Contrarian Economics – The Moral Healthcare Blog

How Equal Do We Want To Be – in Healthcare?

Along my journey in Cognitive Science I came to discover Dan Ariely, and then came across a TED talk he gave called How Equal Do We Want To Be? He explores economic inequality and what we think we know about economic inequality, the reality of income inequality and finally what we would like income inequality to be. I think there are important correlations to how equal do we want to be in healthcare, and brought this here for discussion.

You can easily skip my summary of his talk and just go over and watch it, but I also wanted to capture some of the graphics, as I think with just a little imagination, they can be transformed into important questions about our healthcare system!

So, from the top! What we think is that the top 20% have 58.5% of the wealth and the bottom 40% have about 10% of the wealth.

In reality, the top 20% have 85% of the wealth the next 20% have 11% in the bottom 60% share the last 5%. He calls this difference between what we think and reality the Knowledge Gap.

Along those lines, he asks what we think the pay ratio of CEOs is to that of unskilled workers. He shows this graph showing what people think it is (Estimated), when it actually is (Actual), and our ideal notion.

Not so bad, right? Oops, he didn’t adjust the scale. Here’s the reality.

We are in Alice in Wonderland territory now. But if you are in the CEO or top 20%, it’s a very happy Wonderland, indeed!

During the talk, Ariely references John Rawls and his theory of distributive justice. He asked whether, if we could design our system, would we choose what we have? So he asks, “How should the wealth be distributed?”

Quite a different picture! The fairness is striking! Sure, those at the top do better, but those at the bottom should not be destitute, either. He calls this difference between what we think we have and what we want the Desirability Gap.

His last step is to ask us not only what do we think we know and what do we want, but what are we going to do about it? This is the Action Gap. There is much activity in the action gap of late. (Well, maybe Bernie Sanders not just lately.) But the recognition of massive wealth inequality finally seems to be making it into mainstream debates on policy in America for the first time in decades.

I will leave that larger societal question to others. My lane is the healthcare line, particularly the fairness of healthcare lane, or the social justice Lane. Ariely notes that he has done research about other areas of inequality including health, availability of prescription medications, life expectancy, infant mortality, and education. He notes that we are even more averse to inequality in these areas than we are regarding wealth. We are even especially averse to inequality when the individuals have less agency, like children. (I would be interested in extending my research to see if it also applies to people born into all lower social economic statuses.)

I do not know if there is research on what Americans think about the injustices or performance of the US healthcare system. I do know that most Americans know that we are not the best and no favor major changes or complete overhaul of the system. And of course, we do know many of the realities. We know we spend far more than any other nation and do not cover everyone. We know we have very high out-of-pocket costs. We know we have relatively low life expectancy and high infant mortality. We know our citizens are less likely to survive serious illnesses. We know that we have less physicians and our people see our physicians less frequently than other nations.

At a baseline, we do not even know what The US Healthcare Knowledge Gap is. We do not know what the public does not know. That makes it hard to get to the Desirability Gap, let alone the Action Gap.

Can we get by without knowing what the Healthcare Knowledge Gap is? Maybe. But it will be nearly impossible to move forward without knowing the Desirability Gap.

This will take some serious work. Not only do we need to do the work to educate people on the reality of American healthcare, we then have to do research to find out what we,or at least what most of us, want to do. After decades of watching progressives telling people that what they should want is single-payer, I know that telling people what they want is not the answer. We need to do some work and we need to have some conversations and we need to come up with solutions.

Using Catalyst as framework for Moral Healthcare Chapter 2: Endowment

[These blog entries are my notes and takeaways from Jonah Berger’s amazing book, The Catalyst as I apply them to Universal Healthcare.]

Endowment (Wikipedia): people are more likely to retain an object they own than acquire that same object when they do not own it; or, “an application of prospect theory positing that loss aversion associated with ownership explains observed exchange asymmetries.” ( Zeiler, Kathryn (2007-01-01). “Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?”. American Economic Review. 97 (4): 1449–1466. doi:10.1257/aer.97.4.1449. S2CID 16803164.)

