Economix has compiled two maps to show the relationship between obesity and health care spending.

The map below is from a report on obesity and diabetes released last week by The Centers for Disease Control and Prevention. It shows obesity rates around the country:

Age-adjusted percentages of persons aged ≥20 years with diabetes and obesity, by county. Data for United States, 2007.

The map below illustrates Medicare expenditures across the country (from the Dartmouth Atlas Project):

Data show average age-sex-race-adjusted Medicare spending per enrollee by state and by hospital referral regions for 2006.

I see a clear overlap here.

In a separate post by Economix, David Leonhardt discusses a conversation he had with several economists at the Rand Corporation. While reporting on his column on soda and obesity, he asked the economists to estimate how much money obesity costs the federal government:

They imagined that the American population was no more overweight than it had been in the 1980s and then analyzed how Medicare and Medicaid costs would be different in that situation. (They used a Rand economic model of theirs called the Future Elderly Model.)

The answer: $40 billion.

This is serious money that clearly justifies one of two changes.

On the one you hand, the government could provide the correct incentives that will lead to healthy lifestyles, thus reducing obesity and the financial strain on the federal government. These incentives almost always include taxes.

On the other hand, the government could respect (and accept) the choices people make. If people overeat to the point of obesity, they will personally pay the consequences . Their neighbors will not. In other words, the $40 billion will be paid only by those who spent it.

Of these two options, I pick the second.

Lou Dobbs has left CNN, and Huffington Post provides a round-up of why I won’t miss him; here’s a sample:

And the New York Times’ David Leonhardt takes this opportunity to remind us about Dobbs’ problems with telling the truth.

A report stated ‘real unemployment could be around an all-time high 17.5%. Gerald Celente, a trends forecaster and economist, tells Russia Today that under the algorithm used before the Clinton Administration, ‘real unemployment could be around 22.1% (4:09):

True U.S. Unemployment Rate Stands at 17.5%

by Stephen Webster

7 Nov 09 | Raw Story

According to figures released by the Department of Labor, the real marker of American unemployment stands at 17.5 percent—a figure which takes into account under-employed workers and those who have not sought work in the last four weeks, according to a published report.

“If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression,” reporter David Leonhardt wrote in Friday’s edition of The New York Times.

The report continued: “In all, more than one out of every six workers—17.5 percent—were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.”

While official unemployment statistics were not available during the Great Depression, Department of Labor economists working with the Times estimated that some 30 percent of the U.S. workforce was put out during that period, the report added.

President Barack Obama called the figures “sobering,” responding to widespread media accounts that placed the figure just over 10 percent, noting the department’s calculation of workers who are actively searching for jobs.

“To that end, my economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to create jobs and steps to increase the flow of credit to small businesses,” the president said.

Fred Dickson at D.A. Davidson & Co. said the report “continues to point to an economy that is struggling, but the picture is not nearly as dire as seen at the beginning of the year.”

“Slowly, the trajectory is improving, but, given the huge number of unemployed and underemployed, our view of a very slow economic recovery in 2010 and 2011 remains very much in place,” he added. “This report will not do much to encourage the Fed to raise rates anytime soon.”

The number of unemployed persons increased to 15.7 million. Since the start of the recession in December 2007, the number of unemployed has risen by 8.2 million, the Labor Department said.

The world’s largest economy grew at a seasonally adjusted 3.5 percent annual rate in the July-September period. The increase was the first since the second quarter of 2008.

For the U.S. economic community, the recession will not be over until it is declared by a research panel, National Bureau of Economic Research, recognized as the official arbiter of business cycles.

President Obama on Friday signed a measure to extend unemployment benefits and enact a new tax credit for home buyers.

A new online course helps mid-career professionals transition to a new career.

Marc Freedman, an career author, and the head of Civic Ventures, will be leading a four-art online course during Wednesday afternoons in October helping people to transition to an “encore” career — or a second career a person takes on typically in the “second half of life.” The course is part of the NY Times Knowledge Network.

