By J.D. Seagraves, on September 24th, 2008
To the surprise of most observers, Ron Paul – who claimed he would stay neutral between the presidential candidates of the Constitution and Libertarian parties – endorsed the Constitution Party’s Chuck Baldwin in a blog post made on September 22. Baldwin acknowledged and accepted the endorsement the following day.
Paul, whose candidacy brought together people from diverse ideological backgrounds, is taking a lot of heat for endorsing a man who cites the divisive Jerry Falwell as a hero and mentor. However, where Paul and Baldwin differ most greatly is on the issue of international trade – a subject of particular interest to economics buffs.
Ron Paul, love him or hate him, is one of the world’s most prominent advocates for pure laissez-faire. In fact, many supposed capitalists think Paul goes too far, so it’s important to note that in opposing NAFTA, the WTO, and other “free trade” deals, Paul does so because they put too many rules and regulations on trade.
Baldwin and other right-wing populists – as well as many left-liberals – oppose NAFTA because they’re against international trade. They are protectionists, and as such, they believe in “protecting American jobs.” Paul thinks the best way to create jobs is through real free trade – the exact opposite position.
The Constitution Party’s platform calls for tariffs on all foreign imports to cancel out any price advantages. Baldwin says he favors a 10% across the board tariff on all foreign imports. Ron Paul says that tariffs are “simply taxes on consumers” that “protect politically-favored special interests…while lowering wages across the economy as a whole.”
Baldwin and Paul could not possibly be more different!
You might say, “Yeah, but this is just one issue. Free trade isn’t really that big of a deal, is it?” Well, Ron Paul is a long-time student of the Austrian school of economics, and as a fellow adherent, I’d say that devotion to free trade is perhaps the defining issue – as big as abortion is to Republicans and Democrats.
So why would Ron Paul endorse a candidate who goes against him on a core issue? There are three reasons:
- The Libertarian candidate, Bob Barr, made Paul angry by refusing to participate in the press conference he set up for the four leading “alternative” presidential candidates.
- Ron Paul cares deeply about issues of “national sovereignty,” on which he and his good friend Chuck Baldwin are of the same mind.
- There is one other core economic issue of the Austrian school and the Paul campaign: opposition to the Federal Reserve, and on this issue, Baldwin scores.
If asked to sum up Ron Paul’s campaign in two words, I’d say “anti-war, anti-Fed” (or is that four words?). Baldwin passes that litmus test for Paul, but it’s up to the Congressman’s million-plus followers to decide if Chuck Baldwin makes the grade for them.
By J.C., on September 24th, 2008
I was reading an interesting article the other day that used the term “cyberchondriac.” I couldn’t stop laughing at the apt description of a patient who used the internet to gather information about their health concerns. Cyberchondriacs have been described in the popular media as ranging from those with neurotic excess to hypochondria. In my experience, it is common to have a cyberchondriac as a patient.
In my practice, I describe a cyberchondriac as a patient who does research on their condition or who comes up with a self-diagnosis based on their reading. They often tote a stack of papers and articles with them in to their doctor’s appointment. They usually take up more than the allotted 20-minute time slot per patient, and they usually have a slew of questions regarding their diagnosis. If your diagnosis of them is not consistent with what they have read, they will ask even more questions. Often these are the types of patients who will call your office wanting to speak with you and leaving messages with specific questions.
Most doctors are not big fans of cyberchondriacs. I actually am a big fan of them but just not in my practice. They tend to take up way too much time and really throw off my schedule. Additionally, they often have unrealistic expectations about their prognosis. With that being said, the reason I am a fan of them is that I think everybody should be a cyberchondriac.
Whenever I have a bump or bruise or ailment, I immediately start reading my textbooks or looking up stuff on the Internet. Patients who have this tremendous resource at their hands and do not utilize it place a lot of faith in the medical system and their physicians. I have been on both sides of the treatment table and know that, the more you know and the more you can take control of your care, the better off you will be. Physicians are not always correct, and the system moves very slowly. At every step of the way, it does pay off to be a cyberchondriac and make sure that no one has dropped the ball.
