Price Transparency: What To Do and What Not To Do

priceless_180x270I’ve written about sky-high hospital prices in this blog, especially for uninsured patients who present at emergency rooms. A related issue is price transparency. In most normal transactions, it is not hard to discover the price you will pay for a good or service. Indeed, for most ordinary items, prices are posted and we do not even spend much time negotiating.

For much of health care, this is untrue. It is usually very difficult to learn the price of a service from a doctor’s office or a hospital before receiving treatment. Doctors and hospital managers will often reply that they don’t know what the right prices are either, because charges are subject to adjudication by insurers.

When uninsured (and, increasingly, insured) patients are shocked by bills they receive after treatment, they often balk at paying inflated charges. This results in bad accounts receivable for hospitals, which I have argued is a necessary pain to cause hospitals to change.

While everyone outside the health sector agrees that more price transparency would be beneficial, others often propose solutions that increase government regulation. One example is a recent report written by the Pacific Business Group on Health, a group of large employers in Northern California.


Medicare Advantage

Uwe Reinhardt had a column the other day in which he argued that:

  1. We are paying Medicare Advantage plans more than we pay for similar patients in traditional Medicare.
  2. Enrollees in traditional Medicare are paying higher Part B premiums in order to subsidize the higher MA payments.
  3. This is bad public policy; we should instead have a level playing field for subsidies for both programs.

Now here is a surprise: I agree with Uwe.

Here’s a second surprise: I bet if they could get a real level playing field, the health insurers that offer MA plans would agree as well.

But Congress has not been willing to allow this. Politicians don’t just interfere with overall payment rates, Congress actually gets into the weeds and dictates payment rates on a county-by-county basis. The reason: to protect vested interests in the districts members of Congress represent.


U.S. War on Poverty Failed While Global Poverty Declined 80%: Economic Liberalization Begets Prosperity and Equality

50 years after LBJ declared a “War on Poverty,” the U.S. would do well to take a page from the global playbook—whereby economic liberalization and more open trade has resulted in an 80% decline in abject poverty since 1976.

The graphs below, taken from the National Bureau of Economic Research Working Paper, “Parametric Estimations of the World Distribution of Income,” surely ought to impress even the most avid central-planner:

world poverty graph


Least Surprising Health Research Result Ever: Medicaid Increases ER Use

Emergency-Room-Medicaid is a welfare program jointly funded by federal and state governments, which claims to provide health insurance to low-income people.

A few years ago, Oregon expanded Medicaid enrollment by lottery. This created an excellent environment to study the effects of being uninsured versus being enrolled in Medicaid, because it approximated a randomized-controlled trial — the gold standard of medical research, but seldom conducted in the social sciences.

The latest result of the study, published in Science, reported that Medicaid increased use of emergency rooms by 40 percent (gated abstract here, and reported here).

This result is important for anticipating the consequences of Obamacare. About half of the 30-plus million people expected to get health insurance under Obamacare will be enrolled in Medicaid, not private health insurance. Already, the administration asserts that four million new Medicaid enrollees have signed up via Obamacare (but this estimate has been questioned).

Nobody should be surprised: Despite politicians’ assertion that Medicaid coverage increases the likelihood of using primary care rather than an ER, the evidence points clearly to the contrary. For example, in Massachusetts, ER use soared by 17 percent two years after Gov. Romney’s law mandating insurance coverage came into effect.


Retiring Teacher Seniority in California?

California is legendary for its protection of unionized teachers. But if a new measure makes it onto the November ballot, voters would decide whether California teachers would have to bank on more than seniority to keep their jobs.

Matt David of StudentsFirst submitted the measure to the Secretary of State last month, where it’s awaiting a title and a summary before signatures can be gathered. The issue of teacher seniority remains a contentious issue in California. School districts have laid off more than 30,000 full-time teachers since 2007-08, largely based on who was hired last, not how well those teachers performed. Last year the Legislative Analyst’s Office reported that the “state values seniority in the layoff process.” Specifically:

Current law requires that districts lay off teachers in inverse seniority order. ...basing employment decisions on the number of years served instead of teachers’ performance can lead to lower quality of the overall teacher workforce. California also is different than many other states—the majority do not prescribe seniority–based layoffs but rather allow school districts themselves to decide how to lay off their staff. ...we recommend exploring statewide alternatives that could provide districts with the discretion to do what is in the best interest of their students. Ideally districts would use multiple factors in making layoff determinations. ...[such as] student performance, teacher quality, and contributions to school community.

While many good teachers are likely being pink-slipped under California’s last-hired-first-fired policy, teachers accused of sexual offenses against students remain on the job and on the taxpayer payroll. As drafted, the proposed ballot measure make it easier to fire such teachers.

Improving the quality of California’s teaching workforce starts with sensible hiring and firing policies. This ballot measure will certainly be worth watching.

Judge the Pope’s Exhortation by Results, Not Rhetoric

18536992_SPope Francis recently urged all people to have greater compassion for the poor. And to his credit he emphasized the moral imperative of helping to reduce poverty around the world. Unfortunately, the approach advocated by Francis would result in more human suffering, not less.

In his strongly worded apostolic exhortation “Evangelii Gaudium” or “The Joy of the Gospel,” Francis blamed capitalism, which he sees as essentially a zero-sum system, for much of the world’s poverty:

Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.

