Saturday, November 24, 2018

I See Market Distortions and Dysfunctions

Almost everywhere I look, I see non functional markets: education, health care; the financial sides of almost everything.  The cause is always the same: big government.  In particular, the financial distortions that come from our constantly inflating monetary supply and the policies around it.

This was initially prompted by the coincidental combination of an article on Bayou Renaissance Man "Putting health-care costs under the microscope" and one from FEE (the Foundation for Economic Education), "The Idea That the US Has a "Free Market" Health Care System Is Pure Fantasy".

In the latest campaign season, I don't think we went two days without hearing someone advocating "Medicare for All", or "Single payer healthcare".  In a stunning departure from normal political discourse, CEO of the Democratic National Committee Seema Nanda was surprisingly honest.  Nanda admitted she had no idea how to pay for it.
Nanda was asked at a Yahoo Finance summit how Democrats plan to pay for the “very expensive … $3 trillion a year” Medicare-for-all plan that Democratic candidates ran on in the 2018 midterm elections.
“Your answer is I don’t know how we’re going to get there but these are all big conversations we need to be engaged in,” Nanda said.
The impression we get is that we're in a wolves' den of terrible free market forces where providers charge whatever they want and kill off their patients (the two don't seem to go together).  The problem is we aren't in a free market for medical care, with very few exceptions.  We have a bastardized system where the people who pay for the product aren't the ones most affected by it.   Healthcare is paid for by brokers (insurance companies) who skim off a percentage for themselves.  People paying for that insurance pay not just for coverages they want and need, but they pay for many others because lobbyists get congress to mandate all insurance plans cover their favorite expenses; everything from sex change treatments to addiction treatments to other psychological treatments.  Devoted teetotalers are required to pay for addiction treatment coverage.  Families beyond the child bearing years or with no desire or interest in having children pay for maternity coverage. 

Medical costs are scary.  One of the reasons they're so scary are the market distortions we see throughout the medical world.  Almost regardless of what you can save in your life (assuming you're not in the billionaire class), you can be wiped out at the end of your life by the costs of treating your final problems.  This makes people sensitive to the idea of a "safety net" and this is where the interest in things like Medicare for All comes from.  
But let's face it.  A great many voters, whether Republican or Democrat, want to hear the magic words "safety net" when it comes to health care. This is why even voters in Idaho, voted to—as they saw it — expand the health care safety net.
As far as public spending as portion of total healthcare spending, the US is pretty low on the list, however the per capita US government healthcare spending is fourth highest in the world, behind only Norway, Luxembourg and the Netherlands. With the government having a practically infinite checkbook (they just create more debt out of thin air), it essentially doesn't matter how much it costs, because the supply of money rises to meet the demand.

If you want to see a graphical representation of "things that can't go on won't go on", look at this plot of the growth of healthcare spending vs. GDP growth.  Healthcare spending is going up about 4x the GDP.  Where can the money to pay for even continuing the current expense rates come from?  Aside from that, how can anyone argue the practically infinite checkbook of the doesn't add price pressure upwards? 

The point of the article (from Mises Institute and excerpted at FEE) is that the idea that claims we have some sort of free market health care nightmare are false.  We haven't had a market in health care in a really long time, if ever.  With insurance structured as it is, patient and provider never negotiate or agree on prices.  With very few exceptions, providers don't post prices, so you can't shop around for the best value in a doctor, hospital, or whatever.  In general, if you tried to find out what a procedure would cost at a hospital, you'd never find someone who could tell you the cost because nobody knows.  Most patients don't care what it costs as long as the insurance pays for it. They never seem to equate the cost of their insurance premiums with part of the cost of the medical procedures.