• Session #1, Oct. 7th, 6-7 pm ET, will provide an overview of the idea and phenomenon of encore careers.
• Session #2, Oct. 14th, 6-7 pm ET, brings non-profit employers together to discuss what they’re looking for when attracting talent from the encore population. David Simms will offer insights from his own shift from the private sector to lead Bridgestar, a nonprofit executive recruitment firm for nonprofit organizations.
• Session #3, Oct. 21, 6-7 pm ET, will feature encore careerists Beverly Ryder and Ed Speedling who will reflect on their transition to working on education and homelessness, including commentary and questions with David Leonhardt, The New York Times’ economics columnist.
• Session #4, Oct. 28, 6-7 pm ET, will conclude with advice and resources for people embarking on an encore career and will feature Marci Alboher, the former New York Times “Shifting Careers” columnist, and Judy Goggin of Civic Ventures.

Marc Freedman will co-lead the workshops along with Nancy Morrow-Howell, a social work professor at the George Warren Brown School of Social Work at Washington University in St. Louis. Marc Freedman is the author of Encore: Finding Work That Matters in the Second Half of Life and founder and CEO of Civic Ventures, the nonprofit think tank focused on Baby Boomers, work, and social purpose.

The workshop is $125 and because you can access it online, doesn’t entail travel costs. Learn more and register here.

In this week’s New York Times Magazine—“The School Issue”—there is a short piece debating whether or not a college education is “worth it.” David Leonhardt outlines various schools of thought: On the one hand, people who earn a college degree earn substantially more than those who do not, far more than the cost of the degree itself. On the other hand, though, college-bound high school graduates are likely a more intelligent/driven bunch than those who don’t go to school at all; this group would probably be more successful even without college.

While it seems obvious to me, and to Leonhardt by the end of the piece, that a college degree is worth the hefty price, it’s less clear to me how the price should affect the choice of a particular school.

What helps complicate the matter is how the prices are arranged in general. Unlike most commodities, in which there is a range of prices that goes from “cheapest” to “most expensive,” colleges basically exist within one of two realms: public or private. Now, there is certainly wide variation within each group, but this is nothing compared to the differences between them; depending on your state, a private college can cost ten times as much as a public school. Those discrepancies are extreme, but private schools that cost four or five times as much as public universities are quite common. Considering the cost of some private schools, these differences can amount to a difference of several years’ full salaries.

There are definitely many substantive differences between cheaper state schools and more expensive private schools. The former often have many disadvantages: bigger class sizes, fewer resources, smaller rooms, etc. But looking at it from a purely economic perspective, it seems hard to argue that going to private school will be ten times better (or even four or five) than going to a public university. Certainly there are scenarios where this is the case—Harvard is probably ten times better than your state school, particularly if you just go by future earning abilities—but the vast majority of private schools are not in the U.S. News and World Report Top 10, yet many carry similar price-tags.

Evaluating colleges in such a price-to-earnings manner may seem reductive. For one, students expect things out of a college experience that aren’t really quantifiable in dollars-and-cents; how much more are you willing to pay for prestige? Or to go to a school near home (or far from home)? Or one of your friends are going to?

Paying for education is not like buying an iPod. It’s not just one aspect of your life; it is your life for four years, and for many after. Who your friends are, what you do in your spare time, what you talk about, where you eat, etc., is all essentially defined by your school while you are a full-time student. It seems silly to pinch pennies in a decision so all-encompassing.

Non-economic reasons should certainly play a role—something so big shouldn’t be based purely on finances and future monetary gain. The problem is that finances are one of the few things about colleges that students can actually know going in. It’s impossible to choose a school because you think you’ll meet your fiancée there, or because your freshman roommate is going help land you your dream job (unless you have some sort of weird flashforward situation going on). It’s even hard to tell whether the academic appeals of a school will be suitable for you; high school students often have very little idea of what they want out of a college (at least, that was the case for me). In other words, the things that make college so important are more often than not unknowable. Prices, on the other hand, are easily attainable, and while predicting future earnings is impossible, you can at least get a sense of what career paths could be enhanced by a particular school.

There are certainly better reasons to choose a school than finances, but there are definitely worse ones. Too often, students end up picking schools for bad reasons, like prestige and name-recognition. You may as well go by the price-tag.

In an article in the New York Times called The College Calculation, David Leonhardt asks the question, “How much does a college education — the actual teaching and learning that happens on campus — really matter?”

