Sunday, July 26, 2009

Dizzying Health Care in America

Things I remember from ECON 230 [Economics & Politics] and ECON 332 [Advanced Health Econ].

Basic Facts:

Medicaid: means-tested program that provides health insurance for low-income individuals. Medicaid is federally funded.

Medicare: not means-tested, which means even Bill Gates will receive Medicare. And why shouldn't he? He seems like a lovely fellow. I'm sure he will also need help from the government when he turns 65!
Anyway, it's for people over 65 years old who have paid Medicare taxes.

Medicare funding:
40% payroll taxes, 39% general revenues, 12% beneficiary premiums [yeah, I know, these numbers don't add up to 100, but that's what they are in the Kaiser factsheet]

Part A [Hospital Insurance]: 85% funding comes from payroll taxes (2.9% from employers and employees, each paying 1.45%), the rest comes from general rev.

Part B [Supplementary Medical Insurance/Non-hospital]: 75% general rev, 25% beneficiary premiums.

Part C [Medicare Advantage Plans/private]

Part D [Drugs, but not the bad kind. The gov't will not fund your crackhead habits!]: 77% general rev, 13% state payments for dual eligibility, 11% beneficiary premiums. [again, these numbers do not add up to 100]

U.S. Health Care Spending [click images to enlarge]

From, here.

Why Costs are Increasing
1. adverse selection/moral hazard: Unhealthy people are more likely to buy insurance. People with insurance are more likely to engage in dangerous/unhealthy activities, driving up health care spending.

2. malpractice insurance: Evs, I can't find the paper that we read about malpractice insurance for ECON 332, so correct me if I am wrong. I think this is what the paper said. I'll try to find it later...
Anyway, In rural areas, doctors have fewer patients per whatever unit of area you want to use than in cities. Therefore, when malpractice insurance costs increase, rural doctors pass these costs onto their patients. Since there are fewer rural patients per doctor, these patients feel increasing costs more acutely than do patients in the city. Overall, the impact of malpractice insurance premium increases is not very large...

3. defensive medicine/over-utilization: here

4. technological advances/improved quality of life: Clifford Asness of AQR Capital Management points this out (very avidly) in the paper linked in my previous post. (thanks, tina!) He says, "I’m reasonably certain the cost of 1950’s level health care has dropped in real terms over the last 60 years (and you can probably have a barber from the year 1500 bleed you for almost nothing nowadays). Of course, with 1950’s health care, lots of things will kill you that 2009 health care would prevent. Also, your quality of life, in many instances, would be far worse, but you will have a little bit more change in your pocket as the price will be lower. Want to take the deal?"

4. Americans are fat. When I was home, I saw a commercial protesting taxes on junk food and soda...has anyone seen it? I tried finding it on Youtube, but was unsuccessful. In the commercial, there's a family going camping, and they've packed chips and soda and stuff, and the voice in the background is like, "so many Americans are facing tough times, and now is not the time to tax simple pleasures like chips and blah blah blah. write to your congressman, etc, etc."

I'm sorry, simple pleasure of what? Being FAT? Is it much more difficult to pack baby carrot sticks and peanut butter than chips during a recession? Does the recession somehow make juice and water less appealing than soda? Does being FAT somehow make being poor more bearable? I don't get it...and this is coming from someone who also writes in a blog called Fat Kid Adventures.

Also, don't be like this. If someone asks you why HFCS is bad, you can respond with, "large quantities of fructose stimulate the liver to produce triglycerides, promotes glycation of proteins and induces insulin resistance." [wikipedia] in other words, it makes you FAT.

In one of my many classes with Prof. Johnson (I can't remember which), he pointed out that people who smoke around us are not just hurting our lungs, but they're stealing from us! His argument was as follows:
People who smoke are a negative externality because they are more likely to get lung cancer, throat cancer, etc. Health care spending will go up. As a result, health insurance premiums will go up. Of course, smokers pay more in premiums anyway, but I think the same logic can be applied to people who consume junk food excessively.

Health insurance companies have ways of attracting "good risks." Prof. McKnight told us about "3rd floor walk up" policies - policies that are meant to keep out those who wouldn't be able to walk up three flights of stairs without passing out. For example, some health insurance companies offer deals at ski resorts because they know that healthier people go skiing, spend more time working out, etc.

Sneaky, right? And you thought the health insurance companies just wanted you to have more fun...

Anyway, I need to go study for GRE. I finally registered for Sept. 24th!

But don't worry Tina, I'll post about other countries' health care systems. [South Korea, Singapore, etc] In ECON 332, different groups presented on different health care plans/countries. Those were fun...will post [soon!]


  1. great post! i miss learning! i hate teaching ppl how to write!

  2. Hey found your blog through Tina's fbook -- great post! I especially like the tag "conspiracy fat america"

    Anyways, your post reminds me a lot of this McKinsey Quarterly article "Why understanding medical risk is key to healthcare reform" (

    Your little tirade against fat people (who need lovin' too) illustrates how current healthcare is not doing a good job managing the behavioral-side of health risk. E.g. I'm not going to pay lower premiums if I eat baby carrots over chips and hamburgers.

    Imho, a lot of rising healthcare costs can be attributed to a poor healthcare system that isn't properly incentivizing good health and isn't adequately managing health risk. Take managed care for example. People over use it so they can visit the doctor for a flu check-up when they could easily pay something like that out of pocket. But when it comes to the rare high-cost medical risk, the insurance doesn't cover it.