Tuesday, July 31, 2012

Healthcare Inflation vs. US Inflation vs. Unemployment

US Health Care Inflation Rate Chart

The darker shaded area indicates the recent recession.

The recession seems to have caused both the healthcare inflation rate and the US Core inflation rate to just about converge.  Which would have been nice, slowing down the growth of health care prices to a rate below or at inflation.  Except for the recession part.

Because when people are losing their jobs and losing their healthcare coverage, people tend to be unable to afford going to the doctor--and attempt to do without medical services they need.  That's not good.

Monday, July 30, 2012

Illuminated Insight on Competition

I read this free snippet--and found it breathtaking--from Edward Conard's book Unintended Consequences: Why Everything You've Been Told About the Economy is Wrong:
"Competition simply evolves and grows more intense over time."

Competition naturally affects how firms interact within the market to compete for market shares.  It forces them to bear larger amounts of risk--risk of failing if they don't innovate and change--and in turn this forces them to shift any risk they can away from themselves onto others: employees.  Like the development of the 401(K) plan.  Like Conard says, we can blame the corporations, but that's useless.

We have to blame competition.  It creates more risk.

And who likes to play with a lot of risk?

A super cool chart from the book:

Our productivity levels per worker have been much higher than any of our Western European counterparts because of our unprecedented improvements and developments in Information Technologies and the internet.  Why?  I'll have to keep reading, but so far, it's riveting.

This book is amazing, and it's an economics gold-mine.  If you like economics, you better get this book.  I'm getting it, shortly after I read a lot more about public health and a few other books on my list this summer.

Monday, July 9, 2012

This Summer: Intern at CHRT

As some may or may not know, I'm interning this Summer at the Center for Healthcare Research and Transformation (CHRT).

And guess who I got to meet?  Helen Levy and Thomas Buchmueller!  Both former economists on the Council of Economic Advisers to the President!

And right now they're both working with CHRT to do an economic analysis of the impact of the Medicaid expansion on Michigan!

Exciting times to be an intern at CHRT, especially as an undergraduate.  Don't know the extent of my work, but regardless, it's cool.

Sunday, July 8, 2012

Income Inequality: Bad Consequences :[


"University of Ottawa economist Miles Corak makes the strongest case yet that inequality and mobility are intertwined—the more unequal a society is, the greater the likelihood that children will remain in the same economic standing as their parents."
 "'When difficult decisions need to be made,” Pearson says, “the already diminishing resources for individuals at the bottom are the first to go.'"
[Most importantly] :
 "'The strong tie between family background and the chance of success runs counter to what we commonly understand as the American Dream,” Corak says."

We're letting the American Dream slip away.   In a sense, we can measure the American dream by the strength of the positive relationship between economic mobility and the gini-coefficient.  The more intense the relationship, the closer we are to losing what makes America exceptional.

Saturday, July 7, 2012

Unemployment, Labor Force, and Economic Recovery

Interesting piece of information in Bloomberg Businessweek today:

Size of the labor force. If more people are unemployed, that’s bad. But if the number of people in the overall labor force—including those with and without jobs—increases as well, it indicates people who had given up looking are being drawn back into the job search. The labor force grew by 642,000 people from April to May. It rose again in June, but by only 156,000.
What does this mean for unemployment numbers?  Well, the labor force participation rate partially measures optimism within the labor market.  During prolonged recessions and economic downturns, more individuals drop out of the labor force because they are able to find less jobs since employers are either keeping the amount of employees constant or laying them off while attempting to increase productivity.  We would see a negative growth rate in the labor force.  We can reasonably assume people are becoming discouraged--less optimistic--about finding employment.

During a sustained recovery, if people are optimistic about employment prospects, we should expect a positive growth rate in the labor force.  As in, people that were out of the labor force are coming back in, looking for work again.  I bet there are some more complicated variables here, but let's keep this conversation simple.