A survey by the U.S. Census Bureau shows that the people with bachelor’s degrees make $19,911 more per year than people with a high school diploma.  In a span of five years, a person with a bachelor’s degree will make approximately $100,000 more than a person with a high school diploma.

A quote that would sum up the article:  “College can’t guarantee anybody a good life,” says Michael McPherson, an economist who runs the Spencer Foundation in Chicago, which finances education research. “But it sure ups the odds substantially.”

In the Sept. 24 New York Times Magazine’s “The College Calculation”, David Leonhardt writes about how much does a college education — the actual teaching and learning that happens on campus — really matter.

According to the article, Leonhardt says students are paying tuition and studying hard, and yet they aren’t sure what they would find on the other side of graduation. Also, with the current downturned economy, there has been a surge in college enrollment. So bottom line: Is a college education worth it?

My answer is with a question: Why do we care about finding an answer? Enrollment in college institutions surge and ebb like the sea. There are years when enrollment spikes exponentially and in a similar fashion, falls terribly. This is normal. But the main problem is that I don’t see why we fuss so much about finding a solution.

Even Leonhardt says this himself. “It isn’t too much of an exaggeration to say that the field of labor economics has spent the past 30 years trying to come up with an answer.”

It seems that society now finds it custom for people to have college degrees now. Sure, now it’s proven that people with college degrees make a higher percentage of money but do people really remember everything they learn? I’m journalism major and do I really care what Fibonacci numbers are or how many astronomical units apart is Earth from Saturn. Not really.

But what I really have drilled in my head are Associated Press style rules and how the Penny Press period began (Benjamin Day). Other notable things are news values, media conglomeration, types of leads and that deadlines are worshiped and followed like god.

So is a college education worth? Some parts yes and others no. And granted, I still don’t know what to do with my career or what’s my next school but I seriously don’t need to know the surface temperature of Neptune.

New York Times columnist David Leonhardt’s latest piece is a treasure trove of fun facts about medical malpractice.

To wit:

The direct costs of malpractice lawsuits — jury awards, settlements and the like — are such a minuscule part of health spending that they barely merit discussion, economists say. But that doesn’t mean the malpractice system is working . . .

$60 billion a year, or about 3 percent of overall medical spending, is a reasonable upper-end estimate [of wasteful treatment] . . .

Medical errors happen more frequently here than in other rich countries, as the Robert Wood Johnson Foundation recently found. Only a tiny share of victims receive compensation . . .

All told, jury awards, settlements and administrative costs — which, by definition, are similar to the combined cost of insurance — add up to less than $10 billion a year. This equals less than one-half of a percentage point of medical spending.

Hmmmm. Makes a fellow think.

The NY Times published this piece by David Leonhardt, which I believe does a great job of avoiding the emotion of the subject and examining the matter on the facts alone.  Tort reform is on everyone’s lips as we discuss changes to our health care system, but there is no valid reason why.  Our health system is a mess for a number of reasons, the least of which is the plaintiff bar.  Mr. Leonhardt cites economists who say:

The direct costs of malpractice lawsuits — jury awards, settlements and the like — are such a minuscule part of health spending that they barely merit discussion…

…All told, jury awards, settlements and administrative costs — which, by definition, are similar to the combined cost of insurance — add up to less than $10 billion a year. This equals less than one-half of a percentage point of medical spending.

I have made the point in previous posts, that very few medical malpractice cases are accepted by attorneys and/or go to trial.  The high cost of a lawsuit and the difficulty in proving medical malpractice prohibits excessive lawsuits.  Mr. Leonhardt supports my opinion:

After reviewing thousands of patient records, medical researchers have estimated that only 2 to 3 percent of cases of medical negligence lead to a malpractice claim.

Contrary to the perception of some, we do not have a court system backlogged with frivilous medical malpractice lawsuits which are causing the death of our health care system.  The number of cases and costs attributed to medical malpractice litigation is astonishingly low in comparison to the total cost of our health care system.