Kahneman and Tversky did an experiment with Duke students who were competing for NCAA playoff tickets, some got them, most did not. When asked to value the tickets, those who had them placed a massive value on them, while those who did not have them expressed a fractional willingness to pay.

Same with homeowners – they value their home far more than strangers who are looking to buy.

Status quo bias: Our natural tendency to prefer things as they are.

“Whenever people think about changing, they compare things to their current state. The status quo. And if the potential gains barely outweigh the potential losses, they don’t budge. To get people to change, the advantages have to be at least twice as good as the disadvantages.”

Uwe Reinhardt’s observation is that everyone’s second choice in any healthcare reform scheme is the status quo, so it almost always wins.

Loss Aversion: The classic example is again K&T of the coin flip bet. We are uninterested in gambling with a significant potential loss. We are very interested when the loss is the given unless we gamble. The factor for the former is $260 – $100.

How to overcome Endowment Effects?

Surface the Cost of Inaction

“When the status quo is terrible, it’s easy to get people to switch. They’re willing to change because inertia isn’t a viable option.”

Email signature example: You have to demonstrate the cost (time) is greater doing nothing (status quo) in the long run.

Investment example: Safe investing costs money in the long run. Show the cost of the status quo.

The cost-benefit timing gap. This is essentially delayed gratification. If there are upfront costs in time, money, effort, to achieve a benefit, inertia will likely prevent action.

“But while doing nothing often seems costless, it’s often not as costless as it seems.”

HCR Lessons:

What is the cost of an action in healthcare in the United States?

I think the obvious answer here for those who are currently covered by employer-based insurance or Medicare is the financial cost is not going to be sustainable. Making the argument that it already is unsustainable is pretty easy, too! The ongoing theft of wages by the medical industrial complex is both quiet and brazen. Seniors have a fear of losing Medicare. The biggest threat to Medicare is the rapidly increasing costs and the eventual unwillingness country to continue paying for it.

The next answer is the economic loss. We can pull up all the figures off losses to the economy due to illness and lack of access to treatment. We can cite loss of opportunity and loss of human capital potential due to our current predicament. There are experts in these two areas that can be tapped to explore this more fully.

I would also suggest that using Rosenthal’s An American Sickness as a template for exploring all the waste and profiteering the system would make for good fodder. The cost of inaction continuing to allow this to go on is economically unsustainable.

But as Uwe Reinhardt and Prof. Cheng point out, that while it may not be economically sustainable it is definitely politically sustainable. By that, they mean that the money pouring in to prop up the status quo and to prop up the profiteering makes it politically sustainable.

The next set of costs are the human costs: time, money, illness, suffering, economic suffering, stress. Here are just a few (and each list can be expanded-a lot!):

time spent
- researching health plans
- on the phone with health plans – prior authorization, disputed claims, reviewing explanations of benefits
- trying to get care without insurance
money
- lost wages to pay for employer-based health insurance
- money paid out to get insurance if not offered by the employer
- out-of-pocket expenses for most everything.
- Highly inflated prices due to our “free market” system
illness and suffering
- untreated illness leads to suffering and delay in care and sometimes death.
- Suffering due to financial impairment is a big deal.
- Going to work sick or injured
Economic suffering
- “financial toxicity”
- this obviously gets tied into time and money and illness and suffering
stress
- obviously related to everything above, but should not be discounted.
- There is research into this area, but I am not familiar enough to expound on it.

We will need to do some brainstorming as to the other costs that I am not listing here. I actually think that the idea of doing the live sessions with the public will elicit vast amounts of material to both populate our story inventory for what I have listed above, but will also grow the inventory of costs of inaction.

Burn The Ships.

Example here is Cortes burning his ships so the crew could not go back. It makes going back no longer an option.

Business example is to encourage people to adopt the new software update, notify them of the loss of support for the legacy software. This creates cost to inaction. So you may not be able to burn the ships, but you can at least refuse to subsidize them any longer.

HCR Lessons:

interestingly enough, one could argue that the requirements of the affordable care act mandating that insurance plans cover the required benefits stipulated in the act was a way of burning ships. You can no longer get really bad policies as you once could. As an aside, I’ve heard many complaints about that fact-people wanted to feel like they were covered with those plans because they can afford them. So they felt that taking those plans away was a great loss to them. It would be interesting to have a discussion about this and about how people feel about it now.

