Health Care Economics

Posted by PITHOCRATES - January 20th, 2014

Economics 101

Because Obamacare Insurance pays for everything Under the Sun it is anything but Insurance

Do you know what the problem is with health care?  Insurance plans that give away free flu shots.  Not that flu shots are bad.  They’re not.  And it’s a good thing for everyone to get one every year at the onset of the flu season.  For it does seem to limit the spread of the flu virus.  It’s because we get a flu shot every year is why insurance shouldn’t pay for it.  Because we know about this expense.  And we can budget for it.  Just like we can budget for our monthly cellular bill.  Which is in most cases more than ten times the cost of one annual flu shot.

When Lloyds of London started selling marine insurance at that coffee shop they were selling insurance.  Not welfare.  Losing a ship at sea caused a huge financial loss.  And shippers wanted to mitigate that risk.  So every shipper paid a SMALL premium to protect against a LARGE loss.  A POTENTIAL sinking and loss of cargo.  Not every ship sank, though.  In fact, most ships did not.  Which is why that little bit from everyone was able to pay the financial loss of the few shippers that lost their ship and cargo.  But that’s all that Lloyd’s of London paid for.  They didn’t pay a dime to shippers whose ships didn’t sink.  No, those shippers paid every cent they incurred (crew, food, rum, etc.) to ship things across those perilous oceans.  Because they could expect those costs.  And they could budget for them.

This is how insurance works.  Which isn’t how our current health insurance system works.  No.  Today people don’t want to pay for anything out-of-pocket.  Not the unexpected catastrophic costs.  Or the EXPECTED small costs that everyone can budget for in their personal lives.  Like an annual flu shot.  Childhood vaccinations.  Annual checkups.  Childbirth.  Etc.  Even the unexpected things that aren’t that expensive.  Like the stitches required when a child falls off of a bike.  Things that would cost less than someone’s monthly cellular bill.  Or things that people can plan and save for.  Like a house.  A car.  Or a child.  Which is why Obamacare insurance is not insurance.  It pays for way too many expected costs that we can budget for.  And because it does it only increases the cost of our health insurance policies.  Which are now anything but insurance.

Free Market Forces and Insurance for Catastrophic Costs will Fix any Problems in our Health Care System

When we pay these things out-of-pocket there are market forces in play.  For a doctor is not going to charge someone they’ve been seeing for years as much as he will charge a faceless insurance company.  Even today some doctors will waive some fees to help some of their long-time patients during a time of financial hardship.  Because there is a relationship between doctor and patient.  And they want to help.  Which is why they sometimes overcharge insurance companies to recover costs they can’t recover in full from other patients.  (Which is why insurance companies are vigilant in denying overbillings).  Especially those things government pays for.  Medicaid.  And Medicare.  Which the government discounts.  Leaving health care providers little choice but to overbill others to pay for what the government does not.

When we pay out-of-pocket doctors can’t charge as much.  Because they need patients.  If they charge too much their patients may find another good doctor that charges a little less.  Perhaps a younger one trying to establish a practice.  These are market forces.  Just like there are everywhere else in the economy.  Even a cancer patient requiring an expensive miracle drug benefits from market forces.  If there was true insurance in our health care system, that is.  Cancer is an unexpected and catastrophic cost.  But not everyone gets cancer.  Just as every ship does not sink.  Everyone would pay a small fee to insure against a financial loss that can result from cancer.  Where that little bit from everyone buying a catastrophic health insurance policy was able to pay the financial loss of the unfortunate few that require cancer treatment.  Even one including a costly miracle drug.  Because only a few from a large pool would incur these financial losses insurers would compete against other insurers for this business.  Just like they do to insure houses.  And ships crossing perilous oceans.

Health care would work better in the free market.  It doesn’t today because government changed that.  Starting with FDR putting a ceiling on wages.  Which forced employers to offer generous benefits to get the best workers to work for them when they couldn’t offer them more pay.  This was the beginning.  Now the health insurance industry is so bastardized that it doesn’t even resemble insurance anymore.  It’s just a massive cost transfer from one group of people to another.  Instead of a pooling of money to insure against financial risk.  For the few unexpected and catastrophic costs we cannot afford or budget for to pay out-of-pocket.

Because our Health Care System is the Most Expensive in the World it is the Best in the World

The American health care system is the finest in the world.  When you have a serious health care issue and you have the wherewithal there’s only one place you’re going for your medical care.  The United States.  And the best costs.  And it’s because it is so costly that people enter into the health care industry to do wonderful things.  Such as pharmaceutical companies.  Who many rail against for charging so much for the miracle drugs only they produce.  It’s a free country.  Anyone could have created that miracle drug.  All they had to do was to spend a boatload of money for years on other drugs that were losers.  Until they finally found one that wasn’t a loser.  That’s all you had to do.  Yet few do it.  Why?

