As everybody knows by now, medical expenses have been skyrocketing and are now a large part of government spending, both at federal and state levels. The republicans want to reduce them by reducing government payments. This doesn't work, and it results in ever more people not being able to get medical care. This kills at least 45,000 people a year (and here). So then, what are the causes of the rise in medical expenses?
One of the big areas could fairly be described as gouging. This happens for several reasons, some reasonable, some lame, some opportunistic. By law, Emergency Rooms are not allowed to refuse to care for anybody, including those who can't pay. Moreover, ER care is the most expensive--patients are sicker, equipment, doctors and nurses can't be scheduled (so they have to keep a surplus on hand). Since every medical provider has this huge hole in their budget, they have to shift the cost to elsewhere. Charge higher prices everywhere else. One of the places this happens is spectacularly lame. Every provider has a deal with the insurers they work with often. Generally part of this is an across-the-board price cut, often as much as 40%. Knowing they're going to do this, they raise the prices of the individual services to compensate. Folks who haven't negotiated this deal don't get the cut. This includes insurers that don't do enough business with that particular provider (e.g. they're from a different part of the country) and uninsured customers. If you know to ask for it, they'll typically give you an "Uninsured discount" if you pay promptly or in advance, but this is more often only 25%. But if you don't ask or can't pay promptly, you pay the full price. Of course since there's this radical decoupling between actual costs and list prices, there's lots of opportunity to gouge further.
By increasing the number of people who have insurance and can thus get scheduled care for non-emergency issues, the new health care law should substantially reduce ER costs, and it should allow more people to participate in the "negotiated" price breaks. But notice that the insurance companies managed to convince congress to put this off until 2014 and are now trying to kill it.
Drugs are another big cost. For example, drug companies are able to gouge for new drugs that are still under patent, but not for generics, where the free market applies. A major bit of cynicism is the continual development of new drugs that are really the same as older drugs only different enough to be able to patent. For example, new statin drugs like Lipitor and Crestor are only trivially more effective than older statins like Lovastatin and Simvastatin, but they're able to charge 10 times as much. Doctors and medicare are aware of this but enough still prescribe the more expensive options that it's a profitable scam.. The drug companies have another big cost that is totally unnecessary but is a huge part of their costs: TV advertising. They spend a LOT more on this than they do on R&D. The return from this is small, but significant. If one company stops doing it, they'll lose market share, so they can't. The only way to stop this would be for the government to stop it all. I'm fine with drug companies advertising in medical journals and other doctor-specific promotions. But it should be banned in mass media, like TV, newspapers and general interest magazines.
Another big cost is profit taking and wasteful overhead on the part of insurance companies. A certain amount of waste is unavoidable, but we need to keep tabs on this. One recent study puts this at 20-30% of total costs. Meanwhile, Medicare and the VA are able to keep this under 6% This extra 14-24% goes on top of all other costs, including all of that gouging.
One huge cost that I haven't seen discussed much is offshoring. When Walmart (for example) buys from a Chinese manufacturer rather than a US, the price goes down. When they pay workers less, the price goes down. The standard measures of inflation, such as CPI, consist of a "basket" of products, some of which are reducing in costs this way, and some of which are not. If half the things in the basket are going down in price, and half are going up, then the inflation we measure is somewhere between. Medical care is one of the things that can't be offshored much. Even if medical care were remaining as a constant share of GDP, this would make it seem like it was inflating faster than nearly everything else. But people get sick whether their wages are high or low (in fact, low income people tend to be a little sicker). Inflation-corrected wages for more than half of the population have been close to flat for over 30 years, so those people--the majority--are less and less able to pay. Their wages are being held down, in effect, by offshoring. My solution here: we need to recognize this effect and raise wages for the bottom 80% or so. We can do this with small changes to the tax code--not really redistribution, but the effects are similar. This will be good for everybody and really not hurt those at the top.
25 April 2011
14 April 2011
Entropy
Entropy is a measure of the inefficiency of thermodynamic actions. You cannot convert all the energy of a thermodynamic process. It's lost somewhere--heat, friction, noise, radiation, useless motion, etc. That loss goes under the general term "entropy". Not only is there entropy in every process, but it's impossible to even measure it directly. You can only infer that it's there by measuring what you do get back. The laws of thermodynamics, roughly speaking are:
1: Heat can only move from a warm body to a cold one, not the other way.
