Tag Archives: obamacare

Childbirth, Health Care, Men, And Women

I’ve addressed a couple issue regarding men and women the last couple of days, and a related issue appeared on my Twitter feed today. I had alluded to the issue of women and medical care, and several people posted about a feature of Obamacare that’s been getting some play: the fact that men will have to pay for insurance coverage of maternity. This mixes with the topics I’ve addressed in this space, particularly the physical differences between men and women that are bound to play out in the real world. Obviously everyone involved addressed the issue with an open mind and the subtlety that such a topic requires.

Just kidding. Mostly, people hated on Republicans for pointing out that this is stupid. Two articles in particular made the rounds. First, Lucia Graves (a woman!) of the National Journal:

[Obamacare] doesn’t allow for health plans to carve out certain things that might have allowed a health plan to price a product lower in the past—like allowing men to not pay for maternity care. That’s a policy known as gender rating. … Gender rating is prohibited under the Affordable Care Act.

…The argument for gender rating, in the days before the Affordable Care Act, had always been that women cost more to insure.

“When you get older, men cost more to insure than women.” .. Later in life, men are more likely to have a variety of conditions including heart attacks, lung cancer, and liver cancer. They’re also more likely to smoke, drink, and get in accidents, according to experts.

You’d expect insurers to charge men more as they got older, if they were in fact charging premiums based on actual usage. Graves gives us that answer, too:

insurers have historically charged younger women more than men in the individual market, even though those plans rarely covered maternity services. “That tends to reverse at older ages, when men have generally been charged more than women,” he said. “It’s reasonable to assume that insurers set those premiums based on the patterns of health care use that they saw.”

So, when allowed by law to do so, insurers charge each gender based on the expected health care usage. Seems fair.

In 2008 the average expenditure per person with an expense, including expenses covered by insurance and those paid out-of-pocket, was slightly higher for women ($5,635) than for men ($4,952), according to data from the Agency for Healthcare Research and Quality. But the difference in expenditures is largely attributable to childbirth.

Alright then, let’s address childbirth and the associated costs. Graves links to and endorses an error-riddled article by Jonathan Cohn at The New Republic. He makes four arguments to claim that men should be charged for maternity care under their insurance policies.

1. Healthy mothers and babies are good for you. Society has a legitimate, and very clear, financial stake in the health of pregnant women and young children. As Eduardo Porter noted recently in the New York Times, the U.S. has fallen behind peer countries when it comes to prenatal health. That has long-term consequences for prosperity and inequality, primarily because of the long-lasting effects it has on children as they develop. Obamacare’s requirement of maternity benefits won’t fix that problem, Porter notes, but it offers a chance to make the problem less severe. You can think of it as a public investment, just like roads, schools, and power lines—goods for which we all help pay, regardless of actual use.

I’m happy to concede that good pre-natal and neo-natal care has potential long-term benefits for the affected children – the literature on that is persuasive but not conclusive. I’m also generally willing to concede that certain public investments deserve government funding, though I draw these lines narrower than the mainstream. Charging insured men for maternity coverage, however, is a terrible way to fund such an investment. First, it’s regressive – all men are charged similar amounts, while investments funded from general taxes are funded more by the rich, who are taxed more heavily. Second, it hides the costs and the responsibilities of the program. Voters and taxpayers have no idea how much of any given premium goes to maternity, and can’t hold anyone accountable if they are dissatisfied with any of this program’s features. If the political goal is to publicly subsidize childbirth costs as a public investment, such costs should come out of general taxes, be a line item on the budget, and subject to voter scrutiny. As it is, they’re hidden away as premiums from private companies. This is a bad thing.

2. You may never bear children. But your mother did. …In this case, men who help pay for pre-natal and maternity costs are helping to shoulder the burden for costs that their parents bore, many years before.

This is pretty stupid. By paying for a stranger’s pregnancy I’m somehow repaying my mother? No. I buy my mother nice things to repay her for everything she’s done.