I like to view the medical system as a logistical pathway that ends with treatment, follow-up, and resolution. It’s kind of like when you order something online. A good online store will have a great logistical system and will email you or allow you to check online the status of your order. If there is a delay, you will get an email notice of it. If your credit card expires and they need updated information, they will notify you of this online. And finally, you get that email saying that your order is shipped and that you can look up the tracking number online.
Unfortunately, there is no logistics feedback in the process of medical care. If you have a problem with your knee that requires an MRI, radiologist read of the MRI, follow-up appointment, surgery scheduling, pre-operative lab work, etc., there is no way you can find out how all of this stuff is going. Did your MRI results come back? The only way is to bug the office and keep asking if the doctor got the result. Were your lab results OK? The only way to find out is to call the office or come back for another appointment.
It’s a real cumbersome system, but the cyberchondriac is the one who challenges and demands that the system works better for his own care. Someday this will all change but not until we have a world of cyberchondriacs that demand change. When an office becomes inundated with phone calls and demands for lab results from cyberchondriacs, it will figure out an efficient way to provide feedback on the progress of medical care.
By Stephan Zimmermann, on September 23rd, 2008
“Necessity is the mother of invention” says one old proverb. What better time than right now to think and plan for new, innovative approaches to problems facing all of us?
Unlike the various candidates trying to garner votes, I am neither a politician nor on a “do good” pedestal.
I am a trained, retired educator who spent the majority of my career teaching college economics. Fortunately, I was also able to consult to entrepreneurial ventures, helping start-ups to avoid the many pitfalls that cause some 90% of ideas to fail.
Among many others, the economic assumption of “maximization” was chief among them.
It is basically unheard of in the American context not to maximize anything, especially profits. The events of last week show graphically the dangers inherent in maximizing as major American institutions failed.
It may be highly idealistic to think that individuals, rather than the federal government, can make effective changes in the approach to American business.
“Satisfycing”
However, individuals are slowly warming to the principle (eloquently coined by Nobel recipient Herbert Simon in 1978) of “satisfycing” rather than “maximizing.” Based on Simon’s writings and lectures, “satisfycing” refers to a decision-making process that seeks a satisfactory answer rather than a maximized solution.
The question, of course, is a philosophical one. Conventional wisdom teaches that maximization is an overall goal of economics.
That was, of course, before the current domino in the financial crisis fell last week.
There are, however, proven positive and realistic applications of “satisfycing,” provided that the basic nature of mankind can be swayed.
One immediate, feasible example lies in the reclamation or restoration of what is less than euphemistically referred to as “slum housing.” Often, these blights of abandoned houses, lots overgrown with weeds and crime-riddled neighborhoods have arisen through economic or social dislocations. Many of those are directly attributable to maximization of profits at the expense of individuals’ livelihoods and their homes.
The reclamation of slum projects is not new.
The most famous and seminal experiment of slum neighborhood reclamation is perhaps Brooklyn’s Bedford-Stuyvesant section. The decline of the neighborhood can be traced to various business and social factors tracing back to the eras following World War II. It was not until the late Senators Robert F. Kennedy and Jacob Javits tackled the problem in 1967 through the formation of the non-profit Bedford-Stuyvesant Restoration Corporation.
However, it took much of the 40 years to succeed since Kennedy and Javits sowed the seeds of the reclamation of Bedford-Stuyvesant.
Despite massive injections of cash and substantial political influence, in the short run, Bedford-Stuyvesant struggled. For most of its 40-year history, slum conditions, including drugs, violence and a generally segregated character of the neighborhood, prevailed. Many critics proclaimed the social experiment a failure.
It was not until after the turn of this century that “gentrification” occurred in the area. Today, Bedford-Stuyvesant has become a thriving, multi-racial neighborhood of New York.
“Gentrification” carries with it its own set of social ills. It generally occurs when middle-class individuals move into a depressed area and displace poorer or racially diverse residents. The Haight-Ashbury area of San Francisco, the haven of hippiedom in the 1960s, was another World War II slum until the hippie movement and later the gay explosion in San Francisco resulted in “gentrification,” restoring it to a culturally diverse neighborhood.
Urban renewal across the nation had various positive and negative effects.
