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Posts from the ‘Health Care’ Category

Marketplace of Ideas

Capital in the 21st CenturyHere are some of the economics-related stories grabbing headlines this week:

  • If you’ve read a newspaper, magazine, or economics-oriented blog post in the last few weeks, you’ve probably seen the name Thomas Piketty. He’s a French economist whose 685-page tome Capital in the 21st Century was released in English just last month. There’s no telling how many people have actually read the book from start to finish, or have even cracked the cover, but having a view on Piketty seems to be de rigueur these days. In a nutshell, Piketty’s main observation is that wealth becomes concentrated when the rate of return on capital exceeds the rate of economic growth. What makes Piketty’s work groundbreaking isn’t this statement of the fairly obvious, but rather the hundreds of years worth of economic data he uses to explore its implications. Most of our economic data doesn’t go beyond the early 20th century; Piketty’s longer-term view demonstrates that the economic experience of the several decades following World War II, which we think of as “normal,” was actually fairly exceptional—the result of one-time factors such as the population boom, the convergence Western economies, and the rise of the welfare state. While Piketty’s argument clearly has political implications, he’s wary of hasty assumptions: He’s critical of lazy thinking on both the left and the right, and he argues that inequality is not intrinsically a bad thing—only if it is achieved unjustly. Whether that’s the case in the current episode of income and wealth concentration is something he explores in the book. Piketty also offers a scathing critique of economists—especially in the U.S.—who he says all too often strive for the appearance of “scientificity” while failing to address the “complex questions posed by the world we live in.” Piketty’s work is ground breaking, and it could be a game-changer in the study of economics. But books can take on a life of their own—especially when people’s ideas about them are based on hearsay.
  • Food waste is an increasingly serious economic and environmental issue. That’s according to a New York Times article this week that looks at steps NGOs, retailers and consumers worldwide are taking to reduce their food waste. The U.N. estimates that about one third of the food produced in the world is never consumed. A 2012 study by the National Resources Defense Council offers an even grimmer statistic for the U.S., where about 40 percent of the food supply is lost through waste. That amounts to $165 billion annually. The cost is even greater when you consider that producing that food takes up 10 percent of the nation’s energy budget, 50 percent of the land, and 80 percent of the freshwater consumed, according to the same NRDC study. Meanwhile, efforts are underway in places like California, New York and Massachusetts to channel food waste into energy. Municipal composting programs are also popping up around the country. One hurdle in implementing these programs is collecting all that food waste: Households will have to learn to separate their food scraps from their garbage, along with their paper, plastic, and glass. An odorless composting pail might come in handy.
  • Investors love pharmaceutical companies because they have almost unlimited pricing power, says James Surowiecki in the New Yorker this week. While many new product prices drop over time, brand-name pharmaceutical prices tend to rise, and that means big profits for biotech firms. That’s because prices for brand-name drugs that are still under patent aren’t set by free market forces: The biggest buyer in the pharmaceutical market is the federal government, but it is legally prohibited from negotiating prices, and even insurance companies don’t wield enough power to get lower prices on popular drugs. “Price restrictions have always been a political non-starter,” says Surowiecki, “but at some point the math of the situation will be hard to resist.” Fears of such restrictions may explain the 20 percent drop in the Nasdaq Biotech Index since its end-February peak. While a recent Wall Street Journal article sites concerns among analysts that biotech stocks are overvalued, others say pharmaceutical companies are still undervalued, because investors have not adequately factored in the increased demand for drugs as the population ages and people live longer. While shareholders reap the benefits of drug companies’ pricing power, will taxpayers continue to foot the bill?

Medicaid Gap Leaves 6 Million Without Affordable Coverage

Free ClinicA significant piece of the Affordable Care Act (ACA) legislation is the Medicaid expansion, a provision that was originally meant to expand eligibility for the public program to include all people in the United States up to 133 percent of the Federal Poverty Level (FPL). This means that all individuals with annual incomes below $15,521 would be eligible for Medicaid, which is essentially free health coverage, minus nominal costs on out-of-pocket expenses.

Historically, Medicaid administration, including rules on eligibility requirements, was drastically different for each state. Therefore the expansion presented a major shift in policy and practice for many states. When the constitutionality of the law was taken to the Supreme Court, the court decided to allow states the decision to expand or opt out of the expansion, while the law itself was upheld. The result was a dead split; 25 states expanded Medicaid and 25 refused.

