Jeff

Just read a bit of ToTheEastSide's blog and thought I'd post some of my thoughts on the current health care debate in the US. This is a general complaint from my morose mind and hasn't got much to say about the politics of the situation. This is also too long to probably interest many readers, but I think it's simple and easy to argue for or against.

Not only is insurance causing pricing problems - medical insurance, at least as it exists today, doesn't even make sense. Insuring against buying monthly medication is pretty much the same as insuring against buying groceries. The whole point of insurance is to avoid variance, something poker players know a lot about. Example: if we summarize your yearly income from poker as being either 10BB/100 or -10BB/100, with an 80% chance of 10BB/100 and a 20% chance of -10BB/100 then your EXPECTED win rate for the year is 6BB/100. Remember, we're supposing that at the end of the year you will either come out at 10BB/100 or -10BB/100 and that (unlike the real life) no other option is a possibility. Would you, knowing that your EV was 6BB/100, be willing to pay a .5BB/100 premium to LP.net Insurance in order to ensure that your win rate was 5.5BB/100 for the year?

That's how insurance works: You insure against the possibility of a low-probability, high-impact event. You don't insure against relatively low-impact certainties. You don't insure against buying groceries. We shouldn't insure against monthly medication. Why are you paying a premium to medical companies on top of what you're already expecting to pay?

Insurance has other problems. It creates a lot of fucked up incentives. With a typical insurance company, we have copay (for simplicity's sake I'll ignore other types of insurance, but the principle is basically the same for coinsurance, etc.) Suppose my copay is $25 for any medication I buy. Medical corporations can now price their $35 product at $125 and yet no matter what they price it, demand from the insured is the same because copay is only $25. The whole concept of quantity demanded as a function of price goes right out the window. Profit-maximizing firms are incentivized to raise their prices.

Suppose then that not all of the population is insured. Insurance companies are gonna say "fuck the uninsured demand, I'm raising my prices. I can sell my shit at $125 where I used to sell it at $35, and people [the insured] will still buy it exactly the same as before." In other words, the insured have an extremely inelastic demand cure, meaning they will continue to purchase the medication is though it were $25 even as prices skyrocket. So, given that fact, medical corporations have an incentive to raise prices regardless of the uninsured demand because it benefits them to sell less product (also meaning less costs associated with production) at a substantially greater price. This whole phenomenon forces some of the uninsured to consider purchasing insurance just so they can afford the extreme prices of monthly medication.

Obviously this is a vicious cycle.

Another consideration with regard to insurance is the consumption of doctors' labor. The AMA already has a stranglehold on the number of doctors being licensed so in the USA we already have too few doctors to be called socially efficient. Couple the shortage of doctors with the copay example of how prices rise due to insurance. The price of a doctor's time, already artificially high because of the AMA's licensing procedures, is further increased by the fact that copay pays for all but $25 of a doctor's visit that can range into triple digit prices. Doctors prices are pushed higher, making them unaffordable to the uninsured while the quantity of doctor's labor demanded by the insured remains unchanged. We can imagine some unsavory, if not unlikely results: Suppose that before the introduction of insurance, a doctor's visit was relatively expensive, and suppose that once insurance is produced, a large fraction of the population purchases insurance. Then the quantity demanded for doctor's labor may actually increase due to the introduction of insurance meanwhile, because of the copay system, prices charged by doctors skyrocket. This means that not only will there be a shortage of doctors' labor, but that the condition will persist perhaps completely unchanged in spite of prices becoming incredibly expensive.

Do I think there should be medical insurance? Yeah, for stuff that doesn't happen often and is hugely expensive; not for routine check-ups or monthly/weekly prescriptions.

Sadly, insurance isn't the only problem with medical markets.

The very nature of medical markets disposes them to social inefficiency. As people are constantly pointing out, if you're dying and there's only one company with the cure, you're probably willing to pay a pretty high price to that company. In medical markets there are often no good substitutes for a given treatment; there are R&D/licensing barriers to entering the market; etc. Basically medical markets breed monopoly (or at the very least, they breed inefficiency).

Because medical companies are essentially monopolies reaming public welfare, government regulation of medical markets is absolutely necessary to achieving a socially optimal equilibrium. The breakdown of revenues and costs in medical markets is so far out of economic equilibrium that when I first read it I was hung up on the fact for days. What i'm referring to is neatly summed up in the fact that across the ENTIRE medical market, the mean after-tax accounting profit is over 20% of medical firms' revenues and costs balance. Without going into too much detail, there's a huge economic profit being realized in medical markets, and economic profit is a reliable red flag for social inefficiency. Socially efficient market structures do not yield positive economic profit, so positive economic profit is always suspicious to someone interested in socially optimal outcomes.

So you can see what I'm talking about, compare the following:

Graph

The graph is from 2005. Oil/gas is doing worse than you might expect. If this graph were current, banks and financial shit would be crashing, and I suspect that medical/biotech would stand well away from its competitors in terms of profits reaped. This is important for economic consideration: the fact that medical markets are way better than "the best alternative." Medical markets are raping all the other markets listed, and medical markets are also raping society at large.