Success, however, took the major portion of half a century. Social criticisms range from big business profiteers, to failure to address the fundamental requirements of poverty, to environmental damage.
Greater immediate success could have been achieved had an understanding and acceptance of the concept of satisfycing, rather than maximizing, been prevalent in economics and business thinking. More importantly, reliance on the individual, rather than on the federal government’s forced income redistribution policies, could provide the necessary fuel to success.
The concept may be idealistic but is certainly not without precedent.
Habitat for Humanity
The “Fund for Humanity,” which achieved fame after former President Jimmy Carter’s involvement in 1984, spurred Habitat for Humanity to international fame. Founded in the 1940’s, the non-profit, non-governmental organization now exists in 90 countries. Branches exist in all of the 50 states of the United States. The organization builds new homes for needy individuals on a non-profit, no interest basis. The privately funded organization proudly points to its record of constructing more than 250,000 homes. It relies heavily on volunteers, together with individual emphasis on pride of home ownership coupled with an established work ethic.
While Habit for Humanity focuses on building new homes for needy families worldwide, a slow trend is emerging in slum reclamation using the various applications of the theory of “satisfycing.”
Individuals who share the philosophical perspective work with private community leaders to provide slum reclamation on a non-profit basis with zero or low interest rates, applying some of the ideas of Habit for Humanity.
Individual experiments are being conducted especially in towns and cities that have experienced lost jobs and economic dislocations before the current financial crisis. Abandoned homes quickly attract the various elements of slum creation.
The positive impact many of these individual experiments are making, however, is hardly headline-grabbing. Individual projects often require close, individual supervision. It may require three to five years for concrete effects to be realized in a particular neighborhood. That timeframe, however, is significantly less than the 30 or more years it took for Bedford-Stuyvesant and others to achieve success.
Moreover, this mode of reclamation of distressed communities does not have to carry with it the inherent pitfalls of social or environmental ills too often resulting from governmental projects.
The private, individual experiments have resulted in social improvement in the community, reduction in high crime areas and the creation of new jobs. Most of the new jobs created are in small business, creating both a new sense of independence and self-esteem to accompany the new status of home ownership.
Acceptance and exercise of the principle of “satisfycing” can result in upgraded and improved sections of the town or city with stable residents who were previously marginally or unemployed “slum residents.” Considerable social and community benefits can be obtained without the stigma of federal government “giveaway” programs at the expense of the taxpayer.
Prescient individuals not tied to conventional economic theories can both create substantial tax write-offs under the satisfycing principle, while creating social benefits directly in their community without a massive federal bureaucracy and the control it invariably entails. More importantly, it can restore the self-worth of individuals who may have been forced, through the effects of profit maximization, to live in less than desirable circumstances.
By Bhagwad Jal Park, on September 23rd, 2008
Let’s try and reason together on what offshoring is fundamentally doing to the economy. Economic situations are complex only because of the large number of factors that need to be taken into consideration for a given situation. However, the factors themselves are usually simple.
By taking a single factor and removing the rest, we can follow up on the effect and thus be able to understand the direction in which it takes us. Let us do this with offshoring. We will be touching on issues like the meaning of wealth to the printing of money. Keep in mind, that we aren’t professional economists. Just following up on some ideas that are interesting.
So what is offshoring? Offshoring, or outsourcing, means the taking of a job and giving it to someone else who is in another country. Obviously this person needs to be paid, albeit at a lower cost. Now an economy works by everyone contributing something. This means that the customer who is at a supermarket is actually serving someone else somewhere. So a customer in a grocery store can become the salesman in a shoe shop, and a teller in the grocery store will become the customer in a shoe shop.
 Image Credit: re-ality
So all employees are customers for someone else. If there was just one big corporation in the whole country, then all the employees of that corporation would also have to be it’s customers. This is necessary for the circulation of money. The employees of this big corporation will buy goods from it with the same money that they receive in salaries from that very corporation. So it goes round and round.
In real life, there is more than one corporation, but the basic principle does not change. Money that is handed out as salaries is flushed back into companies that give out the salaries after passing through many hands. For example, a man gets paid to work in a grocery store. He uses the money to buy shoes and pays the owner of the shoe shop who then uses that money to buy groceries and pays the grocery store owner. What goes around comes around.