3. She supplies the womb, but you supply the sperm.

Yup. You should definitely contribute to the well-being of a woman with whom you intend to have a child. Anything else makes you an asshole. Don’t be an asshole. I’m not entirely sure why you bear responsibility for every other pregnant woman, too, though. What have you been up to, exactly?

Anyway, as I’ve said, if we are trying to subsidize a particular activity, we should do so explicitly through the budget.

4. So you ended up XY instead of XX. Get over yourself. Even conservatives generally stipulate that insurance should protect people from the financial consequences of random events. But they seem not to recognize that being born a woman is a random event. Sorry, dudes, you had no control over that. Allowing insurers to discriminate based on gender means penalizing half the population, just because those folks ended up with one type of chromosome instead of another.

Yeah, this is just very, very wrong. Yes, being born a woman is a random event. The proper role for insurance in that case is to insure BEFORE the event. Basically, if being a woman is costly (as it is claimed to be), you should insure against being a woman before you’re born. This is obviously impossible (though I bet there could be an insurance market for parents in this case), but it’s not something that can be addressed by insurance AFTER the random event. If certain houses in a neighborhood randomly burned down, insurance shouldn’t come in after the fact and equally spread costs over those who lost houses and those who didn’t. In any case, I’ve already made my point above how we should deal with the fact that one gender has potential costs associated with it that the other does not.

Of course, if you acknowledge point number 4, it has some implications for the rest of the health care debate. If we’re not going to make people pay higher premiums because of genes that determined their gender, then what about people born with genetic abnormalities? Or predisposition to diabetes, heart attack, or cancer? Pretty soon you end up arguing that it’s wrong to charge higher premiums to people who, through no fault of their own, happen to need more medical care—thereby conceding one of Obamacare’s core principles.

I concede nothing – nothing! While I’m generally sympathetic to those who suffer through no fault of their own – I’ve been lucky in that regard – any help we offer the unlucky should be explicit in the budget as I mentioned above, so that it can be properly evaluated to determine whether it fulfills its function in a cost-effective way. Second, most health conditions can be traced to genetics, even lifestyle ones – how do we know whether someone’s laziness and poor diet is a true choice and not influenced by genes that coded for poor willpower and a sweet tooth? Genes and nurture, neither of which you can choose, determine much of your adult health. Thus, to protect everyone from all random events, you must equalize all healthcare, and, as I’ve noted before, all wealth, and this must be repeated constantly. Now we’re back at communism, and I win.

It’s true that women beat most of the financial costs of pregnancy and childbirth. If we want to help them out, we should give them money when they’re pregnant.* We should not secretly charge insured men for something they won’t use.

*Assuming this is a behavior you want to subsidize. Many do not and think women who want to have children should first be able to afford them, with partner or not. It’s not the crazy wingnut position the two journals above would have you believe.

The Impossibility Of Government Projects

The ongoing disaster that is the Obamacare website has prompted an admission from the president that has received little play in the media.(Considering their ideological leanings and general economic ignorance, I’m not surprised.) Specifically, the admission is that government is very bad at doing things, and generally speaking, simply doesn’t work.

In a recent interview with NBC’s Chuck Todd, Obama explained why his campaign website was significantly better at what it did than his main legislative achievement:

You know, one of the lessons — learned from this whole process on the website — is that probably the biggest gap between the private sector and the federal government is when it comes to I.T. …

Well, the reason is is that when it comes to my campaign, I’m not constrained by a bunch of federal procurement rules, right? …

And how we write — specifications and — and how the — the whole things gets built out. So part of what I’m gonna be looking at is how do we across the board, across the federal government, leap into the 21st century…

Because when it comes to medical records for veterans, it’s still done in paper. Medicaid is still largely done on paper. When we buy I.T. services generally, it is so bureaucratic and so cumbersome that a whole bunch of it doesn’t work or it ends up being way over cost.