Mr. Leonhardt does criticize the current system by pointing out that fear of malpractice leads to defensive medicine which is often wasteful.  Unfortunately, there is no solution to combatting defensive medicine.  States that have medical malpractice caps, or other legislation meant to curb litigation, often have similar amounts of spending.  One reason could be that doctors are paid more for doing more, and the excess testing and treatment is as much financial opportunism as it is defensive medicine.

According to the New York Times:

For the first time since perhaps the Great Depression, it seemed possible that average hourly pay would actually begin falling, even before inflation was taken into account.

But that’s not what has happened.

Wage growth has picked up in the last several months, according to two different government surveys. You don’t hear or read nearly as many stories about pay cuts these days. Even though unemployment has reached its highest level in 26 years, most workers have received a raise over the last year.

That contrast highlights what I think is one of the more overlooked features of the Great Recession. In the job market, at least, the recession’s pain has been unusually concentrated.

And it hasn’t been concentrated in the typical way. Nearly every region and every demographic group has indeed been affected. But the pain has been concentrated within groups.

Yesterday’s New York Times carried a story about dropout rates at U.S. universities. David Leonhardt provides some interesting statistics regarding the proportion of students admitted to university who actually graduate. At elite universities, the vast majority of students admitted will graduate with a degree within six years. However, at universities where the admission standards are lower, the dropout rate is far higher.  Leonhardt writes that while the U.S. “does a good job enrolling teenagers in college, but only half of students who enrol end up with a bachelor’s degree. Among rich countries, only Italy is worse”. He argues that the college dropout rate is a major reason why measurably inequality in the United States has soared in the last few decades and economic growth has slowed.

This article has generated a great deal of online debate, (also see here and here and here) with some people questioning Leonhardt’s rather bold assertions that the high college dropout rate is a _major_ cause of rising inequality and slowing growth. Clearly, a high dropout rate isn’t a good thing, but is it really what’s driving these broad economic trends? I’m inclined to be a bit sceptical of this part of his argument. Leonhardt appears to be using a bit of hyperbole in the interests of bringing our attention to what is an important issue.

As a professor at a Canadian university, this article raises several questions. (I was struck by the paucity of cross-national comparison data in this article, aside from the token reference to Italy at the start. I must say that this article displays the typical United States parochialism).  Anyway, I’m left wondering whether there is similar data for Canada that would allow us to estimate the dropout rate at Canadian institutions of higher education? (There is a definitional issue here, of course, since college has a different meaning in Canada). Which Canadian universities and provinces have the highest dropout rates?

The sources cited in this article include: Failure Factories, from the right-leaning American Enterprise Institute, and Crossing the Finish Line, a new book from Princeton University Press. You can watch an interview of the lead author of Crossing the Finish Line, William G. Bowen, by clicking here.

Update:

I’ve discovered some sources re the dropout rate in Canadian universities. The Maclean’s survey of Canadian universites contains data on retention rates. The Ontario Council of Universities provides information on both retention and graduation rates. In February 2008, the Ottawa Citizen carried a story about “first-year flameouts” and what universities are attempting to remedy the problem of low retention rates.

JULY 31: David Leonhardt, NEW YORK TIMES: The “prostate cancer test” will determine whether President Obama and Congress put together a bill that begins to fix the fundamental problem with our medical system: the combination of soaring costs and mediocre results. READ MORE>

Warning: Do NOT use before making economic policy.

In today’s NY Times, David Leonhardt is very clear about the role of hope and wishful thinking among the Obama economics team.  They got the unemployment numbers very, very wrong and as a result, we got a stimulus package that was underdesigned and oversold.  If you read me or for that matter, Paul Krugman or Joseph Stiglitz, you were warned about the likely result.   While this m.o. among Obama and his minions comes as no surprise to folks here, we’re beginning to see the resulting shock and awe as every one else awakens to policy based on the empty rhetoric of hope and no real change.  Precious time, political majorities and capital are being wasted on an enhanced status quo.

In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent. On Thursday, the Labor Department will announce the latest number, for June, and forecasters are expecting it to rise further. In concrete terms, the difference between the situation that the Obama advisers predicted and the one that has come to pass is about 2.5 million jobs. It’s as if every worker in the city of Los Angeles received an unexpected layoff notice.

