Old Movie

When you’re not an economist (I’m not), you have to seek wisdom everywhere. Here’s some from a very old movie: We’re in a small town during the depression. No one’s spending money. No one has money. Two guys drive up to the local hotel and hand a bag full of cash to the clerk to put into the hotel safe. The hotel owner can’t resist the temptation to take the cash and pay off local creditors who are pressing him. the men in sunglasses announce they are leaving tomorrow, and the hotel owner switches to panic mode. Life is over if he doesn’t come up with cash by tomorrow. He visits people who owe him money, and they are able to pay him now, because he paid off their creditors the day before. He is able to replenish the bag in the nick of time. The men and the bag depart, but they leave behind an improved economy. People have money and they are spending it. The original stimulus is gone, but the thought of it lingers. People have confidence that there is money in the system.

Many years after seeing this movie, I worked on a project to build a controller for a pump. The controller was sensitive to the integral of the inflow pressure and varied the pump speed to keep this pressure close to zero. If you took water out of the inflow tank, the pump gradually slowed down. If you added water, it sped up. If you think of this model as the economy, and the water as cash, the only way to speed up the system is to add more cash. If you add too much, water spews out the top and gets everything wet. That’s inflation. The only entity capable of adding cash to the U.S. economy in a meaningful way is the government. Private business won’t do that, because there’s no prospect of a return on the investment. If the government adds too much cash, there is a risk of inflation. The precaution is to increase taxes on the rich to finance the program and adjust those taxes as needed to keep the cash flowing but inflation in check.

The Federal Reserve tries to do this in a token way. By increasing interest rates, they discourage private business from borrowing (and spending) money as a way of tamping down inflation. However, ony the government can spend significant amounts of money without thinking about return on investment. Think instead about repairing bridges and highways. Think about building out mass transit. Money for these projects goes to workers who pay taxes and spend money on other things that generate more taxes. Eventually, the money comes back, hopefully before the guys with sunglasses look for their black bag.

 

GOP Health insurance Bill

Catherine Rampell┬átoday joined a long list of writers to urge consideration of the GOP Healthcare bill as a tax bill. Consider the primary purpose is to make health insurance more expensive or not available to lower income individuals and use the money saved to grant tax benefits to the rich. Then, the legislation makes sense. It does, in fact, eliminate most of the subsidies that made health insurance affordable to lower income participants and also eliminates some taxes on the wealthy. In addition, there are cuts to Medicaid which will leave tens of thousands–perhaps millions–of patients without insurance at all. With these facts on Post-it notes, then the bill makes sense. It accomplishes those goals.

Who are these people who would be disadvantaged by the GOP bill? They are, of course, mostly in the lower 1% income bracket. Rappahannock county, where I live, has lots of them. This county ranks 64th in the list of 3,084 jurisdictions in the country for income inequality. (John McCaslin, The Rappahannock News). I know some of these people. There is Mark, who is incapable of meaningful work. Drugs and alcohol are no longer part of his life, but they were a dominent feature for too long. And Paul, who lacks a high school diploma and the will to obtain one. He subsists on occasional manual labor jobs. Neither has health insurance. Visit any nursing home, and you will see numerous residents who will be without a bed when Medicaid stops paying their bills. These are real people. A prior felony conviction prevents many or them from voting in Virginia, so they depend on the rest of us to hear their voice.

Certainly, we do not want to add impedimets for their obtaining healthcare when needed. They will suffer and become sicker without the insurance ticket to healthcare. Some will die. But they will not disappear just so we can provide tax breaks for the rich. Those who have so much should provide for those who have so little.

 

Pundit

As politicians and pundits move politically to the right, they seem to lose all common sense and reason. George Will is one such example, and I seldom read his column. He is usually wrong. About everything. But his June 27 column does outline some of the important issues in the healthcare debate. Here’s what George says:

He opens with the assertion that Democrats used secrecy and obtuse methods in passing the original ACA, so it’s OK for Republicans to do the same thing now. While this may be partially true, it’s a strange message. “It’s not a nice way to do business, but since you did it before, it’s OK for us to do so now.” In fact, the ACA did include many Republican ideas, partly to seek bipartisan appeal. Romney-Care in MA included many provisions of the ACA. Obama wanted a single-payer, Medicare-for-all approach but abandoned that idea in deference to a broader appeal.