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Where is the Money Going?

Last week, the Center for Medicare and Medicaid Services (CMS) released an extensive database of Medicare providers who receive payments from the federal government. The database contains a complete list of federal Medicare providers, including full name, address, and professional specialty. The data include payment amounts, number of beneficiaries’ services, and the number of services conducted by each provider.

Much has been made about the enormous payments made to the highest paid Medicare providers. Critics claim there is waste and fraud in the system. Some of the highest paid doctors have also been linked to large contributions made to politicians connected to the budgeting of the Medicare program. Before we assume too much, let’s break it down by the numbers:

In 2012, spending on Medicare benefits totaled $536 billion, accounting for 16% of all federal spending.  It accounted for about 21% of all national health care spending, 28% of spending on hospital care, and 24% of all spending on physician services (Kaiser).

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ACA Update: Why Seven Million is Just a Number

As a tidal wave of “Obamacare meets deadline” columns pour into our cyber universe, “Seven million” becomes the temporary flash flood. Seven million represents the number of sign-ups the Congressional Budget Office (CBO) originally predicted in their estimates of the Effects of the Affordable Care Act on Health Insurance Coverage in May 2013. The projected signups are only for Qualified Health Plans (QHP’s) on the public health insurance exchanges, and they don’t include renewed grandfathered health plans or other private insurance signups.

The process of signing up for health coverage through public exchanges is a three-stage process. First, potential enrollees select a plan based on desired level of coverage and relative cost. An application is sent to the insurance provider. Second, the insurance provider reviews the application and determines the final premium. Finally, the potential enrollee is notified of acceptance and required to pay the first month’s premium. Only after this first payment, is the enrollee officially covered by health insurance.

As of March 31st over 7 million people have signed up for health insurance on the exchanges, the first stage of the process. Health and Human Services Secretary Kathleen Sibelius told reporters that insurers claim 80 to 90% of exchange consumers have paid their health insurance premium. But, we can’t know specifically how many people have paid the premium because data are not yet available to the public. Sibelius’ comments, among others, contain an element of speculation.

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Cutting Through the Noise to Clarify the Affordable Care Act

AIER ACA CoverSince starting my research on health care and the Affordable Care Act, also know as the ACA, I have been inundated with countless opinions from the media, literature, and personal interaction, mostly weighing in on whether the ACA is simply good or bad for the United States and its citizens. Because the ACA is a complicated law and a polarizing political topic, many misconceptions have arisen and persisted in the public sphere. A student at AIER’s career development seminar asked me “After researching the ACA, would you sign up for Obamacare?” Instead of breaking it down and explaining exactly what the ACA entails, I simply acknowledged that it is a loaded topic, and if I did not have health insurance I would buy it in 2014.

Here is what I should have said–

The ACA is a law, not a health insurance plan. It is a law that regulates the insurance industry, which affects everyone who purchases health insurance to different degrees. It mandates that Americans have health insurance and that certain businesses offer it. One does not sign up for “Obamacare” or the Affordable Care Act. One purchases a health insurance plan that will be regulated within the framework of the ACA legislation.

The extent to which I am affected by the ACA depends on my current source of coverage, or lack thereof. If I get health insurance through my employer, in most cases, there will not be a discernible change to my health policy and my world will carry on uninterrupted in 2014 and beyond. If I get health insurance through a public program such as Medicaid or Medicare, almost nothing changes for me. If, however, I buy insurance in the individual market or I don’t have health insurance, I will see important changes.

There are many special cases, exemptions, and specific mandates/provisions that the ACA has created, making the law obscure and, more importantly, hard to predict. It’s impossible to accurately estimate how aggregate health care costs in America will change. It is also impossible to predict how many people will sign up for coverage through the exchanges and how different states will handle the implementation process.

Until implementation is complete and premiums are clearly identified for all insurance providers and enrollees and their plans, we cannot make a precise prediction of how the ACA will affect the healthcare landscape or the American consumer.

What we can do is provide our readers with data and information that will help identify where Americans are, and where they will likely end up as a result of the legislation. Based on ACA provisions and mandates, we can also give consumers a sense of how premiums may change. The numbers below are taken directly from AIER’s study, How the Affordable Care Act Affects Your Health Insurance Costs.