Now what happens in offshoring? I can see two interesting things happening. First of all, when you pay a person in another country, the person is not going to use that money to buy goods in your country. That money is gone forever from the economic system. Second, that person is going to spend money in her country that has not come from any business generated in that country.
Let us look at the first point. Since money has gone out of the system never to return, the total amount of money in the country has gone down. And since the total amount of money is finite, logically, this cannot continue forever unless new money comes in. Most of the time, offshoring is one way. That is, if one country offshores to another country for a cost advantage, then the offshoring country will not provide services back for the destination country because it is by definition more expensive. So the offshoring country only outsources and does not return the favor.
This means that the new money can only come from printing extra money. If this doesn’t happen, then the cost of goods in the offshoring country will fall because there is now less money chasing more goods. If this happens, then the cost advantage in offshoring will slowly be nullified! It makes your head spin.
Conversely, the cost of goods in the providing country will increase because there is more money chasing fewer goods since the goods or services are being exported out. This means that, due to inflation, the cost advantage of the providing country will be gradually reduced, and offshoring will become even less viable.
Where does this end? The only way to prevent this is for the offshoring country to print more money and thus keep the amount of money in circulation constant. But then this means money is being printed for the sole purpose of buying goods and services from outside. This will lead to disastrous consequences for the value of the currency.
Of course, this is just one extremely simplistic view. If we factor in the fact that the economies of both countries are growing, then it becomes a race to see which is more: the rate of offshoring or the growth of the economy? In other words, are you paying others more than you are earning yourself?
I hope you’ve enjoyed this discussion and will post your comments in order to give a better insight into the dynamics of this complex and exceedingly interesting issue.
By G.L.C., on September 23rd, 2008
In 1932, Congress created the Federal Home Loan Banks to prop up thrift institutions during the Great Depression. Today, there are 12 regional Federal Home Loan Banks. Their main business is low cost loans to their more than 8000 owners, which include commercial banks, thrifts, credit unions, and insurance companies. Like Freddie Mac and Fannie Mae, they are also Government Sponsored Enterprises, entities owned by private shareholders but chartered by Congress to perform a public mission. This special status enables them to borrow inexpensively on the bond market. Because of their special status, investors assume that the federal government would bail them out of any crisis.
The 12 regional Federal Home Loan Banks are among the world’s largest borrowers. They have about $1.3 trillion of debt outstanding. Ever since they have taken on a bigger role in funding banks and thrifts, their debt has ballooned 34% since the end of 2006 mainly because the credit crisis dried up other sources of funds for banks and thrifts.
The present credit crisis has already compelled the federal government to take over Freddie Mac and Fannie Mae. Many are now wondering if the federal government will eventually have to bail out the Federal Home Loan Banks as well. The Federal Housing Finance Agency, which overseas these home loan banks and acts as their regulator, is confident that the federal government will not have to step in.
Another worrying factor is that some shaky firms like IndyMac Bancorp, Inc., which was seized by regulators in July, also received advances from these home loan banks. But these advances are backed by collateral. When a bank fails, home loan banks have priority over other creditors, including the Federal Deposit Insurance Corporation.
Many experts have always criticized the concept of Government Sponsored Enterprise and called them flawed and unviable. The federal takeover of Freddie Mac and Fannie Mae have only strengthened this argument. Many are predicting that the Federal Home Loan Banks could be next. But it might just remain predictions.
Unlike Freddie Mac and Fannie Mae, the Federal Home Loan Banks have managed to remain profitable despite the present crisis. Their reported combined net income for the second quarter of the year is $718 million. This is a 14% increase from the figure for the same period last year.
But there are warning signs. One of them: the Federal Home Loan Bank of Chicago reported a loss of $152 million for the first half of the year. The loss was caused partly by hedging costs-related interest rate risks on mortgage investments. But the Chicago bank can take heart from the fact that another home loan bank – the Seattle Home Loan Bank – suffered a $9.1 million loss in the last quarter of 2005 but has since returned to the black. The loss in 2005 was also caused by mortgage investments.