Francis believes that under a capitalistic system people get wealthier by feeding “upon the powerless.” The rich get richer by making the poor poorer. His solution, therefore, is to redistribute money from the rich to the poor:

I encourage financial experts and political leaders to ponder the words of one of the sages of antiquity: “Not to share one’s wealth with the poor is to steal from them and to take away their livelihood. It is not our own goods which we hold, but theirs.”


Extortion, Part II

Extortion...COVER_-677x1024I recently discussed Peter Schweizer’s book, Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets. I want to mention one example from Schweizer’s book, to give a better idea of how this extortion occurs.

The Foreign Corrupt Practices Act (FCPA), passed in 1977, prohibits US companies from bribing foreign government officials, but Schweizer notes that the law is ambiguously written and inconsistently enforced. This opens the door for extortion, and Schweizer (p. 130) argues that companies that help politicians with fund-raising are less likely to find themselves investigated and prosecuted for FCPA violations.

Schweizer quotes a Duke University law professor (p. 147) who says, “The nature of contemporary federal criminal law magnifies the potential for mischief, because the definitions of the relevant offenses are both broad and vague, giving the prosecutors extraordinarily wide discretion on which there are few checks.”

Schweizer notes that while FCPA applies to payments to foreign governments, members of the US Congress ask firms for financial contributions all the time, as a condition for either getting legislation to pass, or stopping the passage of legislation that would harm the firms. That is a main theme of his book.

Schweizer (p. 149) quotes a former president of Shell Oil who says, “The Foreign Corrupt Practices Act basically says you can’t give gifts to foreign government officials—which includes campaign contributions and donations to certain charities. Of course, that’s what we get asked to do all the time from Washington. Why doesn’t the FCPA cover Washington?”

The obvious answer is that these corrupt practices that are illegal for US corporations to engage in overseas benefit the Permanent Political Class when they take place in Washington. What’s illegal overseas is almost mandatory in Washington because the people who write the laws benefit from that arrangement.

Contraceptives for Nuns? Government at Its Most Absurd

How absurd can a law be, to force nuns (who have taken vows of both poverty and celibacy) to explain to the state why they don’t want to pay for contraception? That requirement was too much for Supreme Court Associate Justice Sonia Sotomayor, who issued a temporary injunction against Obamacare’s mandate that health plans must cover contraception.

I am not sure it is possible to describe all the absurdity of the contraceptive issue in a few hundred words. And I do mean “all,” because some of the law’s opponents are engaged in a disproportionate response to the contraceptive mandate.

But first, the law itself. As a religiously affiliated organization, the Little Sisters of the Poor is exempt from the mandate. However, the law requires the order to file paperwork to that effect with the third-party administrator (TPA) of their health plan. They cannot just pay for a health plan that does not cover contraceptives without a co-pay.

Perhaps this bureaucratic burden is a fraud-prevention technique. There may be groups of lascivious atheists who plan to dodge the contraceptive mandate by dressing in black habits, registering as non-profit religiously affiliated monastic orders, and praying most of their waking hours. But I very much doubt it.


Medicaid Expansion Means More ER Visits

priceless_180x270A number of years ago, Governor Romney told me that under Massachusetts health reform people would go to physicians’ offices for care instead of going to the emergency room. He wasn’t saying that Massachusetts would deliver more care. He was saying that the care would be more appropriate and less expensive.

As it turns out he was wrong. Traffic to the ER in Massachusetts today is higher than it was before the state’s health reform was enacted.

The same argument has been used by President Obama and by supporters of the Affordable Care Act. And now it turns out they are wrong too. As the New York Times reports:

The study, published in the journal Science, compared thousands of low-income people in the Portland area who were randomly selected in a 2008 lottery to get Medicaid coverage with people who entered the lottery but remained uninsured. Those who gained coverage made 40 percent more visits to the emergency room than their uninsured counterparts during their first 18 months with insurance.

This is consistent with our own predictions in an NCPA study done soon after the ACA was passed. Ah, if only they had listened.

* * *

For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

[Cross-posted at Psychology Today and John Goodman's Health Policy Blog]

A Review of D. Eric Schansberg’s “The Economics of Health Care and Health Insurance”

tir_18_3_210The notion that everyone must have health insurance to acquire medical care has reached such a level of obsession that it almost deserves its own entry in the Diagnostic and Statistical Manual of Mental Disorders (the guidebook for mental illness that has grown so bloated with diagnoses that even the National Institute of Mental Health withdrew its support this year).

Imagine if you showed up at a party late on a rainy evening and your friends asked you why you were delayed. “I had to stop to replace my windshield wipers,” you answer. “What car insurance do you have?” they reply. “What does that matter? I didn’t have an accident on the way here. The new wipers worked fine and I saw the road clearly.”

There follows a general wailing and lamentation that the new wipers are “preventive care” and should therefore be “free”; that you will likely go bankrupt if you have to pay out of pocket to keep your car running; and the government needs to do something to guarantee that nobody has to buy their own windshield wipers.

You would certainly think that your friends needed some help with their mental processes. But, of course, they are not mentally ill. They simply have a fundamental misunderstanding of the role of insurance in health care. Like most Americans, they need to be introduced to a correct understanding.

For that, they would be well advised to consult D. Eric Schansberg’s “The Economics of Health Care and Health Insurance” in the latest issue of The Independent Review, vol. 18, no. 3 (Winter 2014), pp. 401-420. Schansberg reviews a significant number studies, which show that when preventive care is insured, it tends to be over consumed. This increases health spending, despite what politicians like President Obama claim.