I have to believe free market reforms would help immensely, mainly because there's a handful of places where free market principles are already working.  In his usual, bombastic style, Denninger talks about some of this at Market Ticker
When it comes to surgeries (Hospital Part "A" stuff) may I point to The Surgery Center of Oklahoma which routinely, even when it has to buy supplies and drugs at monopolist prices which are 100-500% or more of a market price, manages to undercut the local hospital in your town by that very same 80% I cited as necessary?  Were they able to buy supplies and drugs at market prices it would likely be 90%.  Oh, and you're one twentieth as likely to acquire an infection in said surgery center as your local hospital because they can't bill you for the cost of fixing their own mistakes and as a result they're far more-careful than your local hospital is.


  1. just pay for it

    There's precedent; Nancy Reagan thought "Just say no" would cure addiction and its underlying mental illness.

    The residents of Venezuela and the Soviet Union never become libertarians, even after they started starving. Boomers will soon experience the British NHS system they've implemented. They will admit to suffering. But they will never admit they were wrong, and that they knew all along they were wrong.

  2. Deninger, as usual when he gets outside his lane, is an idiot.

    Nosocomial (hospital-acquired) infections are not billable to the patient nor the insurer, they are a liability assumed by the hospital/provider that caused them. Any other approach goes by the quaint legal term "fraud".

    They've only beaten this into providers' heads for something like a decade or two, which is why doctors and hospitals are death on things like ordering indwelling urinary catheters, which are virtually guaranteed to cause the patient a UTI if left in long enough. It's the same reason leaving sponges or instruments inside people in surgery is an own goal: the doctor and hospital eat the cost of all subsequent care for the sequellae of that little foul-up.

    And surgery centers are rightfully regarded both within the biz and outside it as the bounty hunters of the medical world, because they cut costs by cutting corners on patient safety, and hiring itinerant staff moonlighting from other jobs. If anything goes dreadfully wrong, they ship their mistakes to real hospitals to fix. No wonder they can undercut costs, because they've outsourced everything but the procedure itself; God help you if anything goes sideways, because they can't handle that, by design. Accidentally punctured a lung while doing a boob job? Ship 'em to the ER, then the real hospital OR, to sew up that "Oopsie". And no, they don't include that in their annual statement of average procedure costs. Ask me how I know.

    Go into a pissy-smelling elder-care lash-up, and realize that's the business model for the surgical center.

    Deninger has his moments, virtually exclusively on financial items.
    If he bothered to learn WTF he was talking about WRT health care, he might rise to the level of only bloviatingly inept, instead of completely ridiculous.

    As for the health care market, if you aren't paying for your care out of pocket, you're not the consumer. You're just a guest at the table, exactly like the person who goes to a wedding reception. Your input may be noted, but the person paying the caterer's bill decides what's on the menu.

    You haven't had a free market in health care since before nearly anyone reading this was born, i.e. the 1930s. Your first clue should be that you haven't seen a doctor make a house call in 50 years, because no one's paying for that: you don't want to, and the insurance won't cover it. So unless you live in a mansion and pay cash, you don't get that anymore.

    1. You're also right about government involvement driving costs up, but barking up the wrong tree if you think the money is what's doing it. That's like trying to figure out how the car is running by sniffing the tailpipe.

      That model is correct for college tuition, (which, IIRC, has been a tenfold increase over GDP growth, not a 4-fold one), but that's because college's control tuition. The feds just pay it, hence the move to make student loans for worthless degrees non-dischargable through bankruptcy. The feds and colleges would go bankrupt, as they need to.

      Bt with healthcare, the thing driving up costs isn't the availability of government money, it's the availability of "coverage", to a vastly wide Mississippi River of recipients, while forcing providers to accept literal pennies on the dollar in federal compensation.

      The average reimbursement for an ER visit to doctors is something like 2¢ per dollar of billed cost, both to the doctor and the hospital.