These banks do not have publicly traded shares. Only the members or customers own shares in these banks, and these shares change hands only at face value.
By Cheryl Grey, on September 22nd, 2008
Everything’s bigger in Texas, including hurricanes, and Ike was almost the size of the state itself. The storm shrieked overhead and pounded Houston for twelve hours, dumping more than eleven inches of rain, interrupted at the halfway point by the shivery calm of the eye passing overhead. Listening, I thought often of those communities on the coastline suffering the full brunt of the storm; the devastation was going to be horrendous.
Of all weather-related disasters in the United States—tornadoes, lightning, floods—hurricanes cause more than half of the damage inflicted, according to the National Science Board (NSB) in its report Hurricane Warning: The Critical Need for a National Hurricane Research Initiative, and this cost is rising each year. Although it’s tempting to blame that rising cost on inflation, it’s actually caused by the ever-increasing infrastructure being constructed on vulnerable coastlines. Granted that not all hurricane damage occurs on the beachheads, and Ike’s swath of destruction slicing north from Texas all the way to Canada and Greenland is a graphic illustration of that; nevertheless it’s a fact that 50% of the U.S. population lives within 50 miles of a coastline of some description, and with the continued investment in infrastructure in these regions, this escalation of devastation can be expected to continue.
My neighborhood escaped with only shingles and branches down, but Galveston, High Island and the Bolivar Peninsula were smashed, and the people who refused to evacuate may never be found. The Chase Tower, the tallest building in the state at 75 stories, was severely damaged, and showers of glass turned downtown into a hard-hat zone. But the 1,600 offshore platforms and 26 refineries in Ike’s path weren’t battered as much as originally feared, with currently only 49 rigs reported lost or seriously damaged and twelve refineries already restarting.
Effects on GDP
The Houston-Galveston area’s economy will take a hit alongside its people and businesses. Asset losses will require months to tally, with early estimates running between $8 and $18 billion of insurance claims. According to the NSB’s report, actual economic losses due to hurricanes are estimated to be double the insured loss, as unemployment and lost industrial production will also weigh on the area. With three million barrels per day of refinery capacity trying to restart, 93% of the Gulf of Mexico’s offshore crude oil production shut in and more of Houston’s industrial and business facilities without power than with it, that hit to local and national gross domestic product (GDP) could be severe.
The diagonal swath of destruction that sliced across the eastern U.S. will push those costs even higher, and the third quarter national GDP reading will take a hit that could drive it into negative territory. Disaster relief funds will drive up the federal deficit and lower the scorecard even further.
After Katrina and Rita struck the Gulf Coast in 2005, national GDP fell from 3.8% in the third quarter to 1.3% in the fourth.
Of course, the rebuilding of Galveston, Houston and all storm-smashed areas will contribute to GDP readings. Sales of home repair materials, dry goods, ice, take-out food and healthcare services will surge; regional unemployment will fall as construction workers, utility repair workers, engineers, insurance personnel, healthcare workers and fast food clerks are hired to meet each area’s needs. Industrial output will initially slump as electricity and services are restored and employees are diverted from production to clean up and safety checks, but each area will soon be back in business.
Far-Reaching Effects
Research conducted by Bradley Ewing and Jamie Brown Kruse of Texas Tech University suggests that while the short-term effect of a severe storm on regional unemployment figures is adverse, the longer-term effect may be positive as communities rebuild, putting people back to work and constructing a more resilient infrastructure.
However, those who point to that fact as some sort of consolation prize for these areas miss the point. These are not new funds generated from the expansion of the local economy; these are funds diverted from other uses, and discretionary purchases will slump as people concentrate on the necessities. Even if a flattened building is covered by insurance, it’s a loss to the insurance company, making the nation poorer as a net result.
The calculated losses from hurricanes do not include now impossible alternative economic scenarios, and no amount of rebuilding can make up for what is lost. Like the financial fiasco drubbing Wall Street, somebody has to pay for it.
By Evelyn Black, on September 22nd, 2008
I confess I wasn’t happy to wake up Wednesday morning and find out that Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson had decided to put taxpayers on the hook for up to $85 billion in loans to AIG, the world’s largest insurer of mortgage-backed securities.