2: Every thermodynamic process has positive entropy.
Or as my friend Pete Darnell puts it:
You can't get ahead
You can't break even, and
You can't quit the game.
I suspect it's not original to Pete but that's where I first heard it.
One of the consequences of this is that perpetual motion machines are impossible. If you think you're seeing one, it's because there's something you're missing. It might be a hidden source of input energy, or it might be that the process is so efficient that it takes longer than your patience to use up the energy it has stored, like a top that can spin for an hour.
I first learned about entropy when at about age 12, I read Isaac Asimov's story "The Last Question", which is about the end of the universe. Entropy is sometimes called "Heat Death" because the losses from things like engines are often manifest as waste heat, but it's really more accurately called "Chaos Death". It's possible to recover a lot of the heat from various processes and use it for something else--this is sometimes called co-generation. For example, a blast furnace used in making steel might also power a turbine with its considerable waste heat. But it's impossible to get it all. Presuming that the matter and energy in the universe are finite (that's not completely certain), it will eventually all be lost to entropy. It may take a trillion years, but it will happen.
When I was in my early 20s, I had a very powerful realization, that chaos, including entropy, is a major part of everything that goes on. This is a good thing, because among things, it gives us a lot of freedom and flexibility, and frankly, fun. Very little in the world is black and white, not even black and white. Without chaos, we'd be committed to a predetermined path through life.
<I think this is unfinished but that'll do for now>
1: Heat can only move from a warm body to a cold one, not the other way.
2: Every thermodynamic process has positive entropy.
Or as my friend Pete Darnell puts it:
You can't get ahead
You can't break even, and
You can't quit the game.
I suspect it's not original to Pete but that's where I first heard it.
One of the consequences of this is that perpetual motion machines are impossible. If you think you're seeing one, it's because there's something you're missing. It might be a hidden source of input energy, or it might be that the process is so efficient that it takes longer than your patience to use up the energy it has stored, like a top that can spin for an hour.
I first learned about entropy when at about age 12, I read Isaac Asimov's story "The Last Question", which is about the end of the universe. Entropy is sometimes called "Heat Death" because the losses from things like engines are often manifest as waste heat, but it's really more accurately called "Chaos Death". It's possible to recover a lot of the heat from various processes and use it for something else--this is sometimes called co-generation. For example, a blast furnace used in making steel might also power a turbine with its considerable waste heat. But it's impossible to get it all. Presuming that the matter and energy in the universe are finite (that's not completely certain), it will eventually all be lost to entropy. It may take a trillion years, but it will happen.
When I was in my early 20s, I had a very powerful realization, that chaos, including entropy, is a major part of everything that goes on. This is a good thing, because among things, it gives us a lot of freedom and flexibility, and frankly, fun. Very little in the world is black and white, not even black and white. Without chaos, we'd be committed to a predetermined path through life.
<I think this is unfinished but that'll do for now>
Starving the Beast
A central theme of conservative fiscal policy is the idea of "starving the beast", which is the idea that if you cut the government's budget, you will force them to cut wasteful spending. This is nonsense. In fact, undirected budget cutting increases wasteful spending. There are a couple of simple reasons for this.
Let's say we have an organization with 4 equal sized divisions. Divisions A and B have low wasteful spending. Divisions C and D have higher wasteful spending. The managers of A and C are skillful organizational politicians, and the managers of B and D are weaker politicians. So what happens when a 10% budget cut comes down from on high? There are three paths that might be taken. If the executive does the "right" thing, A and B would keep all of their budgets, and C and D get cut 20%. If politics decides, A and C keep all of their budgets and B and C get cut 20%. If the executive does the "fair" thing, each division gets cut 10%. The reality of most organizations is a mixture.
The beast starvers want us to believe that the "right" scenario, the optimal one, is what happens. But it almost never does. In all the other scenarios, the more wasteful divisions suffer less than their fair share and the more efficient ones suffer more than their fair share. Consequently, wasteful spending becomes a larger share of the organizations total budget. Every time this happens, the problem gets worse. Far from starving the beast, the well run divisions are being punished for the sins of the beast.