      {Welcome to the other half (besides covering uninsured/homeless/illegal alien patients) of why your Tylenol was billed at $54@. They bill $54, they get $1 from the government, which covers the pill, the pharmacist, the pharmaceutical stock, the pharmacy tech, and the nurse.
      My average is around $40/hr, so if it takes me one minute to read the order, get the pill, bring it and some water to you, and watch you swallow it, I've already spent 67¢ of that dollar, before we even get to what the pharmacist makes his/her minute for verifying you weren't allergic to it and that the dosage and form are correct, and the tech for restocking the machine every shift, let alone the cost of the actual pill (1¢-9¢@, unless they expired and we had to throw some out). If the form ordered needed to be changed, because you can't swallow pills, we're already in the hole, financially. And that's just one aspect of the most basic element of care.}

      Imagine if the federal government offered hunger insurance that was like Medicare. In return for no premiums from you, the government issues you a card good for a meal. So you go to McDonald's for the Big Mac Combo, and Uncle pays Mickey D's 12¢ for the Big Mac, fries, and drink.

      So, you tell me: how long will Ronald and his minions stay in business, before we even get to paying order-taking flunkies $15/hr to screw up a cash register order with pictures of the food where number keys used to go??

      This is also why coding is a medical thing, because if I, the doctor, can find a way to charge for every single thing in a Manhattan-phone book sized list of options, I can manage to squeak out a living, after hiring the coding clerk, and accountant, a lawyer, and two people to prepare the invoices in the format of every different insurance company in existence, simply by ringing you up for everything except the golf pencil you used to fill out the seventeen-page health and insurance questionnaire when you walked into my office. (Government forms and payment being the worst offender there.)

      See if you can figure out why I personally pay for simple services out of pocket, and refuse to carry anything but a catastrophic illness policy. I get the cash price with my PMD, and I get my prescriptions generic on the local pharmacy's low-cost plan, for about $3.33/mo, which is cheaper than my co-pay was with gold-plated Hollywood movie industry Blue Cross.

      the government doing the care at all is what fornicated the system up, and pooch-screwed your costs, while simultaneously requiring you to pay for things you mentioned, as part of insurance companies' Faustian bargain with your congressweasels.

      Government poisons everything it touches, like it was a wasp with VX venom. True x1000 with health care.
      Write it on your hand in case you forget.

    2. And if you figured out (correctly) that in response for having to virtually give away Big Mac Combos to everyone disabled or over 62 with a government Meal Card, McDonald's would immediately raise the price for the same combo to $300, so that they would not only get their actual $6, but simultaneously screw everyone under 62 by forcing them to pay full freight, I should let you know there's a open supervisory position in the hospital's billing office, and you're over-qualified.

      If your rejoinder is that you'd just go to Carl's Jr. or Burger King, be advised that they're on the same program, and for you really snotty ones, Uncle Sam has also made hamburger and condiments prescription items, and banned hamburger buns, home barbeques and George Foreman grills.

      That's the medical system you woke up to five minutes after FDR got done screwing with wages and compensation starting during WWII, and then LBJ invented Medicare to troll for more of the senior citizen vote starting in 1966.

      Nota bene that Baby Boomers couldn't vote on anything until 1967, at the earliest.

      "Greatest Generation" my ass.
      Greatest shuck-and-jive con artists, chiselers, and math-impaired gullible goofballs ever burped onto humanity, more like.

    3. I almost feel like saying, "thank you for understanding what this was about".

      As an aside, my hare-brained theory on the "Greatest Generation" is that they did their "greatest work" in a completely centralized command and control system. No free will whatsoever. "You! Go there! Storm that beach! Take that hill!" They went from living under FDR's socialist command economy as impressionable teens to young adults in an even more regimented life. It's not surprising that at least some of them, maybe even most, thought a regimented, command-driven, society was the answer. I know it's not universally true: just as our anti-boomer friend lumps everyone in that generation into the same attitudes when it's provably false, no social generalizations are universally true. I just think it explains some of what we've seen.