Basically, Obama’s government is hamstrung by government, and that’s why it doesn’t and cannot work quickly or efficiently or well. (Remember, what he writes off as “way over cost” translates to actual lives lost.) These arguments were made about the stimulus spending, where nothing was shovel-ready, and the rigid federal hiring rules.

“But wait!” you might say, if you were rude and interrupted me. “Why don’t we just eliminate those bureaucratic and cumbersome rules, let government officials hire the talent they need when they need it, and avoid disasters like the Obamacare website.”

You fool.

We already know what happens when you loosen the restrictions on federal contracting and hiring: cronyism and corruption. You remember Halliburton, right? Dick Cheney’s old company which happened to receive billions in no-bid contracts while Cheney was vice president? That’s what happens when government officials have unrestricted reign over taxpayer money. Why not spend it on your cronies (and yourself, by extension)? It’s not YOUR money. It doesn’t cost you anything, so why be careful with it?

To prevent that, we have to institute rules. Open bids, detailed regulations about procurement prices, conflicts of interest, etc. Of course, then you run into the Obama problem above. So you might want to back off a bit. At some point, of course, you should realize that you’re trading off incompetence and corruption, and maybe none of these are good solutions. (Singapore or Finland might be able to do it. Not the US.) So what to do? I mean, things need to be done, right?

Blog-favorite Bryan Caplan, whose work on voter irrationality (and education, and poverty) is excellent, has shown that the simple solution is having government do less, and markets do more. You may wish for the government to do more, but “ought implies can,” and this entire blog post implies “can’t.” In markets, with your own money on the line, you’re far more careful than with other people’s money. To the extent that some functions must, at least for now, remain with the government, a cumbersome but transparent process is probably preferable to corruption, not that this has helped us with, say, defense contracts.

Jon Stewart’s Continued Decline

I became a fan of Jon Stewart and the Daily Show over ten years ago, and I was a big fan from the start. Like Stewart, I was strongly opposed to much of the Bush administration’s activity – unauthorized war (Iraq), large entitlement expansion (prescription drugs), civil liberties violations (wiretapping, state secrets), and outright lying to the public. On this last point, Stewart solidified his standing when he was the only major outlet to call Defense Secretary Rumsfeld out when the secretary, confronted by someone pointing out his lies, denied lying: Continue reading Jon Stewart’s Continued Decline

Go Fact Yourself

I’ve been meaning to address an extremely insightful (if probably incomplete*) proposition by David Friedman. In discussing different moral conclusions people draw, Friedman noted proposed that moral truths are akin to physical truths, such that different people perceive them in roughly the same way, and that the moral sense is analogous to the physical sense like sight or hearing. This proposed moral sense has many of the same features as physical senses, including situations where the sense is fooled by an illusion, or individuals whose sense is wildly divergent from most people’s. Like other senses, I suspect the moral sense has a normal distribution, with a few people like psychopaths at the extremes and most people in a narrow range. I’ve found this proposal fascinating, because it explains why much of moral argument isn’t in the moral intuition themselves, but the underlying facts.

*I find the proposal incomplete because it fails to address a common counter: we can ascertain the origin of physical objects, and perceive their interactions as physical truths. Moral truths aren’t based on objects, so there needs to be an explanation for the origin of moral truths. The answer easy for the religious, but Friedman and I need a different source. I believe it’s been adequately explained by Hitchens, Dawkins, Dennett, and the like, and in any case it’s off-topic here.

Friedman illustrates the argument thus:

I have been arguing politics for a long time. In arguing with people on the left, I find it is very hard to come to an agreement on the assumed facts surrounding the situations we are judging. My imaginary capitalist has capital because he worked hard clearing part of the boundless forest while his employee to be was being lazy and living on what he could gather–so it is entirely just that the capitalist gets part of the output of his land and his employee’s labor. But the leftist doesn’t like that hypothetical. His imaginary capitalist inherited his capital from a father who stole it. I don’t like that hypothetical. I conclude that our moral intuitions are similar enough so that the same assumed facts push both of us in the same direction–and since we want to go in opposite directions we want so assume different facts.