In any large organization, effective politicians rise. Often, this rise is based less on their ability to actually provide the service the organization is there to provide, and more on how well liked they are by the people above them making the decisions, or how effective they are in political knife fights. It is the goal of politicians to preserve or grow their personal empires. That may mean many different things: budget, head count, freedom of direction, etc.. To the extent that the actual effectiveness at providing their service is a factor in this, this is a good thing. But that's rarely the biggest factor, and as organizations grow, the more pure politicians there are and the more incentives there are to feed the executives self-serving information. Since the goal of the politician is first and foremost to grow their organization, this creates an inverse relationship between organization size and efficiency.
Government is necessarily big. But unlike big companies, government has lots of people watching the works, and the ultimate purpose of government is to provide a service, not make a profit. Consequently, you get anomalies like Medicare having 6% overhead and private medical insurance having 30%. Medicare has plenty of problems--fraud being a big one--but the point is that government can work better than the market. Big organizations, whether public or private, need to have this sort of open review. Privacy is an invitation to corruption. When there's a really free market, with dozens of companies competing, the better decision makers will tend to win and problems like inefficiency and fraud will quickly be exposed. But when there's too little competition, the problems can hide and a bad decision maker with a lot of power can win. Paradoxically, only when the government imposes very strong limits on the power of businesses can the free market truly thrive.
The beast starvers want us to believe that by cutting off the government's budget, they can reduce government. But in fact all they're doing is making it less efficient. Government serves too many vital roles--infrastructure, the social safety net, law enforcement and the judiciary, safety regulation, the military and so forth. While there are certainly some people who would like to see these things eliminated, they are very few.
What's the solution? We need to maximize the free market where we can, and socialize, with full disclosure, where we can't. We need to cut wasteful spending where we can find it, but be careful to not cut useful spending while we're at it.
addenda: 21 Feb 2012
"In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely." -Jerry Pournelle
Let's say we have an organization with 4 equal sized divisions. Divisions A and B have low wasteful spending. Divisions C and D have higher wasteful spending. The managers of A and C are skillful organizational politicians, and the managers of B and D are weaker politicians. So what happens when a 10% budget cut comes down from on high? There are three paths that might be taken. If the executive does the "right" thing, A and B would keep all of their budgets, and C and D get cut 20%. If politics decides, A and C keep all of their budgets and B and C get cut 20%. If the executive does the "fair" thing, each division gets cut 10%. The reality of most organizations is a mixture.
The beast starvers want us to believe that the "right" scenario, the optimal one, is what happens. But it almost never does. In all the other scenarios, the more wasteful divisions suffer less than their fair share and the more efficient ones suffer more than their fair share. Consequently, wasteful spending becomes a larger share of the organizations total budget. Every time this happens, the problem gets worse. Far from starving the beast, the well run divisions are being punished for the sins of the beast.
In any large organization, effective politicians rise. Often, this rise is based less on their ability to actually provide the service the organization is there to provide, and more on how well liked they are by the people above them making the decisions, or how effective they are in political knife fights. It is the goal of politicians to preserve or grow their personal empires. That may mean many different things: budget, head count, freedom of direction, etc.. To the extent that the actual effectiveness at providing their service is a factor in this, this is a good thing. But that's rarely the biggest factor, and as organizations grow, the more pure politicians there are and the more incentives there are to feed the executives self-serving information. Since the goal of the politician is first and foremost to grow their organization, this creates an inverse relationship between organization size and efficiency.
Government is necessarily big. But unlike big companies, government has lots of people watching the works, and the ultimate purpose of government is to provide a service, not make a profit. Consequently, you get anomalies like Medicare having 6% overhead and private medical insurance having 30%. Medicare has plenty of problems--fraud being a big one--but the point is that government can work better than the market. Big organizations, whether public or private, need to have this sort of open review. Privacy is an invitation to corruption. When there's a really free market, with dozens of companies competing, the better decision makers will tend to win and problems like inefficiency and fraud will quickly be exposed. But when there's too little competition, the problems can hide and a bad decision maker with a lot of power can win. Paradoxically, only when the government imposes very strong limits on the power of businesses can the free market truly thrive.
The beast starvers want us to believe that by cutting off the government's budget, they can reduce government. But in fact all they're doing is making it less efficient. Government serves too many vital roles--infrastructure, the social safety net, law enforcement and the judiciary, safety regulation, the military and so forth. While there are certainly some people who would like to see these things eliminated, they are very few.