I was even more dismayed at the news that the Treasury wasn’t just loaning money to AIG (money it doesn’t really have), it had actually seized AIG, relieved its managers of their duties, and had taken over, at least for the short term. So now, the U.S. owns and runs AIG. Wow.
Was that really necessary?
Early on, the talking points Wednesday were familiar ones: lots of “too big to fail” sorts of statements, along with frequent reassurances by government officials and financial pundits that the worst that could come of the AIG bailout would be an orderly dissolution that would not roil markets as traumatically as a sudden bankruptcy would. In a better case scenario, they assured that there was even a chance that the government could actually make some money selling off parts of AIG, since only the divisions that insure structured investment vehicles and bad mortgage debt are unprofitable.
The reassurances fell mostly on deaf ears.
The Dow dropped 200 points right after the opening bell, swung wildly all day but mostly down, and ended the day down almost 450 points. Down 500 on Monday, 450 on Wednesday, what next? Press Secretary Dana Perino was out in front of cameras expressing confidence in the economy’s ability to withstand these shocks, and John McCain was out in front of cameras trying hard not to repeat the phrase, “Our economy is fundamentally sound,” without, at the same time, inducing further panic.
Carly Fiorina, former (deposed, as in “fired”) CEO of Hewlett-Packard was, I think, hiding in a closet somewhere after telling the press on Tuesday that McCain, Palin, Obama, and Biden were all unqualified to run a major corporation. (Many pundits gleefully pounced on the fact that, apparently, so was Fiorina.)
Fiorina is a McCain adviser. But maybe not for long.
Weirdly, the cable news channels seemed much more interested in who was getting the most political traction out of the queasy atmosphere on Wall Street: the McCain campaign or the Obama campaign. Real, thorough analysis of the day’s financial events was not easy to find. At one point, I did catch a brief televised interview with a member of the Reagan administration who expressed the (rather off the wall) opinion that what was most needed to calm this crisis was immediate corporate tax cuts, and lots of them.
That would have been funny if he didn’t mean it, and the markets weren’t really tanking.
While it may seem trite, the problem, as I see it, is that markets don’t like uncertainty, and right now, no one knows how deep these problems go and how many more financial institutions might fail. The government takeover of AIG sent a message that the situation is now dire, so dire that a bridge loan wasn’t enough; nothing less than a complete government takeover would do. Even though the intent was to stabilize markets by slowing down the collapse of AIG, markets were not calmed by the realization that AIG was collapsing, and that it would have collapsed over the course of a single day without government intervention.
It’s hard right now to take in the magnitude of what is happening, but if we all keep in mind how long this bubble has been building, how disguised all this bad debt is, and how enmeshed it still is in the worldwide financial system, it shouldn’t be a surprise. By most accounts, Washington Mutual may well be next, and after that, it’s hard to take an educated guess who else will fall.
Things could go on like this for another week, another month, another year. No one knows.
All of which spells a rough ride for financial markets for the foreseeable future. I don’t think there is anything that will soothe these troubled waters anytime soon. But I’m pretty certain of one thing: these bailouts will not play well on Main Street. People were already upset over Fannie Mae and Freddie Mac. Now we’re taking on AIG, the auto industry has its hand out for $50 billion, no one knows how many banks will fail after that, and ordinary people are getting really fed up.
Wall Street may be in shock. Main Street saw this coming a mile off.
By J.C., on September 22nd, 2008
In response to my last post regarding health insurance companies, I received a comment from a physician who noted that health insurance companies try to make it difficult for doctors to collect payments. I could not agree more. It is the classic example of a big business trying to take advantage of the little guy.
Any regulation scheme that is added to a system adds additional layers of costs. When health insurance companies demand a certain format for billing submissions, this requires the physician’s office to either outsource their billing to a third party vendor with expertise in billing, or it requires the hiring of a skilled biller in the office. Both of those options essentially add the equivalent of another person to payroll. If you think you can find an administrative assistant or a medical assistant with skill in billing, then you are wrong.