This has strongly resonated with me. As any reader knows by now, my worldview is not particularly mainstream, and I get into a lot of debates about it as a result. More often than not, the arguments made tend to be based on values (“You don’t care about the poor!”) when in reality our disagreement is about the facts (“Do free markets benefit the poor?”). I commented recently in a post about health care:

a relative of mine suffered a mild heart attack, after which he, a lifelong meat eater, became a vegetarian and started exercising. It’s troubling to me that such a person would be taxed to pay for treatment for someone who drinks, smokes, and lives off junk food. In conversations, it’s become clear to me that the law’s proponents deny that such people exist – I literally had a person tell me “I just don’t think that people would do that.” People do that NOW. They won’t do it less when health care and medication are even cheaper to them.

You see that the person I talked to didn’t even try to address the question of whether it’s fair or moral to charge a responsible person for the benefit of an irresponsible person – it was easier to deny the underlying fact that such a scenario could happen because “there are no such irresponsible people.”

Similarly, I recently commented on Russell Brand’s “thoughts” on politics, and it led to an extended discussion on Facebook about my take. One commenter strongly disputed my claim that poor impulse control contributes to poverty, and thus explains why drug use (also dependent on low patience) rises with poverty. He said:

generational exposure to structural forms of violence and inequality will lead to higher rates of mental health issues, drug abuse etc in marginalized populations. Claiming that *this itself* is the *cause* of their poverty, however, is a laughable.

Again, the disagreement isn’t on moral values – I suspect they would push us in the same direction if we agreed on the facts. The disagreement is on the facts: “Structural violence and oppression cause poverty and drug use.” vs “The same things that cause poverty cause drug use.”

This disagreement seems to permeate most arguments otherwise considered moral disagreements. Teaching creationism in schools isn’t wrong IF creationism is true. In the extreme, fundamentalist terrorism isn’t shocking if the facts believed by those people were true (an omniscient God responsible for the universe who decides what is moral instructs you to kill and die to fight the great Satan). That’s not to say that there aren’t legitimate disagreements in moral values, not unlike disagreements on the bitterness of kale or the pleasantness of a particular shade of blue, but I am convinced that the range of moral disagreement is far narrower than normally assumed.

The question previously framed as different moral values now becomes why people prefer certain facts to others. That they do so is undisputed and very common, as you know if you’ve ever tried to convince someone older than you that the evidence disproves something they’ve always believed. In what ways people differ has also been studied at length, and I highly recommend Jonathan Haidt’s The Righteous Mind as the definitive work on this. The underlying logic is best described by Robin Hanson’s work on signaling and status-seeking, but that’s a whole field unto itself; I’ll summarize by saying that humans care about their status, and thus prefer to believe that the truth also matches what they happen to prefer already. There is still some work to be done to fully explain why people have these different preferences, but I think Friedman’s insight goes a long way toward explaining what we observe in the real world. And on Facebook.

The Medical Loss Ratio and Bad Incentives

I mentioned in my last post that my least favorite part of Obamacare is the 85% (80% for some firms) medical loss ratio (MLR). First the definition:

A Medical Loss Ratio (MLR) is the percentage of money a health insurance plan spends on health benefits from each premium dollar. Obamacare sets a minimum MLR of 85% (80% for plans that insure individuals or small groups). If an insurer’s MLR falls below this percentage, it must issue refunds to its insured for the difference.

Basically, an insurer must spend 85% of all premiums it collects on actual medical expenses, or refund the difference. As a consequence, administrative costs and profits of insurers must combine to be at most 15% of premiums collected. (I’ll omit the mind-numbing debate over what is a legitimate medical expense and what is administrative). The MLR is bad because it creates bad incentives for insurance companies, or, more accurately, it removes good incentives for them to keep you healthy.

