By Doug Gentry, on January 13th, 2012
In honor of the first week in our Healthcare Economics class, and the beginning of a 6 week session on healthcare via OLLI, here is an interesting report from The New York Times.
National health spending rose a slight 3.9 percent in 2010, as Americans delayed hospital care, doctor’s visits and prescription drug purchases for the second year in a row, the Obama administration reported Monday.
The recession, which lasted from December 2007 to June 2009, reined in the growth of health spending as many people lost jobs, income and health insurance, the government said in a report, published in the journal Health Affairs.
 from The New York Times There are a couple of takeaways from this news.
First, the reduction in spending on healthcare could mean a welcome, albeit temporary relief to those governments and organizations that pay for healthcare….BUT…no real relief for state and local agencies which provide/finance healthcare for poor people. Recessions, of course, result in greater numbers of people qualifying for government-supported care.
The other point is a reminder that some portion of healthcare services are discretionary. When healthcare spending was growing by 10 percent or more each year in the 1980s, that growth probably wasn’t driven by an increase in the need for services. Likewise the slower growth over the last several years is probably not due to the population getting healthier and needing fewer services. Instead, people moderated their demand for healthcare. They put off diagnostic tests, or did not follow through on treatments or prescriptions. Going in the other direction, hospitals routinely see increases in elective surgeries near the end of a calendar year, as people have already met insurance deductibles, and decide to seek care before those deductibles are reset in the new year.
Is this good news? Not necessarily. To the extent the people put off truly necessary tests and treatments, those delays may cost us more in the long run. To some extent, though, tough economic times force us to be more cautious about discretionary spending, and there may be very little impact on long run health status. There is the old saying that if you get a cold, it will take 7 days to go away, but if you see a doctor you’ll be cured in a week! One important element of effective healthcare reform is to introduce that sense of caution in our population. It is a delicate balance – not wanting to interfere with early testing and early, cost-effective treatment, but also discouraging care that has less impact on long term health.
Prices for medical care services and supplies also stayed roughly on par with general inflation during this last year, which is a change from the decades of the 1980s and 1990s where the medical care component of the consumer price index routinely outstripped regular price increases.
I wouldn’t have to polish my crystal ball very much to predict that spending increases for healthcare will pick up speed as the economy recovers. This remains the single most important issue in our nation’s federal deficit struggles.
By Doug Gentry, on June 17th, 2011
 This post will be useful in the fall, when I hold a Principles of Microeconomics class. In that class we take a look at the market for labor, including productivity. We know that if we add a production input, like labor, but hold other inputs (like capital equipment) steady, that marginal improvements to output will eventually decline – i.e. we see declining marginal productivity. Adding more of other inputs, like equipment, can enable labor to achieve higher productivity levels.
In microeconomics we also look at the ways that labor and capital (equipment) can substitute for one another. As costs for one input rises, there is an incentive to purchase more of the other input. Decades ago the automotive manufacturers added more and more robotic assembly processes to their production, in part to deal with increasing labor costs. Catherine Rampell wrote an article and a blog post in The New York Times this week, on this topic.
In “Employers Spend on Equipment, Not Workers“, she points out,
Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.
Labor theory suggests that as workers become more productive, the demand curve for labor shifts to the right, and should raise the equilibrium price (wages). This hasn’t been happening – in part because of high unemployment levels and an excess supply of labor. Rampell also argues that total compensation is rising – but that most of that increase is in benefit costs rather than wages.
In an Economix blog post she explores the health care benefit assertion further.
It may seem strange that the cost of labor is rising so fast. With such a weak economy, it doesn’t seem as if a lot of workers are getting raises. (Are you?)
And technically, employees are not getting much of a raise — at least not in cash. The higher cost of labor is primarily being driven by rising benefits costs and, in particular, rising health insurance costs.
[...]
[T]he benefits cost line is quite steep. Even more daunting to employers, it could get even steeper in the years ahead; health care costs are rising sharply, and their costs a year or two from now are very hard to predict.
Several take away points from this pair of articles. First – as capital equipment (particularly software-driven) improves and gets cheaper, we should expect it to substitute for labor. Second – health care costs drive so much of our economy, including the pace of unemployment changes.