Because creating miracle drugs is an extremely expensive and often futile endeavor.  Which is why we award patents to the few who do.  Which is the only reason they pour hundreds of millions of dollars into research and development and pay massive liability insurance premiums for taking a huge risk to put a drug onto the market that may harm or kill people.  They do this on the CHANCE that they may develop at least one successful drug that will pay for all of the costs incurred to develop this one drug, the costs for the countless drugs that failed AND provide a profit for their investors.  Who took a huge risk in paying their employees over the many years it took to come up with at least one drug that wasn’t a loser.  Their investors do this only because of the CHANCE that this pharmaceutical will develop that miracle drug that everyone wants.  But most don’t.  And investors just lose their investment.  But it’s the only way miracle drugs become available to us.  Because of rich investors who were willing to risk losing huge amounts of money.

This is what the profit incentive gives us.  The best health care system in the world.  Why the countries based on free market capitalism have the finest health care systems in the world.  And why North Korea, Cuba, the former East Germany, the former Soviet Union, Venezuela, etc., have never given us miracle drugs.  There never was an economic incentive throughout the economy to do so.  Like there is in countries with free market capitalism.  Where everyone at every level pursues profits that result overall in a pharmaceutical industry that produces these miracle drugs.

There is an expression that says you get what you pay for.  Our health care system is the most expensive in the world.  And because it is it is the best in the world.  Trying to inhibit the profit incentive for research and development and forcing medical providers to work for less (steeper Medicaid, Medicare and now Obamacare discounts) will change that.  Because you do get what you pay for.  And those who live/have lived in North Korea, Cuba, the former East Germany, the former Soviet Union, Venezuela, etc., can attest to.

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LESSONS LEARNED #70: ” There is no such thing as ‘consensus’ in science.” -Old Pithy

Posted by PITHOCRATES - June 16th, 2011

State of the Art Medicine – Balancing the Four Humors

Early science was sometimes by consensus.  Arrived at by some guesses that were almost educated.  Early medical science, for example.  The human body was and is a complex thing.  Most of our knowledge was based on the excretions we observed coming from the body.  Someone with a cold had a runny nose.  Someone with a fever sweated.  Someone with an upset tummy vomited.  And, of course, there’s poop and pee.  If you didn’t excrete enough of either there’s probably something wrong with you.  Even today we look at our poop and pee.  For things like blood.  Or other abnormal secretions.  Because that can be a problem.  So the human body is a plethora of excretions.  Or fluids.  Each telling a story.

Early medicine broke these fluids down into 4 basic fluids.  The four humors.  Black bile, yellow bile, phlegm and blood.  A healthy body had the four humors in balance.  A sick body had an imbalance.  Too little of one.  Or too much of another.  So early medicine looked at putting the four humors back into balance.  Either through putting humors into the body.  As in herbs or food.  Or taking humors out of the body.  As in bloodletting or inducing vomiting.  Or applying a poultice.  Out with the bad.  In with the good.

This was state of the art medicine at its time.  They even used it on George Washington in 1799.  The most important man in America.  He was making his rounds on horseback, inspecting his plantation one day in the rain and snow.  Got a bit of a sore throat.  Came in that evening for dinner.  Didn’t change out of his wet clothes so as not to inconvenience his guests.  The next day his throat was worse.  And he had a fever.  He also had trouble swallowing.  Today we’d see our doctor and ask for some antibiotics.  Before antibiotics, though, you tried to balance the four humors.  So they bled Washington.  State of the art medicine back then.  Washington died 6 days later.  Having never recovered from his sore throat.  Despite using what was then the consensus for the finest medical care.  Bleeding.

The Fight against both Smallpox and the Medical Consensus

Interestingly, George Washington was a healthy man.  He lived longer than most Washington men.  Even survived a run in with Smallpox in his youth.  Which makes his death from something starting out as a sore throat sadder still.  Because Smallpox was a killer.  People feared it like the plague.  In time, though, people found a way to make themselves immune to the disease.  By infecting themselves with a little of it.

England learned of this procedure from the Turks.  Lady Mary Wortley Montagu brought the practice (variolation) back from Turkey.  The king volunteered subjects for experimentation in England.  Which proved to be a success.  Even though there was a risk of death (about 1 in 1,000).  And during the procedure people were highly contagious.  Still, it was a whole lot better than dying from the pox.  So the Royal physician inoculated the Royal family.  And the practice slowly spread.  African slaves were doing it, too, and brought the practice to the New World and taught the procedure to the Reverend Cotton MatherEdward Jenner conducted further experiments.  Found a safer way to inoculate using cowpox.  Without the higher death rate.  Or with people being highly contagious during the process.  And the Smallpox vaccination was born.