Health insurance companies are aware that they are the 800 pound gorilla and can push around the small doctors. They have several strategies to prevent physician reimbursement. One easy strategy is to simply not pay claims at all or in a timely manner. A large percentage of claims go unpaid this way because doctor’s offices simply do not have the manpower to chase down unpaid bills. Sometimes the insurance company will simply deny payment and request additional documentation. You can imagine that a typical doctor’s office doesn’t have the time and energy or the infrastructure to track down and reconcile their billing.
Perhaps the most treacherous tactic by insurance companies is to pay less than the physician requests. For example, the doctor will bill out $100, and the insurance company will pay $20. There is no recourse for the physician other than to accept the payment or just stop doing that service for his patients. When health insurance companies offer you cheap insurance quotes, don’t be naive and think that they aren’t taking advantage of the doctors.
I like to relate this whole concept as a scam in which you provide service first but do not get paid. In any other industry this would be unacceptable. Non-payers would quickly go out of business because they would get the reputation for not paying and people would cease to do business with them. Unfortunately, there is collusion in the health insurance system, and there are not that many payers. There is no competitive process as everyone is pegged to Medicare rates.
By R. C. Anderson, on September 19th, 2008
When Adam Hammond went skydiving in 2006, he thought it was something that was going to end the same way as the 1,000 jumps before. However, when this U.S. Army “Golden Knight” pulled his parachute, nothing happened. Hammond hit the ground at over 45 miles an hour and broke his leg, pelvis and spine. Hammond woke six weeks later in the hospital with his father by his side. He considers himself “very lucky to be alive, [for] no one expected [him] to live1.”
After two years of therapy and surgeries, the pain was still so intense it was hindering his recovery. To combat this, Hammond was recommended a spinal cord neurostimulator. This device is only the size of a U.S. silver dollar and emits an electrical pulse to the spinal cord, disrupting the pain signal and replacing it with a pleasant one. After using this for one week under trial conditions, Hammond said, “The week trial was amazing. I didn’t expect those results at all. The day I got back…I was walking twice as far…without any pain at all1.”
According to Dr. Tim Deer, the president and CEO of the Center for Pain Relief, this device could be described as “pacing the nerves of the spine like you would for a regular heart beat, [except] we are going to pace the nerves that control pain1.” With this stimulator now permanently in place under Hammond’s skin, Deer hopes to increase his activity and decrease his dependence on medication. “That’s our main goal, to get him to be vital in his own life and his family’s life,” Deer commented1.
A New Industry
More than 50 million people in the U.S. suffer from chronic pain like Hammond3, and almost 300 million suffer worldwide4. Yet, only 100,000 patients are using this type of spinal cord stimulation technology. Part of this is due to the fact that the medical device industry is only just coming online. Even though it is growing at 20% or more each year5, the industry is far from saturated and is expected to have room for growth of 90%6. By the end of 2008, 44,600 spinal cord stimulation devices are expected to be sold7, but that barely begins to help the millions of people that could benefit from it. Luckily, the medical device industry is predicted to grow from $1.7 billion in 2008 to $4.3 billion in 20128. Growth of this nature will ensure more chronic pain sufferers have access to this type of management system, especially since most health plans reimburse patients for this type of therapy5.
The widespread acceptance and use of this technology is even more desirable when one considers chronic pain costs the U.S. $100 billion annually from lost time at work, healthcare costs and lost productivity9. Of this, $2.6 billion was spent on over-the-counter pain medication and $14 billion in prescription medications in 20044.
Chronic pain due to spinal injuries is not the only problem that can be ameliorated with electrical pulses. Other problems such as severe depression, tremors, Parkinson’s Disease, epilepsy, pelvic pain, angina, vascular disease, occipital headache, obsessive-compulsive disorder, motor dysfunction, brain injury and cortical stimulation are all being studied as potential benefactors of electrical pulse therapy5. One human trial is already underway to see if deep brain stimulation can resolve severe and lasting depression in patients unable to find relief through other methods.