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By B.P.T., on February 8th, 2011
By Eldon Mast, on July 28th, 2010
On Tuesday Aetna Inc. lifted its 2010 earnings forecast a second time after the firm reported milder-than-expected flu season. The good news about flu this year tacked one more positive in an earnings season that has been dominated by profit results and increasingly positive projections.
The firm now projects that their operating earnings may reach $3.05 to $3.15 a share in the upcoming quarter. That’s significantly up from their earlier forecast of $2.75 to $2.85 in April.
In further positive economic stimulus, Aetna’s Chief Financial Officer Joseph Zubretsky said that in addition to healthy profit for the firm in the second half of 2010, the company will also increase their spending to upgrade computer systems.
For the 2Q 2010, net income rose 42 percent to $491 million easily topping most medical market analyst expectations.
Source: Aetna
By Thomas Knapp, on March 24th, 2010
Well, they’ve gone and screwed it up — 14 state attorneys general have filed lawsuits against ObamaCare.
If the states really want to beat ObamaCare, litigation isn’t the way to go about it. Nullification/interposition is.
In litigation, the parties accept that the courts have jurisdiction over this or that issue, and walk away with whatever the courts give them. The Supreme Court of the United States, (including its “conservative” members in cases like Raich v. Gonzale) has already ruled that the Interstate Commerce Clause can mean pretty much anything Congress wants it to mean. Litigating ObamaCare is a dead-end road.
In nullification, the state governments say “we’ve determined — for ourselves, we don’t need any of you black-robed ninnies to do it for us — that this piece of legislation is unconstitutional on its face, and we’re not going to stand for it, at least within our own borders. Injunction? You can shove your injunction up your ass. If you attempt to come here to enforce it, our National Guard will do the shoving for you. Complimentary. No charge.”
It’s time for a good old-fashioned constitutional crisis. Look where avoiding such crises has gotten us.
By Rok Spruk, on November 24th, 2009
A study by June O’Neill and Dave M. O’Neill (link) suggests that the U.S health care system provides more choice, efficiency, better delivery and capacity than the Canadian system:
“Does Canada’s publicly funded, single payer health care system deliver better health outcomes and distribute health resources more equitably than the multi-payer heavily private U.S. system? We show that the efficacy of health care systems cannot be usefully evaluated by comparisons of infant mortality and life expectancy. We analyze several alternative measures of health status using JCUSH (The Joint Canada/U.S. Survey of Health) and other surveys. We find a somewhat higher incidence of chronic health conditions in the U.S. than in Canada but somewhat greater U.S. access to treatment for these conditions. Moreover, a significantly higher percentage of U.S. women and men are screened for major forms of cancer. Although health status, measured in various ways is similar in both countries, mortality/incidence ratios for various cancers tend to be higher in Canada. The need to ration resources in Canada, where care is delivered “free”, ultimately leads to long waits. In the U.S., costs are more often a source of unmet needs. We also find that Canada has no more abolished the tendency for health status to improve with income than have other countries. Indeed, the health-income gradient is slightly steeper in Canada than it is in the U.S.”
By Rok Spruk, on November 11th, 2009
David O. Meltzer and Zhuo Chen explored the relationship between minimum wage rate in the U.S and body weight (link):
“Growing consumption of increasingly less expensive food, and especially “fast food”, has been cited as a potential cause of increasing rate of obesity in the United States over the past several decades. Because the real minimum wage in the United States has declined by as much as half over 1968-2007 and because minimum wage labor is a major contributor to the cost of food away from home we hypothesized that changes in the minimum wage would be associated with changes in bodyweight over this period. To examine this, we use data from the Behavioral Risk Factor Surveillance System from 1984-2006 to test whether variation in the real minimum wage was associated with changes in body mass index (BMI). We also examine whether this association varied by gender, education and income, and used quantile regression to test whether the association varied over the BMI distribution. We also estimate the fraction of the increase in BMI since 1970 attributable to minimum wage declines. We find that a $1 decrease in the real minimum wage was associated with a 0.06 increase in BMI. This relationship was significant across gender and income groups and largest among the highest percentiles of the BMI distribution. Real minimum wage decreases can explain 10% of the change in BMI since 1970. We conclude that the declining real minimum wage rates has contributed to the increasing rate of overweight and obesity in the United States. Studies to clarify the mechanism by which minimum wages may affect obesity might help determine appropriate policy responses.”
