Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Archive for December 2008

The Cost of Healthcare Reform

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The NY Times’ Kevin Sack’s wrote in the 12/13 edition:

Some of those dollars [for healthcare reform] may be found by packaging health care initiatives as stimulus measures, a recessionary opportunity presented by the public’s acceptance of deficit spending to spur the economy. What, after all, is $100 billion for health coverage if the government can print $700 billion to bail out the banks?

Let’s see: $700b to purchase equity and assets, one-time … versus an annual hundred billion dollar outlay that is likely to increase far faster than the tax base.  This sort of innumeracy seems to reflect the declining health of the Gray Lady more than a reasonable commentary on healthcare reform.

Written by Victor

December 14, 2008 at 8:00 pm

Modest Healthcare Funding Reform Ideas

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Here are a few healthcare reform proposals that deserve consideration.

1.  If a drug is advertised “Direct to Consumer” (DTC), ban it from being covered by a health insurance company.  This reflects two principles.  First, DTC advertising is done primarily when clinical effectiveness is not indicated, instead focusing on a “fad” element that drives up costs.  Rather than banning DTC, simply prevent those costs from being “socialized” through “insurance”.

2.  If an individual has prior creditable coverage, no pre-ex waivers apply, period, and they are guaranteed insurable, even if they want to switch carriers or select a different benefit option (actuarially equivalent to their current, or slimmer).  More details here.  This also means eliminating the COBRA purchase requirement from HIPAA before transferring to the individual market.  The COBRA requirement effectively guts portability because of the very high COBRA premiums and the fact that most individuals, if left to their own devices, would purchase plans that are slimmer than the plans offered by employers.

3.  Recognize that job loss causing insurance loss is a funding problem, not a systematic insurance problem (after reform #2).  Specifically, I’d propose expanding unemployment insurance benefits by an amount to exactly offset the employer’s contribution to the employee’s insurance plan.  This means that the laid off individual would be able to retain the exact same health insurance benefits for the length of their unemployment benefits.  At the end of that time, they could purchase in the individual market or, preferably, have been hired on with a company that offers group benefits.  This provision requires more money.

4.  Expand Medicare to be the primary insurance coverage for all eligible individuals over the age of 65.  Currently, an age 66 employee who has private insurance is covered first through private insurance (at companies with 20+ employees).  This is an administrative headache designed to save Medicare money.  However, it provides a significant deterrent to retaining aged workers in the workforce.  Medicare has its problems that need to be confronted directly, not through explicit or implicit cost-shifts to private insurance or companies employing older workers.  This provision is especially problematic for firms employing 20-50 employees and should be repealed.

5.  Revamp the FDA.  Drug approvals need to be based on increased effectiveness relative to the current market of drugs.  Drug dosages need to be determined clinically, independent of revenue and marketing strategies.  This requires a significantly greater commitment of federal resources to independent medical devices and pharmaceutical oversight.  A necessary evil.

Many of the regular buffet of ideas are amenable to my philosophies and experience.  More health IT probably wouldn’t hurt; more knowledge on clinical effectiveness would at least improve our medical care (although I doubt it will reduce costs); etc.  But we shouldn’t ignore the five issues I’ve outlined above.  Even though they aren’t politically saleable, they may be give a reasonable bang-for-the-buck.

Written by Victor

December 11, 2008 at 1:50 pm

Has it come to this?

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From this morning’s USA Today a few choice quotes:

Some people feel helpless, as if no matter what they do — how hard they work, how many times they write their Congress membersthey can’t control their fate (emphasis added).

but then you read this …

Cox says most students lack sympathy for blue-collar autoworkers, an attitude he summarizes as, “You can’t expect to make $65,000 for a job you can learn in a month.”

and you think that maybe it’s not so bad.  But the conclusion is scary:

He [12-year old son Michael] shakes his head [indicating that he won’t become an autoworker himself].  “I’m going to run for political office,” he says, decisively.  “There’s always going to be a government.”

What it will govern is apparently yet to be determined.

Written by Victor

December 11, 2008 at 1:26 pm

Posted in Economics

This is how we are going to save the economy?

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Like Cowen, I’m confused and disappointed about Obama’s economic stimulus plan (from Calculated Risk).  To expand on Cowen, here’s how I read his objectives:

1) Increase the share of energy-efficient technologies purchased by government.  Given the supply difficulties in the solar panel market, (here’s just one example), it’s hard for me to see how increased government purchases in that sector will act as an efficient stimulus;

2) Decrease the cost of using carbon-based transportation by building new roads (and repairing old ones).  Setting aside the direct carbon costs of laying tons of new concrete, one has to question his goal of “millions” of job creation.  Using an estimate of 35,000 jobs per $1.25b in federal expenditures (from this FHWA study) plus a 20% state match, that means that a total of $43b (federal + state) is required to “support” one million jobs.  Notice also that the FHWA explicitly says that these jobs are NOT created, but just supported.  Lastly, the FHWA suggests that only 27% of projects are spent in the first year, suggesting that you’d need more than $160b to “support” one million jobs in the first year alone.

3) Purchase thousands of new computers and repair thousands of new schools.  Again, is the computer industry in crisis?  I can only imagine the bureaucracy associated with applying for new school renovations.  Such a construction stimulus might begin to be effective in time for the 2012 Presidential run, I suppose.

4) Increase broadband adoption.  I’ll pass on this other than to again ask: does Cisco need our help, too?

5)  Reduce administrative salaries in the healthcare sector via electronic medical records.  Obama, physician office assistants are people, too.  How does taking their jobs away qualify as “stimulus”, no matter how much you good you think will come of it.  And are you absolutely sure doctors will be able to cut staff after you’ve mandated the filing of government mandated electronic forms?  Remember the 1996 HIPAA claim form simplifications that were going to accomplish the same thing.  How will this differ?

And how in the heck do any of these get us out of our current mess?

Written by Victor

December 8, 2008 at 2:05 am