 Pre-ACA Health Care Coverage

Using 2012 Census data and the HHS Medical Expenditure Panel Survey we were able to estimate where Americans access health care coverage. Eighty-five percent of the U.S., 267 million people, had health insurance in 2012, while 47 million were uninsured. Of this total, we estimated that that about 230 million people will see “little to no noticeable change in premiums” and about 50 million will see a significant increase in premiums. Conversely, about 30 million people will see reduced or low premiums.

We cannot estimate what uninsured people paid for health care before the ACA, because they did not pay premiums and only incurred out-of-pocket expenses. Therefore we are judging the relative cost of premiums across the uninsured population. For example, previously uninsured Americans now eligible for Medicaid (13 million) will not pay premiums, but they may incur nominal out-of-pocket expenses; therefore we categorize them in the 30 million with reduced or low premiums. Of the uninsured with incomes too high for Medicaid or federal subsidies, we put them into the group of 50 million with significant increases in premiums.

In addition to our estimates, our report presents a detailed guide on how the ACA will affect each type of insurance plan. It also offers analysis on health care distribution in the United States, eligibility for subsidies, Medicaid, and the impact of the ACA on premiums for the total population.


Marketplace of Ideas

Before you tune out for the weekend, dive into some of this week’s economic news:

  • Marketplace of IdeasThe New York Times has published a striking map of the uninsured in the U.S, based on census data.  Unsurprisingly—thanks to RomneyCare—Massachusetts has the fewest uninsured residents. The least-insured populations are in the southern and western states. Among the areas with the worst coverage—corresponding to the “hottest” areas on the map—in Buffalo County, South Dakota, 43.8% of the population is uninsured. That’s topped only by the Aleutians East borough in Alaska, where 66.2% of the population is uninsured. What do these two areas have in common? In the Aleutians East, 64% of the population is of Native American or Asian descent. In Buffalo County, 82% of the population is Native American. Native Americans are exempt from the personal mandate of the Affordable Care Act.
  • Only 33% of Americans believe their children will have better lives than they do, reports the Financial Times in an article on declining living standards in the industrialized world. While it would be reassuring to assume that the doom and gloom is just hype, even conservative politicians like Marco Rubio admit that their economic ladder-climbing success stories would not be possible these days. Part of the problem, according to the FT, is that the “emergence of a global labour force has helped hold down wages” in the West, and that’s unlikely to change anytime soon. The political consequence of these grim trends? A turn toward populism on both the left and the right.
  • New York City Mayor Michael Bloomberg used his final speech before leaving office to warn that pension and health-care expenses threaten to derail economic prosperity by gobbling up funds that could be more productively used for investment, or to bolster the social safety net. The business mogul has been a darling of Wall Street during his 12 years in office—he received a standing ovation from his audience at the Economic Club of New York—but has borne criticism for being out of touch with the so-called 99%. This is the man who claimed that stays in NYC homeless shelters were up because “improvements” had made them a “much more pleasurable experience” than ever before. After leaving office, Bloomberg plans to proselytize his brand of governance through a consulting group—a kind of “urban SWAT team”—aimed at reshaping cities.  Look out, Detroit!
  • Last but not least, the Fed finally announced a tapering of its asset purchase program, to $75 billion per month from $85 billion. In a valiant effort to interpret the statement accompanying the Fed’s decision, the New Yorker asks, is Chairman Bernanke a genius or a fool? The financial markets have taken the tapering announcement in stride, with stocks up globally and bonds roughly flat. What does it mean for the economy? That depends on whether you think QE had much direct impact on the economy to begin with.

U.S. Health Care: Spending Up, Efficiency Down

credit: commons.wikimedia.orgA pair of graphs from the Huffington Post and Bloomberg suggest spending and efficiency are not always connected, especially when it comes to heath care in America.

The United States ranked 46th out of 48 countries in a measure of the world’s most efficient health care countries, coming in below Saudi Arabia, Slovakia, China and the Dominican Republic. According to the Bloomberg graph, health care costs make up just over 17 percent of the U.S.’s GDP per capita, and  health care costs per capita is over $8,000. This is measured against an average life expectancy of 78.6 years.

The next closest country in terms of GDP per capita is the Netherlands, where a lower 13 percent GDP per capita measures against a higher life expectancy of 81.2 years. The U.S. did finish above Siberia and Brazil, where the average cost of health care per capita is $622 and $1,121.