There are some fundamental things in the labor market that the Obama Team somehow overlooked.  The first is the unwinding of the automobile network and all the supporting infrastructure around the supply and sales chain.  The second is the impact on the states of low tax revenues and high unemployment insurance payouts.  Some how, in focusing on the impact of the financial crisis, they appeared to haven forgotten some basic underlying macroeconomic dynamics.  At least, that is my take. They  may have kept their eye on the ball, but they failed to look around the bigger field of play.

Leonhardt points to two possible explanations as to why so many very bright people got it so wrong.  He argues that because the stimulus package was designed poorly and hurried through with the rosy scenario coloring the numbers, that it is possible that the stimulus package has done nothing and that as a result, things are getting worse.  That’s hypothesis number one.  His second hypothesis is the more likely one in both his and my opinion.  That is that the economy is deteriorating further and this is despite of the stimulus.  Again, this would be due to a bad forecast and an even worse policy prescription.  So he’s laid out the ground work for the big question while giving a slight nod to some potential for the stimulus plan.

The stimulus package does seem to have helped. But its impact has been minor — so far — compared with the harshness of the Great Recession.

Unfortunately, the administration’s rose-colored forecast has muddied this picture. So if at some point this year or next the White House decides that the economy needs more stimulus, skeptics will surely brandish that old forecast.

Worst of all, the economy really may need more help.

Well, you know, on the one hand, on the other hand.  However, whichever hand you choose, this is a policy failure we couldn’t afford.

Leonhard does try to put the impact of the stimulus into perspective.

There is no ironclad way to judge the stimulus, because we can’t rerun the last six months in an alternate universe. But you can get a pretty good sense by looking at the size of the gap between where the economy is today and where the administration thought it would be: those 2.5 million jobs that would still exist if the forecast had been right.

This gap is just far too large to be explained by the stimulus. The plan that Mr. Obama signed definitely has its flaws. It spends money more slowly than is ideal and spends some of it on projects of little long-term value. But no stimulus package could have come close to preventing 2.5 million job losses over six months.

For starters, a stimulus package doesn’t affect the job market immediately because most employers don’t hire or fire workers as soon as they sense their business shifting. That’s why economists refer to employment as a lagging indicator.

When private economists began analyzing various stimulus proposals in January, they said that none would have a major effect on the jobless rate until the end of the year. By June, the effect would be only a few tenths of a percentage point, which translates into several hundred thousand jobs.

The stimulus that passed may in fact be having an impact of roughly this scale. Consumer spending, after plummeting late last year, is up slightly this year, despite a continuing rise in the savings rate. This combination suggests that spending would still be falling if not for the tax cuts in the stimulus.

So again, this means we’ve seen a moderation but no real change.  I’m again, going to use the term enhanced status quo, because that appears to be what we are seeing in this analysis.  There are still some major shifts happening in the underlying economy and these folks can no longer ignore them.

First, there is a serious movement away from the high, debt-funded consumption of yesteryear.  The marginal propensity to consume is falling, the marginal propensity to save is increasing and this will undoubtedly impact the policy multipliers from now on.  Fiscal policy will have to be bigger.  You can also discount the multiplier by our still increasing marginal propensity to import.  Unless we suddenly start buying American, Fiscal policy will have to be a lot more bigger because we export a portion of it with this scenario.

Again, two major U.S. industries–finance and automobiles–are unwinding.  Every population center with the presence of those industry is going to experience an impact and that will impact the tax revenues for the State and Local Governments (SLGs).  Given we now have states with balanced budget amendments, SLGs cannot stimulate their own economies.  They must grow their budgets because the economy that demands it.  But they can’t because of the straight jacket of those balanced budget amendments.  They must act as agents of recession-creation by law. This makes it even more imperative that big fiscal policy comes from the Feds.  Witness this headline today for California, the state that is typically the canary in the coal mine  for the U.S.

California misses budget deadline, readies “IOUs”

SAN FRANCISCO (Reuters) – California’s lawmakers failed to agree on a balanced budget by the start of its new fiscal year on Wednesday morning, clearing the way to suspend payments owed to the state’s vendors and local agencies, who instead will get “IOU” notes promising payment.

The notes will mark the first time in 17 years the most populous U.S. state’s government will have to resort to the unusual and dramatic measure.

