Sep 23, 2009

A swarm of tiny black flies drew my attention to a flower cluster. They were mobbed all over a dead or dying bee. I looked for a crab spider dining on the bee, and only when I returned home and looked at this photo did I notice the ambush bug with its beak plunged into the bee’s throat. The flies were minute, the type you might find on a rotting mushroom or decaying persimmon. I presume the scent of the bee drew them in.

Sep 15, 2009

Supply side inflation

The health care economy has a fundamental flaw on the demand side, but it also behaves differently on the supply side. With a typical commodity, advances lower costs. Goods become cheaper to manufacture, more durable, more efficient, and the consumer gets better value for their dollar. This happens in medicine as well, but there is another dynamic at play. Researchers cure diseases.
Obviously this is a good thing, but economically it makes spending hard to predict over a person's lifetime. For insurance companies, this is a serious problem. It costs little or nothing to treat someone for an incurable disease since there is no treatment beyond perhaps minimizing pain and discomfort, but if a brilliant scientist invents a cure, people will want it, and it will likely be expensive.
This puts insurance companies in the uncomfortable position of either raising every customer's premium to compensate for the new expense or refusing to allow a customer to receive the new treatment. Because medical technology has advanced so rapidly in recent decades, this dilemma has become an epidemic unto itself, with rising deductibles, denial of care, termination of coverage and exclusion of customers with pre-existing conditions now common. Medical expenses have become a leading cause of bankruptcies, even among the insured.
Premiums that seemed reasonable decades ago have proven inadequate to fund treatments available today, and inflating costs have forced insurers to take drastic cost-cutting measures. Unfortunately, this has set up a nasty feedback cycle where expenses get sloughed off onto hospitals, which respond by charging insured patients more to cover the costs of uninsured patients. Insurers then need to resort to ever more dubious tactics to control their expenses.
Medicine today is radically different than it was 100 years ago. We are unquestionably in an expansionary technological phase. Eventually this will change. The number of untreatable afflictions will diminish, and advances will bring cost savings rather than cost inflations, but it is difficult to know when that will occur. For now we must assume that the universe of what can be treated will continue to grow. This means it is especially important to eliminate feedback loops that magnify the problem.

Sep 10, 2009

Can a health care market be free?

A free market is one in which buyer and seller can freely negotiate the price of goods or services. The market for health care can never attain this ideal simply because buyers are not always willing participants in the market. If a person can not afford a flat-screen TV, he or she does not have to buy one. They could buy a cheaper TV or a used one or simply go without television. If a person can not afford a heart attack, they might have one anyway. They can not negotiate down to heartburn or opt to simply remain healthy.
For this reason, we can not rely on free markets to control health costs. In some cases, those needing care may not be conscious or have the faculties needed to make decisions about their own treatment. End-of-life care, with the buyer desperate to live, can be terribly expensive, leaving a person torn between extending their own life or leaving behind savings and property for a spouse or children.
Furthermore, the amount of health care a person might need during their life is often a matter of chance. A person born with a genetic defect or disposition will need more care than the average person. Similarly, a person who suffers a catastrophic injury may require ongoing therapy. It's not that these people choose to spend more on health care than others; they are forced to by circumstance.
Recognizing this inherent lack of freedom for health-care consumers is crucial to understanding both the need for reform and how to go about it. Economists understand that some markets contain flaws that preclude true market freedom, but there are often ways to correct such flaws. In coming posts I will explore whether health care markets can be corrected so that competition and profit motive can still drive efficiency and innovation.