      Back to the real story, I really for sorry for the folks on the "pointy end" of the healthcare stick. They get squeezed and hammered to cut costs, while the administrators and paper pushers don't seem to. There are persistent reports that something like 30% of medical expenses now go to providers and insurance companies fighting each other.

      I used to have a GP I really liked. Over the years, we'd developed a good relationship and I think if we had met and talked in a more social setting we might have hung out together. He quit his private practice to go into concierge medicine. A main motivation was a practice consultant that told him under Obamacare he'd go bankrupt. By going concierge, instead of spreading his time over 4000 patients a year, at 7 or 8 minutes/visit (whatever they schedule), he'd have 400 patients and be able to spend an hour at a time with each one. For $1800/year you see your doctor "as much as you want" and everything is included. (Want? I probably "want" to see a doctor exactly zero times)

      The problem is that I was seeing the doc two or maybe three times a year and $600 or $900 each is a lot for those visits. The $1800 was not reimbursable by insurance or considered a medical expense by the IRS so it's completely out of pocket, but I still needed insurance for things my GP couldn't do. After all, say I get hit by truck while riding my bike (BTDT), my GP isn't doing fancy orthopedic surgery on me, and my concierge payments don't cover a hospital bed or any of the other costs. I end up needing to add the $1800 (actually twice that to include my wife) to my premiums and other out of pocket medical expenses.

      Why? Obviously government regulations, the abrasive grit in the gears of society.

    4. At least twice in my life - and I assume I'm in the normal distribution within 1 or 2 sigma - I've seen decisions for care based on "that's what medicare pays". Once for my mother in law, once for my mother.

      MIL was in good condition for an 85 year old. She used to take 2 mile walks, had no chronic problems (like diabetes or really any others). In what was a pretty freak accident, she fell and broke her pelvis. "How long is she going to be in the hospital?" "Three days: that's what medicare pays for". Off to a rehab hospital and the same situation repeats (only it wasn't for three days, it was longer) A similar story goes for my mom, who wasn't as healthy overall, but also fell.

      I don't know how one would go about making the system more market driven. For one thing, we need to emphasize that insurance is not healthcare. For sure, more reliance on insurance for catastrophic situations and less for mundane things like colds, flu, minor infections would help. That requires educating people on what insurance is. I'd just as soon pay out of pocket for such minor stuff, and with the "High Deductible Consumer Driven Health Plans" Obamacare mandated, we moved in that direction without calling it what it was. The market never responded to that because while you paid out of pocket, it was counted to your deductible. The problem was your deductible was so high, you wanted every penny to count toward it. End result: nobody cared if the cost was too high because "good" came out of it (credit toward your sky high deductible).

      Go looking to see if the dental world might be a model, but that's broken, too. I'm interested in having dental catastrophic insurance, but I'm unable to find it. I'm OK with paying for my own cleanings if the catastrophic insurance pays for rebuilding a 20 year old crown - or worse: rebuilding my teeth if I take a car hood in the face. Nope. They want to pay for cleanings and something for fillings, but pay no more than $1500/year.

      Pre-existing conditions? That's not risk management, that's a known expense. My favorite story is a friend who knows that every year his wife is going to blow through something like $10 or $12k in expenses. She covers her deductible in her first visit every year. The company he worked for reimbursed on it, and as a private company I don't have a problem with them spreading the cost over the company. OTOH, if you're applying for insurance in the private sector and you know you're going to spend far more than a typical person without that condition, why shouldn't you pay more?

      Every so often we hear some talk about making the healthcare markets more open, but it's minor stuff around the edges like shopping insurance across state lines. Nothing fundamental. I think it needs deep, fundamental reform.

    5. Aesop, I work in the healthcare industry, and yours is the best simple explanation of why these costs are out of control that I have seen in a while.

    6. Good luck getting the facility that caused the infection to take responsibility. The 'Informed Consent' form they shove under your nose 15 minutes before the procedure takes care of any loose ends like a post-op infection. The public is screwed, blued & tatooed no matter which way we turn.

