forget the rest. Why do you care if I have health insurance or not? I have a job and money in the bank to pay for my needs. When I get sick I’ll be paying multiples of what the insurance companies pay and be paying in cash. Why do you wish to force me to carry health care insurance? I think here John has it wrong (if he is talking about me) because a fine isn’t needed for one with assets. They will take my assets at a multiple of what the insurer pays.

      • There’s a difference between caring and forcing. You’ve conflated them. Follow the links.

        • Austin, John said: “Do you care whether I have health insurance?” To which you responded: “In fact, I do” with a further explanation about a neighbor being sick in the link you referred me to. Here you said you were grateful for insurance. Yes many people are grateful for insurance and that is demonstrated by their willingness to pay for it. Am I to take from your remark that it is your preference that I have insurance, but that you would do nothing to compel me to carry it?

          I don’t know what position you take other than what has been written on this book so I have to guess you don’t agree with the provisions of Obamacare that compel me to carry insurance. Am I correct?

          • There are many ways to provide affordable access to basic health insurance (however defined) or health care (however defined). None do not involve some redistribution. Therefore, there are always some who can and will rationally object.

            Also of relevance: http://theincidentaleconomist.com/wordpress/my-opinion-isnt-important/

            • The issue I thought was do you care if I have health insurance to which you stated you did, but the political economic question we are facing is whether you care enough to compel me to buy insurance. Since that question remains unanswered I can’t figure out the reason for you to have commented on John’s point in the first place: “Do you care whether I have health insurance?. You responded as a critique that I thought was a criticism. Instead, I am now led to believe it was just to make note that you care just like when your neighbor was sick. Does that advance our understanding?

              I think care vs compel is a critical issue in the healthcare debate, one that requires intensive study, and I suppose that was the reason for John’s question..

      • “s, but the entrepreneur, the one with ideas and who understands what the market requires cannot be copied. ”

        So John is wrong about HSAs? Just because he thinks they work in one place, we should not assume they might work elsewhere? How about CDHCs?

        ” I have a job and money in the bank to pay for my needs. When I get sick I’ll be paying multiples of what the insurance companies pay and be paying in cash.”

        The collection rate on my self-pay patients is well below 10%. Median net worth now is in the neighborhood of 66k. Your liver transplant will cost about $150k.

        Steve

        • Steve I understand where you are coming from, but HSA’s depend upon the individual not the insurer entrepreneur. It seems the individual is quite able to manage that concept and insurers have been insuring this type of risk for a long time so I don’t understand where you find a problem.

          All businesses have to deal with collection and I don’t see why you should be guaranteed payment. You have many alternatives and for the most part are not forced to see these non paying individuals. You can also charge them up front so there is no problem on the backside. Credit card collections are helpful as well. I’ll bet suddenly your collections would improve. 10% collections is the lowest collection rate I have ever heard of.

          As far as not paying: I don’t know. I have seen hospitals increase the bill 20 fold and then settle at half. I’ve seen a lot of insured patients not pay their deductibles, copays or run out of insurance benefits and not pay as well. I’ll bet the group with assets that are uninsured might put more into the system that those that are insured. It sounds strange but may be correct. After all one doesn’t buy a house over one year so we shouldn’t expect the liver purchase to be much different than the purchase of a house.

          • ” After all one doesn’t buy a house over one year so we shouldn’t expect the liver purchase to be much different than the purchase of a house.”

            I have thought of this, but what would it do to health care spending? That $150k transplant financed like a house then gives us over $300k total spending spread over many years. I think this likely increases total spending.

            Steve

            • @Steve: ” I think this likely increases total spending.”

              If it is the individual who is on the hook for the additional spending, why shouuld you care? You don’t care when they buy that extra 50 inch LED TV do you?

    • “I just don’t see myself on the other side of the front in the war John is waging. I don’t see myself in his camp either. In short, I’ve yet to find myself in his book. And again, this is as much or more a reflection of me as it is John. I just wonder if he’s aware how off-putting, even insulting, his approach can be for some readers. (Am I alone?)”

      No you’re not.

      But since you asked us to be respectfl I’ll just say that given the never ending series of bogus either-or choices, strawmen and the like, I don’t really see any point in reading any more.

    • Here is the latest summary of research on Medicare Advantage plans, provided in testimony by Jim capretta;

    • “Do you care whether I have health insurance?”

      Daysal (2012), “Does Uninsurance Affect the Health Outcomes of the Insured? Evidence from Heart Attack Patients in California”

      http://www.sciencedirect.com/science/article/pii/S0167629612000525

      • Kevin, we can refer to similar studies that involve Medicaid and question whether it is better to be insured under Medicaid than not be insured.