Allowing people to buy into Medicare or Medicaid or public option plan would probably fit under easing uncertainty by allowing people to try with the option to go back. However, once there is adequate buy-in to these options, one can certainly burn the ships by ending the tax subsidy for employer-based insurance and allowing those to die away.

Easing Endowment.

“Catalyzing change isn’t just about making people more comfortable with new things; it’s about helping them let go of old ones.”

“…perceived gains and losses are what matter…” This is analogous to Kahneman’s observation that we don’t choose between things, we choose between descriptions of things.

The case study in this chapter is about Brexit. He makes the point that recasting the vote to leave as regaining control or regaining something made the difference. The vote wasn’t to lose something, it was to regain something.

“It’s not a change; it’s a refresh.”

HCR Lessons:

I need to think some more about the perceived gains and losses of transitioning to a universal healthcare system. I actually think this would greatly benefit from some focus group testing on what the perceived gains and losses are by various segments of the public. I have ideas, but they are just my ideas.

The case study about Brexit does conjure up some opportunities. Take back control of your health care? Take back control from corporations? Take back control from the bureaucrats? Take back control from Wall Street? Lots of things that would benefit from some testing. In

Berger, Jonah. The Catalyst: How to Change Anyone’s Mind (p. 83). Simon & Schuster. Kindle Edition.

Robert Nozick, father of libertarianism: Even he gave up on the movement he inspired.

Thought I’d blogged this before, but this is from an excellent piece on Libertarianism’s most famous proponent and his own change in perspective later in life.

How could a thinker as brilliant as Nozick stay a party to this? The answer is: He didn’t. "The libertarian position I once propounded," Nozick wrote in an essay published in the late ’80s, "now seems to me seriously inadequate." In Anarchy democracy was nowhere to be found; Nozick now believed that democratic institutions "express and symbolize … our equal human dignity, our autonomy and powers of self-direction." In Anarchy, the best government was the least government, a value-neutral enforcer of contracts; now, Nozick concluded, "There are some things we choose to do together through government in solemn marking of our human solidarity, served by the fact that we do them together in this official fashion …"

We’re faced then with two intriguing mysteries. Why did the Nozick of 1975 confuse capital with human capital? And why did Nozick by 1989 feel the need to disavow the Nozick of 1975? The key, I think, is recognizing the two mysteries as twin expressions of a single, primal, human fallibility: the need to attribute success to one’s own moral substance, failure to sheer misfortune. The effectiveness of the Wilt Chamberlain example, after all, is best measured by how readily you identify with Wilt Chamberlain. Anarchy is nothing if not a tour-de-force, an advertisement not just for libertarianism but for the sinuous intelligence required to put over so peculiar a thought experiment. In the early ’70s, Nozick—and this is audible in the writing—clearly identified with Wilt: He believed his talents could only be flattered by a free market in high value-add labor. By the late ’80s, in a world gone gaga for Gordon Gekko and Esprit, he was no longer quite so sure.

Robert Nozick, father of libertarianism: Even he gave up on the movement he inspired.

Even Critics of Safety Net Increasingly Depend on It – NYTimes.com

It speaks for itself…

LINDSTROM, Minn. — Ki Gulbranson owns a logo apparel shop, deals in jewelry on the side and referees youth soccer games. He makes about $39,000 a year and wants you to know that he does not need any help from the federal government.

He says that too many Americans lean on taxpayers rather than living within their means. He supports politicians who promise to cut government spending. In 2010, he printed T-shirts for the Tea Party campaign of a neighbor, Chip Cravaack, who ousted this region’s long-serving Democratic congressman.

Yet this year, as in each of the past three years, Mr. Gulbranson, 57, is counting on a payment of several thousand dollars from the federal government, a subsidy for working families called the earned-income tax credit. He has signed up his three school-age children to eat free breakfast and lunch at federal expense. And Medicare paid for his mother, 88, to have hip surgery twice.