  3. That's easy:
    Pay for everything yourself.Every. Thing.
    Make your costs 100% deductible from your earnings to figure your taxable income.
    Period. Full stop.

    That's it.
    You want insurance? Buy it.
    You don't? Do without.
    Problem solved.
    Next case.

    And EMTALA? Require a $100 cash payment for every ER visit, due at sign-in, unless you're actually gut shot, spurting blood, or having a heart attack or stroke.
    If your visit is a bona fide emergency in the opinion of the treating doctor, the $100 gets refunded and you get referred to insurance for coverage.
    If not, you lose the $100, and pay full price same day for services, out of pocket and out of plan.
    Just like it works when you go to a restaurant, buy a suit, or a car, you pay for what you get, and you get what you pay for.

    No complicated paperwork, no deductibles, just cash on the table.

    No insurance? It gets added to your tax bill.
    No job? Welcome to the stripy underwear county work crew.
    Deadbeat patients get the same love as deadbeat dads.
    You'll be filling potholes with asphalt via a long-handled shovel all summer at minimum wage until your bill is paid, and shoveling snow and mud all winter. The average ER visit is >$1000, just for walking in the door.
    So you'll be looking at two-three weeks on the chain gang for every non-emergency visit you wangle without paying.
    Which is great aerobic and cardio exercise, as well as a good shot at getting off alcohol and tobacco cold turkey.

    Psych patient off your meds?
    After the third mental health hold for the same problem, you go into Shutter Island, and you don't get to leave for five years.
    Have another episode, and you go back for 10 years.
    Third time: lifetime institutionalization.
    Game over.

    Brought in because you're drunk/stoned?
    30 days on the chain gang for the first offense.
    6 months the second time.
    10 years apiece for the third or any subsequent time. (And 1 day knocked off that total per year for good behavior.)
    You'll have a good, long time to work out your addiction problems, and you won't be a burden to the EMS, medical, or legal system when you plow into a family stoned or drunk one night coming home, because you'll be tucked up nice and snug every night instead.

    You'll also find out how many people are working the system because they can, when they can't do that anymore, and stop doing it.

    And we'll have the smoothest, cleanest roads on earth, and 99.9999% of the people on them will be stone-cold sober 24/7/365.

    And it'll still cost less than medical care costs.

    Currently, Medicare pays for 30 days' hospitalization for a lot of patients.
    So they get discharged at 11PM on Day 29, or sent to the ER for vague complaints.
    Then when we send them back after midnight, it's a "new" hospitalization, and the 30-day clock game starts again.

    Any facility doing that gets their CEO, CFO, and the nurse who authorized the transfer to the hospital 5 years hard time for fraud, and forfeiture of the establishment to the government, for sale at auction.

    1. Personally, all of that works for me.

      The only thing I think I’d add right now is that there are economic disincentives to “Pay for everything yourself”. Those need to be removed.

      As I say for everything: deregulate!

    2. Can you provide a few DRGs with 30 day ALOS?

  4. Since I was quoted.... :-)

    Start reading here:

    I could go down a few of the above alleged points piece by piece but it ain't worth it. There are some obviously-employed people in this "sector" commenting here and I will simply point out that 15 USC says that virtually EVERY single thing that goes on with pricing and delivery in this part of the economy is a *felony.* Oh by the way the med and insurance industries has TWICE run all the way to the USSC claiming immunity under McCarren-Ferguson and lost *both times.* But since nobody gets charged, ever (how many went to prison for peddling fraudulent securities after 2008?) why would anyone be worried about being cuffed in THIS line of work?

    Don't make this THE issue that must be fixed NOW and when Medicare runs out of money in SIX YEARS and can't pay -- and I remind you that Medicare has a tax rate less than ONE QUARTER of Social Security YET LAST YEAR IT PAID OUT MORE MONEY THAT SOCIAL SECURITY DID you're going to have a really, really BIG Effing problem. Like 3/4 of what Medicare is "supposed" to pay IT WON'T HAVE sort of problem.