Democrats who control the legislature could not convince Republicans late on Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts but are split over whether to raise taxes.

Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases. They instead see deep spending cuts as the solution to balancing the budget, but Democrats say that would slash the state’s safety net for the needy to the bone.

Tempers flared in the state Senate as the midnight start of the new fiscal year neared.

“There is no excuse to hold this whole state hostage,” state Senate President Pro Tem Darrell Steinberg told Republicans during a floor debate.

Senate Republican Leader Dennis Hollingsworth countered that major cuts are urgently needed. Otherwise, “There will be entire programs that will have to be lopped off,” he said.

Economic policy during a time of crisis should not be based on empty rhetoric.  Change is not a quantifiable variable in the abstract.  Massive unemployment is a quantifiable variable and extremely real.  Step away from the hope bong and get real.  There is no reason why stimulus packages in times of trouble and huge democratic majorities in congress need be simple moderation unless you really don’t know what it takes to make real change.  Economic Policy shouldn’t be based on the rhetoric of change, it should be based on the reality of it.

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Update: How some other economists have framed this:

Brad deLong: Forecasting the Obama Economy

Henry Blodget:  How Obama Blew his Credibility on the Economy

Noam Scheiber: How Did the White House By 2.5 Million?

]]> http://philosophyonthemesa.com/2009/06/29/health-care-is-already-rationed-but-not-rationally/ Mon, 29 Jun 2009 19:25:51 +0000 Dwight Furrow http://philosophyonthemesa.com/2009/06/29/health-care-is-already-rationed-but-not-rationally/

In the Senate’s health care debate, Republicans are stonewalling progress by complaining about the health care rationing that is part of Obama’s plan to reduce medical costs. Obama wants to use Comparative Effectiveness Research to determine which procedures and medications are most effective and direct publicly administered insurance plans to pay for only those procedures that pass this test.

A group of Republican lawmakers led by Sen. Jon Kyl (Ariz.) are introducing a bill that would prohibit any move by the federal government to ration health care based on results derived from federally funded comparative effectiveness research.

But this is silly. We already ration health care

In our present system, medical decisions are guided not by evidence of results, but by what will produce profits for the medical community. Prevention, inexpensive generic drugs, and the avoidance of mistakes are deemphasized because there is little money to made on them. And people who lack insurance get very little care because there is no money to made treating them.

By contrast, people with expensive health plans are over-treated and undergo unnecessary procedures because someone does make a profit on these. This is because all the incentives in our health delivery system are centered around profit rather than what will produce better health.

This is rationing.

To make matters worse, insurance companies make their money by refusing much needed care.

Here is a summary of testimony before the Commerce Committee by Wendell Potter, a former head of corporate communications for CIGNA, the country’s fourth-largest insurer. Via Ezra Klein:

What drove Potter from the health insurance business was, well, the health insurance business. The industry, Potter says, is driven by “two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.”

Think about that term for a moment: The industry literally has a term for how much money it “loses” paying for health care.

The best way to drive down “medical-loss,” explains Potter, is to stop insuring unhealthy people. You won’t, after all, have to spend very much of a healthy person’s dollar on medical care because he or she won’t need much medical care. And the insurance industry accomplishes this through two main policies. “One is policy rescission,” says Potter. “They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment.”

And don’t be fooled: rescission is important to the business model. Last week, at a hearing before the House Subcommittee on Oversight and Investigation, Rep. Bart Stupak, the committee chairman, asked three insurance industry executives if they would commit to ending rescission except in cases of intentional fraud. “No,” they each said.

Potter also emphasized the practice known as “purging.” This is where insurers rid themselves of unprofitable accounts by slapping them with “intentionally unrealistic rate increases.” One famous example came when Cigna decided to drive the Entertainment Industry Group Insurance Trust in California and New Jersey off of its books. It hit them with a rate increase that would have left some family plans costing more than $44,000 a year, and it gave them three months to come up with the cash.

This is rationing too.

The problem is that this rationing is based on arbitrary criteria that have nothing to do with producing good health.

As David Leonhardt wrote recently:

…There is no such thing as a free lunch. The choice isn’t between rationing and not rationing. It’s between rationing well and rationing badly. Given that the United States devotes far more of its economy to health care than other rich countries, and gets worse results by many measures, it’s hard to argue that we are now rationing very rationally.

