Professor Mark J. Perry's Blog for Economics and Finance
HT: Colin Grabow
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What a garbage analogy.You walk into the vet hospital with a bleeding dog, you better have a credit card or a blank check. Otherwise they turn you away. For humans we may not serve them coffee and toast, but they can go to the ER and the taxpayer (or the hospital) foots the bill.If a person wants other medical care, all the have to do is show up with enough insurance or money and they will be treated to all they want.The American Veterinary Medical Association as well as other reputable organizations has published research showing that thousands of pet owners never take their pet to a veterianarian - never - and the number is growing. Try not taking your kid or parent to the doctor. The state will come and get them, and put you in jail if they have been harmed. You let your dog die in the yard and 95% of the time nothing happens, with the unusual exception that there is an occasional misdemeanor cruelty charge.6 million unwanted pets killed every year. When's the last time we had a mass roundup and extermination of unwanted people?The "CON" law portion of the video was interesting, and had it been alone it might have delivered a message. But with the other noise it was no more than unwanted barking in the night.
jim said.....The "CON" law portion of the video was interesting, and had it been alone it might have delivered a message. But with the other noise it was no more than unwanted barking in the night.That is true, but show me the video that talks about that issue on it's own. I bet it's flat boring.Unfortunately, it takes a bit of a hook to get people to watch videos.You're right about the analogy. They of course didn't show spot getting sent off to the farm in the country. While people are willing to accept this for seriously injured or sick pets, for people they'll expect extraordinary measures. Which is extremely expensive.
"Sorry, guys, grandma's treatment is like eight thousand dollars, so we're going to put her down."Or if your kid is sick, can we sign him over to the Humane Society?Most vets are at the level of a Minute Clinic. (And I like Minute Clinics for some routine stuff that I already understand!) They aren't like hospitals, with a wealth of capabilities and the matching costs. I'd like to have access to specialists and intensive medical and surgical facilities, not be euthanized if my care gets complicated.
The salient points in the video were that:1. Competition works.2. Government regulation limits health care supply and, by extension, competition. Also, I imagine that most people pay for their pets' health care out of pocket rather than through insurance, which also limits costs.This short video clip is also worth checking out:http://www.youtube.com/watch?v=SXkB64Ss5Xk
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Couldn't view the video, but the Reason TV link contained this:"Various reasons explain why people often find animal care so pleasant, says Weinstein. One reason—animal care workers love what they do. Another reason—competition."Weinstein is wrong in implying that human care workers do not like their jobs. Most of them do. But the stresses of caring for humans are orders of magnitude greater than the stresses of caring for pets. It's not just the malpractice threat, but also the psychological threat. Make a mistake and kill someone's beagle, and the vet or assistant may lose a few nights sleep. Make a mistake and kill someone's child and the physician or nurse will carry the guilt for the rest of their lives.
colin: "I imagine that most people pay for their pets' health care out of pocket rather than through insurance, which also limits costs."I agree with your first two points, but I'm not sure about the cause and effect implied with this last one. I think most people pay for health care with insurance because they do not want to limit costs. Health insurance is what guarantees us that we and our loved ones will not be denied expensive treatment because we did not have the resources to afford it at the time. Few of us purchase health insurance for pets because there is a limit to what we intend to pay for our pet's survival.What I'm saying is that expensive health care is not a consequence of our purchasing insurance. Rather, purchasing health insurance - and negotiating that benefit in labor contracts - is a consequence of us wanting expensive health care when it is needed.
What I'm saying is that expensive health care is not a consequence of our purchasing insurance.The problem is that most people do not purchase insurance, and instead receive it from their jobs. This limits -- if not entirely eliminates -- their price sensitivity and incentive to shop around.I am not against insurance. I think everyone should have insurance in case of catastrophic events. I just think we should pay for that catastrophic coverage ourselves and that it should not be linked to employment. Also, pet insurance does exist. I just imagine that it isn't used in the majority of transactions (just a guess though).
colin: "This limits -- if not entirely eliminates -- their price sensitivity and incentive to shop around."I understand your point. But I think price sensitivity and shopping around are the responsibility of those footing the bill - the insurance companies. If not for government interference, I am confident they would perform this function even better than they now do so.I don't have a problem with my employer negotiating with insurance companies on my behalf. The group buying power of my employer has real economic value.
Jet Beagle said......What I'm saying is that expensive health care is not a consequence of our purchasing insurance. Rather, purchasing health insurance - and negotiating that benefit in labor contracts - is a consequence of us wanting expensive health care when it is needed.I don't agree with this. If insurance were just used for catastrophic or expensive care, it might be the case. Instead it's a buffet style pricing where once you pay the entrance fee, it's all you can eat. Extra couple of tests? well who cares, the premium has been paid and it doesn't increase the co-pay. And since the doctor is more protected from a lawsuit by being thorough, why wouldn't those extra tests be thrown in?Does anyone go to a buffet in Vegas and say, "Oh, I won't have a lot the king crab legs and prime rib because it'll raise the price next year."? There's a similar lack of restraint with typical health insurance coverage.Buying insurance doesn't do that of course, but buying the type of insurance that's common does. If auto repairs/maintenance were lumped into auto insurance coverage, there'd be a similar rocketing of premiums as people decided to do all those extra things the mechanic recommends. Now, people question all those things, but if it were covered by a copay, who would care?
"But I think price sensitivity and shopping around are the responsibility of those footing the bill - the insurance companies." I don't hold my auto insurance company accountable to calling around to Auto Zones and O'Reilly's auto parts to find me the best price and quality for a new headlamp. Not only is it not the insurrance company's responsibility to address ordinary maintenance issues (unlike health insurance which is expected to pay for every, routine trip to the doctor's office), but imagine the inefficiencies and the impact on my premiums to have them do this for me.