    Don't get me started on the Medicare scams -- especially the ones linked to "disability." I've seen that one up close enough; let's just say that you can drink and drug yourself to within literally having one foot in the grave, get disability, wait until you qual for Medicare even though WAY before 65, complain of a back problem and when worked up for surgery instead of draining the several GALLONS of fluid you're hauling around out of your abdomen (which would reduce the load on your back and might actually fix the complaint!) and sending you home, telling you that until you cut the crap with the booze and drugs no surgery for you as it has a high probability of killing you outright they'll instead cut you up and WHEN you code a day or two later in the hospital and wind up nearly dead and in there for over a MONTH flat on your back guess who will get the bill for the many-times larger amount than it should have been?

    Those who pay taxes and show up "next" in said hospital with a not-self-caused problem, which sure ain't the person doing the drinking and drugs.

    Now tell me why the doc and hospital administrator who pulled that crap shouldn't be sitting in a cell with Bubba as their roommate for the next 20 years -- not just for the easy six-figure rip-off that they most-certainly did not eat but *also* for nearly killing the person in question.

    I'm waiting.

    1. I recall your earlier prediction was that Medicare cost growth would ruin the federal budget by the end of Trump's first term. Have you extended that prediction by a few years? Or are the two ruinations of different magnitudes?

      I notice Venezuela hasn't suddenly turned libertarian despite food shortages. I don't expect a sudden turn libertarian here.

  5. They don't go to jail, because merely having a medical license or license to operate a hospital does not make one the moral arbiter of other's life choices.
    The correct solution is to put the penalty back on the person, because as long as there are no financial or legal consequences for stupid life choices, they won't stop doing them.

    You want a change? The future was public medicine in the time of Napoleon (which was when medicine switched from voodoo to science, btw).
    All care post-Revolution was free to anyone. One caveat: you did what was ordered by les medicíns. refuse care, become non-compliant with diet, edication, or other treatment, and your pallet was picked up, carried to the curb, and you were placed there with the benediction, "God be with you and bonne chance, monsieur."

    Enact that precept, that once accepted for treatment, you comply with doctor's orders, including losing weight, laying off booze, drugs, cigarettes, etc. Fail, and your insurance is revoked, and the government and medical establishments alike wish you "Good luck", and you're on your own from there on out.
    You can have all the second opinions you want, because now you're paying for them.

    Call me when you're willing to grant the medical establishment that level of control of your life. Bear well in mind the political leanings of the AMA before you do that.

    I have no quibble whatsoever with the economics of the whole Ponzi scheme that is government-run healthcare.
    Let it crash, and live without.
    That which cannot continue, won't.
    And never should have, nor ever should be started.

    Every one of your points regarding the legalities (and glaring lack thereof) is doubtless true, but you overlook that you have the current situation because government started leaning on the scale in the 1930s and 1940s.

    And a number of medical points are flat out wrong.

    Government-mandated socialism is and always has been a cancer on the entire system.
    Despite being close to retirement age just about the time it all financially sh*ts the bed, I want the whole craptastic scheme to implode. It's the only thing that'll finally get it into people's heads that you can't vote for a living, and TANSTAAFL.

    Just as with injury and medical treatment, pain is a tool.
    Only by letting the current awful system crash can we teach people that stupid actually hurts.

    "No lifeguard on duty" should be the motto of the medical system, instead of saving Darwin's feast from themselves for another run of stupid.

    I have no problem with working on people who've had an accident.

    It's the "on purpose"s that piss me off. Especially the second time.
    Teach that lesson by making people pay their own freight.

    If you tax something, you'll get less of it, and if you subsidize it, you'll get more of it.

    Old you can't help, but stop subsidizing old and stupid. And young and stupid. Or middle-aged and stupid. Clever readers will note a trend here.