Imagine an insurer, the Sample Insurance Company in the following situation (all numbers chosen for convenience): the company collects $100 million in premiums each year, and administrative expenses run $5 million every year, and payouts average $85 million. Without the MLR rule, its profits every year, then, are 100-5-85=10. (10/100 gives us a 10% margin.) This gives the company a big incentive to minimize medical payouts. One of the legitimate concerns about insurance company behavior is that they try to avoid paying even when they’re contractually obligated to do so. Fighting these fraudulent denials is a legitimate concern of insurance law, and I think the MLR is partially attempting to discourage this practice. However, in the process, it destroys a valuable service insurance companies provide.

Specifically, there is a second way that that Sample can minimize medical payouts, and that is by keeping its customers healthy. If they help their customers be healthier and require fewer medical care, the insurer can increase its profits. A few years ago, I was practically badgered by my parents’ insurer into taking the annual physical that they basically mandate. It was a guaranteed expense for them, but presumably they had learned that physical exams catch problems early so they can be taken care of more cheaply. Similarly, I believe they offered discounts for proof of gym membership (and usage), and they sent us brochures with education materials about diet and exercise. These are all up-front expenses to the insurer that reduce profits, but presumable they expect them to reduce payouts and thus increase profits in the long run.

Let’s imagine Sample Insurance realizes (before other insurers do) a new developed body scan reliably predicts a number of problems in their earliest stages, and they start mandating their customers to take one annually. It works, and their customers are healthier, so their payouts fall to $42.5 million. Their profits now are 100-5-42.5, or $52.5 million. However, their customers are vastly better off! They’re significantly healthier, they’re more productive they’re less stressed about their health, their families are less affected, their income less endangered, etc. This is an unambiguous win for consumers: they pay the same amount as before to get way more health. This is also a win for Sample, now rolling in profits. [In the longer run, Sample would probably lower its premiums to woo away customers from other firms, or other firms would duplicate their method, until Sample’s risk-adjusted profit margin is back to industry norms, but we don’t need to worry about those complications for now.]

Let’s think about the same scenario with MLR in place. Payouts fall to 42.5, with administrative expenses still at 5. However, because payouts are 42.5, the sum of profit and administrative expenses can only be (42.5/0.85) – 42.5 = 7.5. Given that administration is 5, profits can only be 2.5 in this case. The company would have to return $50 million in premiums to customer, and have 2.5 profit of 50 in premiums (5%). Even if administrative costs were cut in half, they’re looking at 5/50, or 10%.

Now the law leaves us in an awkward position: it is not in the company’s best interest to keep its customers healthy! Sample Insurance no longer has the incentive to research the effective body scan and help its customers lead healthier, happier, more productive lives. The law has basically made them at best indifferent between the two positions, and possibly favoring the former – administrative costs can’t fall forever and executives tend to prefer being in charge of larger firms. Of course, this is a huge loss for the consumers relative to what might have been.

You can play with the numbers, but the underlying principle is undeniable: by essentially capping health insurer profits to 15% of premiums less administrative costs, MLR has removed the insurer’s profit motive to make people healthier. This is, unambiguously, a bad thing. For a contrary view, click here.

Mandatory Obamacare Post

The Patient Protection and Affordable Care Act, henceforth Obamacare (because it’s shorter and because everyone says Bush tax cuts), opens its insurance exchange website today. I haven’t gotten as worked up about it as many have, but I think that’s partly because so many people are actively opposing it. I prefer to put my energy toward neglected causes like bad phrasing, spelling, or the penny. Nevertheless, some thoughts on Obamacare:

1. The government’s website is misnamed TWICE. “HealthCare.gov” is simply incorrect – the site is about purchasing insurance, not actual care. Except that site isn’t actually about purchasing insurance – the sort of coverage mandated by the law is more akin to a pre-paid service plan than actual insurance. Sadly, the law basically prohibits actual insurance, usually referred to as “catastrophic” plans. The administration really doesn’t seem to understand what insurance is.