OA and Xavier, here's my opinion about the comparison of health care benefits and automobile insurance.1. First, I believe the preventative care portion of health insurance which you criticize represents a small part of an insurance company's costs. To me, it is a red herring.2. Automobile comprehensive and collision insurance only covers repairs arising from accidents and non-routine events, such as vandalism or weather. Health insurance must pay for catastrophic illnesses which can arise out of routine living. That's a big difference in the liability the insurance company faces.3. Early detection of illness or medical condition often does reduce the overall costs to the insruer. So it is in the best interests of the insurer to encourage preventative care.4. Risk sharing is not the only reason for insurance coverage. Employers know that keeping their employees healthy reduces absenteeism and thus reduces labor costs. So it is in the best interests of the employer to encourage preventative care. IMO, including routine examinations and preventative care as part of health benefits packages actually reduces rather than increases overall medical expenditures. That's why the small business I owned did not opt for only catastrophic health care benefits. That's why IBM last year dropped the copays for primary care visits.
xavier: "imagine the inefficiencies and the impact on my premiums to have them do this for me."On the contrary, it is the economies of scale which giant insurance companies enjoy which makes such negotiation efficient. They do not negotiate on a instance by instance basis but rather on an annual contractual basis. In the Dallas-Fort Worth area, for example, United Health Care negotiates on behalf of a million or more propective patients when it contracts for services with the Baylor Hospital System.
The situation with respect to pets is changing more and more to be like human medicine as pets become more and more members of the family and in many cases surogate children. Dogs now get teeth cleanings at several hundred dollars a pop because they have to get anesthesia to let the vet get in their mouth. Vet oncology is getting to be big business. This is why the big money in vets is in the small animal business, not the farm and ranch business, and why there is a shortage of farm and ranch vets. Vets now have access to most of the tech from humans and people are increasing their spending on it.
Jet Beagle said...OA and Xavier, here's my opinion about the comparison of health care benefits and automobile insurance.1. First, I believe the preventative care portion of health insurance which you criticize represents a small part of an insurance company's costs. To me, it is a red herring.2. Automobile comprehensive and collision insurance only covers repairs arising from accidents and non-routine events, such as vandalism or weather. Health insurance must pay for catastrophic illnesses which can arise out of routine living. That's a big difference in the liability the insurance company faces.A PriceWaterhouseCoopers study from last year found that half of the wasted dollars in health care were for unnecessary tests. Paperwork/admin being the 2nd worst culprit. I think it was over $200 billion annually for the unnecessary tests.Preventative testing is likely small, but few people go in and just asks for random screening tests. It's excessive diagnostic testing that really sucks up the dollars. Which happens when people come in with symptoms.If there's not really that much cost in the more routine services, why does it cost so much less for catastrophic coverage versus regular insurance? It's not just 10% or 20$ cheaper, it's more like 2/3 or more cheaper. If most of the expenses incurred are for the catastrophic events, there'd be very little premium for the extra routine coverage.The truth is, people's odds of having a really expensive medical problem in a given year are pretty low. But their odds of needing some medical care are pretty high.Premiums reflect that. Even increasing a deductible by $1,000 or $2,000 makes a big difference in premiums.To be fair, some people would consider that a catastrophic amount to have to come up with.The analogy to auto insurance deals with the fact that individual state mandates don't stop prices from being more competitive with more competitors. But since you bring it up, note that auto accidents result from routine operation of vehicles. And note that as opposed to healthcare, auto insurance does not really cover problems resulting from poor maintenance.Many people have expensive engine or transmission problems that they must cover. Only damage resulting from accidents is covered. But get fat, fail to exercise, drink excessively, and get diabetes and insurance covers the treatment. Get high blood pressure and high cholesterol and drugs are covered. How much dollars go towards treatment where the person's behavior can easily reduce the costs? Bump deductibles up and I think magically obesity rates and things like that would reverse. It would more appropriately push expenses onto those who's behavior warrants it. Of course that catches a lot of the truly unlucky as well, which many find unpalatable. And people wouldn't like it, but they would adapt.
Could not resist the bait, there are at least 7 private MRI clinics in Montreal (there are many more in Toronto). In fact, I am a member of a private clinic in Montreal that has an MRI. The Gazette is a terrible newspaper, don't know what the doc's beef is -- frankly not interested. The reason I know they have an MRI is that I had one done for my knee a few weeks ago. $550.00 for the MRI and analysis.By the way check it out on the web its called Medisys (do MRI Montreal in google), they advertise and everything.Don't believe everything you read in the paper -- how lazy was that reporter never bothered to even check on the web...
The whole pet care analogy as a way to solve health care problems won't work with human health care. Market solutions work when people have the power of a concept Milton Friedman loved to emphasize: choice. Choice in the marketplace works wonderfully with consumer products: one can purchase pork instead of stake; one can always go for a compact instead of an SUV, or delay a car purchase altogether; and with pet care, a poor family doesn't have to pay for needed surgery that may solve their dog's life, and thus let the dog die for the benefit of the family's finances. However, the same isn't going to go for critical health care. If a 10-year-old kid needs his/her appendix surgically removed, the parents can't delay the surgery and hope for a better deal. Critical health care needs to be done regardless of the price; the high costs are necessary for life-saving procedures, but this brings terrible circumstance for those without insurance, or those with inadequate crowd (a point the free market crowd continues to ignore).It's like getting mugged at gunpoint: one is going to give into the mugger's demand and hand over the wallet; he/she is not going to hand over less money through negotiation, or by ignoring the mugger's threat and waiting for another one to come by who's willing to accept less money.
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Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.
Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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