Yes, there is considerable debate over the relative roles of Federal versus State governments in healthcare. However, the variable implementation of the Medicaid expansion demonstrates that a strong Federal effort is required to ensure coverage of all. Virginia, for example, did not elect the Medicaid expansion, and thousands of citizens in this state do not have access to healthcare as a result. Despite statements by HUD Secretary BenCarson that poverty is a “state of mind,” the poor in this state are denied access to healthcare, because the state government failed to provide them with the benefits available in the ACA.

Although it polls well nationally, healthcare did not seem to be an issue with voters in the recent special congressional election in GA. They elected a Republican. Remember tho, the demographics of voters did not include the poor. Those who did vote were clearly not thinking about access to healthcare by the poor.

He mentions the relative importance of healthcare for Americans in 1900 versus today. The relevance of such a remote date is not clear, but there was certainly no need for health insurance in 1900. Not much healthcare was available, and it was cheap. That, of course, has changed. Healthcare has become insanely expensive so that even those who are secure financially regard health insurance as a necessity to pay for their care. As expected in such an environment, the poor depend heavily on government programs for access to healthcare.

We speak glibly about “health insurance,” but this is not insurance in the classic sense. In this country, health insurance is what pays for healthcare. Without such insurance, you almost can’t get healthcare. Even those who can afford to pay for the requested healthcare reflexly present their insurance card at the doctor’s office.

One key provision of the ACA was a requirement to provide insurance for those with “pre-existing conditions.” Conservatives (and insurance companies) don’t like “insuring people who are already sick.” A closer examination, however, suggests that the alternative is totally unacceptable. Insurance companies would cancel policies as soon as there was any suggestion of illness, thus depriving the patient of the benefits he had subscribed to. There is also the question of what defines “sick.” Does a genetic predisposition for a given disease constitute a preexisting condition? How about breast cancer that was successfully treated 10 years ago. Risky hobbies or habits? Smokers? How about just being old? the choices rapidly become absurd, so the best approach seems to be to insure everyone.

He brings up, without discussion, the appropriate role of government in healthcare. His implied solution is to provide premium support where needed but avoid involvement in health insurance or healthcare. Such an approach is not even debatable at this point. The horse has left the barn. For many years, most healthcare in the U.S. has been paid for or provided by the federal or a state government. Medicare, Medicare, the military, and the VA are huge payers and providers of healthcare.

There is also the argument about whether the premiums for employer sponsored health insurance should be taxed. This point is becoming increasingly moot, as deductibles and copays increase, so the cost to consumers dwarfs any tax advantage. The original thinking was that making health insurance and hence healthcare more expensive, people would use less of it. This would decrease the amount the country as a whole spent on healthcare. Although this might have been true at the fringes in the past, it is no longer important as more of the costs of healthcare have been passed to the consumer through copays, deductibles, and denial of coverage.

In the end, Will concedes that “repeal and replace will become tweak and move on.” If the original intent of the ACA was to provide access to healthcare for everyone, that goal has been largely met. Expansion of the Medicaid option to all states would largely complete that process. Then we could get on to the next problem, the cost of drugs and individual healthcare services.