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By D H Smith, on October 16th, 2009
“There has to be a counterweight to the malevolence of the insurance industry.” So says Senator Jay Rockefeller said to mop-topped interviewer Al Hunt of Bloomberg.
Malevolence? What’s next out of the mouth of the Democratic senator from the state of Tourette’s syndrome?
You will wait in vain for the industry to fight back hard against this Alinskyite campaign of vilification. Like all other industries that depend upon the US government to treat them with minimal sanity, the insurance industry deals with Uncle Sam the way you would any other lunatic with a trunkful of loaded guns . . . veeeeeeeeeery caaaaaaarefully, for fear of pissing off the lunatic and having him go berserk.
This is the state of play for all owners of capital in the United States today. They hold their breaths; they hold their tongues; they even contribute to the lunatics’ campaign, hoping it will buy them some goodwill! Look how well that has worked for you, health insurers — you’re public enemy number one.
The last trade association leaders who was any damned use at all to his membership was the late Jack Valenti of the Motion Picture Association of America.
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By J.C., on September 30th, 2009
One of the recent comments on this blog was in response to my post about whether patients should be able to direct their care. The “cyberchondriac” patient who comes armed with the latest and greatest in treatment options also reminds me of the patient who has done lots of research about his physician online. The advent of websites that “review” doctors and “score” them based on patient-physician interactions, impressions of care, or outcomes are a new thing that many doctors do not know what to do about.
Now more than ever physicians are being faced with the complete 360 degree evaluation of themselves. This evaluation comes from all directions. Insurance companies evaluate physicians in the form of denials, hospitals evaluate physicians in the form of peer reviews, patients evaluate physicians in the form of outcomes and overall patient-physician interactions. And now, we are being evaluated on the internet for all to see.
The truth of the matter is that there is not much we can do about it. It is essentially the era of the consumer patient and the freedom of information on the internet is merely a confirmation of that. But the problem with most physicians is that we are a hypersensitive bunch. We have become physicians through a ton of hard work, several admissions processes, countless hours of study, and massive personal and financial sacrifice. We seek praise and thus we don’t like it when people talk about us publicly.
The problem with physician websites is that they are just like any other review site. Whether it be for restaurants or hotels, you will undoubtedly have the consumer who thought it was a messy hotel room and that the food was disgusting. There is also the rare but enchanted consumer who loves everything about his meal and stay. There is no standard “Zagat’s” score for the physician and even if there was, it would undoubtedly contain many metrics that physicians have no control over.
The main difference between reviewing other businesses and physicians is that patient outcomes often have nothing to do with a physician but more to do with the patient. Many diseases are incurable and chronic and human behavior and genetics are at the root of many medical problems. Thus, patients who do not have great clinical outcomes are not the biggest fans of their doctors or the medical system. Don’t get me wrong, there are tons of patients out there with debilitating diseases who do not get better but still love their doctors. However, this is not the norm.
Physician reviews? We as physicians must welcome both criticism and praise. We must always know that at the end of the day, not matter what patients do or say, whether they are nice or mean, we are the ones who are looking out for them. That is what we signed up for. We can’t take it personally. We need to view everything as constructive and drown out the background noise.
By D H Smith, on August 3rd, 2009
On Thursday night the government announced it was suspending the Cash-For-Clunkers program. In my twitterstream I reacted as follows:
dhsmith24 Cash for clunkers suspended w/i a week. What the heck are these guys doing? And they want to run #healthcare?
The doubt this #fail creates is real enough, but there is more, and Hugh Hewitt has expressed it best:
Just as with the tax credit for new home purchases, consumers altered their behavior when presented with an opportunity. Democrats thus have received a second example of an iron law of economics: People respond quickly to significant cash incentives.
The Democrats never get this. They never believe economic actors respond to incentives. There are alway massive unitended consequences of their great economic projects because they are constitutionally unable to work through all the implications of these projects. Democrats are working on a root-and-branch restructuring of the U.S. healthcare system that cannot work as they have currently proposed, they have passed a Cap and Trade energy restucturing plan that may more correctly be called the China Opportunity Act of 2009, and they think they can raise taxes on producers without limit. In every case they totally fail to reckon with the fact that producers will produce less, arrange their affairs to minimize the tax, or in the limit just bail out — “Go Galt” in the emerging parlance.
But the people are sovereign, this is what they voted for, so all we in the reality-based community can do for now is speak out against things we know cannot work and hope they can be changed in process.
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