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Tag Archives: health insurance

Industries afflicted with Baumol's Disease have slower productivity growth.

It might be tough to use statistics to judge US health care.

Among OECD countries (Organization for Economic Cooperation and Development), from 1980 to 1999, for life expectancy, the US ranked #19 and Canada was #5. However, the order flips–US #1 and Canada #4–once you exclude fatal injuries like auto accidents, suicides and murder.

Similarly, the US has had a higher infant mortality rate than Canada. The reason, though, could relate to our higher incidence of teenage pregnancies. Teenagers tend to give birth to babies with a higher mortality rate because of their lower birth weights.

You see where this is going. If a candidate defends his healthcare policy by referring to a health outcome like life expectancy or infant mortality rates, we need to be sure that the statistic actually reflects our healthcare system and not another characteristic of our society. And it even gets more complicated because we could say that we have 3 healthcare systems: Medicaid, Medicare and private insurance with a fourth on the way when statewide healthcare exchanges begin.

On which statistics would you base your your policy preferences for the US healthcare system? Or maybe we should just remember what Benjamin Disraeli (1804-1881), British Prime Minister under Queen Victoria said:

“There are three kinds of lies: lies, damned lies, and statistics.”

Election Economics Topics:

 

Sources: In this 2007 NY Times column, Harvard professor N. Gregory Mankiw looks “Beyond Those Health Care Numbers” while I also referred to this Forbes article and this econtalk podcast on misleading healthcare system statistics. Finally, for a perspective that takes us away from the stats and to the bigger ideas that are driving this election, do look at what Princeton economist Uwe Reinhardt says in his NY Times economix.com articles.

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hedgehog

By Mira Korber, guest blogger.

Oppressive fluorescent lights, the antiseptic squeak of rubber soles on linoleum, and the omnipresent pulse of machines envelop you at the hospital. You’re anxiously awaiting the results of surgery on your beloved family member.

Her name is Harriet, she’s a hedgehog, and this actually happened.

This (just slightly) unusual medical story is the result of pet medical insurance. (NB: The purpose of any health insurance is not to pay for medical procedures, but rather to hedge against risk of medical disaster [see this Econlife post.])

Without the coverage, would Harriet would have undergone treatment? Maybe, maybe not. 

Why? The proliferation of pet health insurance demonstrates a changing series of behavioral incentives. Logically, the more coverage you have for your pet, the greater the incentive to supply costly care and medications. Then, will you see an incentive to own more pets because insurance covers advanced treatments? Disregarding the cost of vet school, will more students see a lucrative future in veterinary fields?

A segment from NPR “This American Life” episode 392  exemplifies how incentives change for pet owners with insurance. Quoting a report from the National Commission on Veterinary Economic Affairs, NPR reports, “‘with pet insurance, clients likely will use your services even more often and opt for more advanced medical procedures.’”…insurance can reduce  ‘price resistance on the part of the client…with cost concerns removed, clients become more engaged and more responsive.’”

Additionally, these statistics express the nature of a growing pet insurance market (cited from an informative USA Today article):

  • Pet insurance costs from $15-$75/month, and covers 80-90% of claims
  • Dogs are insured 4x more than cats
  • 1% of American pets are insured, compared to Europe’s 20%
  • In 2011, Americans spent $50.8 billion on pets; $14.1 billion was health related expenditure

 

The Bottom Line? By providing health insurance to four-legged family members, owners are more willing to leap for the big-ticket bills. By the same token, vets are more likely to prescribe expensive procedures.

Find some interesting reads and blog source material below:

Details on Harriet the hedgehog. Information on dogs and the American economy, here.
VPI Pet insurance. And finally, The cost of advanced procedures, without insurance.

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Assume for a moment that you are slim, love broccoli and run 4 miles each day. Should your health insurance premium be lower than the amount paid by someone with an unhealthy lifestyle? Wal-Mart, PepsiCo and Safeway say, “Yes.”

One Wal-Mart employee pays a $40 monthly smoking surcharge. PepsiCo charges $600 annually unless a smoker completes a smoking cessation program.

But here are the dilemmas:

  • A regressive fee, the smoker’s surcharge represents a larger proportion of lower earners’ incomes.
  • Low earners have less access to health clubs.
  • An asthmatic might not be able to participate in a mandatory exercise program.
  • Health checks invade privacy.
  • Nicotine addiction is tough to overcome.
  • Obesity could be genetic.
  • Unaffordable surcharges might lead to less insurance coverage for certain people.

And finally, our health is shaped by countless lifestyle decisions. Is it fair to focus on smoking and weight?

Reuters and the NY Times discuss the health-care issues here and here.

The Economic Lesson

An externality is the impact of a behavior or contract that is experienced by a third uninvolved party. When the impact on third parties is undesirable, we call the result a negative externality.

Smoking and obesity create a negative externality because higher health costs smokers raise everyone’s insurance premiums.

A benevolent impact on an uninvolved third party is called a positive externality. A community experiences the positive externality of flu vaccinations.

An Economic Question: Explain how charging higher health insurance premiums for people with unhealthy lifestyles could create unintended consequences.

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Journalists discussing the D.C. bag tax think they are on to something.

1.The small tax has a better chance of being passed. Seattle refused to accept a $.20 bag tax. D.C. said $.05 was okay.
2. Because of the tax, people perceive bags entirely differently. Bag use has plummeted. Because of the $.05? Probably not.
3. The lesson? For cap and trade and for high priced health insurance? Very small taxes can lead to big results.
http://www.tnr.com/blog/the-vine/tiny-taxes-are-better-nothing
http://voices.washingtonpost.com/ezra-klein/2010/01/lessons_of_the_bag_tax.html
Yes/ No?
Comments?

The Economic Life:
Incentives shape behavior. All taxes, big and small, create incentives that make each of us choose to behave a certain way. Sometimes, legislators have been surprised by the incentives they created.

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