What does this mean for unemployment during economic recovery immediately and over the long-run after a recovery?

We would expect an uptick in unemployment immediately, as more people join the labor force, because they're more optimistic about finding a job.  This is a good sign.  Then we would expect a gradual decline in unemployment, assuming recovery is consistent.

So I don't think it's unusual that unemployment is stuck at 8.2% at the moment while there is job growth, albeit slow growth.  But this just means that the rate at which people are joining back in looking for work is greater than the rate at which the economy is producing jobs, at the moment.  That's a good sign, though.

A growing labor force is better than a decreasing labor force.  It's a sign of optimism.  Let's hope the recovery continues and fuels more optimism and jobs.

A good point to note, however, is:

The all-in jobs misery number. This category, known as U-6 among economists, includes the unemployed and the underemployed, such as those working part-time jobs even though they’d like full-time work, and those who have given up looking for work. The U-6 number has held steady at just under 15 percent for the past five months; it rose slightly, to 14.9 percent, in June. That’s not good; consumers need to feel confident in their full-time employment before they loosen the purse strings. The U-6 number is down from a year earlier, when it was 16.2 percent.
U-6 includes those underemployed and those who have stopped looking for work.  The U-6 number has held constant, potentially meaning the labor force hasn't actually grown because discouraged people became optimistic--but that younger laborers probably entered the market after graduating, therefore increasing the labor workforce (May and June are prime graduation months for college students).  

BUT: the constant rate could result from those who stopped looking for work just swooped into the underemployed category.  It's not necessarily good, but that does mean more jobs are available.  This still means individuals who stopped looking for work began looking for work again--and maybe found work (it's just not full-time, what they would have preferred).

Thursday, July 5, 2012

Serious Moral Hazard: The Consequences of Mandated Insurance in all Markets

So this is just a commentary, but I think it's an important exercise in judgement analysis.

Peter Coy, my boy at Bloomberg Businessweek, just made the case that we shouldn't just be mandated to by health insurance, but we should be mandated to buy all types of insurance, because:

The logic of getting everyone to jump into the risk pool is powerful: Left to their own devices, many people will choose to go uncovered against fire, flood, car crashes, and cancer. Then, if something bad happens, they throw themselves on the mercy of society. The cruel solution would be to let them live (or die) on the streets. To our societal credit, we are unwilling to do this. A coverage mandate at least ensures that people who create the risks will bear the costs, on average, over time.

At first sight, it seems unquestionably obvious: let's get everyone to buy all types of insurance.  That way, we don't have to face that moral dilemma of asking ourselves, "Well, should I let that person I don't know just die, lose his home, and have the guilt of conscience that I refused to help another family, with kids, in need?"

I mean, our federal and state governments collectively already make us buy tons of insurance:

States require drivers to carry liability insurance. Your state government also provides you with—and charges you for—insurance against losing your job. The federal government mandates flood insurance for anyone living in a flood plain who has a federally insured mortgage. Social Security is mandatory insurance against a penniless old age, and the premiums are deducted from your paycheck, whether you like it or not.  
Great idea, then, right?  Maybe not.  What would happen if we were all covered for our potential mistakes or natural hazards?  Would we stop caring about where we move, ignoring "tornado alley" and building there anyway because, heck, you're covered, right?  Or flood alley?  Or earthquake alley?

More people may be harmed.  Because the perceived danger of living in a dangerous environment has decreased in risk, and therefore price.  This may then actually incentivize more individuals to live in the exact place where they initially try hardest to avoid: dangerous environments that increase their chances of major harm and reckless decisions.  And death.  Let's not forget death.  Why?  Because the financial risk is gone!

And Coy fundamentally makes an argument about finances.  People avoid buying insurance because it's too costly.  So, if we reduce the percieved cost, what's not to attract more demand of riskier living environments?