A good read courtesy of Savio from TL.net: Overview of US Healthcare

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I'm graduating from university on Saturday. My degree is in economics and I've got what amounts to a minor in math.

Overall I'm not real happy about it.

I applied to several Ph.D programs and none of them panned out. Either I was rejected or I declined at every school. My GRE quantitative was a 780 which is passable for top tier economics programs, but I'm applying from an obscure state university and my GPA is only just over 3.6. Plus I've got virtually nothing else going for me so apparently I don't measure up to the standards of top-tier schools.

I wasn't delighted at the prospect of getting a Ph.D in the first place, but it was basically the only route that seemed to make sense as jobs are scarce and I've got no source of income. Anyway after being rejected at or declining every university, my only option in academics is to stay at the same state university for another year while I pursue a 1-year post-graduate and reapply to Ph.D programs. This is a pretty shitty option as I've lived here my entire life, and I'm bored of it. Moreover the education I get here is generally poor, and in spite of - or perhaps because of the easy courses, I tend to lack motivation and thus both learn less and perform (relatively) poorly.

As I said, I live in Alabama and I always have. It sucks here for all the reasons you'd imagine, and education here is as poor as advertised and possibly worse. Lately I've been trying (despite often lacking real enthusiasm) to make up for lost time and do some self-education plus take the most difficult classes available in math and econ. Unfortunately there are no difficult econ courses here, so that didn't work. Also I've been forced to fill in some curriculum requirements as this is my last semester, and those filler classes were truly horrible wastes of time and energy. One of the math courses, on the other hand, was difficult. It was a topography / analysis course that ended up requiring my full effort, and even then I ended up a little short. I like to think that it was because I had several bullshit classes that wasted my time and sapped my will to study, coupled with my terrible math background, but even so I've never really had any trouble with an academic subject before. So it was a humbling and somewhat draining experience.

Several other aspects of my life sort of suck as I've gradually severed ties with a lot of friends and now only have a sort of core group that I've known all my life. Unfortunately even among my closest friends none of us are really similar enough to have a super solid friendship. It's a strange thing to think and I feel uncomfortable with it, but at times it seems to me that even among my closest friends we're only friends because we've known each other for so long. It seems like we’re dissimilar in every way. Among some of us there are ghosts of serious tension from the past and there’s almost never an atmosphere of relaxed goodwill. Among others there are just no mutual interests or anything like the spontaneity that characterizes healthy relationships. Probably worth acknowledging that I haven’t had a steady girlfriend in over two years, and more recently I’ve become so disgusted with the culture here and the kind of people that it attracts that in the past half a year or so I haven’t made the slightest effort in social situations.

Poker is also going poorly. Don’t really feel like there’s much to be said about it other than that I’ve been able to excel in most other aspects of life and it’s frustrating and humbling to be pretty unsuccessful at poker. I can console myself with the idea that I haven’t put in the time to really be good, but it feels like a hollow reason. Until I succeed at something I usually take lack of success pretty badly and possibly irrationally so, but whatever. It’s still frustrating and with everything else looking dim it’s just one more thing that’s bad rather than good.

Anyway this is really depressing piece of writing and I feel like it’s not even entirely appropriate to post publicly. I guess the relative anonymity of LP makes it pretty inconsequential so I’ll probably post it anyway. My main motivation for writing this was the hope that at some point I’d either see that I was being ridiculous or if I wasn’t being completely ridiculous, I was hoping to spark some idea of what I could do it improve things. Unfortunately no solution has really hit me.

I guess to conclude with a poker analogy, I feel like if life were an NLHE hand then I’ve misplayed it pretty severely thus far. Unfortunately open-folding / check-folding life doesn’t get the next two cards dealt unless you’re a Hindu. So ruling out the fold button really just brings me back to step one. Hopefully I’ll catch a lucky turn or something. But it makes me wonder how many people are in a similar spot and opt to fish. Gotta think that in poker if you’re drawing you mostly miss.

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He's delusional. He can't communicate his ideas. He behaves like a spastic fish at every opportunity.

His non-interventionist policy is so 18th century. We are no longer on the fucking Mayflower and it does not take a month to cross Atlantic. Hello, Mach 5. I can now fuck with you from half the world away.

His Constitution-obsession is retarded. Hello, 3/5ths clause. The Constitution is not divine writ. It is completely fallible.

His political career, according to Wikipedia, got its start when the US finally cut its remaining ties with the gold standard... "After that day, all money would be political money rather than money of real value. I was astounded."

I guess his heart is in the right place and in some sense that puts him ahead of approximately 534 other Congressmen, but he's still retarded. The unadulterated adulation in the UIEGA thread is so misguided, but if he and his cohorts deliver the fish I guess I'll probably forgive him because I'm results oriented like that

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