Even Critics of Safety Net Increasingly Depend on It – NYTimes.com

Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers | The White House

I couldn’t understand why the CBO estimated job losses with a minimum wage hike. It’s because they seemed determine to ignore the literature on the subject:

6. CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists. The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent. CBO also agrees that the employment effect could be essentially zero, but their central estimates are not reflective of a consensus of the economics profession. Specifically:

Seven Nobel Prize Winners, eight former Presidents of the American Economic Association and over 600 other economists recently summarized the literature on the employment effects of the minimum wage in this way: “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

The pioneering research in this area was conducted by John Bates Clark Medal winner David Card and Alan Krueger, who published a study in the American Economic Review in 1994 finding that fast food restaurants in New Jersey did not cut back employment relative to Pennsylvania after the former State raised its minimum wage. They concluded, “We find no indication that the rise in the minimum wage reduced employment.”

The Card-Krueger research was generalized by Arindrajit Dube, T. William Lester, and Michael Reich who compared 288 pairs of contiguous U.S. counties with minimum wage differentials from 1990 to 2006. Based on this, researchers found “no adverse employment effects” from a minimum wage increase.

A recent literature review of the extensive published work on the minimum wage concluded: “[W]ith 64 studies containing approximately 1,500 estimates, we have reason to believe that if there is some adverse employment effect from minimum-wage raises, it must be of a small and policy-irrelevant magnitude.”

Another recent review of the theory and evidence on the minimum wage by John Schmitt at the Center for Economic Policy Research concluded that “The employment effects of the minimum wage are one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.”

Overall the logic for the finding that raising the minimum wage does not result in large adverse impacts on employment is that paying workers a better wage can improve productivity and thereby reduce unit labor costs. These adjustments, along with others that firms can make, help explain why the increase in the minimum wage need not lead to a reduction in employment. Higher wages lead to lower turnover, reducing the amount employers must spend recruiting and training new employees. Paying workers more can also improve motivation, morale, focus, and health, all of which can make workers more productive. In addition, by reducing absenteeism, higher wages can increase the productivity of coworkers who depend on each other or work in teams. In addition, businesses can adjust in other ways rather than reducing employment (for example, by accepting lower profit margins). CBO’s estimates do not appear to fully reflect the increased emphasis on all of these factors from the recent economics literature.

Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers | The White House

Obamacare and part-time jobs: The myth exploded (again) – latimes.com

Tuesday’s tepid brew of jobs data, delayed more than two weeks by the government shutdown, wasn’t worth waiting for. It shows an increase in total nonfarm employment by 148,000 in September over August, which is consistent with economic growth crawling along in second gear.

The report’s most notable nugget is the change in part-time work. Over the last month the number of workers in part-time jobs for economic reasons–slack demand, cutbacks in hours–has remained stable. Over the last year, however, it has fallen by 681,000. Those part-timers also constitute a smaller share of all workers–5.5% in September compared to 6% a year earlier.

That puts the lie to the popular conservative meme that Obamacare has transformed America’s workforce into part-timers. The idea is that employers wishing to evade the law’s requirement that they offer health insurance to employees working more than 30 hours a week will cut their hours to 29 or less. The shorthand about this provided by Sen. Ted Cruz (R-Texas), that one-stop shop for Obamacare disinformation, was "single parents who have been forced into part-time work."

Obamacare and part-time jobs: The myth exploded (again) – latimes.com

Don’t Blame Health Law for High Part-Time Employment – Real Time Economics – WSJ

Don’t blame the health law for high levels of part-time employment. In fact, using the law’s definitions, part-time work isn’t increasing at all as a share of employment, at least not yet.

Nearly 8 million American were working part-time in September because they couldn’t find full-time work. Overall, 27 million people — nearly a fifth of all employees — are working part-time, well above historical norms.

Many critics of the Obama administration have pointed the finger for the prevalence of part-time jobs at the Affordable Care Act, the 2010 law better known to some as “Obamacare.” The law’s so-called “employer mandate” requires most midsize and larger companies to offer health insurance to their full-time employees. That, critics argue, provides companies with an incentive to hire part-timers instead.

The Obama administration earlier this year said it would delay the requirement until 2015 to give companies more time to comply. But some employers have said they are nonetheless cutting back on full-time hiring. Indeed, part-time employment rose early this year, while full-time employment growth stalled.