Decisions that used to cost more, like living in a flood zone, tornado alley, eating high-fat foods--now all cost less because he's paid a premium for protection against the negative consequences they bring forth: death.  And depending upon the estimate, each human American life is worth about $10 million.  So, looks like we've just lost that and more.

Unless, of course, they all die, and then we don't have reckless people raising premiums of insurance, and we leave only the risk-averse individuals alive.  But that's not necessarily equitable.  And it is a huge leap.  But that's the point.  To show that ensuring all people for everything is a huge, inequitable leap that borderlines fanatical and betrays our moral sentiments to help our fellow man.

Monday, July 2, 2012

The ACA Individual "Tax" Date: Why it Matters

A not-so-small and controversial mandate exists within the Affordable Care Act (ACA).  It has libertarians up in arms and liberals up in hopes.  It’s the ACA’s individual mandate—or tax individuals would have to pay for not purchasing health insurance.  While the mandate seems radical, it’s not—and it will probably lower your healthcare premiums!  The idea of our government strongly encouraging us to buy insurance isn’t new.  We have to buy car insurance if we own a car.  People generally don’t complain about that, because they want to be reimbursed if someone damages their car—imagine if someone who didn’t have car insurance hit you.

Yes.  The individual mandate is key to lowering your insurance premiums.  Hey, it's working in Massachussetts!

The conventional reasoning behind the individual mandate is straight forward.  Individuals who are more likely to be sick (high-risk consumers) are precisely those that apply for and enroll into health insurance plans.  This is called adverse selection.  These are individuals that recognize they will probably need care that is either long-term, intensive, or both—and therefore high cost.  Without insurance, they would likely be unable to pay for their out-of-pocket, and, recognizing their situation, also purchase health insurance.  To the insurer, however, high-risk consumers are expensive and expect to pay more for their coverage.

Individuals who are less likely to get sick (low-risk consumers)—usually the young and single—tend to avoid purchasing health insurance because they can reasonably assume their chances of needing expensive, intensive, and long-term care are very low (in fact, one in three young American between 18-34 did not purchase health insurance).  This tends to also reflect the fact that younger adults within the labor force are relatively poorer compared to their middle-aged or older counterparts that have worked 20+ years and have accumulated wealth and higher incomes over time.  Just as the low-risk individuals recognize their low chances of needing expensive care, so do insurers.  Insurers expect to pay significantly less for their coverage compared to their high-risk counterparts.  They are cheaper to insure.

So what does this have to do with ACA’s individual mandate? 

Insurance companies calculate premiums based upon the total cost they expect to pay to insure all their customers who have purchased health insurance.  For simplicity, we add together the expected cost of insuring high-risk consumers with the expected cost of insuring low-risk consumers.  This is the expected total cost of insuring all consumers.  To calculate the premium each consumer must pay, we divide the total cost by the number of consumers in total (high-risk + low-risk).  The premium is therefore an average price that high and low risk consumers pay. 

The low-risk pay more in premiums than what they receive, and that “left over” care provides for high-risk, who pay less in premiums than what they receive in care.   So, the low-risk consumers pay for the high-risk consumers’ “extra care. “ (This gets a little more complicated when we add in that companies also have to make a profit, but here we will assume the company is just breaking even in its commitments to cover its consumers.)

But what happens when the low-risk are relatively low-income young laborers who have decided health insurance is an unnecessary extra cost they want to avoid?  This means the average premium rises, because there are less low-risk consumers and less “left over” care for the high-risk.  Consequently, insurers raise their premiums to make up for that lost “left over” care. 
The individual mandate requires all (with few exceptions) consumers to purchase health insurance and therefore drive the average premium down. 

The mandate protects against this adverse selection.  And it protects against upward spiraling costs.

However, one of the major arguments against the Healthcare bill has been that the mandate is too weak!

            “The adverse selection death spiral
The problem, as PwC points out, is that the individual mandate is too weak. “While the new market rules [regarding pre-existing conditions] are implemented in full in [2014], the individual coverage requirement is…phased in gradually.’”