What's the solution? We need to maximize the free market where we can, and socialize, with full disclosure, where we can't. We need to cut wasteful spending where we can find it, but be careful to not cut useful spending while we're at it.
addenda: 21 Feb 2012
"In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely." -Jerry Pournelle
11 April 2011
Unicycle Jousting
The recent Washington State Lottery ad showing jousting on Segways reminded me of this, which I wrote in the early 90s in response to a picture in a Microsoft recruiting brochure, which was of me unicycle jousting. The article's original home unicycling.org has gone away, so I thought I should re-post it here:
The two guys in the picture are rick raddatz (in the white helmet) and brian lewis (in the green helmet). it was taken on the Microsoft redmond campus about 1989 or so.
brian invented this lunacy when he was at oregon state univ. in the mid 70s. the lance is an 8 foot wooden dowel...the sort of thing that's normally used to hang clothes on. it has a tennis ball on the end, with silicone caulk on it. we discovered that the lance tends to skitter wildly on the shield, which is both dangerous and makes it difficult to get a good hit. the caulk minimizes this: it makes the lance tip stick to the shield long enough to get a decent hit.
the shield is about 30 inches in diameter, made of 3/4 inch plywood, and has a sturdy horizontal brace (also 3/4 ply) along where your forearm goes. there's a handle on this brace near one edge, and along the center is a leather sleeve for your left forearm.
we've found that it's important to wear a glove that comes well up your right arm: brian got his skin pinched between the lance and the shield, requiring stitches. we also decided that we needed to establish some rules: the blow must come from the tip of the lance, and must be aimed at the center of the shield, favoring "low and inside" so that any deflections will go between the riders and not across them, and will not ride up, where it might hit the rider in the face or throat. the riders must attempt to pass to the right...that is, the way americans and mainland europeans drive, not like brittons, japanese, and australians. the shield must be held perpendicular to the blow.
if you follow reasonable safety precautions, it's really not at all dangerous, and it looks really silly (which is a good thing...). since you pretty much have to knock the other rider off by playing with the timing and force of the blow (as opposed to the aim), and you're on a not especially stable mount in the first place, you really can't hurt the other guy. as a matter of fact, I think more falls come from the rider holding the lance that made the good hit than the shield that was hit.
There's a video clip of Brian and me jousting on national TV in Frank Gibney's "The Pacific Century". http://www.youtube.com/watch?v=TEl5nhtGRJA&feature. go to 2:17
brian invented this lunacy when he was at oregon state univ. in the mid 70s. the lance is an 8 foot wooden dowel...the sort of thing that's normally used to hang clothes on. it has a tennis ball on the end, with silicone caulk on it. we discovered that the lance tends to skitter wildly on the shield, which is both dangerous and makes it difficult to get a good hit. the caulk minimizes this: it makes the lance tip stick to the shield long enough to get a decent hit.
the shield is about 30 inches in diameter, made of 3/4 inch plywood, and has a sturdy horizontal brace (also 3/4 ply) along where your forearm goes. there's a handle on this brace near one edge, and along the center is a leather sleeve for your left forearm.
we've found that it's important to wear a glove that comes well up your right arm: brian got his skin pinched between the lance and the shield, requiring stitches. we also decided that we needed to establish some rules: the blow must come from the tip of the lance, and must be aimed at the center of the shield, favoring "low and inside" so that any deflections will go between the riders and not across them, and will not ride up, where it might hit the rider in the face or throat. the riders must attempt to pass to the right...that is, the way americans and mainland europeans drive, not like brittons, japanese, and australians. the shield must be held perpendicular to the blow.
if you follow reasonable safety precautions, it's really not at all dangerous, and it looks really silly (which is a good thing...). since you pretty much have to knock the other rider off by playing with the timing and force of the blow (as opposed to the aim), and you're on a not especially stable mount in the first place, you really can't hurt the other guy. as a matter of fact, I think more falls come from the rider holding the lance that made the good hit than the shield that was hit.
There's a video clip of Brian and me jousting on national TV in Frank Gibney's "The Pacific Century". http://www.youtube.com/watch?v=TEl5nhtGRJA&feature. go to 2:17
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