2, I opposed Obamacare on the law: I still think the tax aspect of the Supreme Court decision was incorrect, and I think the decision leaves a cloud over the more important constitutional question regarding federal regulation of inactivity.

3. I also opposed the law on economic grounds. It’s a giveaway to a lot of undeserving people: the American Medical Association backed it for a reason, and its members are already well compensated. It also benefits the richer old people at the expense of the generally poorer young. This is a bad thing, and it’s both a cause and a symptom of my well-documented hatred for the elderly.

4. My recent rant against complexity at the end of this post will be tested by the new law. The law will be easier to deal with for smart people and those who can afford advice; it will be a big time and energy suck for the poor.

5. Finally, I opposed the law on moral grounds: by requiring community rating and coverage of pre-existing conditions, the law makes insurance cheaper for people regardless of their effort to stay healthy. I think this is a highly underdiscussed issue. Opponents of the law tend to focus on the cost or the intrusive nature of the mandate. Proponents of the law tend to talk about sick people who die because they can’t afford health care. Moral hazard, however, weighs heavily on me. I’ll use a personal anecdote: a relative of mine suffered a mild heart attack, after which he, a lifelong meat eater, became a vegetarian and started exercising. It’s troubling to me that such a person would be taxed to pay for treatment for someone who drinks, smokes, and lives off junk food. In conversations, it’s become clear to me that the law’s proponents deny that such people exist – I literally had a person tell me “I just don’t think that people would do that.” People do that NOW. They won’t do it less when health care and medication are even cheaper to them. If we’re trying to protect people from arbitrary risk – bad genes – there are much better ways to do it (money) than a massive federal bureaucracy. In order to help people who would naturally have higher health care costs (because of genes), the law encourages bad behavior by those who could avoid it, and it asks the prudent to pay for it. These are all bad things.

6. My least favorite part of Obamacare is the 85% Medical Loss Ratio, which deserves a discussion of its own in an upcoming post.

Mandatory Government Shutdown Post

With the US federal government about to shut down over who-cares-what, I suppose any blog purporting to discuss economics should comment on it. I’ll first note that I am not at all interested in the “debate” surrounding the shutdown and Obamacare, but here are some thoughts, in order of importance:

1. As I tweeted: The worst thing about the government shutdown by far is huge jump in people who write “shutdown” as a verb when it should be “shut down.”

2. Essential services will continue. Since my political views are such that I want the government only to do essential things, I’m viscerally just fine with a shutdown. I realize that’s not analysis, but I have feelings, too.

3. The issues surrounding the shutdown are just politics and nothing else. There are no real policy issues at stake here. Yes, the Republicans are against Obamacare, but this game of chicken is about elections, not improving policy. (Politics is not about policy, especially nationally.) The Republicans are cementing their anti-PPACA position, counting on the law’s unpopularity to benefit them in the long run. A bold move, especially how easy it is for the media to tell the story that Obamacare would have worked much better had Republicans not undermined it.

4. For actual analysis, Tyler Cowen nails it:

The GOP also wishes to combat the notion that it is the intransigent party, and a battle over the relatively unpopular ACA (“why will Obama negotiate with Putin and Assad but not with us?”) is a better arena for them than most of the other venues where this clash of reputations might pop up.

The GOP, from its budget strategies, might manage to repeal the medical devices tax.  Repealing a tax, and chipping away at ACA, is in this setting a major victory for them, especially given that right now they are not winning so many victories.  It doesn’t matter so much that the medical device tax repeal would be relatively small in its impact.  “We forced the repeal of one part of Obamacare” is a big symbolic victory.

Recent events are simply public choice theory in action.