[…]But flat-out opposition to comparative effectiveness is, in the end, opposition to making good choices. And all the noise about rationing is not really a courageous stand against less medical care. It’s a utopian stand against better medical care.

We have finite resources to spend on health care. We can never provide as much care as people want or need. So rationing is inevitable. The question is whether there is an ethical basis for the way we ration.

If you think wealthy people deserve more costly (though often ineffective) care than they need, and middle class and poor people deserve far less than they need, then I suppose you think the status quo is just fine.

Apparently, that is what Republicans think.

Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

or Visit the Website: www.revivingliberalism.com

I’ve been having a great e-mail exchange with a college friend of mine over the healthcare debate. This post is going to be a collection of my thoughts on various plans and links other healthcare debaters have put out recently. An attempt to aggregate a large cross section of ideas in one place.

Liberals want government sponsored healthcare. Conservatives are worried about paying for it. Libertarian-types are worried about the growth of a single party and the growth of government in general.

Mythbusters: Mankiw tackles the healthcare numbers. Maya MacGuineas weighs in on the cost savings myth. Arnold Kling screams Free Lunch!. Mankiw on the healthcare- international-competitiveness-fallacy. Again. And again. Mankiw even cites Krugman! Ryan Avent disagrees with Mankiw. Ezra invokes Stein’s Law. Megan McArdle responds.

Nate Silver looks at the numbers and shows what effect lobbyists are having. David Leonhardt talks rationing. Russell Roberts responds to Leonhardt. I’ve discussed Leonhardt’s piece before.
My thoughts:

I’m inclined to believe that compensation levels are dictated by the labor market. Such compensation includes both wages and non-cash benefits like healthcare; an accounting identity. There exists a sort of stickiness to the labor market because we have wage contracts and union agreements etc. So if healthcare costs grow rapidly, workers are going to become expensive to employers relative to the benefits of having the employees. If they want to keep their jobs they’ll have to take pay-cuts or, at a minimum, accept not getting raises. If the government takes healthcare off the books of firms, it may make things simpler for the firms, but this new found “competitive advantage” will largely be eaten up by higher wages for workers the next time negotiations are made, either individually or collectively. I’ll conceed this adjustment is long-run in nature and the transference may not be dollar-for-dollar. Markets aren’t perfect, they’re just the best we have.

Does this new government solution solve the crushing growth of healthcare spending? I am deeply skeptical. The CBO scored the bill Congress is proposing. I do not trust our current Congress to reign in spending. They can reference comparative effectiveness research all they want. Politicians don’t know how to say no. Arnold Kling captures the dichotomy perfectly. For a lengthier explanation by Kling and Roberts, listen to this podcast. Or read Arnold’s book.

If the Obama Administration gets healthcare in the public budget, expect higher taxes. Sooner than one thinks.

They can try to force the insurance companies to cover more stuff, legislate against pre-existing condition denials, or even install “compensation caps” for doctors and nurses. They tried that with Wall Street and the bankers jumped ship. Do you think doctors won’t follow suit?

Congress can rail for hours about how spending now creates savings later. Nonsense. As long as we have a third-party-payer system, costs will tend to rise, not fall. People providing services (such as healthcare) respond to the pressure exerted by the people who are responsible for payment. Right now this mean insurance companies. A government plan would mean some bureaucrat is calling the shots. Not my idea of change. Until the patient becomes the center of the care providers attention, we won’t see much change in the way of costs or outcomes. Bryan Caplan knows how to tell which services are reasonably priced. We could all learn a few things by re-reading Milton Friedman.

Incentives matter. If the patient is responsible for the payment of services received, the provider will have a strong incentive to make certain the patient experiences the best outcome possible. Or the patients won’t come back. And since the patient is likely to be on a budget, the healthcare provider has to reign in costs if they want to perform such services. Evil profit motive! What pair of incentives could possibly be stronger forces than the two I’ve just described?

I’ll have more details on what such a system would look like in the near future. I’m still working out the details in my head, but I’m sure I’ll have an outline sketched before Congress does something worthwhile.