HEALTHCARE 101

Here’s how the system works. Any discussion of the current debate over the ACA or attempts to change it requires some understanding of the system behind the law.
First, one basic concept that escapes many people: the difference between healthcare and health insurance. This is all the more confusing, because there are situations where the two are the same. Let’s start simple and work up.
At a basic level, there are three P’s, PATIENTS, PROVIDERS, AND PAYERS.
You (PATIENT) get sick. You go to you doctor (PROVIDER). He sees you and sends a bill to your insurance company (PAYER) for his services. Your insurance company expects you to pay some of the cost of your visit (copays and deductibles). The reason for this cost-sharing is to discourae you from seeing your doctor too often. These costs to you have increased recently, so that insurance probably pays little or nothing for your visit.
PATIENTS come in various sizes, ages, and levels of health. PAYERS would like to select only young, healthy individuals to insure. At one time they were alowed to cancel policies the instant you became ill or refuse to insure patients they thought might become ill. If you had a family member with a preexisting condition, you might find it difficult to find a job because your employer’s health insurance would not cover you. The ACA prevents all this, but some want to bring it back. Some aspects of your health are personal choices. Who wouldn’t like to lose a little weight or exercise more. Ever look at college yearbook pictures or old movies and notice how thin everyone looks. Smoking and drinking are also in this category.
PROVIDERS include two basic categories: your doctor is a Licensed Independent Provider–an individual who is licensed by your state to provide certain healthcare services. Physicians have been joined by an expanding list of other professionals who can provide healthcare services and bill PAYERS for those services. Dentists, podiatrists, and nurse practitioners are three examples. The other category is the setting where healthcare takes place: the hospital or clinic. Some of these institutional providers bill independently for furnishing the setting (including supplies and other personnel). This is the hospital bill. Sometimes, the institutional provider employs the practitioners who interact with you. University hospitals are one example of this.
PAYERS originally just paid the bills for the healthcare you chose to obtain. Now, however, they are involved with decisions you make and where you go to get healthcare. They negotiate fees with institutional and professional providers and try to steer you to those providers by paying little or nothing for services from providers outside their network. One problem with this arrangement is that you may encounter several independent providers at the institution/ hospital where you go for care. Some of these providers may not be in your insurance company’s network, so their fees are not covered.

It’s also not an open market. It’s hard to find a single physician practicing in his own office. Group practices are the norm, and many of these are owned by hospitals. Hospitals try to obtain a monopoly in a geograpic area, usually through mergers and acquisitions. The motivation is money, and prices always go up when this happens. PAYERS have no leverage when there is only one PROVIDER in a geographic area.

Occasionally, PAYERS own the facilities and employ the professional providers in a Closed Panel system. Kaiser, the military, and the VA are examples of this arrangement.

Notice from this discussion that you, the PATIENT, pay the PAYER for your health insurance. The cost of your insurane premium is driven by the cost of healthcare. Individual providers may charge whatever they want for their services unless they have a contract with your insurance company. Even so, copays and deductibles may run the cost of your care far beyond what your insurance company pays.

Healthcare doesn’t have to be expensive. There is incredible waste in the system and no motivation for eliminating it. In general, PAYERS pay whatever PROVIDERS charge. They have to. There is no competition on price, particularly where the hosptal has a monopoly. MEDICARE once instituted price competition in the durable medical goods sector (wheelchairs, etc.), and saved 30% in the first quarter. Congress immediately passed a law forbidding price competition in MEDICARE.

Other countries have less expensive healthcare, and you can go outside the U.S. for healthcare. It’s called Medical Tourism. Professional providers in Bangkok and Manila use practitioners who trained in the U.S. and are board certified by U.S. boards. Your insurance company will not pay for your care, so this is most useful for those who have no insurance. Beware also that it is not the same care. Surgeons may be competent, but hospitals lack the regulations and safeguards that make healthcare safe and reliable in the U.S. Nurses in the U.S. have graduate degrees (MSN). Many nurses overseas have only a high school diploma.

Health insurance in this country will not get cheaper until healthcare in the U.S. gets cheaper. And that will not happen until there is motivation, such as price competition. When you see hospitals going bankrupt because they were under-bid on MEDCARE contracts, then prices will come down.

 

Education

We have, in this country, the possibility of world class education. The system, however, is not without problems. At the top end, there are economic barriers to university level education. Many students today graduate with large debts without prospects for jobs to repay those debts. Higher education has become too expensive for ordinary people with modest resources. The costs for higher education have grown much faster that any other sector of the economy. This is a problem that must be dealt with, tho the solution is not obvious. A satisfactory resolution will benefit individual students as well as the country at large. Ask candidates for their ideas. Demand approaches that have a reasonable chance of success.
At the other end, we waste too much time before starting children on their learning journey. Children begin to learn before they are born. The newborn can recognize the sounds of his own mother’s voice. One oft-cited fact is that children learn a foreign language by age two. They can even learn more than one language at the same time. Reading and writing at age 4 is not a stretch goal in the proper environment. To take advantage of this capability, we should place children in a prepared environment by age 3. Preschool is provided in Washington, DC. It could become the norm everywhere. A corollary, however, is that the school system above must be prepared to receive children who can read and write well before the first grade. Gains from the Head Start program frequently fade when those children enter a school system not prepared for them.