Hope for Depression Sufferers
On June 26, St. Jude Medical issued a press release stating that two patients with severe depression were to undergo surgery to implant a small device near their collarbones. This device will release electrical pulses near the collarbone and travel up wires that are connected to an area of the brain thought to control depression10. According to the National Institutes of Health, 21 million people in the U.S. are depressed in some way. Although mainstream treatments are effective for 80% of these, they fail for the other 4 million in our population. “This…is an important step in…a neuromodulation therapy that…will treat this debilitating form of depression,” stated Chris Chavez, president of the St. Jude Medical ANS (Advanced Neuromodulation Systems) Division.
If the study goes as hoped, it may mirror results found in a Canadian study of 20 patients. This found that, after six months, over half of the patients felt a 40% or greater decrease in their depression. Currently, almost 80% of the patients feel relief, and 40% have began participating in social activities such as employment, dating, education and travel10. Furthermore, 15% were medically deemed to be completely free from their depression.
The improvements made to this type of therapy along with its increased use has the possibility of helping billions of people whether they suffer from depression, pain or disease. In the future, the boom in this industry could lead to a boom in the economy, allowing those held back from work and productivity the ability to regain their life, employment and security.
References:
1 – Video with Adam Hammond and Tim Deer, M.D.
2 – Press Release: Former U.S. Army Parachutist Becomes First Person Implanted with the World’s Smallest Neurostimulator to Treat Chronic Pain. Sept. 17, 2008.
3 – National Institutes of Health; National Institute on Drug Abuse (NIDA) Notes, Vol 23, No. 3.
4 – National Institutes of Health Office of Technology Transfer (NIH-OTT)
5 – ANS Medical Implantable Therapies
6 – The Goldman Sachs Group. Americas: Healthcare, Medical Devices. New York, NY: February 2007.
7 – Millenium Research Group. U.S. Markets for Neuromodulation Devices. Toronto, Ontario: 2006.
8 –Neurotech Reports. The Market for Neurotechnology, 2008 – 2012, San Francisco, CA: 2007.
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10 – Press Release: St. Jude Medical Announces First Patient Implants in Clinical Study Evaluating Deep Brain Stimulation for Depression. June 26, 2008.
By J.C., on September 19th, 2008
I know this is going to be a controversial post, but I wanted to illustrate how silly our health insurance system has gotten.
Back in the old days, people did not have health insurance. Most hospitals were run on donations, and medical visits to the doctor were not so prohibitively expensive that you couldn’t see the doctor without insurance. But the concept of health insurance evolved to be a benefit for employees, almost like a recruiting perk. It got to the point where employees were needed so badly that it became a standard fringe benefit to get health insurance. To help justify the matter was the fact that medical costs rose so that it was almost prohibitive to see a doctor, let alone get a procedure or go to the hospital, without causing a huge financial setback.
Enter insurance companies. Insurance companies came into the picture to help contain costs. They started making sure that doctors did not order unnecessary tests. They started making sure that patients paid some copayments in order to provide a disincentive for overutilization of healthcare. Basically, they didn’t want you going to the doctor frivolously and wasting money.
In order to be financially solvent and even profitable, insurance companies started raising premiums very high. Thus, health insurance costs so much now that it is a huge percentage of payroll expenditure in the United States. Health insurance companies also started playing both sides – they charged patients more and reimbursed doctors less. Thus, as middlemen, they have found a way to save a lot of money and put it into the pockets of their MBA administrators.
But the problem with the system is that health insurance companies are so profit-driven that they actually penalize you for having pre-existing conditions, even if those conditions are pretty benign. They go through your doctor’s record, and anything that your doctor writes in it they will use against you and charge you a much higher premium.
An example of this is a friend’s son who has mild asthma and rarely uses an inhaler. When applying for insurance on his own, the insurance company wanted to raise his premium 50% higher than someone of the same age without asthma! Similarly, someone who has a resolved condition such as a psychiatric diagnosis can have a higher premium even if his or her disease is in remission.
So what happens if you are currently healthy and you do not tell your doctor that you have had these health issues before? You guessed it – you pay a lower premium.
It’s a really messed up system, kind of like not reporting your car accident to the insurer so your premiums don’t go up. But the difference is that health premiums are expensive and can easily become prohibitively expensive for the average family. I’m not suggesting that you be dishonest in any way. I am just illustrating that the system has some serious flaws that need to be corrected.
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