The Huffington Post’s graph, which pulls its information from the OECD, shows that the U.S. spends “far and away more on health care than any other country.”

From the Huffington Post:

“What bothers me most is not that…we are lower than we should be,” Aaron Carroll, professor at the Indiana University School of Medicine wrote on his blog of the chart. “It’s that we are all alone. We are spending so, so, so much more than everyone else.”

You can look at the Bloomberg chart and the Huffington Post chart by clicking the links.

How to Fix

In light of the launch of and its ongoing technical problems, Lydia DePillis thinks it might be time for the government to reconsider how it handles its tech projects.

Her article for the Washington Post looks at ways the government could adjust its technical strategy to get better results from projects like in the future, including considering proposals from companies that don’t have governmental experience and making the software more open to the tech development community.

Still, DePillis thinks the long-term fix is a fundamental change in how the government goes about planning its projects.

From the Wonkblog on

The software development version … is what’s known as the “waterfall” model, where bidders describe what they’re going to do, and then proceed to design and construct it — with testing all the way at the end. A big problem with was that the team didn’t have time to run many tests before the Oct. 1 cutoff date, which meant nobody knew quite what would happen when it went live. 

“That style of development is something that the government continues to latch onto, because it seems to be easy to understand, easier to procure for. But it generates a tremendous amount of risk,” Larry Fitzpatrick, IT director for the Financial Industry Regulatory Authority says. 

She goes on to say that a different developmental model, something like Agile, which has less “static stages” and emphasizes constant testing and reevaluation, might lead to more functional products from the government. The problem with this, she says, is that government officials would have to get used to “not knowing exactly what it will look like.”

Check out her full story here.

How Government Subsidies Might Impact Healthcare Costs

Barack_Obama_meets_with_healthcare_stakeholders_5-11-09_2With open enrollment in the heath insurance marketplace set to start in October, economists and political observers are taking a look at how the Affordable Care Act (ACA) will impact the health care system in the months and years to come.

One such observer, Sarah Kliff, takes a look at what premium prices could look like across the country once government subsidies are in place.

Using a report from the Kaiser Family Foundation as her baseline, Kliff walks through how much a single person living in Seattle would have to pay for healthcare after help from the government, assuming an income of just under $29,000.

From the Washington Post:

“The health care law says that someone earning 250 percent of the poverty line won’t be expected to spend more than 8 percent of his or her income to buy [a] particular plan…

In Seattle, the second-lowest silver plan costs $283 a month. Eight percent of our Seattleite’s income is $2,316, or $193 per month. So, the federal subsidy steps in and provides a subsidy of $90 per month to make up the difference.”

Kliff says that subsidies will change depending on income, explaining that someone making 400 percent over the poverty line in Seattle won’t get any monetary assistance from the government.

Kliff’s article looks in depth at what different plans could cost depending on quality of care, age, and income. What it can’t answer, however, is how the American people will interpret these costs:

“Is $116 affordable to a 25-year-old earning about $1,500 a month after taxes? That’s a harder question to answer. That judgment of affordability … will have a lot less to do with the [Congressional Budget Office] and a whole lot more to do with the individual buyer’s budget.” 

Also worth noting: the Kaiser study that serves as the foundation of the article doesn’t compare new costs to current costs, which makes it difficult for individuals to judge what the comparative cost of healthcare will be under the ACA.

Read the entire article here.

Health Care Costs Could Be Hurting Cities

Credit: Ritcheypro,

When Detroit announced its bankruptcy on July 18, analysts pointed to its $3 billion in unfunded pension obligations as a big reason for the city’s financial hardships.

According to Robert Pozen at Real Clear Markets, unfunded pensions are only part of a much bigger problem facing a number of U.S. cities: unfunded post-employment benefits (OPBE). Pozen says that Detroit is on the hook for $6.4 billion in health care costs for former municipal workers, almost double of what it owes in pension, and that a number of other cities are in the same boat.

From Real Clear Markets:

According to Pew, the three cities other than Detroit with the largest OPEB shortfalls were:

  • $22,857 per city household in New York City,
  • $18,962 per city household in Boston
  • $13,487 per city household in San Francisco.

Pozen goes on to lay out six strategies that cities could employ to reduce their healthcare requirements, but points out that “such reductions will be politically controversial.”  Read his full report here.