        But, you are talking about the uninsured as a group and I am talking about a person with assets to lose. Should you compel me to buy health insurance if I have both a job and assets in the bank? Furthermore, it is my heart attack. Additionally you recognize that even if you are uninsured hospitals must treat you for urgent illnesses whether you pay or not. If that specific group has worse outcomes that would point to a societal problem not a health care policy problem.

    • I wonder if “off-putting” is really much of a criticism. But it raises a host of concerns I have with how health policy is done. Many in the health policy world are so fearful of “putting people off” that they fail to raise legitimate criticisms of policy proposals. Hence we get a raft of policies that are never fully vetted and result in failure. The list is very long.

      Business works very differently. Business investors are eager to hear criticisms of new ideas, to the point of hiring contrarians to pick apart their ideas. Investors don’t want to risk losing their shirts on a poorly conceived idea. When this process breaks down we get bubbles (dot.com, housing, tulips) in which emotion and enthusiasm overrides analysis.

      The difference between health policy and business investment is that policy people have nothing personal at stake. They can recommend any untested idea, knowing they will not have to live with the consequences.

      • What you’ll see over the full arc of my posts is that John has buried some worthy ideas inside a giant ball of unnecessary fights. This has the effect of alienating potential allies. Most of my criticism is not about his core ideas, but about these ancillary, scorched-earth battles he wages. My advice to him would be to stop trying to (unreasonably and impossibly) win everything and stick to the guts of his proposal. We won’t see those guts until the 2nd half of the book. That, alone, should raise a red flag on presentation style.

        • Austin,

          Good, I will look forward to more. John has a provocative style, but imo that is a good thing. Much policy writing is so dry that it puts me to sleep. Now THAT is off-putting.

          I hope you will concentrate on what you agree with (and why) and what you disagree with (also with the why.) Not one of us has all the answers — or even a fraction of the answers. I am a big fan of John’s but I don’t agree with everything he writes, even in this book.

          I should add that I admire this effort you are making. We need a whole lot more of this. It doesn’t have to be a love fest, but just having an honest dialogue is refreshing.

          • Don’t worry, there will be agreement with rationale to the extent it differs from John’s rationale. In some cases, I just agree with his evidence and interpretation of it. Not much need to say more than, “I agree.”

    • @Kevin: “I agree that it is YOUR heart attack, but according to Daysal (2012) if you are uninsured then YOUR heart attack affects MY treatment and therefore MY outcomes. ”

      How does it affect your outcomes? Since I am paying the bill and many times cash payers pay multiples of the insured price there is more likelihood that your heart attack is negatively affecting mine and that my heart attack is helping to pay for yours.

      • Al,

        If I am insured a provider can expect to be reimbursed, at a probability very near 1, the negotiated rate for service provision. If you are uninsured a provider can expect to be reimbursed, at a probability far less than 1, of the list price for treatment. I agree with you that this list price is likely to be much greater than the negotiated price for the insured patient, but I would argue that the provider’s expected payment (which depends on both the price and the probability of being paid) is far greater for the insured patient.

        In his 2005 paper on insurance status and treatment, Doyle states that during a hospitalization “it appears that one of the first pieces of information discovered (by the provider) is insurance status.” If you are uninsured, the provider does not observe your actual ability to pay, only the expected payment from treating a patient with no insurance.

        In addition to the Doyle paper there are several others indicating that the uninsured receive less care than insured patients. If there are spillovers in treatment (which doesn’t seem like a very heroic assumption at the physician level), then the fact that you are uninsured, regardless of your actual ability to pay, can have a negative effect on my health.

        • Kevin, we are not talking about the other guy we are talking about me. ” I have a job and money in the bank to pay for my needs. When I get sick I’ll be paying multiples of what the insurance companies pay and be paying in cash.” Nothing that you say pertains to me and others like me. We add profit not subtract from it. What is the problem? 

          Of course you realize that other businesses face the same problems and they are able to make a living without guaranteed payment.

          • Al,

            I just laid out a scenario where, regardless of your ability to pay, the fact that you do not have insurance contributes to a negative externality that affects my treatment. If you don’t see that, I’m not sure I can make it any more clear.

    • Kein, I think you are dealing with all patients which might even include illegal aliens. Show evidence that pertains to just questions where the patient we are talking about both has both assets and a job. Realities don’t change just because the words health care are involved.

      Do you understand the process of selection?

    • I know that I am really behind on these posts, but I just started reading the book. I am enjoying these chapter reviews, though. Anyway, Austin, in your initial response to chapter 3 you wrote in response to “If we are concerned that the uninsured will impose an external cost on the rest of us, there is a simple remedy: impose a fine equal to the expected cost of any unpaid medical bills they might incur”:

      “Sounds familiar. But I can’t quite figure out if it is a penalty or a tax.”

      I’m curious: were you agreeing with the author about this? If so, isn’t the ACA mandate penalty/tax too little to be effective in this manner?