But a closer look at the data provides little evidence for the notion that the health law is driving a shift to part-time work, although it could as the mandate deadline approaches.

First of all, over a longer time frame, part-time work has actually been falling as a share of employment in recent years. Before the recession, about 17% of employed Americans worked 35 hours or less, the standard Labor Department definition of “part time.” During the recession, that figure rose, briefly hitting 20%. It’s been trending down since then, but only slowly, hitting 19% in September.

Don’t Blame Health Law for High Part-Time Employment – Real Time Economics – WSJ

The Myth of the Medical-Device Tax – NYTimes.com

Not only can the medical-device industry easily afford the tax without compromising innovation, but the industry’s enormous profits are a result of anticompetitive practices that themselves drive up medical-device costs unnecessarily. The tax is a distraction from reforms to the industry that are urgently needed to lower health care costs.

The medical-device industry faces virtually no price competition. Because of confidentiality agreements that manufacturers require hospitals to sign, the prices of the devices are cloaked in secrecy. This lack of transparency impedes hospitals from sharing price information and thus knowing whether they are getting a good deal.

Even worse, manufacturers often maintain personal relationships (sometimes involving financial payments like consulting fees) with physicians who choose the medical devices that their hospitals purchase, creating a conflict of interest. Physicians often don’t even know the costs of the devices, and individual physicians often choose devices on their own, which weakens a hospital’s ability to bargain for volume discounts.

Such anticompetitive practices help generate a wide variation in the prices of medical devices — and contribute to higher prices in general. For example, the Government Accountability Office found that prices for cardiac implantable medical devices in the United States vary by several thousand dollars. And even the lowest-priced devices in the United States are expensive compared with those in other developed countries. According to the consulting firm McKinsey & Company, the United States spends about 50 percent more than expected on the top five medical devices, compared with Europe and Japan. McKinsey calculates that this amounts to $26 billion in excessive spending each year. Medicare, private health insurers and patients end up paying these inflated prices.

Excessive prices fuel enormous profits — profits that dwarf both the medical-device tax and the industry’s investments in research and development. Consider the device division of Johnson & Johnson, which in 2012 had an operating profit of $7.2 billion. By the company’s own estimate, the device tax would amount to at most $300 million, and its investment in research and development amounts to only $1.7 billion.

The Myth of the Medical-Device Tax – NYTimes.com

Tax the rich? IMF sparks a mini revolution | AFP.com

Tax the rich and better target the multinationals: The IMF has set off shockwaves this week in Washington by suggesting countries fight budget deficits by raising taxes.

Tucked inside a report on public debt, the new tack was mostly eclipsed by worries about the US budget crisis, but did not escape the notice of experts and nongovernmental organizations (NGOs).

"We had to read it twice to be sure we had really understood it," said Nicolas Mombrial, the head of Oxfam in Washington. "It’s rare that IMF proposals are so surprising."

Guardian of financial orthodoxy, the International Monetary Fund, which is holding its annual meetings with the World Bank this week in the US capital, typically calls for nations in difficulty to slash public spending to reduce their deficits.

But in its Fiscal Monitor report, subtitled "Taxing Times", the Fund advanced the idea of taxing the highest-income people and their assets to reinforce the legitimacy of spending cuts and fight against growing income inequalities.

"Scope seems to exist in many advanced economies to raise more revenue from the top of the income distribution," the IMF wrote, noting "steep cuts" in top rates since the early 1980s.

According to IMF estimates, taxing the rich even at the same rates during the 1980s would reap fiscal revenues equal to 0.25 percent of economic output in the developed countries.

"The gain could in some cases, such as that of the United States, be more significant," around 1.5 percent of gross domestic product, said the IMF report, which also singled out deficient taxation of multinational companies.

In the US alone, legal loopholes deprive the Treasury of roughly $60 billion in receipts, the global lender said.

The 188-nation IMF said that it did not want to enter into a debate on whether the rich should pay more taxes.

But, it said: "The chance to review international tax architecture seems to come about once a century; the fundamental issues should not be ducked."

Tax the rich? IMF sparks a mini revolution | AFP.com