But the acceptance of inoculation wasn’t easy.  The accepted medical practice did not include such a radical procedure.  Those in medicine belittled the procedure and anyone practicing it.  The medical consensus was that these were just some misguided people playing God who were going to turn people into cows after injecting them with cowpox.  But fear of dying can change minds.  Especially when there is a Smallpox epidemic in your country.  Which there was during the American Revolutionary War.  More soldiers died from Smallpox than were killed in battle.  A lot more.  More than half of the army.  Soldiers inoculated themselves using the puss from the pustules on infected soldiers.  John Adams’ wife, Abigail, inoculated her own children.  The inoculations saved the army.  And many of the cities.  And it was the successful fight against Smallpox that allowed the fight for independence to proceed.  Thanks to those who went against the consensus.

Contagions, not Bad Air, make you Sick

Part of the reason the disease was so contagious was because of poor sanitary conditions.  Soldiers cramped together in barracks.  Or in hospitals.  Crowded cities.  A lot of sick people in contact with a lot of healthy people got a lot of healthy people sick.  Some understood this and tried to stay away from sick people.  But they didn’t really understand germs.  They tried to stay away from sick people so they wouldn’t catch what they had.  By breathing the same air.  Not necessarily the breath they were exhaling.  But the air they were breathing in that made them sick in the first place.

A common medical opinion was that ‘bad’ air caused illness.  Thomas Jefferson believed this.  That’s why he hated leaving Monticello during the summer.  When the tidewater air was ‘bad’.  The coastal towns.  Where the government met.  He hated going to New York, Philadelphia and Washington.  Because they all had ‘bad’ air during the summer.  And that ‘bad’ air could give you malaria.  Of course, it wasn’t the air.  It was the mosquitoes who liked the marshy tidewater areas.  And understanding this was the first step in (almost) eradicating malaria.

Benjamin Franklin didn’t believe in ‘bad’ air.  Well, not the kind other people worried about.  He didn’t believe cold air gave anyone a cold.  Or the flu.  No one knew anything about germs or viruses yet, but he had an open mind.  And constantly questioned things.  He was, after all, America’s greatest scientist.  Why did he not get sick when traveling in the coldest of winters?  Yet he could catch cold in a warm and comfortable room when someone with a cold was in that same room?  The answer was obvious.  Bad air.  Created by the sick person exhaling their sickness into a room with no fresh air.  Whereby he had no choice but to breathe in this same air.  A contagion spread the sickness.  Not cold air.  Sure of this he would forever sleep with the window open.  Even during winter.  Even when sharing a bed with a sick John Adams during a diplomatic mission to discuss possible terms with the British on Staten Island to stop the rebellion.   There was no room at the inn.  So they had to share.  And they discussed Franklin’s theory.  Adams had a cold and wanted to close the window.  Franklin didn’t want to catch Adams’s cold and insisted on leaving the window open.  Adams returned to bed while listening to Franklin opine.  And fell asleep.  With the window open.  He was no sicker in the morning.  And Franklin did not catch his cold.

Before Modern Science there was Consensus and Bad Medicine

Poor sanitary conditions and a lack of understanding of germs killed a lot of people.  During the American Civil War, doctors would go from patient to patient without washing their hands.  After an amputation, they just wiped their saw on their apron before moving on to the next patient.  These were approved medical procedures.  The consensus was that it wasn’t necessary to wash your hands.  Or your saw.  And the result was an epidemic of gangrene.  And high mortality rates in Civil War hospitals.  Louis Pasteur‘s work on the germ theory of disease began to change things.  And Joseph Lister introduced the modern sterile and antiseptic operating room.

We were making progress.  Modern medicine was coming into being.  But we were still doing a lot of questionable things.  Even though it was accepted by the medical community.  Sometimes we just didn’t know any better.  Like giving people heavy doses of toxic mercury.  Then there were things where we should have known better.  Like sticking an ice pick through someone’s eye socket into the brain to sever the connections to and from the prefrontal cortex during the popular lobotomy craze of the early 20th century.  We don’t do these once accepted medical practices anymore. 

Before modern science and modern surgical tools and equipment there was little more than consensus in medicine.  No one knew anything.  So they started by guessing.  And if a guess won a popular vote, it became an accepted medical procedure.  For it was the consensus of the medical community.  Which until real science came along was the best they could do.  Thankfully, today, we have real science.  We no longer have to guess.  Or win popularity contests.  Which has greatly reduced the amount of bad medicine in our lives.  Thanks to those lone voices in the crowd.  The few who dared to go against the consensus.

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